Much of this falls on the Government trying to get every Tom, Dick, & Harry into a house, regardless of whether they could afford it or not. There's no question the Government and the Fed encouraged banks to lend and bundle. The bundling is what kept the reckless lending going for so long. There were plenty of defaults along the way but they never came to surface because they were minimized by quality loans. Then the shit hit the fan....
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Goldman Bundled Bad Debt, Bet Against It and Won
- Thread starter traderum
- Start date
Quote from nutmeg:
Hence the rating agenices became the regulators, a job they weren't designed to do.
The "It could be structured by cows and we would rate it" quote pretty much said they were chasing the fees. The better the ratings they gave, the more business they could get.
But they weren't paying themselves for those ratings, they were getting paid from firms that wanted them rated.
Though, if you saw the rating system was being corrupted by the fees practice, that would be a good reason to keep away from the CDO's, or go against them.
Quote from telozo:
The problem goes deeper than a crooked rating agency giving repackaged junk AAA ratings.
It all starts, and I am amazed that a lot of very articulate people around here miss that entirely, with government trying to play the paternalistic role more than necessary (read Milton Friedman for more info on government's role in the society). It all starts with some pension funds losing money to some crooks, and government deciding to protect all other pension funds from that happening again. The easiest way is to regulate, and a regulation is passed that pension funds can only invest in AAA-rated securities. But rates are low and not may AAA-rated securities are around to generate good returns, so the pressure is on to generate more AAA-rated securities, and Wall Street is happy to oblige, and rating agencies are playing along, and everybody is happy until the shit hits the fan.
It's really very simple, even though counterintuitive - less regulation is better than more. Sure, there will be dead bodies along the way, but no major disasters, and that is the best that can be done.
Ok, but look how big the "dead bodies" when NO REGULATION of the OTC derivatives.
http://cboenews.com/9-29-2009/index.php
Quote from traderum:
Don't forget this juristical key fact: Goldman at the same time had bet against it!...
So they committed fraud. I would even say it was organized crime.
I bet against my long positions every time i hedge the trade on the short side. what the fuck is the big deal here?
GS didn't deceive anyone - they just parted fools from their money. There are reasons 100s of billions of dollars worth of investment money was not put into these instruments: the due diligence done showed they were bad investments. It's not hard to find pundits that were screaming for the last 5 years about how bad of an idea CDOs were, yet people still bought them. OP needs to put the blame where it belongs: overpaid and under experienced 30-something bankers that thought they knew better and were entitled to make tons of money without doing any work.
Not everyone was duped and lost their rear in this mess, it just so happens the ones that did have the loudest mouths. Instead of complaining the losers here should spend there energy making their losses back instead of bitching and moaning about how everyone but themselves are to blame.
Quote from krazykarl:
Not everyone was duped and lost their rear in this mess, it just so happens the ones that did have the loudest mouths. Instead of complaining the losers here should spend there energy making their losses back instead of bitching and moaning about how everyone but themselves are to blame.
You're obviously a welfare case and do not pay taxes, nor care about USD devaluation, as you should be complaining as well. I guess it's hard for you to keep up to date, but last I checked, GS "won" by getting bailouts from US government and the FED via four routes, all while they should have been allowed to go bankrupt.
And yes, there was deception involved, as stated by a poster before, this is not the first time Goldman, as well as JPMorgan and Morgan Stanley colluded with the ratings agencies. It's an obvious kickback relationship, if the ratings agencies give the needed ratings, there is plenty of business in the future. If the ratings give the actual junk rating, the process stops right there. Both sides know what is going on and understand that the AAA rating is a lie.
Personally, I do not care for the institutions who invested in these obvious junk products nor the bulge bracket banks which were going bankrupt. But when TARP and the rest of the bullsh*t programs got involved, that's a real problem. Now the system has turned toward corporate fascism.
Quote from traderum:
Don't forget this juristical key fact: Goldman at the same time had bet against it!...
So they committed fraud. I would even say it was organized crime.
And it's a crime according to this law:
Securities Exchange Act of 1934
Rule 10b-5 â Employment of Manipulative and Deceptive Devices
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
a. To employ any device, scheme, or artifice to defraud,
b. To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
c. To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,
in connection with the purchase or sale of any security.
If they disclosed the risks to customers, then it's not fraud even if they bet against it. It's not illegal to have a trading opinion. Also, bear in mind that the conditions of the markets changed after they sold this stuff - 2008 was different to 2007, 2006 etc.
If they didn't disclose, then surely they can just be sued and will have no defence? I'd be surprised if Goldman's lawyers didn't put on full disclosures. You need to show evidence that they didn't disclose the risks before you start saying it was fraudulent. If the standard disclosures were there, then there's simply no case - investors knew the risks, they were told the risks, and they gambled anyway. They lost - tough shit, cry more noobs.