Sunday, April 18, 2010

Goldman Commentary Linkfest - Blaming Paulson?

Goldman Sachs & The Truth, The Whole Truth, and Nothing But The Truth.  If you're not clear on where I stand on this, read my post and the comment thread also.

Baseline Scenario's Simon Johnson:  "John Paulson Needs a Good Lawyer."  I put this link first (behind my own, of course) because I find it COMPLETELY preposterous.  I don't like to give pixels to arguments that I find completely insane and without merit, but Johnson is not a fool, and he's not a lunatic hypster, so I found this post to be incredibly odd.  Maybe someone hacked into his account, but I doubt it, because he went on Bill Maher to advocate the views he has in this piece.  Johnson writes: 

"Here’s the legal theory to keep in mind.  Mr. Paulson only stood to gain on a massive scale (or at all) if the securities in question were mispriced, i.e., because their true nature (that they had been picked by Mr. Paulson) was not disclosed.  In other words, the Paulson transactions at this stage of the game only made sense if they involved fraud."

Well, that's not even close to being CLOSE to true.  Paulson stood to gain because he did the work to value the securities in question, knew there were major risks, and knew that others didn't know they were major risks.  He knew that everyone from the people on the other side of the trade to the ratings agencies were completely clueless as to the mispricing of risk, and profited from it.  In fact, my exact point in the comments of my earlier GS Fraud threads was pretty much exactly the opposite of Johnson's claim - my point was that the fraud doesn't really change the end result (the ignorance on the part of the buyers which resulted in their gross mis-assessment of the risk) at all.    Johnson's final conclusion is:

"Mr. Paulson should be banned from securities markets for life.  If that is not possible under current rules and regulations, those should be changed so they can apply.  If that change requires an Act of Congress, so be it."

If Paulson should be banned from securities markets, we should just shut down all securities markets, because Paulson is doing exactly what he's supposed to be doing:  profiting from mispriced securities.  

NY Times:  a profile on Paulson

"Robert Khuzami, the director of enforcement at the S.E.C., explained that, unlike Goldman, the manager of the hedge fund, Paulson & Company, had not made misrepresentations to investors buying the security, known as a collateralized debt obligation."

Steve Waldman expounds on the value of information, such as "who is on the other side of my trade."  I voiced an opinion in the comments.  

Leigh Drogen: "Caveat Emptor!" I actually played a little Devil's Advocate in the comments of Leigh's post, but I love this quote from him:
"To those out there in the institutional investing world: It’s time that you start doing some god damn due diligence on the investments you make.  You’ve got to know who’s on the other side of your trade.  No one is forcing you to make any investment, when you sign that contract or push that buy button you’ve got to make sure that you have all the information."

Stone Street Advisors: "On the GS Fraud Charges."  Re: ACA

"Again, while I’m not a lawyer, from what we’ve seen so far, it looks like the investors’ shareholders may have merits to file suit against the firm’s management for breach of fiduciary duty, since its seems pretty clear that both ACA and IKB (and/or others) didn’t come anywhere close to conducting the kind of diligence required prior to undertaking such a transaction.  They were given a list of all the underlying RMBS and could have easily done the same research Paulson & Co. apparently did, but it seems that either they did – and simply had a rosier outlook for MBS/over-reliance on Ratings – and/or didn’t, in which case they have no one else to blame but themselves."



Blurtman said...

I think it is Hank Paulson who should soon wind up behind bars. He was on baord when this and much worse fraud was hatched and committed. Imagine a country that has a sleazy fraudster as Treasury Secretary and two war criminals as President and Vice-President, lecturing other countries on proper behaviour, and killing their citizens to enforce their will.

getyourselfconnected said...

good catch on the Paulson angle. This thing just keeps on getting bigger. Get your popcorn ready!

Sam said...

Yeah, not sure what prompted Johnson to write stuff like that. I was cringing as I read it and kinda gave up halfway. I'll go to Zero Hedge for my daily dose of the OTT theatrics.

Now that GS is finally in the cross-hairs, we need reasoned and rational commentary from the blogosphere, not madcap writing like that. Felix's recent post is a good example.

Anonymous said...

Wow. I had not seen Simon Johnson's article until your link. I think I vomited in my mouth a bit before writing a post there in disgusted retort.

It does reinforce my view that regardless of the law, GS is a bit screwed on this. If Simon Johnson thinks that Paulson is guilty of fraud for making a good trade, then how on earth is any judge (they've got their future to think about as well) or jury going to be more reasonable when it comes to the villified GS?


Kid Dynamite said...

blurtman: great call

peterpeter: i found the most terrifying thing was that I read Johnson's post, and there were over 100 comments, with maybe 2 telling him he was crazy. people were on board with it!

oddlot said...

KD - i think you are incorrect in your assessment of Simon Johnson. He's kind of a communist. These recent statements are in line with the rest of his stuff.

Yangabanga said...

Johnson is insane.

I liked the Antar article. you bet your ass that the goldman complaint itself and the timing on the release were done on purpose to give the prez lots of "ammo" to push his reform bill through and to shut down any complaints from the street (watch out or we'll go after you next like GS!)

GS definitely should've kept more quiet about it.

Kid Dynamite said...

Antar also clearly has the best disclosure disclaimer you are likely to find anywhere on the web...

Steve said...

I don't picture Goldman going down over this, despite what Antar says.

I think Goldman are too well connected with the gov't. They're essentially made men, imo.

They'll get publicly taken to the woodshed, but that's about it.