Crucifying Goldman With Old Nails On Eve of Jesus' Birthday

Here is yet another article that leads with Goldman, Sachs and ends with the implied accusation that somehow the big investment banks did something wrong by selling a product that allowed buyers to bet on the health of the housing industry while hedging their own exposure to those sales.

Gretchen Morgenson tells us nothing new, or nothing really criminal. Here you have big sophisticated buyers who bought collateralized debt obligations (C.D.O's) or bet on them, because they were optimistic on the direction of the mortgage market. The reporters writing these pieces, and who had no wisdom at the time, seem to be saying that Goldman and other firms should have immediately stopped selling the products despite the demand. Goldman at all times, and presumably across all products, should be in harmony with what their clients buy. Utter nonsense. Across industries companies hedge their exposure to products they sell, and that should be even more the case when trading financial assets.

When you are selling financial products that are constructed like a financial equation, and where your firm is a fixed entity in that equation in some cases, you then hedge your exposure so you don't lose. It's like someone having a yard sale. Yes you kinda like your junk, and you bought it all at one point, but eventually you realize you are not so high on that lamp or that sofa, and you get rid of it to someone who still thinks it has value.  Or maybe it's more like some insurance company selling you home insurance, and then taking the money you paid in premiums and making some wise investment with that money in case you or bad luck wrecks your home.

But not quite. Goldman was betting against its own products, so it would be like an insurer selling insurance, then making some sort of bet against your actual house with the premiums.

“The simultaneous selling of securities to customers and shorting them because they believed they were going to default is the most cynical use of credit information that I have ever seen,” said Sylvain R. Raynes, an expert in structured finance at R & R Consulting in New York. “When you buy protection against an event that you have a hand in causing, you are buying fire insurance on someone else’s house and then committing arson.”

(N.Y. Times)

Yea, yea. The commentary is all back seat driving about an industry that needed more up front supervision or regulation. The criticisms amount to Goldman having to be equally delusional, or, to turn down sales business and focus all their efforts on negative bets on mortgages. Neither option leads to more peace of mind because Goldman did not cause the problem the country faced. It was one small part of a flawed market that began with the people obtaining home mortgages they could not afford in any market climate.

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Other News:

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  Democrats are in a super good mood now that a healthcare reform bill has been signed. Republicans will probably spend part of the vacay meeting up and trying to come up with the most effective demonization path to sway the voters before 2010 elections. One of the big criticisms of Obama has been that he is forever talking and never producing. He is in over his head. But you can't talk about his ineffectiveness when he manages to change something nobody has been able to do despite numerous attempts.
  

  "The Senate’s action also brings Obama to the brink of signing into law the kind of reforms that have eluded presidents from Teddy Roosevelt to Bill Clinton."
  

  and
  

  “This is for my friend Ted Kennedy. Aye,” said Byrd, who turned 92 last month and has missed much of the year due to illness. Obama called Kennedy's widow, Vicki Reggie Kennedy, who also watched the vote from the gallery, after the Senate passed the bill.
  

  (The Hill)
  

  
  If Democrats get out there and sell the benefits and push, Republicans will have a hard time turning Obama's victory into electoral failure.
  
  

• Initial jobless claims have fallen to their lowest level since September 2008, which is another economic sign that the Republicans better have a back up plan for running on economic issues without some solid ideas.

• Snowing in Midwest-Rudolf annoyed. Don't go there!  But Santa has to go there and you can track him (as can Al Queda, hmmm), even though, well, you know. Just remember that if you are a single mom and also my girlfriend, your child will know that no fat fake senior citizen with homosexual reindeer gave them that awesome gift.(Depending on how much they like it. If they hate it, that's all on Santa and good luck next year). 

• New York Magazine makes head of Goldman, Sachs look sexy.