It’s ironic how the “Goldman was so smart to have shorted subprime” meme is now being turned on its head in the MSM as Goldman’s conduct in the run-up to the crisis is begin re-examined in a new light.
The underlying premise of the Goldman defenders is that it is fine for the firm to have laid off its exposures whether via the old-fashioned mechanism of selling them, unbundled, into the market, or the modern way of wrapping them into more complex products. The very reasons that the latter yielded better results at the time are the very same reasons that strategy is being criticized now.
First, the products were often so complex as to be difficult for investors to analyze. Crudely speaking, that means you have a bigger universe of potential stuffees, since presumably some would have rejected these exposures had they understood what they were getting. Of course, one might reasonably say, “Don’t buy anything you don’t understand,” but I would hazard that a lot of supposedly professional investors routinely buy products they don’t understand based on a salesman’s explanation. Since most of them did not blow up, or when the did, the investor in question had so much company as to suffer not career damage, many investors became desensitized. Second, major financial firms, and Goldman in particular, came to treat customers as trading counterparties, meaning if it was possible to nick a profit from them, that was always the preferred course of action. Yet many of these customers appeared to have assumed the relationship was on a different footing, that Goldman at a minimum (consistent with its continued blather about putting customers first) was not rapacious and would deal with them honestly and fairly.
And now Goldman’s PR is in a head-on collision with granular examination of its conduct. Its posture, that it was merely acting as a middleman and therefore providing a socially useful function, does not square with its having continued to push subprime products like its Abacus program out the door as a way to achieve a short position.
From the Wall Street Journal:
New documents from a Senate investigation show top Goldman Sachs Group Inc. executives cheering the gains they were reaping as subprime-mortgage securities collapsed in value in 2007….
In a statement Saturday, Sen. Carl Levin, chairman of the subcommittee that will hear the Goldman testimony, said investment banks such as Goldman Sachs “were self-interested promoters of risky and complicated financial schemes that helped trigger the crisis.”
In one of the email exchanges, Mr. Blankfein appears to bluntly acknowledge the firm’s strategy in broad terms. “Of course we didn’t dodge the mortgage mess,” Mr. Blankfein said in an email on Nov. 18, 2007. “We lost money, then made more than we lost because of shorts. Also, it’s not over, so who knows how it will turn out ultimately.”…
The emails also show other Goldman officials cheering the news that some mortgage-related securities were being downgraded by credit-rating firms in late 2007.
Top trader Michael Swenson said that as a result of the downgrades, certain payments Goldman owed to investors would “go to zero.”
“Sounds like we will make some serious money,” responded another executive, Donald Mullen.
At another point in July 2007, Goldman executives appear to discuss how their mortgage investment numbers were up, despite big losses on securities known as collateralized debt obligations and residential mortgages.
“Tells you what might be happening to people who don’t have the big short,” wrote Chief Financial Officer David Viniar in an email.
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It is beyond disgusting that we bailed out Goldman Sachs via the AIG bailouts. It appears that we were directly supporting the fraudulent synthetic CDO’s that GS wrote, via the AIG bailouts.
Where the fook does the USA get off forcing their view of proper behaviour on other countries, and killing their citizens to enforce its will?
true enough. The USA should have told the French banks holding AIG CDS to se-foutre.
It’s worse than that.
We bailed out the Paulsons and Magnetars (and their investors)via AIG/GS.
It’s funny. On one side the banks are being told off for holding onto these CDOs. On the other side, the people who corretly saw that these bonds were mis-priced, are getting told off for shorting these bonds.
Yeah, ’cause they’re all in it together.
Why don’t we just turn the banks into regulated public utilities? If the rich want to gamble, let ’em do it with their own money and go to the track.
Re: “Why don’t we just turn the banks into regulated public utilities?”
That is a great idea, beyond nationalizing the current banks that are insolvent and corrupt, like Goldman. Banks need to to be separated from an environment that perpetuates fraud, through rating agencies and corrupt and bogus accounting orgs like FASB — and obviously, the connection between lobby groups and congress needs to be cut. As you say, if the rich want to gamble and engage in leveraging casino bets — let them go to casinos and horse tracks, instead of using banks like Goldman to destroy our economy!
First you need to take back the issueing of money to where it belongs, i.e. Congress, as provided in the US Constitution in Article I, Section 8:
“To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures;”
The new money must be debt and interest free as proposed by the American Monetary Institute at
http://www.monetary.org/amacolorpamphlet.pdf
and Swarm USA
http://www.swarmusa.com/vb4/content.php/184-Freedom-s-Vision-Monetary-Reform-Outline
This would lead to a nationalisation of the FED. The FED together with the banking sector would have to be restructured, of course.
But then they’ll lose all that fine talent they have. They will go…hmmm…, well somewhere else and that apparently would not be good for the banks, they say. [lol]
Because the people who were “wisely” shorting were selling the defective products – fully involved with stacking the deck against the marks (customers).
Re “Where the fook does the USA get off forcing their view of proper behaviour on other countries, and killing their citizens to enforce its will?”
It’s an old story… a self-justifying elite ‘stole’ the credibility and trust built up by the regular citizens who fought for and built a great nation (at its peak at the end of WWII)…
See:
“When Fragile becomes Friable: Endemic Control Fraud as a Cause of Economic Stagnation and Collapse”
http://law.fordham.edu/assets/CorporateCenter/Black_-_Fragile_becomes_Friable.pdf
And they had a very big party! And are still having it.
But you have to give some blame to a citizenry that has been asleep at the switch for quite a while. They seem to have been lulled by shiny beads and mistakenly traded away their nation… And have yet to pay for the damn shiny beads.
“But you have to give some blame to a citizenry that has been asleep at the switch for quite a while. They seem to have been lulled by shiny beads and mistakenly traded away their nation… And have yet to pay for the damn shiny beads.”
Actually I take a different view. They have already paid for the shiny beads AND they MADE the shiny beads. They’ve just been TOLD that that wasnt enough and they must continue to pay back til they are ohhhhhhhhh…………seventy or so.
Sounds like a case of the captain taking the life boat while leaving the crew to sink with the ship while cheering about his success.
BenE:
That’s not a bug. It’s a feature.
Right. This is why the next release will NOT fix it.
At some point someone must have thought “The housing market is unknown, let’s not make any more CDOs once they know the housing market was an unknown”.
Time for the shareholders to sort out Goldman. Warren Buffet where are you?
1994 mexico meltdown,morgan stanley celebrated.nothing new this time.
“The Big Short.”
Sounds like I’ve finally got a catchy name for the financial crisis, because these guys shorted the country.
You could see this coming from a mile away. It was obvious the French smart ass was going to sink Goldman with his emails. It just keeps getting better.
WSJ:
Goldman Sachs Group Inc. executive Fabrice Tourre predicted in 2007 that subprime borrowers “will not last so long,” according to newly released emails from a Senate investigation.
“According to Sparks, that business is totally dead, and the poor little subprime borrowers will not last so long!!!” Mr. Tourre wrote in a March 2007 email to his girlfriend, referring to a Goldman Sachs colleague.
In a June 2007 email, Mr. Touree boasted to his girlfriend he had just landed in Belgium where he managed to “sell a few abacus bonds to widows and orphans that I ran into at the airport.”
“We lost money, then made more than we lost because of shorts. Also, it’s not over, so who knows how it will turn out ultimately.”…
They LOST money period……they didn’t make any money because their “shorts” collapsed with AIG and they would not have received a payout on them if it weren’t for Geithners maneuvering and chicanery with OUR money
All these guys busted out flat and are still broke but every quarter we have to hear about how much they made in “trading gains” and by way of accounting gimmickry…..pay what you owe…get to break even from the previous collapse first and then you can talk about how much fabulous moolah you made.
Bustouts!!!
Even as bad the PR situation is for Goldman right now, the litigation the SEC is conducting is far from a sure thing. For example, because of specific legal doctrines the SEC has hardly been able to get its litigation in the Madoff matter under way. Check out: http://lawprofessors.typepad.com/civpro/2010/04/iqbal-and-the-secs-case-against-goldman-sachs.html
“First, the products were often so complex as to be difficult for investors to analyze. Crudely speaking, that means you have a bigger universe of potential stuffees, since presumably some would have rejected these exposures had they understood what they were getting.”
Come on. On each side of any trade you have someone selling and someone buying. The people who BOUGHT (and LOST) have to take responsibility for that. These were sophisticated investors who knew what they were getting. It is only with the benefit of hindsight was a bad bet. AT THE TIME there were MANY who thought housing was going to continue to go higher. It was these people who bought this stuff. Now it is being spun as “did not understand what they were getting?”
Completely farcical.
Remember how individuals who speculated on housing and lost were being told to take their lumps? How is this any different? I am supposed to have sympathy here? That is rather outrageous.
What you don’t understand is that in this narrative Goldman-Sachs is the bad guy and, e.g. Lehman who stupidly bet everything on the mortgage market and in the process pissed away a lot of public money including the pensions of teachers, were poor saps, victimized by evil Goldman and the hedge funds. You might say that this narrative makes no sense, but it won’t make a difference.
True…but let’s expand that narrative to include the person who was at the helm of the Treasury while picking the “winners” and the “losers” of the whole too-big-to-fail bailout scheme.
Good old Hank! We can certainly say that the former Goldman boy understood timing…at least when it came to Goldman’s competition.
>> don’t buy anything you don’t understand <<
Forgive them for believing a triple-A rating actually meant something, as it had for decades.
You mean bankers being paid enormously could not be expected to either bother to understand the dangers of the mortgage market, listen to people who were loudly explaining the dangers, or hire analysts who could explain it it them? Poor widdle bankers! All they could do is blindly accept ratings from the ratings agencies, flush their depositors and investors money down the toilet, and cash their own paychecks and bonus checks! That pathos, the bathos, the sheer sorrow and pity of this tragedy – it would take a heart of stone not to laugh.
Of course, this “logic” cannot apply to Goldman Sachs. The attitude seems to be that the suckers that bought the toxic Goldman Sachs securities should have done better due diligence. But when AIG’s demise would have bankrupted Goldman Sachs, no one said that Goldman Sachs should have done better due diligence on AIG. Instead former CEO and criminal Hank Paulson went begging to Congress. And Wall Street stooges Timmy Geithner and Benny Bernanke engineered the AIG bailouts.
Sigh. Anyone who reads the Barofsky report can see why AIG’s CDS were paid for by the Fed. Here’s the list: go and read it to see who the other counterparties were.
6.9
Goldman 5.6
3.1
2.8
2.5
1.2
1
0.9
The extent of the bailout was a direct result of the ineptitude and corruption of the Bush administration. They were responsible for policy. The desperation of their attempts to blame it on Geithner is a measure of their culpability – and the anxiousness of some credulous people to believe this stupid story is a measure of their confused political view.
A list of “bankers being paid enormously” no doubt. Frankly, I really don’t care if they all profit through mnassive fraud, as long as I don’t have to bail them out.
Absolutely not…we can’t go around flipping the “logical” script on poor widdle Goldman Sachs or Timmy Geithner. Why, without the help of Barney-the-clown, and the concept of moral hazard, Fannie and Freddie could never have had an impact on the overall ratings of such garbage. Surely there’s no correlation between artificial credit expansion and increasing in market values for assets. And side payments at each stage this financialization process, why they couldn’t have had anything to do with the ratings…could they? But hey, let’s just blame Bush…that makes things much easier, and it requires even less thought.
Of course it would be completely idiotic to throw political views out of the big picture, especially when they’re not aligned to one’s own political views, because if there’s anything that this brilliant line of “logic” proves, there’s just no way that in Goldman’s desperation to reward itself, through its own client’s failure, that any of this could have lead to the installation of its own corrupt and inept figure heads within any administration.
You see, and according to such logic, the Bush Administration was just too stupid to understand, yet, they were still somehow brilliant enough to devise a purposeful strategy that involved setting-up the next Administration for failure…and what you must understand is that Goldman never had any strategy at all…they were just doing God’s work. (he says as he waves his hand in an attempt to pull-off some kind of Jedi mind trick)
As lambert strether points out above, this was a feature, not a bug.
This particular bug is of the Ferenghi class of bugs; perhaps we might title this one the KillTheGoldenGooseSpecial?
Can’t wait to watch these clowns wailing about the scarcity of eggs.
“but I would hazard that a lot of supposedly professional investors routinely buy products they don’t understand based on a salesman’s explanation.”
And we care about the stupidity of rich people because?
The operation of Pension funds and other public and trustee funds, on the other hand is not naive, but criminal. Pension fund managers who took gigantic salaries to fecklessly accept the reckless proposals of whatever slick salesman walks in the door, should be stripped of the money they got and sent to jail.
We care because it are the “non-rich” people who feel the effects of, and are bailing out the “rich people” when they screw up.
But the real problem is not that there were people ready to separate fools from money, but that so much of the public’s money and also money held in trust for e.g. pensioners was placed in the hands of unaccountable fools who then threw it away. I don’t have much good to say about GS or Lehman, but it’s interesting how little attention is being paid to people like Jeb Bush who decided to give state funds to Lehman to wager on the dog track or the managers of CALPERs. If Jeb did not understand what Lehman was doing with the money, he needed to not make the decision. At least the German government is prosecuting the head of IKB.
I don’t disagree with that. There were/are many bad actors in this drama. Maybe they’ll be front and center stage at some point and get “their turn” too. Look, if these folks want to gamble with their own money and then go bust when they fail, that’s fine with me, but when they gamble with OPM and then ask those same suckers (us) to bail them out when they screw up, I’m not OK with that. This just illuminates even more the fact that we cannot be bailing out these sociopathic jackals. The fact that the powers-that-be think we can’t live without these firms is laughable. Exactly what service are they providing the real economy? Put safeguards in place so the real economy doesn’t get completely hammered when they screw and then let them fail.
So – who were the folks that took the Goldman shorts. What percentage was AIG. How would Goldman have done if Geitner and Paulson would have only paid 50% to the AIG counterparties.
Everyone interested in these matters should take a moment
to read the transcript of Bill Black’interview on PBS last night and his pointing out of a ‘criminogenic environment’
( echoing one of Georgés recent posts )
http://www.pbs.org/moyers/journal/04232010/transcript4.html
Thanks.
Too bad we don’t have a guy like Bill Black working on this crisis. Somehow I think the outcome would be very different.
But, I think he’s right that the people that know what happened (fraud) and how to fix it (jail) are deliberately being kept out of the process.
Great interview!
Bill Black is awesome, he just lays the truth down like a smooth road . . . CEOs as sociopaths . . . business schools as fraud factories . . . this man gets to the heart of the social-pyschopathic-narcissistic-soulless-sickness that animates every single damn thing these assholes do.
Bill Black from the interview:
“We now have the entitlement generation as CEOs. They just plain feel entitled to being wealthy as Croesus with no responsibility, no accountability. They have become literal sociopaths. So one of the things is, you clean up business schools, which right now are fraud factories at the senior levels, right?
They create the new monsters that take control and destroy massive enterprises and cause global economic crises, cause the great recession. And very, very close to causing the second Great Depression. We just barely missed that. And there’s no assurance that we’ve missed it five years out.”
All right. We’ve had more than we can take of this stuff. Can’t stand it any more. This is it.
We’re going to write to Ben Bernanke on Monday and ask to be declared a bank holding company. We want to borrow for free and lend back to the government at whatever 3% or 4%. We’ll take our chances with interest rate risk. We want free money, like the big boys. Don’t want to work any more.
This will beat ditch digging. It beats working the floor at Syms. And it sure beats trapsing like a lemming each day to a god damn glass gerbil box by Grand Central and hacking away. What’s the difference between that and a bee hive. Nothing. Oh! You don’t even get to “smell the flowers.” Ha ha ha ha ha in the gerbil box. They are plastic!!! We have no interest in servicing the gerbil Queen any more. to hell with it. No more drone business for us.
Ben Bernanke make us a bank holding company on Monday and let’s start getting rich quick together, like good communist comrades!!! It’s better than getting rich slow — or not at all. God forbid. Someone has to be rich. Might as well be us. That was always the plan.
Thanks,
Mr. and Mrs. Ivana & Will Annoya, CFA, CFP, CPA, CPR, BBB-,CCCC
It sure looks like a setup.
We are inching toward an understanding of what really happened. We now know enough to ask the right questions, and chief among them is: What did Hank Paulson, Stephen Freidman, and Timothy Geithner know of the “Big Short” and when did they know it?
If Goldman was smart enough to short the mortgage market, then they were smart enough to think through the ramifications of a crash in that market. An event that would almost certainly lead to government action – the ultimate guaranty that the shorts (Goldman among them) would get paid. Who was better placed to ensure that Government would fulfill this role than Goldman and Citi? (Citi may not have bet against the mortgage market, but their aggressive risk taking meant that they would need federal help if the markets soured).
In light of the above, Hank Paulson’s first TARP request: $700 billion with no strings attached, and the dramatics of getting on his knees before Nancy Pelosi take on a new light.
That request was always much too close to a ballpark guess at the level of M1 for my comfort ( See for example Table 5).
Exactly.
That 3-page Edict of Paulson’s, sent to Congress, needs a great deal more attention.
The video in this calculated risk post is entertaining.
http://www.calculatedriskblog.com/2010/04/betting-against-american-dream.html
Respectfully disagree with a lot of what is said on this site.
Doug is right. The INSTITUTIONAL investors, such as IKB, should take responsibility. The buyers of subprime CDO tranches were doing so with leveraged money; they stood to make “serious money” if the payments were made.
What on earth was a Dusseldorf bank doing in US subprime? Probably because the OVER-REGULATED and UNCONSOLIDATED German banking system doesn’t allow them to make any profits.
Yves writes: “major financial firms, and Goldman in particular, came to treat customers as trading counterparties, meaning if it was possible to nick a profit from them, that was always the preferred course of action.”
This is naive. These “customers” — whether it’s an instituional investor like Fidelity or a corporate like GE or a private equity firm like KKR — treat investment banks like counterparties. Fidelity expects its brokers to take on risk if they want to get a sniff of any trading commissions. You want to underwrite GE’s bond issue or advise it on any M&A? Well, then you have to make a big loan at uneconomic rates. Does a bank want to win advisory business from KKR? Well, you have to cough up a cov-lite loan and take a significant risk of a hung bridge.
We don’t know all the facts about Goldman and ABACUS. You shouldn’t be allowed to lie or omit a material fact. But you can’t blame them because IKB and ACA were foolish and in the former case had to be bailed out by Germany. IKB’s management should be held accountable.
Supposedly, Basel II allowed IKB to consider the investment as cash reserve!
The willingness of people here to excuse IKB’s idiocy, ACA’s dubious claim to have analyzed the mortgages, and the ratings agencies AAA ratings of this crap is frankly peculiar.
Obvious answer is that parties did due their diligence, but fraud makes due diligence impossible to perform properly. (That’s why they call it fraud.)
Proper thing to do at that point is to take them to court and claw back the money (plus damages).
From the Bill Black/Bill Moyers article:
“So the only six places we’ve looked, at really elite institutions, we’ve found strong evidence of fraud. So where are the other investigations? Why are there no arrests? Why are there no convictions?”
Good question.
Is the administration afraid the Republicans will accuse them of playing politics if they use the “F” word, wreaking the nonpartisan coalition Obama has established? If the O administration prosecutes crime other than what is nakedly obvious to the lowest common denominator, Main Line Media?
Or is their fear that their chunk of the reported one million dollar per day lobbying effort by financial elites would be compromised if they appear too serious?
Many good questions, no good answers.
On another note, I second /craazyman’s petition to form a new holding bank. I could use some no-interest money to loan back to govmint for profit. Don’t have any toxic assets as collateral though…maybe they’ll take one of my dogs instead?
Again I will annoy this blog. I haven’t read a “woe-is-us” response on this post, yet, but I know one is coming. Woe IS us if we don’t get organized. How do we do that? There has to be someone with some political organizational knowledge on here. Lord knows I’m suited to being a foot-soldier at best, but let’s go! How do we get started? There’s plenty who claim to be fed up. How do we start to demonstrate we’re not going to take it any more?
We have to have people with organizing experience and we need intellectual leaders to get us moving in the same direction.
“…First, the products were often so complex as to be difficult for investors to analyze… Of course, one might reasonably say, “Don’t buy anything you don’t understand,” but I would hazard that a lot of supposedly professional investors routinely buy products they don’t understand based on a salesman’s explanation…”
___
I have always gagged on this notion of “products,” as in “innovative financial products” etc (which would ostensibly be throttled by “regulation”).
When I worked in subprime credit risk, our various credit card accounts were, of course, always referred to as “products.” Well, maybe the pieces of magnetic striped plastic were, but the underlying agreements were simply CONTRACTS.
The other day I heard some NPR interview wherein the guest, while trying to explain “synthetic CDOs,” blabbed some crap about “you have to understand, this was highly sophisticated financial technology…”
Technology? TECHNOLOGY??
He went on to talk about how the mysterious “technology” had to be run by computers… ahhh.h.h…cue mendacious, pseudo-sophisticated shit like Gaussian Copula et al, one supposes.
Contracts. Period. Inscrutably complex contracts aimed at bamboozling the buyers (oh, ‘scuese me — ‘counterparties’), most of which became unenforceable every whichaway when it all went south.
I know what your saying BobbyG but I dont think the word technology is wrong.
I think “contracts” are a technology. Here is the first line from wikipedia dictionary on technology
“Technology is the usage and knowledge of tools, techniques, and crafts, or is systems or methods of organization, or is a material product (such as clothing) of these things. The word technology comes from the Greek technología (τεχνολογία) — téchnē (τέχνη), ‘craft’ and -logía (-λογία), the study of something, or the branch of knowledge of a discipline.[1] The term can either be applied generally or to specific areas: examples include “construction technology”, “medical technology”, or “state-of-the-art technology”.
So while we think of technology as something built like a machine or a structure, technology applies to other things like writing, contracts and most relevant to this discussion ……..money.
Money is a technology so anyhting involving the distribution of money via debt instruments is also a technology. These CDOs were definitely technology but unlike the guy who uttered that phrase, that fact does not somehow mean that since they were technology that they resulted in an improvement. That “technology” was certainly a cause of a lot of grief maybe as much as that A Bomb “technology” discovered in the 1940s.
It has been said that the technology of money is responsible for all unemployment. I dont disagree, since if you think about a moneyless world, no one would have to “work” for anyone else in order to obtain money to buy stuff needed to survive. However this fact would never lead me to say we must get rid of money since it is still possible to rid the planet of unemployment if we only find the political will.
Contracts are also a technology, a technology that is to facilitate people keeping their word. By writing their word down having them attest (by signature) that this document reflects their word and being able to later refer to this contract, social structure is much less chaotic.
“Technology”
I distinctly remember Alan Greenspan testifying before Congress in the “good old days” when he was fawningly known as “The Maestro”, refer to “new risk management technology”. I didn’t know then what he was saying……now we all do……..Weapons of Mass Financial Destruction.
really really hoping, praying rather, that US can recoup AIG money by discovering fraud by gs in AIG’s insured transactions.
It’s fascinating that you say that because most of the AIG payouts did not go to Goldman. As an American, I’m less happy with the larger payment that went from my pocket to Societe General. I wonder why this attracts no notice at all.
Perhaps they decided to start with those parties which reside in their own juridiction?
Or are those pesky “foreigners” the real problem in your eyes?
According to Barofsky, the reason that there were no haircuts to AIG CDS counterparties was that the French regulator insisted that SG and Caylon get paid in full unless bankruptcy was triggered. So I’m mystified by the fixation on GS. And implicit in Barofsky’s report is the sad fact that if banking regulators had wished to contest the French government’s claim, they had very little time and would have had to reach out to Condi Rice’s “nobody could have anticipated” state department for assistance. One can only imagine the level of useless that Rice would have brought to the task.
Perhaps they decided to start with those parties which reside in their own jurisdiction?
Or are those pesky “foreigners” the real problem in your eyes?
Paraphrasing Paul Krugman’s blog “Pesos, Ponzi, And Financial Sector Profits”; since deregulation, the financial industry has been selling C grade securities at Triple AAA prices. No wonder bonuses soared until the 2008 when the inevitable crash of the “natural” Ponzi scheme occurred.
I’ll get excited only once the prosecutions begin.
in 1832 andrew jackson called them vipers,thieves,parasites,pirates and hydra headed monsters eating the flesh of common man.
are they any different now?
in 1832 andrew jackson called them vipers,thieves,parasites,pirates and hydra headed monsters eating the flesh of common man.
are the any different now?
Obama was the best investment Wall Street ever made. He not only continues the bailouts. He punts on reform. And best of all he has their back protecting them from investigation and prosecution.
in 1832 andrew jackson called them vipers,thieves,parasites pirates and hydra headed monsters eating the flesh of common man.are they any different now?
The financial sector is little more than 3rd party vendors supplying the banking companies with the software programs to run their businesses and the economy. At some point, it will be clear that the social relations are now governed by the software that manages the social order, and not the organizations composed of banking specialists. Previously, banking was a skill, it did provide a measurable service. The loan officers of today, for example, have absolutely no credit training. The decisions are driven by Fico scores, drive by appraisals, all of which are rapidly being automated by the dot com crowd. For the most part, intangible services can be automated by the internet to a degree that we are just beginning to appreciate. The USPS could paypal the entire web bill payment market, and cut out the percentage, charging a small flat fee. This could wipe out all electronic banking plays, such as Visa, direct deposit of wages, and internet bill paying. Imagine if the Post Office took a percentage of every check mailed, instead of charging a flat fee for a stamp. That is what paypal, visa and all other forms of electronic banking are doing and doing it more so because the internet is so commercially viable. Twitter is entering the electronic banking market. The entire financial services sector is vulnerable to internet automation. Think of the music industry and sales of CD’s and peer to peer file sharing. The Federal Government could put a gun to the head of the entire banking industry by forming a USPS/Federal Reserve joint venture on the internet and decimate the bankers. How hard could it be? Go ask your teenagers in college and high school.
Whereas the Lloyd et al testimonial train wreck could be entertaining, as a very minor holder of GS, I believe the Goldman Board should literally prohibit Lloyd et al from testifying on Tuesday. It is the Board’s duty to shareholders that must be considered tantamount at this point. The sociopathic pattern of “i can beat this” is alarming. Clearly LLoyd et al know that the feds have some goods but they are convinced that the GS gang is smarter and can talk their way out of anything (I think GS severely misunderstands their position). I do not know how this translates into a positive PR record. I do not know how this translates into protecting the franchise. Who the hell is advising the Board? Shut up, pay up and stop doing stupid things.
Also – GS strategy re they lost money on CDOs but made money on hedges/shorts is only bringing the prop trading issue to its logical rock and a hard place resolution. You can’t claim to care about the client at the trench level and then throw him to the wolves from the safety of the general’s quarters.
Or should I say, you can, but you should pay the consequences.
PS – Board members responsible for compliance issues – you may want to revisit that rule that allows senior folks to “opt out” of mandatory compliance training on email and document retention. Obviously they need a refresher. It is never the junior guys that get you into real trouble…………..