Ben Stein proving once again, that he has trouble telling the difference between cause and effect.
“From what I have observed over years, Goldman has a fascinating culture. It is sort of like what I imagine the culture of the K.G.B. to be”
I suppose it is fitting that Goldman Sachs is Obama’s biggest campaign contributor. Marxists like to support other marxists.
Reading between the lines, it sounds like what he's basing this part of the article on boils down to Goldman having shorted a ton of ABX (more than pure hedging would require - as if that's possible to know in such a market..) long before the rest of the market caught up to subprime realities. Well, perhaps so. If so, that's called foresight and the will be rewarded for it.
As for the conspiracy theory about the Kanzius paper, I do not even understand what Stein is trying to say exactly. Sometimes Stein's mind seems to lose its sharpness.
While these new securities are on the firm's own books, they represent a risk that is quite large compared to the firm's overall capital. They are an undiversified, concentrated risk in this or that sector or security type, arising merely because the firm got an underwriting deal in that sector or type, and not because its traders decided that was the greatest thing since sliced bread this month.
Traders adjust the position over the whole firm to the desired mix of holdings. The default is not "own whatever random stuff you are doing business in with third parties", it is "own the whole market, capitalization weighted, and risk carefully limited so your capital can withstand a 99% outlier move against the firm". That is standard risk control.
Banks hedge the options they write by dynamic trading in the underlying securities, they hedge their interest rate risk with swaps, they hedge their currency risk, they hedge everything. The better ones do it efficiently and accurately, and Goldman is the best in the world at it. This is a smear and it is silly. It is a lawyer blame game, not finance.
Goldman didn't put a gun to anybody's head forcing them to reach for another 1% in yield by driving credit risk to the moon. Goldman didn't rate the securities for Moody's and Standard and Poors. Goldman didn't write mortgages to deadbeats. Goldman didn't take out any loans it could never repay, and then welsh and cry for a bailout when the real estate market switched direction. Goldman is not a bad guy here.
They are just good, and a certain small minded sort of person looks around in hard times for anyone who is good at anything, and rips into them in envy and hatred. But that isn't conservatism.
My take on Ben’s article, is that he is saying that Goldman, with help from the bond rating agency’s (moody’’s etc) inflated these CMO’s, and sold banks these “products” knowing more that the banks about them (as goldman had done due diligence and performed their own ratings on these CDO’s). Goldman essentially unloaded this junk on the banks, and knowing how bad these products were, began to actually short the banks that they were selling these products to.
I think it hilarious that most all financial firms have downgraded GS recently, while GS has done the same to them. A war brewing in the financial sector? If someone starts telling the truth, it will be interesting.
Shorting a CMO (I don't know what he means by shorting "indexes") could be a dangerous game because you have to eventually make a delivery of that which you sold. Each and every tranch of each and every CMO is different. You don't short that because you can't go out and borrow it.
Can you toddster?
The primary lesson here is that if your broker is recommending it, stay away from it.
Learn to select your own stocks or buy Mutual Funds.
After I fired my broker I started making real money.
FWIW, GS has a history of sharing profits with all employees down to the clerks. Some other brokerage houses have kept the goodies for the big boys.
Should there not be some inquiry into what the invisible government of Goldman (and the rest of Wall Street) did to create this disaster, which has caught up with some Wall Street firms but not the nimble Goldman?
Huh? Invisible government?