http://www.nytimes.com/2010/04/30/business/30case.html?exprod=myyahoo
A criminal inquiry. It was almost unthinkable that AA would ever go down but it happened.
Part of me thinks that it would be sweet if GS got blown up. However, I don’t pretend to know all of the implications.
The collapse of Arthur Anderson was not a big deal to the economy. No pension funds had their assets tied up in investment vehicles created by them. In the end they were acquired by another accounting firm and life went on.
My understanding is that a lot of pension funds, if not most, have strict rules about investments, they are not interested in taking a flyer on what might be the next Microsoft or the next Pets.com. They demand the most solid, the most risk-free investments possible, your triple-A rated bonds…oopsy. Looky here, what we got, total shit rated triple-A. Well, golly gee, guess that means pension funds can get in on the action too!
I don’t much like it that investors got soaked, or that rich folks lost money, but pension funds? How close can you get to stealing from widows and orphans? How about stealing from widows and orphans?
The rating agencies, Moody’s and Standard and Poor, string 'em up from the same tree as Goldman.
Offhand, I think it would be a bigger deal if only for the fact that Goldman is one of the 20-odd primary dealers of Treasury securities. Of course, so was Lehman, but I’m guessing (can’t find statistics) that Goldman is much bigger, and it’s a more sensitive time now for Uncle Sam to ensure he can keep selling his IOUs.
E-mail by one Monsieur Fabrice Tourre, dated June 13, 2007: “I’ve managed to sell a few Abacus bonds to widows and orphans that I ran into at the airport!!!”
Clank! Clank! Clank!
Bring out your damned!
Clank! Clank! Clank!
Bring out your damned!..
Which was pretty obviously taking the piss :rolleyes:
Not at all obvious to me. Given that “widows and orphans” appears to be a shorthand for pension funds, I’m pretty sure Fabulous Fab meant just what he said.
I’ve met people like this. They’re too shallow for any such ironic self-awareness, believe me.
The general economic ramification is that it would scare everyone away from market making. There would probably be more bubbles and it would take them longer to pop. Capital would likely be slightly harder to acquire and London would take more of the financial business away from New York.
If such a politically connected company would go down it might reduce some of the moral hazard the bailouts over the last 30 years have built up. This might shrink the financial industry some and lead to more caution among investment bankers. The GOP would be a big beneficiary.
The benefits seem more speculative while the drawback much more likely.
Well, what happened when Lehman Brothers and Bear Stearns went down?
As DanBlather pointed out, Arthur Andersen (not Anderson) was an accounting firm, not an investment bank. So the ramifications basically involved a lot of companies having to find new auditors and tax accountants.
Large investment banks going out of business is not widely regarded as a “good thing” by people who actually know anything about money and finance.
I don’t think it’s necessarily regarded as a bad thing either. Lots of large public companies have gone out of business over the years, and will continue to go out of business. I know you know this (from other posts of yours that I’ve read) so I don’t mean it condescendingly, but why should investment banks be any different?
I find Goldman particularly troubling because of the number of Goldman alums working in financial regulation, and my perception that Goldman has been successful in gaming the political system for its own benefit. Why, for example, did the federal government pay off Goldman’s swaps with AIG at 100 cents on the dollar?
Arthur Andersen alums did not manage to change the accounting rules to get themselves off the hook. The management made lots of terrible decisions, and as a result the firm folded.
Goldman was not simply “making a market” in these securities. Goldman was actively deceiving one side in a transaction, and failing to disclose material information.
An orderly liquidation of GS would not detroy the financial system.
Widows and Orphans is short hand for naive investors or ‘cheaters.’ Frank Portnoy’s book FIASCO highlights this very nicely.
investment banks generally don’t sell complex derivative instruments to large canny hedge funds. Large canny hedge funds don’t want to pay the structured products premiums and generally can do all the investing or leveraged bets they want to all by themselves. Hedge funds use ibanks to execute on their behalf for a small fee instead.
Nope - investment banks sell to naïve investors. 'These sub prime bonds are rated AAA and same as Us Treasuries, Plus you get an extra 10 basis points. ’ And the suckers bought it.
Note - if you learn nothing else in life, it is that if an investment pays more than treasuries, then you are taking on more risk than straight treasuries. The are any number of school districts and municipalities that have done this and lost supposedly safe money they couldn’t afford to lose.
The second group are ‘cheaters.’ Cheaters know they are taking on additional risk. They want the additional risk. buying a structured product wrapped in an AAA rating as a way to hide an unauthorized bet on something. Or a way to take on risk they are not allowed to take in return for making a better return and outperforming. This is pretty dangerous behavior because the fund manager is in cahoots with the ibank to get around internal controls.
When I was in the biz, we sold to a lot of cheaters.
They should be broken up. Investment banks perform some useful functions. Goldman going down might be a good thing. Their actions have been corrupt and corrupting. They sucked the rating agencies and regulators into their game. They should not walk.
Anything to reduce the amount of parasitism in the system has to be generally a good thing, right?
The problem is that investment banks are not like other large public companies like General Motors. They are an integral part of our financial system and the collapse of a large investment bank tends to ripple through the entire economy.
Part of the problem is that many of them have, in fact, become too big to fail. Not only are they very large, since the repeal of the Glass–Steagall Act, they are actively involved in a wide range of overlapping and often conflicting services.
When you say “Goldman did this” and “Goldman did that”, keep in mind that Goldman Sachs is a huge company with many different groups that all act more or less independently. i don’t see that it is necessary to destroy the entire company because of the actions of certain individuals.
But you wouldn’t have any trouble with breaking it up, right?
To encourage the others.
In the last 12 years ,the top 6 banks have gone from running 15 percent of our financial system to running 65 percent of it. They have to be broken up, lets start with Goldman. They have done the most damage . They have incredible political clout. If we can fix them we can fix any other one. But we can’t bust up just one, the others would fill the vacuum and get bigger.
What is the damage to GS’s reputation right now? These firms depend on their reputations and if this becomes seen as ‘not just one bad apple’ then I foresee their customers deserting them in droves. Indeed, I expect major investors to already be planning exit strategies. Who’s going to trust the advice of someone who’s going to bet against you?
Maybe not breaking it up like AT&T and the Baby Bells. But I think reenacting something like Glass–Steagall which forces a separation between types of financial businesses.