I've been informed that BNP Paribas has blocked access to blogspot URLs from their servers. That means that employees of the French bank can no longer enjoy my blog nor many others. EFF YOU BNP!
some things to read (some are old):
Cliff Asness: Keep the casino open
Roger Lowenstein's NY Times Op-ed: "How Wall Street Became a Giant Casino"
Alea: Abacus for dummies
Bethany McLean's NY Times Op-ed: "Meet the Real Villain of the Financial Crisis"
"Probably where many of the differences of opinion form is whether or not we think of offerings as market making activities or as some kind of “sale/promotional.” I think the diffculty in this discussion is that for most people when they see a pitchbook or a sale of offerings, they think of it coming from an advisory standpoint. People find the behavior appalling because the assumption is that the sales function of goldman and other banks is to present you with things that will be “good” for you and make you risk adjusted money. That is a perfectly reasonable view to have and I would be appalled too if I had that view.
From my perspective and the perspective of GS, their function is not to make you money. At least not in respect to trading, market making and even offerings. The presentations, pitchbooks etc simply exist to tell you “this is what you will be buying, and this is a price at which you can buy it for.” In theory the IPO prices in an offering are supposed to be values that reflect a neutral point between the sellers and buyers. Even here there is an adversarial relationship. Sellers want more, and buyers want less.
As much as GOLDMAN doesn’t want to admit it, most of their operations are as bookies not as advisors. And being a bookie isnt a bad thing. Lots of professions do basically the same thing. A real estate broker is no different. They’re just guys that know the process , collect a fee and and set some lines.
It’s why you heard GS execs saying they sold exposure, not returns..."
and related to that comment, from the NY Times' live blog of the hearings, this explanation of why Senator Levin and Lloyd Blankfein seemed to be speaking different languages:
"What you’re witnessing here is an essential debate over the components of Goldman’s business. As Dan Sparks explained earlier, Goldman both creates new investments (like C.D.O.’s and mortgage bonds) and it provides so-called market making, which is like the air-traffic control room of assets. As a market-maker, Goldman trades assets that were already created. And so Mr. Blankfein’s remarks on market-making and the senator’s remarks on investments created by Goldman are floating past each other like cars headed in opposite directions."
I don't really want to debate the GS hearings, but I do think that Senator John McCain's questioning was an embarrassment to himself and his role. McCain showed up late in the day, asked ignorant questions that were a complete waste of time (like asking for an explanation of what a CDO was), demonstrated a complete lack of understanding of what the SEC suit vs GS is about, and, of course, threw in some populist references to the ails of community banks. Hey Senator McCain - do you know why community banks are going out of business? It's because they made bad loans! I know! Hard to believe that, right?