Saturday, April 17, 2010

Something Doesn't Make Sense Here

NYTimes:
It is important to note that every synthetic C.D.O. required both investors who were long and others who were short. That is, there needed to be investors who believed the “referenced” bonds would rise in value, and others who believed they would fall. Everyone, on both sides of the transaction, understood that. What makes it feel like dirty pool is the allegation that Paulson & Company and Goldman Sachs were actively involved in choosing the bonds that would be bet on — knowing they were going to be short. In its filing on Thursday, the S.E.C. charged that Goldman never told investors of Mr. Paulson’s involvement. “Credit derivative technology helped people disguise what they were doing,” said Janet Tavakoli, the president of Tavakoli Structured Finance, and an early critics of many of the structures that have now come under scrutiny.

How is it dirty pool that Paulson & Co chose what they wanted to short? Isn't it incumbent upon the buyer to, I dunno, know what they are buying? And these buyers weren't Ma and Pa Kettle, but presumably institutional investors. If this entire case against Goldman hinges on that the bank didn't tell people who bought these particular synthetic CDOs that they created them especially for Paulson & Co, then I don't really see what the problem is. If I'm gonna buy them, then I'm gonna ask to look what's in them and do some sort of analysis entirely regardless of who is selling them. The only way the Paulson & Co fact is relevant is if the buyers would've said, "Hey, they're smart. Maybe I don't want to go long on what they are shorting." But that's not really a proper analysis methodology for institutional investors.

So far, from the details I've heard, this case against Goldman is a bunch of nothing. I am far more uncomfortable with other deals they've been involved in, particularly when they've represented both sides of the transaction. Some asshole MBA at some institutional investor didn't do his homework on something GS sold him? Cry me a fucking river.

6 comments:

Anonymous said...

This is in the tradition of getting Al Capone on income tax evasion. The universe thirsts for Goldman blood, that thirst will be slaked. dave.s.

Anonymous said...

FYI:

http://baselinescenario.com/2010/04/17/pecora-moment/

Anonymous said...

http://baselinescenario.com/2010/04/18/john-paulson-needs-a-good-lawyer/#more-7214

Anonymous said...

http://www.caroljoynt.com/my-blog/2010/04/simon-johnson-to-blast-wall-street-aka-goldman-sachs-at-empire-salon.html

(You can go argue with him in person.)

FLG said...

The Ancient:

He does add some details that look troubling, but I'm not too thrilled with him as a source of political or legal commentary. Then again, he's knows way more about this shit then me. I'm just a guy in my underwear at a keyboard and could be completely wrong. Then again, I'm very rarely wrong. Maybe I should be "that guy" at his event.

The Ancient said...

Maybe I should be "that guy" at his event.

Well, perhaps you ought to think about it.

Just for fun.

 
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