Sunday, May 09, 2010

Goldman in the cross-hairs

I can't comment about the merits of the particular case in which SEC has brought allegations of fraud against Goldman. But the broad case about investment banks having to make disclosures of all kinds of positions- their own and their clients- is, I am afraid, rather weak.

I would go along with Blankfein that when Goldman sells a package of securities to qualified investors, it is for them to take a view on the attendant risk. What view Goldman or any other clients should not be of interest to them.

I dilate on the Goldman case in my last ET column, Gunning for Goldman.

I find my sentiments echoed in an FT piece. The author suggests Goldman is becoming a scapegoat for others' failures:

......my unease has to do with the possibility that Goldman has become a scapegoat for millions of homeowners and investors psychologically unable to admit at least partial fault for succumbing to the madness of crowds and lure of easy money. The one investment bank that hedged appropriately and enjoyed a hugely profitable rebound is an obvious target. “The idea that Wall Street came out of this thing just fine, thank you, is something that just grates on people,” said Senator Ted Kaufman. Goldman may or may not have done anything illegal, but most Americans do not give them the benefit of the doubt.
Interestingly, the author asks whether the firm's Jewishness is stoking prejudice:
In Goldman’s case, some even wonder whether the group’s perceived Jewishness has infected legitimate criticism of it with centuries-old prejudices against a group with a long history of being scapegoated. Michael Kinsley, writing in AtlanticWire, cites echoes of the infamous blood libel. New York Times columnist Maureen Dowd earned rebukes from theologians after writing that “blood-sucking banks” like “Goldmine Sachs” were “the same self-interested sorts Jesus threw out of the temple”.

13 comments:

Rituraj said...

Hi TT RamMohan
Exactly true !!!!!! Goldman is not only involved in complete scam. What about those companies (banks) who were providing easy loans to subprimes.
What about those banks who were accepting Home securities from sub prime.

Well you have pointed out very good point out here. But this recession's root are still there to cut the consumer confidence. what do you say about it?

blackadder said...

So if I were to lie about the condition of a second hand car and sell it to you, that would absolve me of all blame right?

Anonymous said...

Usually I find myself agreeing with your comments but not this time. Just because there are other guilty parties does not automatically confer "scapegoathood" on the biggest scoundrel....

Argentina Tours said...

ya i agree to his post.....

T T Ram Mohan said...

Blackadder,
The analogy is not with somebody who lies about the condition of a second hand car. The analogy is with somebody who sells a second hand car but does not dislcose that somebody else bought a second hand car of the same quality from him. That's not a crime, is it?

-TTR

blackadder said...

To Professor TTR - I think you are underestimating the malafide intentions of GS here. They made a product specifically designed to fail in order to benefit a client. That's called a fraud. In this case they brokered a deal between two parties one of whom also chose the securities that would be part of the CDO. Hence, one side clearly had an information advantage. It might turn out after a lot of litigation that what GS did was just within the pale of the acceptable. But I am afrain I do not agree with your summary dismissal of the charges. One might as well openly allow insider trading.

blackadder said...

You may want to read a counter view from someone who thinks the case against GS is stronger than it seems at first.

http://blogs.forbes.com/greatspeculations/2010/05/11/a-closer-look-at-the-case-against-goldman-sachs/

T T Ram Mohan said...

Blackadder,

I appreciate the point you are making. As I emphasise in my column, I am not pronouncing no the Paulson-related transaction that forms the basis the SEC's fraud case. I am commenting on the broader issue of potential conflicts of interest at investment banks such as Goldman.

-TTR

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