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Goldman Congressional Hearings
- Thread starter mgookin
- Start date
you really do not understand anything surrounding this issue that is by now well established. On my ignore, I have an allergy against a complete lack of intellect.
Quote from wmb:
Why is anyone obsessed with Goldman? Their Arrogance is monumnetal! They used to be less arrogant, the worst financial crisis in the world and these goofs are oblivious to their part. If your being objective you would have to at least acknowledge that issue.
The CEO hands out the bonuses what a couple weeks after the annoucements of record unemployment. Those employees are no more intelligent than anyone else on the street now they even look like boners and arrogant and someone on this board said they were intelligent. The 4 guys yesterday are frighteningly stupid or their lawyers told them to be evasive and stupid. What a strategy for a meeting with the US Congress.
you also display a gross misunderstanding of how things work. The ratings agencies ran their own models, its not that they were supplied with models by any banks. So there was no "tweaking" in any way. Nobody denies that all those models were crap but what is not crap but a well established fact is that the housing market completely collapsed.
Your IPO comparison is not valid because ratings/valuations on those companies came out of the ibanks not rating agencies.
Your IPO comparison is not valid because ratings/valuations on those companies came out of the ibanks not rating agencies.
Quote from Anaconda:
The "third party" guarantees (aka AIG) came if the security was rated AAA/Aaa by the ratings agencies. Hence the models were tweaked to look good for the ratings agencies, but it was an unspoken understanding that there was a lot of business & fees for both parties if the investment banks kept pumping out these deals.
Since you're obviously not privy to what went behind the scenes at the ratings agencies, let me tell you. Quite a few of the lower level employees that did the grunt work have raised concerns about the true nature of these CDOs and the models behind them, but the superiors instructed them to proceed forward with the "appropriate" ratings. When the sh*t hit the fan, the house had to be cleaned and guess who was left in their positions and who was fired?
This is very similar to what transpired during the late 1990s with Investment Banks pumping out dog sh*t IPOs because there were a ton of fees to be made.
It's not illegal, but it is a racket. Which was fine by me, until the bailouts started
Quote from asiaprop:
you also display a gross misunderstanding of how things work. The ratings agencies ran their own models, its not that they were supplied with models by any banks. So there was no "tweaking" in any way. Nobody denies that all those models were crap but what is not crap but a well established fact is that the housing market completely collapsed.
Considering that I discussed this directly with one of the people who worked in the department and remembers the process pretty well, I will say that you are wrong. The Investment Banks did supply most of the info, since, you know, they only designed the product. There was a constant need for clarification from the IBs and their models. The ratings agencies were VERY cooperative, as opposed to critical as they should have been. The ratings agencies model might as well have been a copy&paste of the IBs, as any input that did not fit that bill was overruled by the directors.
This individual happened to switch her job function to an adjacent department that did not deal directly with CDOs & MBSes several months before the sh*t hit the fan and was not one of the lower level employees that were fired as part of the "cleaning house" process, by the same directors who actually pushed these ratings through, all for the mighty dollar.
The comparison with IPOs is well deserved, as the point of the comparison is to show that there is a profit incentive to push "sh*tty deals' and mislead the investors. You apparently are not aware of the mechanic behind pushing tech crap IPOs, it's not like Investment Banks were investing in them, it was all about fat fees, and it was a very similar racket. Most of those on the inside, know that it is a racket, these are not mistakes or errors of judgments as they pretend after.
I don't know where you get your information from (company PR maybe), but I think my sources are just a bit better. You are not here in NYC, nor do you work here or ever have. Consider that some of us actually do and have built up acquaintances over the years, who are privy to some very interesting info from the inside.
let me assure you that you are wrong. Please do check if you do not believe me. IBs did extensively discuss the mechanics of the structures with rating agencies. It was, however, ultimately the job of the rating agencies to run their own models to arrive at the rating they were giving. Quite the opposite actually, often times rating agencies supplied IBs with their models in order for the banks to comprehend the rational behind the final rating. This was necessary in order to arrive at the intended rating and if opinions and models differed then negotiations about a modification in the amounts and types of credit enhancements took place.
You need to blame the rating agencies if they did not do their job properly. You are incorrectly shifting blame.
By the way your arrogance is quite misplaced, your post makes the false assumptions that complicated structures can only be understood by those who work in NYC? LOL!!!
P.S: I did live and work in NYC, I do have close friends who worked on several option ARMS desks of some of the large houses and I myself modeled CDOs before. Maybe you want to be careful with your quick assumptions about others' basis for judgment.
You need to blame the rating agencies if they did not do their job properly. You are incorrectly shifting blame.
By the way your arrogance is quite misplaced, your post makes the false assumptions that complicated structures can only be understood by those who work in NYC? LOL!!!
P.S: I did live and work in NYC, I do have close friends who worked on several option ARMS desks of some of the large houses and I myself modeled CDOs before. Maybe you want to be careful with your quick assumptions about others' basis for judgment.
Quote from Anaconda:
Considering that I discussed this directly with one of the people who worked in the department and remembers the process pretty well, I will say that you are wrong. The Investment Banks did supply most of the info, since, you know, they only designed the product. There was a constant need for clarification from the IBs and their models. The ratings agencies were VERY cooperative, as opposed to critical as they should have been. The ratings agencies model might as well have been a copy&paste of the IBs, as any input that did not fit that bill was overruled by the directors.
This individual happened to switch her job function to ana djacent department that did not deal directly with CDOs & MBSes several months before the sh*t hit the fan and was not one of the lower level employees that were fired as part of the "cleaning house" process, by the same directors who actually pushed these ratings through, all for the mighty dollar.
The comparison with IPOs is well deserved, as the point of the comparison is to show that there is a profit incentive to push "sh*tty deals' and mislead the investors. You apparently are not aware of the mechanic behind pushing tech crap IPOs, it's not like Investment Banks were investing in them, it was all about fat fees, and it was a very similar racket. Most of those on the inside, know that it is a racket, these are not mistakes or errors of judgments as they pretend after.
I don't know where you get your information from (company PR maybe), but I think my sources are just a bit better. You are not here in NYC, nor do you work here or ever have. Consider that some of us actually do and have built up acquaintances over the years, who are privy to some very interesting info from the inside.
Washington and populists versus Wall Street (Goldman) and the implications for Financial Regulation.
In my view, the SEC recently sued Goldman Sachs on the John Paulson âGreat Housing Shortâ deal to help Democrats pass their Financial Regulation bill.
The 2010 (very important) mid-term elections hang in the balance. President Obama and Secretary Geithner continued the Great Bailout and passed Stimulus Bills, and the voting public hates both. Itâs fueled the Tea Party, which may bring havoc to the elections.
Until the President can close the bailout barn door - after the animals are out - he canât square this problem with the voting public. So the Presidentâs Fin Reg campaign has taken on the same urgency and passion he used to strong-arm health care. Fin Reg is a must win for the Democrats before the midterm elections like health care was too.
After being strong-armed by the Democrats (3/2 vote in the SEC), Goldmanâs CEO Blankfein played his dutiful role as hoped for by the Democrats. Blankfein predictably said Goldman did nothing wrong and yet also did not take the bait by Republicans on the panel to challenge the Fin Reg bill and he showed overall support for it. A total sycophant.
A market maker is different from an investment adviser.
Goldmanâs business model as a market-maker, proprietary trader, investment banker is not grossly wrong as alleged by Democrats on the Congressional panel. Drastic financial regulatory reform and change is poorly conceived, it will have great unintended consequences and concentrate weigh too much power in the hands of government, who itself is the biggest issuer of debt and should not have itâs hands on the market maker switches.
The Congressman on the panel during the Goldman testimony showed that they donât understand how markets work, and what a market maker does and should not do. They compared derivatives and Wall Street and trading to a casino, sports betting and socially-useless behavior. Is hedging the dollar, commodities and other risks for Caterpillar and American farmersâ socially-useless? Without these derivatives and hedges American exports would cater off a cliff. Warren Buffet the most respected billionaire in America is the biggest buyer of derivatives in the world. He is a happy customer of Goldman and even was an important bailout equity stake buyer in Goldman too.
A market-maker is a company offering services either off-exchange or through exchanges that matches buyers and sellers. See Wikipedia at http://en.wikipedia.org/wiki/Market_maker. âA market maker is a company, or an individual, that quotes both a buy and a sell price in a financial instrument or commodity held in inventory, hoping to make a profit on the bid-offer spread, or turn.[1]â âIn stock exchange. Most stock exchanges operate on a "matched bargain" or "order driven" basis. In such a system there are no designated or official market makers, but market makers nevertheless exist. When a buyer's bid meets a seller's offer or vice versa, the stock exchange's matching system will decide that a deal has been executed.â
Fin Reg is flawed.
If Fin Reg is passed as its conceived now, picture off-exchange derivative transactions move to exchanges and central clearing. Just like buying or selling a stock on an exchange now, do you think a commodities exchange (in Obamaâs home town) has the time, role or capability to (investment) advise a buyer or seller on their transaction - to ask the party why they are buying or selling, or asking them to disclose those facts to party on the other side of the transaction? That is a ridiculous idea borne from complete ignorance from Congressman who confuse market-making with the role of investment adviser.
Goldman was not just a market-making exchange-mechanism. It was also a match-maker, cooking up deal ideas like investment bankers do for buyers and sellers of entire companies. Goldman also took on the role of principal, taking the buy or sale side of a market-making transaction, when another party dropped out of the transaction of did not take the full size of the transaction. Can a market-making exchange play that role?
Simple public securities, futures and commodities are easily traded on exchanges. For some large players (manufacturers, farmers, energy companies, shippers, insurance companies and others), very large blocks or risk-adjustment derivative instruments may be better suited for an off-exchange derivatives market. These players would influence on-exchange prices and they donât want that either. Investment-banking can never be conducted on exchanges, it benefits from special deal making counsel and ideas from investment banking. Derivatives are somewhere between commodity transactions and private company mergers and acquisitions. It belongs in Wall Street banks. Fin Reg is wrong about this.
The same goes for prop trading, the Volcker Rule is wrong. Goldman is in the risk-adjustment business and prop trading is a way to reduce risks and of course make new risks too. But one goes with the other. Strip prop trading out of commercial banks and you leave them in the bad loan business only. Banks prop trading gains offset bad loan losses. But that story is beyond the scope of this article.
Disclosure can be inappropriate.
During the Congressional inquiry into Goldman on April 28, 2010, Congressman argued that Goldman should have disclosed their bias change to negative thoughts about the US housing market. To the equity buyers in the Abacus (Paulson) deal and investors in other (crappy) mortgage securities in their pipeline.
Goldman correctly pointed out that it would be inappropriate for a market-maker (or a mechanism) to make those disclosures. Hereâs why Goldman is right.
Congressman on the panel - even the Republican ones too - loved using denigrating analogies about how derivatives resembled sports betting and a casino for disinterested parties (who are not farmers hedging their crops) carrying on âsocially-uselessâ behavior for their own greedy profit. Congressman thought they were dumbing-down these complex concepts for American viewers, but in my view they showed they are just dumb on these subjects in general and donât understand or respect the role of market-markers, traders and others who play a vital role in financial markets. Goldman tried to explain, but they wouldnât listen.
Traders understand that they provide liquidity, narrower buy and ask spreads, usually help confidence and lead to the overall health of financial markets. When markets deserve a good beating down, short-sellers help uncover and bring the truth. It may hurt, but itâs better than suppressing the truth, which leads to far worse bubbles and busts.
Exchanges can not handle all the tremendous risk-adjustment needs of global businesses and if derivatives are forced on exchanges, it could mess up pricing for farmers, and lead to a vicious cycle of risk-adjustment transactions on exchanges. The private derivatives marketplace safeguards exchanges and users of exchanges.
A better analogy.
Hereâs a better more honest analogy for Americans to consider when viewing Wall Street over the past meltdown years.
Market pundits and the media are warning Americans to fix their deficit crisis. They argue that is not fixed, American may receive junk bond status from ratings companies and interest rates could skyrocket, putting back-breaking stress on the system and leading to failure.
If and when Goldman comes to the judgment that US, state and local government debt is very overrated by the rating companies, and that Goldman needs to rein in risk on their long-positions in government debt or divisions dedicated to pedaling government debt around the world â in other words a new Great Short (counterbalancing) trade â what should Goldman do at that point? Should Goldman listen to what the Congressmen called for yesterday?
Should Goldman stop issuing government debt and broadcast to investors around the world that the Great Goldman Wizard of Oz thinks US, state and city debt is poised for a huge sell-off? Wouldnât that cause a ârun on the (US taxpayer) bankâ?
Or, should Goldman just keep its own market predictions to itself and not allow those predictions to influence its role as a public-servant to be a private and trusted market-maker for government debt? Wouldnât Goldman disclosing its negative feelings about the government debt market influence buyers and sellers and shouldnât a market-maker function be neutral? Isnât an on-exchange market-marker function neutral by design too? Exchanges donât have artificial intelligence programs that snap into use to tell buyers to think twice about their orders and give their market advice.
Part II next
In my view, the SEC recently sued Goldman Sachs on the John Paulson âGreat Housing Shortâ deal to help Democrats pass their Financial Regulation bill.
The 2010 (very important) mid-term elections hang in the balance. President Obama and Secretary Geithner continued the Great Bailout and passed Stimulus Bills, and the voting public hates both. Itâs fueled the Tea Party, which may bring havoc to the elections.
Until the President can close the bailout barn door - after the animals are out - he canât square this problem with the voting public. So the Presidentâs Fin Reg campaign has taken on the same urgency and passion he used to strong-arm health care. Fin Reg is a must win for the Democrats before the midterm elections like health care was too.
After being strong-armed by the Democrats (3/2 vote in the SEC), Goldmanâs CEO Blankfein played his dutiful role as hoped for by the Democrats. Blankfein predictably said Goldman did nothing wrong and yet also did not take the bait by Republicans on the panel to challenge the Fin Reg bill and he showed overall support for it. A total sycophant.
A market maker is different from an investment adviser.
Goldmanâs business model as a market-maker, proprietary trader, investment banker is not grossly wrong as alleged by Democrats on the Congressional panel. Drastic financial regulatory reform and change is poorly conceived, it will have great unintended consequences and concentrate weigh too much power in the hands of government, who itself is the biggest issuer of debt and should not have itâs hands on the market maker switches.
The Congressman on the panel during the Goldman testimony showed that they donât understand how markets work, and what a market maker does and should not do. They compared derivatives and Wall Street and trading to a casino, sports betting and socially-useless behavior. Is hedging the dollar, commodities and other risks for Caterpillar and American farmersâ socially-useless? Without these derivatives and hedges American exports would cater off a cliff. Warren Buffet the most respected billionaire in America is the biggest buyer of derivatives in the world. He is a happy customer of Goldman and even was an important bailout equity stake buyer in Goldman too.
A market-maker is a company offering services either off-exchange or through exchanges that matches buyers and sellers. See Wikipedia at http://en.wikipedia.org/wiki/Market_maker. âA market maker is a company, or an individual, that quotes both a buy and a sell price in a financial instrument or commodity held in inventory, hoping to make a profit on the bid-offer spread, or turn.[1]â âIn stock exchange. Most stock exchanges operate on a "matched bargain" or "order driven" basis. In such a system there are no designated or official market makers, but market makers nevertheless exist. When a buyer's bid meets a seller's offer or vice versa, the stock exchange's matching system will decide that a deal has been executed.â
Fin Reg is flawed.
If Fin Reg is passed as its conceived now, picture off-exchange derivative transactions move to exchanges and central clearing. Just like buying or selling a stock on an exchange now, do you think a commodities exchange (in Obamaâs home town) has the time, role or capability to (investment) advise a buyer or seller on their transaction - to ask the party why they are buying or selling, or asking them to disclose those facts to party on the other side of the transaction? That is a ridiculous idea borne from complete ignorance from Congressman who confuse market-making with the role of investment adviser.
Goldman was not just a market-making exchange-mechanism. It was also a match-maker, cooking up deal ideas like investment bankers do for buyers and sellers of entire companies. Goldman also took on the role of principal, taking the buy or sale side of a market-making transaction, when another party dropped out of the transaction of did not take the full size of the transaction. Can a market-making exchange play that role?
Simple public securities, futures and commodities are easily traded on exchanges. For some large players (manufacturers, farmers, energy companies, shippers, insurance companies and others), very large blocks or risk-adjustment derivative instruments may be better suited for an off-exchange derivatives market. These players would influence on-exchange prices and they donât want that either. Investment-banking can never be conducted on exchanges, it benefits from special deal making counsel and ideas from investment banking. Derivatives are somewhere between commodity transactions and private company mergers and acquisitions. It belongs in Wall Street banks. Fin Reg is wrong about this.
The same goes for prop trading, the Volcker Rule is wrong. Goldman is in the risk-adjustment business and prop trading is a way to reduce risks and of course make new risks too. But one goes with the other. Strip prop trading out of commercial banks and you leave them in the bad loan business only. Banks prop trading gains offset bad loan losses. But that story is beyond the scope of this article.
Disclosure can be inappropriate.
During the Congressional inquiry into Goldman on April 28, 2010, Congressman argued that Goldman should have disclosed their bias change to negative thoughts about the US housing market. To the equity buyers in the Abacus (Paulson) deal and investors in other (crappy) mortgage securities in their pipeline.
Goldman correctly pointed out that it would be inappropriate for a market-maker (or a mechanism) to make those disclosures. Hereâs why Goldman is right.
Congressman on the panel - even the Republican ones too - loved using denigrating analogies about how derivatives resembled sports betting and a casino for disinterested parties (who are not farmers hedging their crops) carrying on âsocially-uselessâ behavior for their own greedy profit. Congressman thought they were dumbing-down these complex concepts for American viewers, but in my view they showed they are just dumb on these subjects in general and donât understand or respect the role of market-markers, traders and others who play a vital role in financial markets. Goldman tried to explain, but they wouldnât listen.
Traders understand that they provide liquidity, narrower buy and ask spreads, usually help confidence and lead to the overall health of financial markets. When markets deserve a good beating down, short-sellers help uncover and bring the truth. It may hurt, but itâs better than suppressing the truth, which leads to far worse bubbles and busts.
Exchanges can not handle all the tremendous risk-adjustment needs of global businesses and if derivatives are forced on exchanges, it could mess up pricing for farmers, and lead to a vicious cycle of risk-adjustment transactions on exchanges. The private derivatives marketplace safeguards exchanges and users of exchanges.
A better analogy.
Hereâs a better more honest analogy for Americans to consider when viewing Wall Street over the past meltdown years.
Market pundits and the media are warning Americans to fix their deficit crisis. They argue that is not fixed, American may receive junk bond status from ratings companies and interest rates could skyrocket, putting back-breaking stress on the system and leading to failure.
If and when Goldman comes to the judgment that US, state and local government debt is very overrated by the rating companies, and that Goldman needs to rein in risk on their long-positions in government debt or divisions dedicated to pedaling government debt around the world â in other words a new Great Short (counterbalancing) trade â what should Goldman do at that point? Should Goldman listen to what the Congressmen called for yesterday?
Should Goldman stop issuing government debt and broadcast to investors around the world that the Great Goldman Wizard of Oz thinks US, state and city debt is poised for a huge sell-off? Wouldnât that cause a ârun on the (US taxpayer) bankâ?
Or, should Goldman just keep its own market predictions to itself and not allow those predictions to influence its role as a public-servant to be a private and trusted market-maker for government debt? Wouldnât Goldman disclosing its negative feelings about the government debt market influence buyers and sellers and shouldnât a market-maker function be neutral? Isnât an on-exchange market-marker function neutral by design too? Exchanges donât have artificial intelligence programs that snap into use to tell buyers to think twice about their orders and give their market advice.
Part II next
Quote from asiaprop:
You need to blame the rating agencies if they did not do their job properly. You are incorrectly shifting blame.
+1
Ratings agencies = massive failure.
Notice how quick those same agencies have been to downgrade the PIGS? They don't want to get caught with their pants down again.
Part II
A run on the Repo Bank.
In case anyone has forgotten already, most debt-financed business models (non-depositor bank balance sheets, some hedge funds, Enron and arguably governments themselves) are one day or week away from failure. Highly-leveraged business models using overnight repo financing â think Bear Stearns, Lehman Brothers, Long-Term Capital) survive on the good graces and confidence of repo financers, reappearing each day to rollover their repos. If the market loses confidence in a highly-leveraged company and decides to pull their financing, the business can be toast. Itâs that simple and severe.
âToo big to failâ is a political red herring and not a serious discussion. If and when the Federal Reserves perceives a run developing on a bank, serious of banks and contagion, they will plug that dike faster than the FDIC can come in with resolution authority.
I am reading Bill Cohanâs âHouse of Cardsâ on my vacation this week, the story of Bear Stearns demise kicking off the 2008 market meltdown. Bear Stearns and Lehman were shut down effectively and not bailed out like others because they both said no to the Fed in chipping in on the Long-Term Credit bailout (Bear said no to the entire 250 million and Lehman short-changed them with 100 million). When Bear and Lehmanâs turn came up for bailout, the elephant remembered.
The story line of this book is still is the most important element in many financial markets today. Financial assets are often backed by very high leverage (debt) and unless that debt is rolled over with repos on a daily basis, the issuer may fail quickly and it can lead to meltdown contagion. If the repo investors lose confidence in the issuerâs business or model they can say no. A few noâs lead to panic, counter-party risk, contagion and a run on the issuerâs bank.
Keep quiet.
The second worst thing anyone can do is to help cause a run on a bank. Did the SEC and Congress think Goldman should have put the run on the bank call out in early 2007?
Even worse than a run on the bank call to action is perpetuating bad business and excessive risk with government strong-arm tactics. To freeze short sellers, and attack traders (speculators and market-makers) and Wall Street overall. Like that very bad idea for a financial-transaction tax, which thankfully now is off the legislative radar?
Go a step further like in China, where they donât allow negative media stories and the state exerts control over markets with a state capitalism model versus free-markets. Is the US feeling the heat from BRIC countries and trashing our free-market model to replace it with state capitalism a la BRIC countries? That is a Thomas Jefferson nightmare of an idea.
So letâs apply this above analogy to Goldman in 2007 and 2008. Should Goldman have said no to continue as a market-maker on mortgage-backed securities? Should it say no to California bond issuance and derivative deals now?
Wouldnât those disclosures cause a run on the bank? Shouldnât Goldman continue to provide a very socially-useful role as a private market marker to governments no matter what its bias is? Itâs trusted with that role and shutting down is not fair to the public. Risk-adjustment can be done within the market itself. A market-maker has a responsibility to be open during the good, bad and ugly.
Is Goldman guilty as charged?
Is Goldman guilty on the Abacus deal as alleged by the SEC? Goldmanâs person on the Abacus market-making deal Fabrice Tourre may be a little guilty. Not for not making disclosure in general, but for allowing an incorrect perception from ACA, based on incomplete disclosure from Tourre to serve Goldmanâs and Paulsonâs interests perhaps at the expense of ACA. Being neutral and quiet is one thing, but giving a half-truth is another.
During the Congressional testimony, a few discussed emails indicated that the buyer and official âdeal selectorâ ACA thought Paulson was an equity investor. Tourre only said that he disclosed that Paulson was buying protection. Congress jumped to the wrong assumption that it meant Paulson was short. They should have asked the following question. If Paulson was buying protection that statement implies he was protecting a long-side position either directly in that deal (indicating a long position in the deal) or he was entirely short in this deal but protecting long positions in his overall portfolio. Tourre probably knew that Paulson was pitching the Great Short on housing, scurrying to buy protection wherever he could all over Wall Street, and paying Goldman dearly to match-make his Great Short interests. Again, I am not sure that Goldman as a market-maker should even be allowed to tell the other side of a transaction what a buyer or seller seeks to accomplish in the transaction.
Sausage making comes to Fin Reg.
The Washington sausage-making legislative process stinks and it will hurt financial markets and the governmentâs own interests to pedal their debt instruments to the world.
Consider the dirty dealing and arm twisting behind the Democratâs efforts to pass their poorly-conceived version of Fin Reg. The (supposedly-independent) SEC sued Goldman and held their woodshed hearing to (in my view) blackmail Blankfein into saying he supports their Fin Reg bill. He probably does not, since he knows that taking prop trading away from banks and putting derivatives on exchanges increases risks and does not decrease them for Goldmanâs customers and banks in general. Goldman is in the business of risk management and offers risk-adjustment transactions to their clients.
Is it prudent and better for financial markets to allow the biggest debt issuer in the world â the US government â to take over regulation, influence and control of markets and market-makers? Some argue that Goldman manages conflicts of interest as market-maker, investment adviser, investment banker, and proprietary trader for its own account. But the government has an even bigger conflict of interest as the biggest debt issuer in the world with some could argue insolvent balance sheet and deserved junk status â a la Greece. Who is going to check the government? Do we need to bring back the gumption of founding father Thomas Jefferson himself?
Didnât the government push the housing crisis to the max with GSEs Fannie, Freddie and more? With HUD, the Community Investment Act, forced lending to minorities, forced sub-prime mortgages, the whole creation of the mortgage-backed securities market and more? Not to mention mortgage interest tax deductions, income-exclusions on gains, prior rollovers and more.
Look at what the government officials have recently done and do you want to trust them at control of the switch? They used the media, populist forces and subpoena power to blackmail the most powerful investment bankâs CEO to support their Fin Reg bill, so it can pass and they can maintain power in Congress during the midterm elections. Republicans are boxed in and canât come to support Wall Street either.
This is what founding father Thomas Jefferson feared the most, that a federal government would get way too big and overburden states, private industry and citizens and jeopardize American liberty.
Is our federal government too big to fail? The Tea Party needs to speak up for Wall Street as they are the (unfortunately billionaire) canary in the coal mine.
A run on the Repo Bank.
In case anyone has forgotten already, most debt-financed business models (non-depositor bank balance sheets, some hedge funds, Enron and arguably governments themselves) are one day or week away from failure. Highly-leveraged business models using overnight repo financing â think Bear Stearns, Lehman Brothers, Long-Term Capital) survive on the good graces and confidence of repo financers, reappearing each day to rollover their repos. If the market loses confidence in a highly-leveraged company and decides to pull their financing, the business can be toast. Itâs that simple and severe.
âToo big to failâ is a political red herring and not a serious discussion. If and when the Federal Reserves perceives a run developing on a bank, serious of banks and contagion, they will plug that dike faster than the FDIC can come in with resolution authority.
I am reading Bill Cohanâs âHouse of Cardsâ on my vacation this week, the story of Bear Stearns demise kicking off the 2008 market meltdown. Bear Stearns and Lehman were shut down effectively and not bailed out like others because they both said no to the Fed in chipping in on the Long-Term Credit bailout (Bear said no to the entire 250 million and Lehman short-changed them with 100 million). When Bear and Lehmanâs turn came up for bailout, the elephant remembered.
The story line of this book is still is the most important element in many financial markets today. Financial assets are often backed by very high leverage (debt) and unless that debt is rolled over with repos on a daily basis, the issuer may fail quickly and it can lead to meltdown contagion. If the repo investors lose confidence in the issuerâs business or model they can say no. A few noâs lead to panic, counter-party risk, contagion and a run on the issuerâs bank.
Keep quiet.
The second worst thing anyone can do is to help cause a run on a bank. Did the SEC and Congress think Goldman should have put the run on the bank call out in early 2007?
Even worse than a run on the bank call to action is perpetuating bad business and excessive risk with government strong-arm tactics. To freeze short sellers, and attack traders (speculators and market-makers) and Wall Street overall. Like that very bad idea for a financial-transaction tax, which thankfully now is off the legislative radar?
Go a step further like in China, where they donât allow negative media stories and the state exerts control over markets with a state capitalism model versus free-markets. Is the US feeling the heat from BRIC countries and trashing our free-market model to replace it with state capitalism a la BRIC countries? That is a Thomas Jefferson nightmare of an idea.
So letâs apply this above analogy to Goldman in 2007 and 2008. Should Goldman have said no to continue as a market-maker on mortgage-backed securities? Should it say no to California bond issuance and derivative deals now?
Wouldnât those disclosures cause a run on the bank? Shouldnât Goldman continue to provide a very socially-useful role as a private market marker to governments no matter what its bias is? Itâs trusted with that role and shutting down is not fair to the public. Risk-adjustment can be done within the market itself. A market-maker has a responsibility to be open during the good, bad and ugly.
Is Goldman guilty as charged?
Is Goldman guilty on the Abacus deal as alleged by the SEC? Goldmanâs person on the Abacus market-making deal Fabrice Tourre may be a little guilty. Not for not making disclosure in general, but for allowing an incorrect perception from ACA, based on incomplete disclosure from Tourre to serve Goldmanâs and Paulsonâs interests perhaps at the expense of ACA. Being neutral and quiet is one thing, but giving a half-truth is another.
During the Congressional testimony, a few discussed emails indicated that the buyer and official âdeal selectorâ ACA thought Paulson was an equity investor. Tourre only said that he disclosed that Paulson was buying protection. Congress jumped to the wrong assumption that it meant Paulson was short. They should have asked the following question. If Paulson was buying protection that statement implies he was protecting a long-side position either directly in that deal (indicating a long position in the deal) or he was entirely short in this deal but protecting long positions in his overall portfolio. Tourre probably knew that Paulson was pitching the Great Short on housing, scurrying to buy protection wherever he could all over Wall Street, and paying Goldman dearly to match-make his Great Short interests. Again, I am not sure that Goldman as a market-maker should even be allowed to tell the other side of a transaction what a buyer or seller seeks to accomplish in the transaction.
Sausage making comes to Fin Reg.
The Washington sausage-making legislative process stinks and it will hurt financial markets and the governmentâs own interests to pedal their debt instruments to the world.
Consider the dirty dealing and arm twisting behind the Democratâs efforts to pass their poorly-conceived version of Fin Reg. The (supposedly-independent) SEC sued Goldman and held their woodshed hearing to (in my view) blackmail Blankfein into saying he supports their Fin Reg bill. He probably does not, since he knows that taking prop trading away from banks and putting derivatives on exchanges increases risks and does not decrease them for Goldmanâs customers and banks in general. Goldman is in the business of risk management and offers risk-adjustment transactions to their clients.
Is it prudent and better for financial markets to allow the biggest debt issuer in the world â the US government â to take over regulation, influence and control of markets and market-makers? Some argue that Goldman manages conflicts of interest as market-maker, investment adviser, investment banker, and proprietary trader for its own account. But the government has an even bigger conflict of interest as the biggest debt issuer in the world with some could argue insolvent balance sheet and deserved junk status â a la Greece. Who is going to check the government? Do we need to bring back the gumption of founding father Thomas Jefferson himself?
Didnât the government push the housing crisis to the max with GSEs Fannie, Freddie and more? With HUD, the Community Investment Act, forced lending to minorities, forced sub-prime mortgages, the whole creation of the mortgage-backed securities market and more? Not to mention mortgage interest tax deductions, income-exclusions on gains, prior rollovers and more.
Look at what the government officials have recently done and do you want to trust them at control of the switch? They used the media, populist forces and subpoena power to blackmail the most powerful investment bankâs CEO to support their Fin Reg bill, so it can pass and they can maintain power in Congress during the midterm elections. Republicans are boxed in and canât come to support Wall Street either.
This is what founding father Thomas Jefferson feared the most, that a federal government would get way too big and overburden states, private industry and citizens and jeopardize American liberty.
Is our federal government too big to fail? The Tea Party needs to speak up for Wall Street as they are the (unfortunately billionaire) canary in the coal mine.
you are as politically motivated as the whole senate panel. I suggest you open a new thread about democrats vs. reps or regulation vs individual freedom, or whatever (sorry I am not politically motivated whatsoever and leave it up to people like you to argue your cases).
This is about GS and I defend my stance that its a farce to have GS testify a) on the mortgage market while all the big players who in fact still eat up taxpayer's moneys and really fuxxed up go unmentioned and b) GS needs to testify on the issue of "conflict of interest" and gets criticized on the issue of its role as market maker? How ridiculous. How about those gentlemen start with protecting the small guy on the street by shutting down all those pathetic fx bucket shops, operations who clearly not only trade against the client (which I claim is legitimate as market maker) but also manipulate prices and in many other ways ensure clients do not stand a chance (by denying access or delayed execution or what have you).
My point remains unchanged: There is a lot more mess to clean up and its a lot more beneficial to clean up other garbage first before searching for dead bodies in GS's closet.
This is about GS and I defend my stance that its a farce to have GS testify a) on the mortgage market while all the big players who in fact still eat up taxpayer's moneys and really fuxxed up go unmentioned and b) GS needs to testify on the issue of "conflict of interest" and gets criticized on the issue of its role as market maker? How ridiculous. How about those gentlemen start with protecting the small guy on the street by shutting down all those pathetic fx bucket shops, operations who clearly not only trade against the client (which I claim is legitimate as market maker) but also manipulate prices and in many other ways ensure clients do not stand a chance (by denying access or delayed execution or what have you).
My point remains unchanged: There is a lot more mess to clean up and its a lot more beneficial to clean up other garbage first before searching for dead bodies in GS's closet.
Quote from Robert A. Green:
Part II
A run on the Repo Bank.
In case anyone has forgotten already, most debt-financed business models (non-depositor bank balance sheets, some hedge funds, Enron and arguably governments themselves) are one day or week away from failure. Highly-leveraged business models using overnight repo financing â think Bear Stearns, Lehman Brothers, Long-Term Capital) survive on the good graces and confidence of repo financers, reappearing each day to rollover their repos. If the market loses confidence in a highly-leveraged company and decides to pull their financing, the business can be toast. Itâs that simple and severe.
âToo big to failâ is a political red herring and not a serious discussion. If and when the Federal Reserves perceives a run developing on a bank, serious of banks and contagion, they will plug that dike faster than the FDIC can come in with resolution authority.
I am reading Bill Cohanâs âHouse of Cardsâ on my vacation this week, the story of Bear Stearns demise kicking off the 2008 market meltdown. Bear Stearns and Lehman were shut down effectively and not bailed out like others because they both said no to the Fed in chipping in on the Long-Term Credit bailout (Bear said no to the entire 250 million and Lehman short-changed them with 100 million). When Bear and Lehmanâs turn came up for bailout, the elephant remembered.
The story line of this book is still is the most important element in many financial markets today. Financial assets are often backed by very high leverage (debt) and unless that debt is rolled over with repos on a daily basis, the issuer may fail quickly and it can lead to meltdown contagion. If the repo investors lose confidence in the issuerâs business or model they can say no. A few noâs lead to panic, counter-party risk, contagion and a run on the issuerâs bank.
Keep quiet.
The second worst thing anyone can do is to help cause a run on a bank. Did the SEC and Congress think Goldman should have put the run on the bank call out in early 2007?
Even worse than a run on the bank call to action is perpetuating bad business and excessive risk with government strong-arm tactics. To freeze short sellers, and attack traders (speculators and market-makers) and Wall Street overall. Like that very bad idea for a financial-transaction tax, which thankfully now is off the legislative radar?
Go a step further like in China, where they donât allow negative media stories and the state exerts control over markets with a state capitalism model versus free-markets. Is the US feeling the heat from BRIC countries and trashing our free-market model to replace it with state capitalism a la BRIC countries? That is a Thomas Jefferson nightmare of an idea.
So letâs apply this above analogy to Goldman in 2007 and 2008. Should Goldman have said no to continue as a market-maker on mortgage-backed securities? Should it say no to California bond issuance and derivative deals now?
Wouldnât those disclosures cause a run on the bank? Shouldnât Goldman continue to provide a very socially-useful role as a private market marker to governments no matter what its bias is? Itâs trusted with that role and shutting down is not fair to the public. Risk-adjustment can be done within the market itself. A market-maker has a responsibility to be open during the good, bad and ugly.
Is Goldman guilty as charged?
Is Goldman guilty on the Abacus deal as alleged by the SEC? Goldmanâs person on the Abacus market-making deal Fabrice Tourre may be a little guilty. Not for not making disclosure in general, but for allowing an incorrect perception from ACA, based on incomplete disclosure from Tourre to serve Goldmanâs and Paulsonâs interests perhaps at the expense of ACA. Being neutral and quiet is one thing, but giving a half-truth is another.
During the Congressional testimony, a few discussed emails indicated that the buyer and official âdeal selectorâ ACA thought Paulson was an equity investor. Tourre only said that he disclosed that Paulson was buying protection. Congress jumped to the wrong assumption that it meant Paulson was short. They should have asked the following question. If Paulson was buying protection that statement implies he was protecting a long-side position either directly in that deal (indicating a long position in the deal) or he was entirely short in this deal but protecting long positions in his overall portfolio. Tourre probably knew that Paulson was pitching the Great Short on housing, scurrying to buy protection wherever he could all over Wall Street, and paying Goldman dearly to match-make his Great Short interests. Again, I am not sure that Goldman as a market-maker should even be allowed to tell the other side of a transaction what a buyer or seller seeks to accomplish in the transaction.
Sausage making comes to Fin Reg.
The Washington sausage-making legislative process stinks and it will hurt financial markets and the governmentâs own interests to pedal their debt instruments to the world.
Consider the dirty dealing and arm twisting behind the Democratâs efforts to pass their poorly-conceived version of Fin Reg. The (supposedly-independent) SEC sued Goldman and held their woodshed hearing to (in my view) blackmail Blankfein into saying he supports their Fin Reg bill. He probably does not, since he knows that taking prop trading away from banks and putting derivatives on exchanges increases risks and does not decrease them for Goldmanâs customers and banks in general. Goldman is in the business of risk management and offers risk-adjustment transactions to their clients.
Is it prudent and better for financial markets to allow the biggest debt issuer in the world â the US government â to take over regulation, influence and control of markets and market-makers? Some argue that Goldman manages conflicts of interest as market-maker, investment adviser, investment banker, and proprietary trader for its own account. But the government has an even bigger conflict of interest as the biggest debt issuer in the world with some could argue insolvent balance sheet and deserved junk status â a la Greece. Who is going to check the government? Do we need to bring back the gumption of founding father Thomas Jefferson himself?
Didnât the government push the housing crisis to the max with GSEs Fannie, Freddie and more? With HUD, the Community Investment Act, forced lending to minorities, forced sub-prime mortgages, the whole creation of the mortgage-backed securities market and more? Not to mention mortgage interest tax deductions, income-exclusions on gains, prior rollovers and more.
Look at what the government officials have recently done and do you want to trust them at control of the switch? They used the media, populist forces and subpoena power to blackmail the most powerful investment bankâs CEO to support their Fin Reg bill, so it can pass and they can maintain power in Congress during the midterm elections. Republicans are boxed in and canât come to support Wall Street either.
This is what founding father Thomas Jefferson feared the most, that a federal government would get way too big and overburden states, private industry and citizens and jeopardize American liberty.
Is our federal government too big to fail? The Tea Party needs to speak up for Wall Street as they are the (unfortunately billionaire) canary in the coal mine.
Quote from asiaprop:
you are as politically motivated as the whole senate panel. I suggest you ....
How many here have provided you evidence on numerous issues regarding the slime of GS. You can argue against every series and claim everyone is ignorant but the one resounding fact is that GS is being charged with FRAUD by the SEC. That fact alone trumps all your BS. Take your fees for supporting this nutty company or whatever your purpose is but the fact remains GS will have to defend themselves and that in a nut shell is all that really matters for anyone that thinks they deserve the inquiry. I will continue to follow this thread and all other threads that you involve yourself with to amuse myself and wonder if you are being tortured by all these ignorant posters you so authoritativly deemed ignorant. You are a SHITTY SHITTY Person!