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How You Finance Goldman Sachsâ Profits: old GS managing director speaks out.
- Thread starter Debaser82
- Start date
Quote from Elitist Trader:
In case you didn't realize, this isn't the ignorant socialist hippie forums. Post that shit where someone actually cares.
Anger with GS is very capitalist. Hippies are the ones in charge. Market wanted to toss this bad debt in the trash where it belongs. It's still there.
I read the article and thought maybe she was canned or something and bitter about it.
Then I started searching around a little and read her sio and some interviews. Holy left wing freakzoid, batman...
I wonder how she ever made it to MD... Affirmative action maybe, lol...
Maybe she just had a major change of heart, and kind of became a whole new person these days.
Then I started searching around a little and read her sio and some interviews. Holy left wing freakzoid, batman...
I wonder how she ever made it to MD... Affirmative action maybe, lol...
Maybe she just had a major change of heart, and kind of became a whole new person these days.
This crisis has complex origins, but the basic things that made it so severe were
Problems:
1) The ability of banks to place liabilities off-balance sheet to get more p&l from the same balance sheet, skirting reg cap issues. This is basically overleverage.
2) The false belief that houses won't go down in price, and the false belief that historical data would be stationary going forward, when it drove processes riddled with principal-agent problems and adverse selection. The subprime market ultimately was a small part of the RE world, but it's real bite was adding momemtum to the mainstream RE boom, and creating poisoned AAA instruments that led to a huge reversal in risk appetite.
3) Giant centralized underwriters of mortgages with perceived Govt backing were allowed to overstep the tacit agreement under which they got that perception (ie only underwrite safe stuff & small stuff to provide a baseline of liquidity for housing credit) and start gambling. Ultimately losing their shirt in the gambling and undermining trust.
4) Too much liquidity was sprayed out into the world post 2000
(feel free to add more, I don't claim to be comprehensive)
Solutions:
I think 1) can be corrected by going over to OCC & the Fed, fire half the staff, get the rest into a big town hall and say "WTF? you guys were asleep." You let investment banks store too much stuff on their balance sheet, threatening their other role as facilitators of contracts.
We need a new Glass Steagall that says if you want to bet, ok, be a hedge fund. If you want to be a super counterparty, facilitating risk flows, then fine, be an investment bank.
If you are both, the former will jeopardizes the latter, it's simply a matter of time. And we cannot keep bailing out those too interconnected to fail.
There isn't much we can do about 2) . We will be collectively stupid about something important every now and then. You can't regulate away mass stupidity, and anyone who tries to play Cassandra when the bull market is in full swing will be ignored by the mob. It's a no win solution. Maybe we should abolish rating agencies. They are semi-pointless, and it is unclear if the good they do outweighs the harm.
3) is the result of capture by misguided politicians. Can we regulate away greedy politicians? Didn't think so.
4) was regarded as a good idea at the time by the mainstream. I'm sure this won't be the first such idea and there is no way we can get rid of our momentary blindess.
What we are doing:
1) Hunting season on hedge funds
Utterly pointless
2) Hunting season on banking pay
Utterly pointless. Unless you can reverse the trend and make all banks partnerships, or divorce the bet making aspect of it as I suggest, this is just theater.
3) Stimulus plans
Mostly pointless and wasteful
4) Hunting season on income tax dodgers
Useful but has nothing to do with preventing recurrence of the crisis.
5) Healthcare reform
OK, long term useful. Again nothing to do with the crisis.
As you can see, the People In Charge aren't doing anything substantive yet to deal with the actual problem, and have taken this crisis to tackle pet projects or settle scores or engage in political theater.
Problems:
1) The ability of banks to place liabilities off-balance sheet to get more p&l from the same balance sheet, skirting reg cap issues. This is basically overleverage.
2) The false belief that houses won't go down in price, and the false belief that historical data would be stationary going forward, when it drove processes riddled with principal-agent problems and adverse selection. The subprime market ultimately was a small part of the RE world, but it's real bite was adding momemtum to the mainstream RE boom, and creating poisoned AAA instruments that led to a huge reversal in risk appetite.
3) Giant centralized underwriters of mortgages with perceived Govt backing were allowed to overstep the tacit agreement under which they got that perception (ie only underwrite safe stuff & small stuff to provide a baseline of liquidity for housing credit) and start gambling. Ultimately losing their shirt in the gambling and undermining trust.
4) Too much liquidity was sprayed out into the world post 2000
(feel free to add more, I don't claim to be comprehensive)
Solutions:
I think 1) can be corrected by going over to OCC & the Fed, fire half the staff, get the rest into a big town hall and say "WTF? you guys were asleep." You let investment banks store too much stuff on their balance sheet, threatening their other role as facilitators of contracts.
We need a new Glass Steagall that says if you want to bet, ok, be a hedge fund. If you want to be a super counterparty, facilitating risk flows, then fine, be an investment bank.
If you are both, the former will jeopardizes the latter, it's simply a matter of time. And we cannot keep bailing out those too interconnected to fail.
There isn't much we can do about 2) . We will be collectively stupid about something important every now and then. You can't regulate away mass stupidity, and anyone who tries to play Cassandra when the bull market is in full swing will be ignored by the mob. It's a no win solution. Maybe we should abolish rating agencies. They are semi-pointless, and it is unclear if the good they do outweighs the harm.
3) is the result of capture by misguided politicians. Can we regulate away greedy politicians? Didn't think so.
4) was regarded as a good idea at the time by the mainstream. I'm sure this won't be the first such idea and there is no way we can get rid of our momentary blindess.
What we are doing:
1) Hunting season on hedge funds
Utterly pointless
2) Hunting season on banking pay
Utterly pointless. Unless you can reverse the trend and make all banks partnerships, or divorce the bet making aspect of it as I suggest, this is just theater.
3) Stimulus plans
Mostly pointless and wasteful
4) Hunting season on income tax dodgers
Useful but has nothing to do with preventing recurrence of the crisis.
5) Healthcare reform
OK, long term useful. Again nothing to do with the crisis.
As you can see, the People In Charge aren't doing anything substantive yet to deal with the actual problem, and have taken this crisis to tackle pet projects or settle scores or engage in political theater.
Anyone remember GM's 25 billion loss just before they went bankrupt?
That's what CEOs do. They manage through legal accounting manipulation to skim off 1 billion of losses, 2 billion of losses and pass them forward. At some miraculous date, they can get rid of them. It's easy to beat estimates by a penny when you do that!
That's what CEOs do. They manage through legal accounting manipulation to skim off 1 billion of losses, 2 billion of losses and pass them forward. At some miraculous date, they can get rid of them. It's easy to beat estimates by a penny when you do that!