Just finished The Big Short. Crazy, crazy people. If I was a Goldman customer I'd be pretty skeptical the next time they call me with a good idea to invest in.
so it seems to me the question came down to does a firm have the obligation to report what its positions are when it sales a security? is it a legal obligation. I don't know, but I don't the law. it seems to me it isn't a legal obligtion but i'm thinking of investment bank trading with investment bank and not selling these products to the general public. an investment bank shouldn't need the gov't to protect it from making a ****ty, haha, investment
As I see it, there's two major issues here, with second one sort of breaking into two parts. First - for the Goldman suit, nobody has really talked about it yet, but the question is basically was the way the Abacus CDO was portrayed in the offering documents (with it omitting Paulson's role and the Fabulous Fab's skepticism) materially misleading? The definition of materially misleading omission is generally something along the lines of "whether the average investor would find the omitted information material in the context of the total mix of information available at the time".... I think in this case the answer is at least enough for it to get to a jury, that's for sure, on this question. The other defense that GS will go with is Reliance - the so-called "big boy" clauses that MFW brought to our attention. That's a separate question actually and not really all that germane to the larger points here. Second - even if Goldman wins on this on reliance or whatever, the problem is that their conduct really SHOULD be illegal even if it's not. I mean even though they might have good legal or factual arguments here, which is what the Fabulous Fab et al were making yesterday (about Reliance, ACA etc) - this is the kind of conduct that just stinks to high hell. That's why the boys yesterday were so noncommital when asked about whether it should be illegal or about ethics. You also didn't hear the fabulous fab making ethical arguments - in fact if you read his whole e-mails, (not quoted in the SEC's complaints) you detect a very different tone, the Fabulous Fab basically questions the social utility of the entire affair. There's no real value in creating these instruments other than to transfer money to Goldman and others. The standard answer that you get from the Blankfein on the creation of CDOs and the like is that "we provide the markets with liquidity " or "risk management"- that's basically nonsensical - loan sharks can plausibly make the same claim (not calling GS loan sharks, just saying that any financial transaction can claim to provide liquidity). Or in a better analogy, "liquidity" is a casino that puts an ATM that dispenses 100's with a $20 transaction fee at the entrance. And that's essentially what we're talking about here - derivative financial instruments where you don't own the underlying security are basically gambling, plain and simple. Casinos are fun - I don't really see anything wrong with the casino. The problem is taht 1) they are betting on things they can influence themselves, which is unethical, if not illegal, and 2) the larger economy that schlubs like us work on is tied up in the casino in ways that most people don't realize, and can't operate without it (to big too fail). Further, if we understand "liquidity" as some vague allusion towards making the financial system operate more efficiently, massive trading on this scale in these instruments actually did the opposite. In the Fall of 2008 when Lehman fell and AIG almost went down, liquidity actually dried up, the credit markets seized, Money market fudns began breaking the buck, the commerical paper markets almost died, and the Federal Reserve had to open up its various windows to make sure that your payroll checks would clear on monday (and that Goldman itself wasn't among the dominoes to fall). That's not liquidity - that's the opposite.
You are kidding right? Why is there the need for common law courts to interpret those terms? Because it's a catch-all phrase. It can mean practically anything you want it mean. If it's not a catch-all, it'd be specific. What things did who do under what circumstances, and why it should be illegal. I think we need to familiarize ourselves with a little term here: market maker, as opposed to your financial advisor, or broker, or CFP, or mama. The Senate Subcommittee tried to murk the issue by claiming "you sold crap to your clients" when there shouldn't have been any confusion to begin with. Goldman Sachs wasn't in an advisory role to whom it sold the securities. Those that thought they did should google market maker right now and see how they make money. If Goldman Sachs was advising IKB (for example), that would have been a totally different story. But as far as anyone has proven, Paulson is the only potentially party that Goldman MAY have had a fiduciary to. A duty in which it fulfilled. The only way IKB et al can even be called clients (as Carl Levin did) of Goldman is because they bought something Goldman had for sale. That would be akin to saying that you are buying a house and the seller's agent should act in your best interest and had a duty to disclose to you the true value of the house. This is a phase of the cycle that is about showing the public that the so-called bad guys, bad practices are being removed from the system so it becomes safe to come back and invest in the markets again. I suspect that the actual legal case against Goldman Sachs is pretty weak. If what they were doing was selling something to someone knowing that somebody else valued it higher, that’s called a market, so this is not such a dramatic issue. - Pippa Malmgren, George W. Bush’s former chief financial-markets adviser Oh, and guess who was among the investors of the sh1tty Timberwolf deal? Our friend Ralph Cioffi. In for $300 million. But of course, we can blame Goldman for everything under the sun, like pirates: http://www.huffingtonpost.com/andy-borowitz/somali-pirates-say-they-a_b_550586.html
That's fine, you can have whatever interpretation you wish - all I"m saying is that since 1933, when it was first enacted, there has been a pretty substantial body of law under 10b-5 that interprets the statute. Yeah - I don't really buy this defense, not only because it's immaterial to the issue we're discussing (a material misreprsentaion to induce the purchase or sale of a security is a violation of 10b-5 no matter WHO you are) , but because it's just ginormously absurd. Goldman Sachs isn't merely a man in a smock who trades minute differences in the bid-ask ratio and keeps a difference - I mean a monkey (or a very low-powered computer) can do that. THAT's a market maker. The conception of them as a mere market maker, or effectively a broker, is absurd - they do a LOT more than just hooking up buyers and sellers. How the hell do you think they make so much money? It ain't because they're freaking E*TRADE for Big Boys. Yeah - I read this this morning on the terminal and started laughing. Kind of embarrassing. Honestly, the case may in fact be weak, but it's not because "Pippa Malmgren", who has never 1) enrolled or graduated from any accredited law school; 2) has been admitted to practice law or 3) prosecuted or defended a 10b-5 action or any securities law matter ever, says it is. Anyway, regardless of what she says, that's not really the point I'm making in the larger sense. Read my post. I'm saying that even IF GS is not civilly liable here under existing law, their conduct is not really that defensible from an ethical or even a utilitarian perspective. I mean, even the Fabulous Fab himself seemed to realize this, which i found fascinating.
Yes, as I've said, when you have a code that covers pretty much everything under the sun, there's bound to be a substantial body of law along with countless interpretations. You know, the conflict of interest issue for broker-dealers is nothing new. They've been around ever since broker met dealer and the regulatory agencies allowed it. Your not talking about a new phenomena that arose with the sub-prime crisis. And as I've also mentioned, you're not talking about something nobody else is doing (Goldman just happens to be better at it). So what makes it not fraud pre-crisis vs. post-crisis and what makes Goldman stand out as supposed to say... JP Morgan Chase? And google again. There is no regulation that prevents market makers from taking positions (i.e. beyond the spread). I'm not here to discuss Pippa Malmgren's credibility. That is a non-issue. I'm also not interested in discussing with you the morals or the ethics behind it all, because that would be a waste of time. Quite frankly, just about anyone would have a different view of ethics; and guess what, apparently Goldman has a different one than your own. All I care about right now is whether Goldman violated the laws of the land. Looks like they did not. Have beef with it? No problem. Enact some new laws and regulations then we'll talk again the next time it happens. And Sammy, I have a serious question, so I would appreciate an answer. Say we do favour out those dumbass investors this time, what's to prevent them from doing it again next time? What are you doing to mitigate it? If anything, we're implying that act a dumbass and we'll still rule your favour in the court (contra to existing laws at that), what's to prevent them from the assumption that they can forever act idiotically and expect our help?
Again, Goldman's depiction of themselves as a mere "market maker" is ridiculous. Guys don't go to HBS and Wharton so they can become professional market maker. Most professional market makers don't even have a college degree - like i said, they're the guys in the dirty smocks who are chainsmoking outside the exchange. Hell Craigslist is a market maker. GS performs an entirely different function than that. The Fabulous Fab wasn't simply a broker. Ultimately in the context of the suit it doesn't matter - there's no "market maker" exemption to people who structure CDO's and sell them under the federal securities laws. Then you shouldn't have 1) held up Pippa Malmgren as an authority as federal securities laws; and 2) responded to my post about the ethical/social implications of derivative financial instruments and massive trading as a whole.
Yeah I felt Goldman tried to paint themselves as a market maker as opposed to an underwriter. Senator Levin failed to make the distinction and to nail them as a shady underwriter.
I'm not sure what exactly is your impression regarding the meaning of "market maker" from a financial services point of view, but no, as opposed to what you said in the previous post, "a monkey with an old computer" cannot be a market maker. Ever try to call a securities firm, or a hedge fund, or a bank Sammy? If MFW or Sammy the average Joe calls them, they won't even pick up the phone. Good luck selling something that way. If on the other hand, it's MFW from Goldman Sachs... And the other thing I think you are neglecting is that market makers have a vested interest to see the security sold. No sale = no fees. It really is that simple.
I'm interested in the provision of federal securities laws that lets self-proclaimed market makers make material omissions...... Uh, yeah, well when somebody without a law degree who has never even read Rule 10b-5 makes a judgment about whether or not a legal case is strong, it's as speculative as you trying to predict the winning lottery numbers in tomorrow's powerball - there's simply no basis there. Dude, I've defended 10b-5 cases. In SDNY. For investment banks. Involving MBS. For Goldman Sachs. So I think I'm just not going to defer to "Pippa Malmgren" 's opinion here. You shouldn't either.
As I've mentioned previously, the only potential trouble that Goldman could get into involves the "picked by ACA" part. If that's your only complaint then we really have nothing to discuss here. See above. But let's be honest for a second Sammy, the Senate Subcommittee did not grill Goldman for Rule 10b-5. Nor is the populist outrage due to Rule 10b-5. Pippa Malmgren's words is taken from that context, meaning, Goldman shorting its own "clients" securities. She of course use the unfortunate words "the government's case," but I generally do not disagree with that sentiment. However, if you insist on only the potential 10b-5 violation, like I said, we won't have much to discuss. But if that were the case we didn't need a Senate hearing either. Just have the SEC slap an x million fine on Goldman and be done with it. IKB already got bailed out any ways.
US now investigating Morgan Stanley for similar fraud. Wells fargo is also being sued for similar reasons.
Another good piece today by Jonathan Weil on the Magical Mystery of Goldman (and everybody else's) perfect Trading Quarter http://preview.bloomberg.com/news/2...y-scores-a-perfect-quarter-jonathan-weil.html A good quote on the standard GS explanation: Here's yet another good piece by Mike Lewis on Lloyd's latest: http://preview.bloomberg.com/news/2...ght-set-goldman-sachs-free-michael-lewis.html
