How did Goldman Sachs gain from this?

The bill that ultimately repealed the Act was introduced in the Senate by Phil Gramm (Republican of Texas) and in the House of Representatives by Jim Leach (R-Iowa) in 1999. The bills were passed by a Republican majority, basically following party lines by a 54–44 vote in the Senate[12] and by a bi-partisan 343–86 vote in the House of Representatives.[13] After passing both the Senate and House the bill was moved to a conference committee to work out the differences between the Senate and House versions. The final bill resolving the differences was passed in the Senate 90–8 (one not voting) and in the House: 362–57 (15 not voting). The legislation was signed into law by President Bill Clinton on November 12, 1999.[14]

The banking industry had been seeking the repeal of Glass–Steagall since at least the 1980s. In 1987 the Congressional Research Service prepared a report which explored the cases for and against preserving the Glass–Steagall act.[8]

The argument for preserving Glass–Steagall (as written in 1987):

1. Conflicts of interest characterize the granting of credit — lending — and the use of credit — investing — by the same entity, which led to abuses that originally produced the Act.

2. Depository institutions possess enormous financial power, by virtue of their control of other people’s money; its extent must be limited to ensure soundness and competition in the market for funds, whether loans or investments.

3. Securities activities can be risky, leading to enormous losses. Such losses could threaten the integrity of deposits. In turn, the Government insures deposits and could be required to pay large sums if depository institutions were to collapse as the result of securities losses.

4. Depository institutions are supposed to be managed to limit risk. Their managers thus may not be conditioned to operate prudently in more speculative securities businesses. An example is the crash of real estate investment trusts sponsored by bank holding companies (in the 1970s and 1980s).
 
Quote from Swan Noir:
If you watch the clip again notice that the guy dumping on Cramer said something far more important about the deals in general. His statement that "these deals were created to be shorted" gives the appearance of truth/reality.
If this turns out to be true, every manufacturer of such toxic derivative did it willingly and knowingly. Be it GS or someone else. Is that what you mean ? well.... if that is true, they need to pay

Quote from Swan Noir:
Past a certain point in this cycle there was more money to be made if you manufactured pools with some tranches that were not just toxic but super-toxic. The very existence of these poisonous obligations created opportunities for very low risk shorts with huge profit potential.
I understand you up till here

Quote from Swan Noir:
Here's the untold story: How did these imbeciles at Lehman, Bear Stearns etc. -- sophisticated financial houses -- create paper that was clearly over rated and correspondingly wildly over priced and hold onto it.
Just look at this possibility ..pure guess from my side..
(a) some one accidentally created toxic paper.
(a.1.) some one else rated it
(a.2.) A third guy went long on that ...because on paper that looked good ..or reasonably good and with low interest rates it was possible to make money on that and it was rated and all that

(b.) Then the potential "manufacturer" saw an opportunity !
(b.1) So the "manufacturer" intentionally slipped some toxic stuff into a derivative and some one else rated it ..
(b.2.) ..same..as (a.2.) above

...further iterations made the pool more and more toxic...

Upto that point it is possible. The exact sequence need not be right...but you still land up at b.2 or d.2 or more iterations later at z.2...

Still, at some point, the guys buying (or going long) on the toxic stuff must have stopped ...did they ? No. If not why not ? and that is what i do not understand. Why didn't the guys who went long on this ...and so enabled the ones who shorted it... continue to go long ?

Quote from Swan Noir:
I'm not shocked GS was short tons of it but I am shocked at how many manufacturers were long ... and long to the tune of tens of billions of dollars. Once you pull the pin you can not forget to throw the grenade. Or, I guess, more accurately we have now witnessed what happens when you do forget to throw it. To me there is no more astounding aspect of the entire debacle than that the guys who pissed in the soup then set the table, poured themselves a glass of wine and, as if it were the most natural thing in the world, ate the damn soup.
I find it difficult to believe this. I think there is something more that we have not seen / heard
 
Quote from ToSubu: I

Why didn't the guys who went long on this ...and so enabled the ones who shorted it... continue to go long


I think part of how many of the firms ended up with so much on their books -- certainly in Merrill's case -- was that the buyers were disappearing yet the deals were still done
 
Why didn't the guys who went long on this ...and so enabled the ones who shorted it... continue to go long ?

------------------------------

Imo, because they were able to do so with borrowed money. When the commercial paper market froze up there wasn't any money for anyone to go long on anything.
 
Quote from Swan Noir:

I think part of how many of the firms ended up with so much on their books -- certainly in Merrill's case -- was that the buyers were disappearing yet the deals were still done

Buyers were disappearing as banks tightened lending, slowly at first.
 
Correcting a typo error :
Quote from ToSubu:
Still, at some point, the guys buying (or going long) on the toxic stuff must have stopped ...did they ? No. If not why not ? and that is what i do not understand. Why didn't the guys who went long on this ...and so enabled the ones who shorted it... continue to go long ?
That should have been "...Why didn't the guys who went long on this (and so enabled the ones who shorted it) stop ? why did they continue to go long ?

Thanks, regards - Subu
 
Quote from gurucandidate:

Minor item, but here is one of the ways:
Paulson is a cool character. He paid Goldman 11 million in fees to structure the deals.
From today's NYT.

http://www.nytimes.com/2010/04/17/business/17abacus.html?ref=global-home

Regards,
GC

My 2 cents on what the SEC or other Federal agencies need to do

- Take the top 10 contributors to profits of these big firms (I mean areas where they made money)..say over the last 3 years. Big firms - have a look at the top 10 to start with

- Look at the entire trail... see who put up what ? and how they made money ... ? who lost when they made money ? was it a zero sum game ?

- Nail those who played dirty

- Due to this crisis, some people have lost their entire life's savings and this is the least a government could do

regards
Subu
 
Quote from riddler:

how did Goldman Gain though? they let a hedgefund pick and structure the securities then that same hedge fund shorted because they chose bad securities..how did Goldman gain by this?

I see it as a CYA hedge by Goldman, after they realized that mortgage securities were going to be hit hard. It wasn't about gains for them; it was about minimizing losses.
 
It was a 1 billion dollar bet at a financial carnival game.

Even though there are hundreds more cases exactly like this, it gets picked up by the SEC because the "carnie" at GS was found bragging about it in an email.

I bet this case would have blended in completely with the others if the email wasn't written the way it was.

It's really a pissant move against this. These things should be traded on a fair exchange, or outlawed completely. They shouldn't be allowed to play hot potato with mortgages.
 
Back
Top