The concept of unregulated free market is championed by Wall Street, tax payers have paid for that concept first hand, why isn’t Lehman Brothers paying as well?
While the smug CEO’s and that cocksure punk (forget his name) sat and endured congressional whining I was left wondering why this whole scenario wasn’t self-righting.
Lehman Brothers clearly sold shit investments to customers to make money off of them, those customers don’t have to wait for this to play out in the courts and then for meek regulations to slowly come into effect decades later. They should be walking now. En masse.
Yeah their stock prices dropped after the SEC filed the lawsuit, but I have a feeling that’s just a momentary dip from fears of short terms losses for LB. Why isn’t management publicly begging for forgiveness like the Japanese President of Toyota?
The charges against Goldman is not that the bundled their bad investments (which is legal), but that the misrepresented the bundles as good investments. Not “these are very high risk, so be careful,” but “these will probably do OK for you.” (I’m sure the prospectus indicated the risk, but investors don’t read them, and they all have similar language regardless of risk.)
As for the free market regulating, that’s something unsupported by fact. It’s like saying that we don’t need cops because the free market will deal with criminals. With finance, one or two bad actors can screw millions of people and the free market won’t stop them until they’ve taken their money and run.
The customers that bought the eventually failed investments were highly sophisticated institutional investors, that failed to do proper analysis. They were seeking exposure to the mortgage market. Goldman brokered products to them.
You can’t compare brokering investments that ultimately fail, to selling cars whose accelerator pedals that stick. Apples and orangatans.
The majority of the customers that are similar to the customers that bought the “shitty” investments, don’t believe that GS did anything wrong. GS is still a credible investment counterparty. The things that you look for in a trading counterparty are not the same things you look for in a car manufacturer.
Everybody drives cars and most people are open to consider the possibility of buying a Toyota. On the other hand, most Americans have no idea what Goldman does, never do anything with them directly and already had a horrible opinion of every Wall Street bank before the government sued them anyway. For instance, you’ve railed against the market failing to punish a bank that went bankrupt 2 years ago for making bad decisions. Clearly the individual investment banks have little or no genuine impact on your life vs. any other one or you’d have been able to remember which one you were mad at.
There’s no point in apologizing to win over people in that situation, and that’s the situation most people are in. In fact, even if they wanted to win people over purely to turn public opinion against financial regulatory reform, they’d be better off spending money to help the U.S. Chamber of Commerce try to cast the proposed reform as harming small business. Very few people are ever going to oppose reform because they feel bad for Wall Street.
Also, when cars parts fail there’s a presumption among the public that the manufacturer messed up. It’s very straightforward; they built it and it didn’t work right. Goldman is attempting to deny they did anything wrong, as is their right, and it’s a much much more complicated situation. So apologizing would be very counter-productive.
Goldman Sachs and the other investment banks do not want an unregulated free market. They want complicated regulations and government bailouts if things go wrong.
The reason that the market has not punished GS stock is that sophisticated bankers know that by definition every short position must have a long position. No one will refuse to do business with GS because it was prescient about the collapse of the mortgage market.
The legal case against GS is a pretty weak one, and they are politically connected enough to cushion a bad ruling against them.
Which means the market has punished the shareholders. As for the company itself, it will be interesting to see how big of a check they’ll have to write to make this go away. Without admitting or denying liability, of course.
Oh man, Goldman has been devastatingly punished by a decline in stock price. :eek: :eek: :eek: I wouldn’t be surprised if they’ve been shorting shares of their own stock in anticipation.
The reason the “market” hasn’t corrected things is because Goldman’s reputation has largely remained solid through all this. It’s funny that when we FINALLY get a little regulatory action against them (from the SEC), everyone else they’ve done business with finally perks up and says “Hey, maybe that investment that blew up in our faces wasn’t just bad luck.” But by all means, let’s deregulate everything and stay out of the way of these fine gentlemen who are so much smarter than everyone else (if the standard of intelligence is measured by the ability to spot loopholes and a willingness to rip people off).
What’s the distinction? The stock price has gone down in anticipation of a fine and/or loss of reputation that could damage the company’s ptential earnings. There is no meaningful difference between punishing the company and punishing the shareholders. Reducing the stock price hurts the company; hurting the company reduces the stock price. Now, there would be a meaningful difference in punishing certain employees (or board members) of the company (although they are likely also shareholders).
Another explanation: through 2008, Goldman CDOs performed better than its competitors, with only about 10% of its bonds going bad (compared to 35% for Merrill and Bear Stearns).
The complaint against Goldman is that Goldman was not only betting against certain mortgage-tied securities, but also was selling some of these same securities to its clients. However, Goldman is a “broker-dealer.” The fact that both of these roles might be played by a single firm is allowed by the law as it presently stands. The law also permits a single broker to serve as agent for parties on opposite sides of a real estate transaction in most state jurisdictions.
After the 1929 stock market crash, Congress reexamined our then-system of financial regulation with a view to preventing a recurrence. Congress considered introducing a wall of separation between brokers and dealers. Instead, Congress contented itself with the disclosure and anti-fraud measures of the Securities Act of 1933 and the Securities Exchange Act of 1934, as enforced since 1934 by the then new Securities & Exchange Commission (SEC). The SEC requires that certain firewall protections between departments be observed within broker-dealer firms.
SEC did not prohibit a firm betting against securities in its proprietary trading capacity that it purchases on behalf of, or even recommends to, its varied clients with varied portfolio needs in its brokering and advising capacity. So long as the firm is attentive to the needs of its customers, and does not act to mislead them or omit to disclose relevant information to them, it is free in effect to bet against them in the form of betting against some of what it facilitates their purchasing or even sells to them.
Early in 2007, a hedge fund client of Goldman’s wanted to place bets against the future prospects of certain mortgage-tied securities. It sought Goldman’s assistance in designing, and then offering for sale, an instrument whose value would vary with the value of those securities, which the fund which the fund could then bet against by shorting. Goldman agreed to facilitate the fund’s desired bet in the manner described. It also sought the assistance of a well respected mortgage firm in structuring the securities portfolio on whose value the fund-sought betting instrument’s value would hinge.
What has Goldman alleged to have done in the course of transacting as just described that might have violated the securities laws? The answer is two things: First, the SEC alleges that Goldman failed to disclose to purchasers of the newly designed betting instrument the fund’s involvement in selecting the securities on whose value the value of the instrument would ride. Instead, it maintains, Goldman named only the well reputed mortgage firm, effectively defrauding investors by omission in violation of 33 Act 17(a)'s, 34 Act 10(b)'s, and SEC Rule 10b-5’s fulsome affirmative disclosure requirements. Second, the SEC alleges that Goldman affirmatively misrepresented, to the mortgage firm itself, that the fund was going long – betting for rather than against – the new instrument, violating the same legal provisions just mentioned.
Everything you say is spot on except this one sentence. I don’t really even understand how you can say this when your later explanation is exactly correct. As you say yourself later on, the SEC allegation involves the Paulson fund shorting the security, not Goldman; why do you then say Goldman was betting against it in this sentence? Unless you just made a misstatement here, would you please show me where in the SEC complaint there is any allegation that Goldman bet against the security?