Bewildered by what happened on Wall Street? Furrow that brow no more. The Samizdat Blog financial research team has figured it all out. It's like this:
If General Motors behaved like Goldman Sachs, they'd make their money by taking out life insurance policies that paid off when drivers of Chevrolets died. Then, noticing that they'd make more money if more people died, they'd start building cars without brakes.
Seriously. This is exactly what credit-default swaps were like. Wall Streeters sold bundles of bad mortgages to pension funds and other investors, knowing these were bad. Then (this is the credit default swap) they bet that these bundles of crap would fail. They made money, and everyone else (the people who couldn't pay the mortgages they'd been suckered into, the people who rely on their pensions being there, etc.) lost.
Somebody's got to go to jail for this.
Shhh...don't give GM any ideas. They just might try it.
ReplyDeleteI don't put anything past the American automobile industry. I mean, these are the guys who made the Hummer -- the vehicular equivalent of KFC's "double down" sandwich.
ReplyDeleteNot quite, but a good try. The yield-hungry investors in this fund knew what kind of investments these were, and certainly knew the profile of the firm that created this product, which in any event is helpfully described in the risks section in the so- called "flip book" sent to them:
ReplyDeleteQuote:
"Goldman Sachs may, by virtue of its status as an underwriter, advisor or otherwise, possess or have access to non-publicly available information relating to
the...[investments], and has not undertaken, and does not intend, to disclose, such status or non-public information in connection with the Transaction."
And this:
"Goldman Sachs is currently and may be from time to time in the future an active participant on both sides of the market and have long or short positions in, or buy and sell, securities, commodities, futures, options or other derivatives identical or related to those mentioned herein. Goldman Sachs may have potential conflicts of interest..."
How a judge reacts to such disclosures will be interesting, but Goldman's proclivity for betting against its clients is quite well known. Now we simply add to that reputation its conduct in apparently leaving the firm it hired to "select" the assets, and its German bank investor bent on exposure to high-yield junk paper, high and very dry.
It's worth remarking that the counterparty in many of Goldman's swaps was AIG, whose swap contracts were honored by Treasury, to Goldman's benefit.
MG
Thanks, "Mother Goose" (BTW: ?). I take your point. I hereby add the following to my analogy:
ReplyDelete"If General Motors were behaving like Goldman Sachs, they'd have added, in tiny print at the back of the owner's manual, the following passage: 'this car may or may not have brakes, and General Motors may or may not be buying life insurance on some people who may or may not have bought Chevrolets."
I look forward to what judges have to say about Goldman Sachs, but I have a bad feeling about what would happen should this go to the Supreme Court -- I mean, that's a court still packed with the kind of people who think it's a good idea for corporations to be able to spend as much as they want influencing elections. I'm not optimistic about their objectivity regarding Wall Street.
(Yes, the same, Diddle Diddle Dumpling, Bobby Shafto, Nanny Etticoat; and certainly not to be subjected to impertinent inquiries, young man.)
ReplyDeleteTo complete your tale, you would need someone in the market for a car with no brakes, no doubt on the expectation it will go faster; for the particular purchaser of this custom-built vehicle specialized in such synthetic delights, driving them up and down the Rhineland Funding Conduit until the tank was empty. True, they relied on a safety inspector called Moody's to assess the seaworthiness of the underlying chassis (MG is allowed to mix metaphors if she wishes), and they were assured the rusty components were hand-picked by the renowned ACA LLC, perhaps on the expectation they could be burnished against all rational expectation to a glowing yield (or a yielding glow). Of such buyers, beware! Here is a diagram of the garage they built for vehicles like these:
http://blogs.law.harvard.edu/corpgov/2008/05/15/rhineland-funding-structure/
So if GS discloses the brakes are non-existent, and in fact they reserve the right to bet that crashes will result, and they disclose they have no obligation to tell you they used their own inspector called Paulson, whose idea it was to sell these cars with no brakes with the expectation that some of them would crash (and remember the cars ACA selected had just as many crashes), then GS will argue it has done what is was required to do by law.
MG thinks large settlement.
And if the presiding judge appears to be agreeing that these disclosures technically comport with the great securities acts of the 30s, which the SEC alleges were violated, I suspect there will be those who may suggest those laws be adjusted.
For:
If they rigged the dice,
And thinned the ice
So Rhineland fell in,
Whose was the sin?
Has anybody else noticed the poetic potential presented by the fabulous Fab's e-mail (as quoted in the SEC charge? I'm thinking in particular of his self-portrayal and his use of 'monstruosities'.
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