Contrasting strategies
The Washington Post‘s editorial on the Goldman hearings makes an interesting point about what it says were the contrasting strategies of that firm and Citigroup:
the broader implication raised by senators at Tuesday’s hearing — that Goldman somehow rigged the market in subprime mortgages, and that this led to the meltdown — does not strike us as a terribly useful or even accurate analysis of the crisis. Yes, in its capacity as a market-maker, the firm sold complex derivatives to market players who wanted to bet on a rosy view of housing long after Goldman had turned more pessimistic…
these were large, sophisticated institutional investors who had the opportunity to conduct the same analysis of economic data that Goldman did. They knew that there was someone on the short side of every trade. And Goldman had no legal obligation to trade in the same direction as these clients did.
Indeed, if it had, then Goldman could not have started hedging its own bets on housing early, as it did. The firm would have lost billions, and it might have wound up needing an even bigger bailout by U.S. taxpayers than it actually got. It could have ended up like Citigroup, which tried to ride the bubble until it was too late and had to be propped up with hundreds of billions of dollars in federal cash and credit guarantees.
Perhaps you will recall that as of June 2007 — several months after the deal that the SEC sued Goldman about — the Citigroup CEO was saying that his bank was “still dancing” and that “liquidity rushes in” wherever it is needed.
April 29th, 2010 at 6:21 am
Our lawmakers are clueless. First they rig the market, by encouraging lending to bad credit risks. After the inevitable meltdown, they go after the victims and middlemen that they enabled.
Where did they think this money was going to come from? Congressmen are able to use their power to insulate themselves from the consequences of anything they do. In a just world, the RICO act is used against Congress and they all go to prison. The so called Healthcare reform is a greater financial fraud than anything Goldman could hope to do. No private pension can get away with Social Security’s accounting.
Let me rephrase my first sentence. Our lawmakers are criminals.
April 30th, 2010 at 7:02 am
Ignorant boobs? Or disingenuous sleazes?…
Re Goldman, from Cardinalpark at Tiger:
The one thing I thought the Goldman executives should have remarked, when questioned about their tactical short overlay to reduce their long exposure to the mortgage morket, would have been to add that, had th…