Poor Ol’ Goldman

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Poor Ol’ Goldman…

Just trying to do ‘God’s work’…

And everybody treats it like the devil.

The Washington Post yesterday carried a front-page headline, portraying the firm as though it was Satan himself:

“Cheers at Goldman as housing market fell.”

Goldman executives were in a good mood for a good reason: they had bet against the mortgage market.

Of course, that was the only reasonable thing to do. Anyone could see that the housing market was in a bubble. And everyone knew that the bubble would blow up sooner or later. Nobody knew better than Goldman because the firm helped create the bubble…selling those delicious, but teeth-rotting, mortgage-backed securities all over town.

Goldman did the right thing. It bet against the mortgage market.

Naturally, Goldman execs were happy when their bets began to pay off.

But to hear the press tell the story, Goldman executives were like a devilish cabal…cackling about the fall of the mortgage market as if they were celebrating the sacking of Rome.

“Sounds like we will make some serious money,” said one exec in an email.

Serious investors should pay no mind to the Goldman story. The Wall Street firm did the right thing – it helped separate the numbskulls from their money. And now, the numbskulls are moaning and the SEC is trying to salvage its reputation by prosecuting Goldman for betting the right way.

As usual, the pundits are on the story too – kicking the poor Goldman crew when they’re down. And as usual, they are drawing all the wrong conclusions.

Roger Lowenstein, in the New York Times:

WHILE the Securities and Exchange Commission’s allegations that Goldman Sachs defrauded clients is certainly big news, the case also raises a far broader issue that goes to the heart of how Wall Street has strayed from its intended mission.

Wall Street’s purpose, you will recall, is to raise money for industry: to finance steel mills and technology companies and, yes, even mortgages. But the collateralized debt obligations involved in the Goldman trades, like billions of dollars of similar trades sponsored by most every Wall Street firm, raised nothing for nobody. In essence, they were simply a side bet – like those in a casino – that allowed speculators to increase society’s mortgage wager without financing a single house.

The mortgage investment that is the focus of the S.E.C.’s civil lawsuit against Goldman, Abacus 2007-AC1, didn’t contain any actual mortgage bonds. Rather, it was made up of credit default swaps that “referenced” such bonds. Thus the investors weren’t truly “investing” – they were gambling on the success or failure of the bonds that actually did own mortgages. Some parties bet that the mortgage bonds would pay off; others (notably the hedge fund manager John Paulson) bet that they would fail. But no actual bonds – and no actual mortgages – were created or owned by the parties involved.

Lowenstein’s point is that Wall Street has lost its way. It is no longer providing a useful service. Instead, it has turned itself into a casino.

So far, so good.

But his solution? More regulation!

Of course, the regulators were on the case the whole time. But, according to the news reports last week, while the biggest scams of all time were going on the SEC team was busy watching porn on its office computers! It missed Madoff. It missed Sanford. It missed the greatest bubble in financial history.

More regulation? Forget it!

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
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6 Comments on "Poor Ol’ Goldman"

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whereisthetruth
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The world should hate Goldman. It has used it’s considerable insider-trading abilities, stand-over tactics and political influence to scam investors by outright lying about their ‘pig in a bag’ investment products they knew would blow up but were marketed as ‘AAA Mortgage Backed Securities’. The deft skill they used to slice and dice this manure to disguise it enough to allow them to make their billions is a testament to their ability, but also to their dishonesty. Goldman is a blight on society. They and those like them need to be turned inside out and all of their dirty dealings… Read more »
blaz
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again defending goldman. What is DR’s association with Goldman? Maybe you guys are a bunch of short sellers after all.

Lachlan
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Bill likes to be contrarian. Maybe Goldmans actions will precipitate the worst from people before turning out something of greater value…oh yeah and when Gods purpose is fullfilled Goldman gets thrown in the lake of fire over which gold investors are barbequing prime cuts and marinated king prawns.

prozak
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Blaz,

1. They were being sarcastic

2. “Maybe you guys are a bunch of short sellers after all.” –
Huh?
Is this meant to be some sort of insult? All it does is show your ignorance.

blaz
Guest

Think again prozak. this is what Bonner said in his last goldman story:http://www.dailyreckoning.com.au/goldman-stole-the-money-fair-and-square/2010/04/09/

“Here at The Daily Reckoning, we’ve always taken Goldman’s side. We’ve always had a weak spot for cripples, lamebrains and predatory lenders. Besides, Goldman stole the money fair and square.”

Bonner wants to blame idiots/suckers/politicians/govts, not Wall St firms that commit fraud. Oh how did a different DR writer put it? did Goldman “technically commit fraud”. Just say it “commited fraud” for fk sakes.

You have a better chance of getting real info from marketoracle.co.uk or zerohedge.com

prozak
Guest

Lol… you think they were being serious..?

Marketoracle is much better admittedly…. but beware some writers there also have an agenda.

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