What kind of “people who know anything about money and finance” are you talking about here? People that work for Goldman Sachs? Regulators sucking from the bank’s teet? Are you trying to say that the behavior Goldman Sachs exhibited during the meltdown was regarded as a “good” thing?
If an institution that does as large a percentage of the business as GS does goes belly up, there can be huge disruptions in all the markets. The question would be how to wind down their business in such a way as to minimize the disruptions to the economy. GS gives me a really creepy feeling and hs for a number of years now. Are their problems the result of a limited number of bad apples, or is it systemic. From what I’ve heard coming from New York, none of the Wall Street creeps have anything approaching normal morals or humanity. They make the legal profession look upstanding by comparison. At least lawyers don’t go around bragging about how much they are stealing from widows and orphans. Legal confidentiality means having the decency not to brag.
School districts and municipalities are naive investors?
I’d have thought so, relative to the big boys.
To a certain extent I wouldn’t expect them to. I would expect them to do their job and make money, within the parameters set by the law and regulators.
Is there something about them that you think would make them particularly sophisticated when it comes to investing?
I don’t know really know enough about what they did to formulate an opinion. It’s my understanding the uproar is because Goldman failed to disclose that a hedge fund Paulson & Co shorted a CDO called Abacus they had helped pick mortgages for. Whether they intentionally misled people or were simply hedging I cannot say. However the notion that Goldman was defrauding “widows and orphans” seems a bit overstated. The biggest losers in that deal were two other investment banks, ABN Amro and IKB Deutsche Industriebank. It seems to me that they should have been sophisticated enough to know what they were getting into. Ultimately it’s for the lawyers and regulators to decide if laws were broken.
It isn’t so much that I believe Goldman is right or wrong, as I think it is a populist overreaction by “Main Street” against the “Rich Wall Street Fat Cats” they blame for the recent financial crisis.
Well, yes, a least for larger cities. Insofar as they are institutions, I would guess that they hire financial planners or something. It wouldn’t be hard for me to believe that their charters required this. Otherwise, what’s to stop them from investing in Pets.com or whatever?
When I think of unsophisticated investors, I think of you and me (me, anyway), that is individuals, not institutions or mutual fund managers or the like. They should probably be able to smell a rat.
That said, if you had AAA-rated paper that paid interest in line with treasuries or similar investments and it turned out to be junk due to fraud, especially with someone in the middle pocketing the difference, then I guess anyone could fall for that.
I would imagine that they are mostly elected officials perhaps with a basic background in accounting. I would also expect that they would have enough sense to not invest in highly risky exotic securities.
I’m not sure if it’s available online, but there was actually a feature in Bloomberg’s trade magazine back in 2008 about how investment bankers were foisting trash securities onto counties and states that they would never have a prayer of selling back in New York.
Then Mrs. Sachs would be very happy. 
Is there a smiley for laughing and groaning at the same time?
Its not a big deal for large investment banks to go down one at a time. The problem occurs when they start going down in seriatum. It wasn’t a big deal when barins Bank went down, it would have been a big deal if we started letting ALL the investment banks go down a year or two ago.
Much of Lehman continues to exist under different names. They were frequently bought wholesale by other investment banks, etc. Don’t weep too much for innocent bystanders in teh investment banking world, they are aqll capable people and they will get picked up by someone.
Yep. Generally speaking, they are doing business with people who play on an entirely different level.
Yeah and they all feel really flattered when some well heeled Wall Street investment banker makes them feel like a big shot.
I guess it’s not their fault then.
The point is that they weren’t highly risky, according to the ratings agencies–just the opposite. A CDO’s rating of AAA by Standard & Poors is defined as a safe bet, or it’s supposed to be, and with the irresistable attraction of much higher yield than boring old Treasurys. 'Til it all blew up, of course. Heavyweights on Wall Street were fooled by the damn things, how is some Florida county comptroller supposed to figure it out?
I suppose in your view, a con man is never truly a con man because he has no true victims – the marks were all asking for it, right?
The sophisticated investors who lost money are the ones who were defrauded. An unsophisticated investor might have relied on the ratings, but IKB ( that I know of for certain) was leery of this CDO specifically because it was an unmanaged junk mortgage package. So they sought assurance from Goldman that the mortgage bonds would be selected by a reputable third party, and Goldman provided that assurance, naming ACA Management. What Goldman didn’t tell anyone was that ACA merely picked bonds from a list provided by Paulson, a list which anyone who knows Paulson would expect to contain bonds Paulson expected to fall, because that was Paulson’s position all along. Had Paulson’s name even come up, these investors might have backed out entirely, and this fundamental deception is what SEC wants to nail Goldman to the wall for.
The thread title was just crying out…