Goldman Sachs Group Inc. plans to accuse the U.S. Senate Permanent Subcommittee on Investigations of drastically overstating Goldman's bets against the housing market in 2007...In other words, Goldman will try to prove that they are as dumb as the dumbest Keynesians, who didn't see the housing bubble coming, that they weren't aggressively short the housing market before the housing crash and had no clue the housing market was in a bubble.
There is a knee jerk reaction that causes one to think that anyone who needs to use this type of defense is actually pretty dumb. It really seems to fit here.
As Sam Antar has suggested, it appears that even Goldman's lawyers are pretty dumb for allowing Goldman executives to get snared in the "perjury trap", when they initially testified before Congress about the financial crisis.
The Goldman defense comes about because Goldman execs during their testimony before Congress about the crisis said they did not have any significant bets against the housing market before the housing crash, and the U.S. Senate Permanent Subcommittee on Investigations led by Carl Levin, says they did. Without seeing all the documents, which Goldman may release, it is difficult to know what Goldman's net position was in relation to the housing market. That said, what difference does it make? Goldman Sachs is a market maker and like any market maker in the world, it will often have a net position opposite that of the person it is trading with.
If Goldman was actually net short the housing market before the crash, it means nothing illegal or unethical was done on their part, and they should be beating their chests for accurately foreseeing a calamitous event. If they were net short and tried to spin the story otherwise before Congress they are dumb and, further, may get hung for perjury.
As for Levin and his headline seeking Goldman bashing, he should quit wasting time over legitimate trades that Goldman may have conducted, regardless of how they tried to spin the story. He should instead look at the trading done during the crisis between Goldman and the Federal Reserve, where sources tell me the Fed was shoveling money to Goldman by making trades with Goldman that were hugely profitable for Goldman. That's where the real odor is coming from.
At least with respect to its housing bets through AIG, we know GS was massively net short ($3.4 B).
ReplyDeleteFrom an internal FRBNY memo I quoted here (http://english.economicpolicyjournal.com/2011/02/fcic-releases-telephone-transcripts-aig.html):
"Goldman: is a special case because their CDS with AIG are a naked short position and they don't own the bonds. If the CDS are just torn up at current mark-to-market, the value of that mark influences the cash Goldman will receive in a way that is not the case for the counterparties who own the bonds and will be receiving par."
I agree GS had every right to bet against housing, even taking the other side of its own clients, but do not agree it should have been made whole on its shorts by the Fed in a way that even other big banks were not.
Afterward, two top dogs at GS would later said this, as reported by HuffPo:
"At a hearing on July 1, 2010–two weeks before Goldman sent the e-mail acknowledging how $2.9 billion in AIG funds wound up in its own account–the crisis panel questioned Goldman’s chief financial officer, David A. Viniar and managing director David Lehman. Both said they knew nothing about AIG funds landing in the bank’s private coffers, according to a transcript of the hearing…"
Looks like perjury, unless they can grease the wheels and spin that it was Fed money, not AIG money, that landed in their firm's private coffers.
I believe we are now observing confident-sounding economic theories which can be excuses for all kinds of economic and political mischief.
ReplyDeleteThe financials will argue that it wasn't their fault, they were only doing what Congress had provided for them through deregulation. Congress wanted them to provide the easy drive-thru financing not just to the wealthy but to everyone.
ReplyDeleteIt's definitely difficult to resolve issues that involve legal aspects in real estate. I just hope all things will finally get back to normal.
ReplyDeleteManila Condo
I hope they find a way to resolve this issue. Goldman Sachs should just accept the overstatement of its bets against the housing market.
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