Wednesday, July 15, 2009

Goldman Sachs

Many thousands of words have been written about Goldman Sachs lately, and today there are 3 worthy reads:

1) Clusterstock criticizing Taibbi's Rolling Stone piece. (Megan McCardle's criticism too).

2) NY Times: Goldman's Gain, America's Risk.

3) Jim Bianco (via Barry Ritholtz): What Is Goldman Sachs?

Anytime you read an article about GS, you'll typically find a slew of comments from angry people describing how corrupt GS is, or how they cheat the system. I was trying to decide if I should even bother putting my own 2 cents in on my own post, and then I read this comment on the Clusterstock piece:

"Most of the people here: You are blaming a company that is gaming a corrupt government . You are once again trying to fix the effects of problems instead of fixing the cause. If a company can legally do something to make a profit then they have a duty to do that. Companies are in business to make money. (Shocking, i know). Now if the problem is a completely corrupt government why don't we try and fix that instead? Gaming the government should not be a valid business tactic. It only is because our government is vastly over-sized and overreaching. This is the true problem. You will never have a fair system when you spend all your time trying to fix the wrong problems."

I think that sums it up nicely. The average person hates Goldman Sachs. When GS gets paid billions and billions of taxpayer dollars directly funneled through AIG, it makes people mad - RIGHTFULLY so. But the point is that we should be mad at the GOVERNMENT for making this happen - for allowing it to happen - not at GS. Don't hate the playa - hate the game.



Harold said...

To GS and all their apologists, I say this: "if you are not part of the solution, you are part of the problem."

To KD, great blog. Even if I don't always agree with you, you always get me thinking.

Anonymous said...

What a vague, ignorant liberal statement Harold made.

matt said...


I like that quote too. I don't strictly adhere to this statement though, "If a company can legally do something to make a profit then they have a duty to do that."

While I generally agree that shareholders are number 1, I also think it is legitimate to be a socially responsible denizen. As a shareholder, I wouldn't take issue if a firm chose not to avoid more unscrupulous activities.

Still, what is right and wrong can be subjective near the line, so I also don't tend to be too judgmental about these things.

The GS bashing is amusing. I wonder how long it will take to die down.

Harold said...

A quick review: GS is long in mortgage backed securities. Being the masters of risk mgmt, GS lays of its risk by buying Cred Default Swaps from AIG. Problem: AIG does not have the assets to back the CDSs and GS should know this (they can read financial statements). Feces hits the fan and GS faces big losses if AIG tanks. Henry Paulsen, former GS BSD,"rescues" AIG and the gov't money goes to GS. Huge sigh of relief at GS! Now, I would be stupid to think that Paulsen was primarily motivated to save his GS buddies' collective skins, but I would be naive to think that it never crossed his mind. Should GS have taken the money? Absolutely!!! But does that make it right? I don't think that it does... BTW, to Anonymous, that quote was from Eldridge Cleaver. Feel better now?

Harold said...

Ooops! The man's name is Paulson, not Paulsen. THAT was ignorant on my part and I apologize.

Kid Dynamite said...

yeah - the AIG-GS situation totally sucks... but do you really expect GS to refuse the money? come on - that's just not how capitalism works... never mind that GS is legally obligated to their shareholders... hate Paulson for giving them the money. don't hate them for taking it.

by the way, Harold, you forgot the part of the equation when GS makes billions MORE executing the unwinds for AIG, which were done in sloppy fashion such that whichever firm got the order was almost guaranteed to make money executing the unwinds.

Harold said...

KD, you are spot on that there is money to be made in tidying up the other guys mess. "Cleaning up after" is pretty much how I eke out my meager living as a CPA/Tax Consultant, so I don't begrudge GS their fees for cleaning up after AIG. That part is fair, and, from what I've heard, there were thousands of hours of staff time involved in closing out the files. Someone's got to do it and they need to get paid for their time.

Anonymous said...

ok...let's try an analogy here. i agree that the Government is an ass, after all it would be working for GS if it wasn't an ass right? What happened to morality and ethics here? The argument that "because it isn't against the law, and you can profit from it, means you can do it legally and profit from it" is at the heart of the problem. The evolution of law without morality or ethics. Were the people who missold mortgages or charged 25% to credit cardholders guilty in law of any crime? No, BUT, well you figure it out. I won't go down the path of balming the Government and not Goldman Sachs being similar to not blaming drug pushers but blaming the junkies. Anyway, keep up the good work! Great insight as ever.

Anonymous said...

There are two fundamental problems with your thinking on where 'the problems' lie with GS versus the Republic.

1. Let's dream for a moment legislators further regulate GS and their kind. GS and their kind have an (arguably) louder voice in Washington such that GS and their kind get their needs met. Their needs are roughly analogous to a very light touch regulatory environment.

2. Your thinking has no behavior modification for GS and their kind. They were way, way ahead of the regulatory environment before and during the bad bets. At this point, nothing done was ever illegal. How would that *ever* change with a more responsive legislative/regulatory body?

Bottom line, your ideas do nothing to enhance transparency or stability in the financial sector. Nothing!