"Morgan Stanley, the No. 2 U.S. investment bank, reported a $9.4 billion writedown on Wednesday from bad bets on mortgage-related debt, leading it to take a $5 billion infusion from an arm of the Chinese government." AP via Yahoo today.
And so begins the Wednesday before Christmas, where still another firm announces losses of an extraordinary measure. One wonders if John Mack will be sufficiently tarnished to the point where he has step down. I doubt it.
Forgive me for beating a dead horse, raising it from the dead, and rebeating, but one thinks back to Mr. O'Neal of Merrill and the feathering (post tarring) he took, and the continued story arc that Merrill under Thane is returning to a more sensible and loving corporate environment, including the bringing back of previously hacked off hands.
Can we cross our fingers and see Mr. Mack on the unemployment line? For consistencies sake? Or is Zoe Cruz his stand in and the sole responsible party for the dark arts of efficiently losing a lot money?
Not that I think Mack should be fired. Nor do I think Mr. O'Neal should have been fired. Well, actually, they all should, or they all shouldn't, and one should make a case for consistency in standards.
In an industry where everyone was running the same plays, one ought not to penalize some while others get a free pass.
Merrill aside, Morgan now joins the long list of companies self pimping to foreign buyers, following in the footsteps of Citi with China, and Bear in selling a little bit of its soul to Abu Dhabi*.
(*I have no qualms about foreign owners, as I think it's a good sign of western ways becoming the norm in places where they were not in the past. However, there is some loss of dignity in the manner in which this is taking place, or is that me?)
Wednesday, December 19, 2007
Saturday, December 15, 2007
Goldman Sachs' Brains Hurt Others and Peers
Certain things are not accidental or coincidental, and one can assume that the December 14th article in the Wall Street Journal by Kate Kelly was one of those non-accidental journalism moments.
In it we learn how Goldman Sachs managed to maintain its earnings momentum while its peers suffered. In fact Goldman has faired so well that is has caught the attention of the masses, and Washington. More than a few people seem hung up on the fact that Goldman, while selling CDO's to investors and others, decided not to drink its own potion, hedging its huge exposure.
People have trouble holding two opposite ideas in their head and in this particular financial downturn, there are a number of facts that people are failing to grasp, while looking for easy answers and scapegoats. Thus, the same people who could lambast Merrill for its early announcement of big losses, can also cry fraud and cabal when Goldman shows the wisdom that Merrill obviously lacked.
Of course the average citizen knows nothing about hedging or protecting the downside, aside from the insurance they reluctantly buy. If left up to their own devices a huge amount of people would go without any sort of insurance altogether, Merrill UBS'ing their way through life.
And for each increase in the insurance cost, and for every ounce they pay, they say, "Well, I am an excellent driver" or "My home will never flood and I am being ripped off" or "I am paying for nothing, I never get any payouts". The flipside to this is the insurance company making a payout to them as they sit comfy in paraplegic chair, but that never seems to occur to them. To most people hedging is a mystery even though they do it in their daily lives. When finance types do it, it smacks of something vaguely underhanded.
So one must ask these people, these rumor mongers and ignorantly wise cynics, is it better to be Merrill, or UBS, or Citi, announcing huge losses and taking investments from overseas to shore up the balance sheet, or is it better to be Goldman, awash in profits due to the prudent laying off of risk.
Nobody is really going to take the time to pose the right questions, opting instead to come to the most ridiculous conclusions that vacillate between envy, ignorance and vain imaginings.
That being the climate, it comes as no surprise to see the Journal article lifting the veil. We get to observe how early and sensible Goldman staff were in coming to the conclusions they came to. The question is asked, "Why did Goldman continue to peddle CDOs to customers early this year while its own traders were betting that CDO values would fall?"
Question asked, and question answered a few paragraphs later:
Well Goldman was, and across the leadership of the firm.
The screenplay for this particular financial disaster is being written as we speak, and the writers are trying to suggest that this entire mortgage ponzilooza was due to the sellers. That would be Wall Street, your bank, your local mortgage merchants. Like our drug problems, it is so much easier to blame the sellers and not the buyers, and especially when the buyers are that nice little couple down the street who are, in some glorified theoretical world, "playing by the rules".
Under this line of thinking the little guy is assumed to be honest, if a little stupid, and duped all the way into the house that dwarfs his income.
But lets be real for a moment. Often enough we hear of the aggressive tactics of mortgage dealers who apparently were telling people, "Don't worry about the structure of this mortgage, you can refinance." Retrospectively this was almost criminal, ridiculous advice... that is, for those mortgage dealers who had psychic abilities. Who really imagined that home prices would suddenly stop rising? The buyers were willing to gamble on a tight deal structure because they were calculating that values would rise and that incomes would stay in a general range and that at worst if it got tight, they could flip it off to someone else for a small to large profit.
Why should the person selling the loan have greater market insight? Sales people are not in fact economic pronosticators, nor the swiftest and finest.
What really caused everything to come apart?
If CDO's were dropping in value, one must assume that the underlying components were losing value. And why would that happen? What might make a mortgage backed security lose value?
Well we know. Somewhere deep in the heart of many people is a level of greed that matches anything you might see on Wall Street. It manifests itself in little things and ways, like trying to own things you can't afford. The contract signed, and suddenly, the ducks fall out of line: divorce there, job loss here, increase of gas prices yonder and then quick default. Times one. Times two. Times Ten Thousand. Times some guy in some Wall Street firm saying, "Oh gosh, look at this."
Goldman came to that "Oh gosh" moment quicker than most, and wisely protected itself. One cannot fault the firms for adding to liquidity and getting Americans into homes, nor can you fault a given firm for hedging its risk, but you can fault the millions of little defaults that are the root cause of all of this mess.
Mirror mirror on the American wall, who is the biggest fool of all?
In it we learn how Goldman Sachs managed to maintain its earnings momentum while its peers suffered. In fact Goldman has faired so well that is has caught the attention of the masses, and Washington. More than a few people seem hung up on the fact that Goldman, while selling CDO's to investors and others, decided not to drink its own potion, hedging its huge exposure.
People have trouble holding two opposite ideas in their head and in this particular financial downturn, there are a number of facts that people are failing to grasp, while looking for easy answers and scapegoats. Thus, the same people who could lambast Merrill for its early announcement of big losses, can also cry fraud and cabal when Goldman shows the wisdom that Merrill obviously lacked.
Of course the average citizen knows nothing about hedging or protecting the downside, aside from the insurance they reluctantly buy. If left up to their own devices a huge amount of people would go without any sort of insurance altogether, Merrill UBS'ing their way through life.
And for each increase in the insurance cost, and for every ounce they pay, they say, "Well, I am an excellent driver" or "My home will never flood and I am being ripped off" or "I am paying for nothing, I never get any payouts". The flipside to this is the insurance company making a payout to them as they sit comfy in paraplegic chair, but that never seems to occur to them. To most people hedging is a mystery even though they do it in their daily lives. When finance types do it, it smacks of something vaguely underhanded.
So one must ask these people, these rumor mongers and ignorantly wise cynics, is it better to be Merrill, or UBS, or Citi, announcing huge losses and taking investments from overseas to shore up the balance sheet, or is it better to be Goldman, awash in profits due to the prudent laying off of risk.
Nobody is really going to take the time to pose the right questions, opting instead to come to the most ridiculous conclusions that vacillate between envy, ignorance and vain imaginings.
That being the climate, it comes as no surprise to see the Journal article lifting the veil. We get to observe how early and sensible Goldman staff were in coming to the conclusions they came to. The question is asked, "Why did Goldman continue to peddle CDOs to customers early this year while its own traders were betting that CDO values would fall?"
Question asked, and question answered a few paragraphs later:
"Last December, David Viniar, Goldman's chief financial officer, gave the group a big push, suggesting that it adopt a more-bearish posture on the subprime market, according to people familiar with his instructions. During a discussion with Mr. Sparks and others, Mr. Viniar noted that Goldman had big exposure to the subprime mortgage market because of CDOs and other complex securities it was holding, these people say. Emerging signs of weakness in the market, meant that Goldman needed to hedge its bets, the group concluded, these people say."Last December of 2006? Who among us was thinking about any of this last December? Maybe people working on Wall Street in some fashion and to greater or lesser degrees. But was the average politician really thinking about this? Were average folks thinking about this stuff? Was I? (Certainly being one of those average folks, living paycheck to mouth, barely able to save).
Well Goldman was, and across the leadership of the firm.
The screenplay for this particular financial disaster is being written as we speak, and the writers are trying to suggest that this entire mortgage ponzilooza was due to the sellers. That would be Wall Street, your bank, your local mortgage merchants. Like our drug problems, it is so much easier to blame the sellers and not the buyers, and especially when the buyers are that nice little couple down the street who are, in some glorified theoretical world, "playing by the rules".
Under this line of thinking the little guy is assumed to be honest, if a little stupid, and duped all the way into the house that dwarfs his income.
But lets be real for a moment. Often enough we hear of the aggressive tactics of mortgage dealers who apparently were telling people, "Don't worry about the structure of this mortgage, you can refinance." Retrospectively this was almost criminal, ridiculous advice... that is, for those mortgage dealers who had psychic abilities. Who really imagined that home prices would suddenly stop rising? The buyers were willing to gamble on a tight deal structure because they were calculating that values would rise and that incomes would stay in a general range and that at worst if it got tight, they could flip it off to someone else for a small to large profit.
Why should the person selling the loan have greater market insight? Sales people are not in fact economic pronosticators, nor the swiftest and finest.
What really caused everything to come apart?
If CDO's were dropping in value, one must assume that the underlying components were losing value. And why would that happen? What might make a mortgage backed security lose value?
Well we know. Somewhere deep in the heart of many people is a level of greed that matches anything you might see on Wall Street. It manifests itself in little things and ways, like trying to own things you can't afford. The contract signed, and suddenly, the ducks fall out of line: divorce there, job loss here, increase of gas prices yonder and then quick default. Times one. Times two. Times Ten Thousand. Times some guy in some Wall Street firm saying, "Oh gosh, look at this."
Goldman came to that "Oh gosh" moment quicker than most, and wisely protected itself. One cannot fault the firms for adding to liquidity and getting Americans into homes, nor can you fault a given firm for hedging its risk, but you can fault the millions of little defaults that are the root cause of all of this mess.
Mirror mirror on the American wall, who is the biggest fool of all?
Subscribe to:
Posts (Atom)