Goldman Sachs–Analysis beyond the leftist hyperventilating
In looking at the accusations against Goldman Sachs, it is important to do logical analysis beyond the leftist hyperventilating.
I keep saying that Goldman Sachs is above the law. They will not be punished because Goldman Sachs is our federal government. Congressman and the president will huff and puff, but they don’t want anybody who could roll over on Timothy Geithner, Jon Corzine, or Robert Rubin getting in trouble. Barney Frank and Christopher Dodd want to look tough and accomplish nothing (in keeping with their entire careers).
Nobody at Goldman Sachs will get into trouble.
Yet for those burning with rage, can you at least admit that unless you have Wall Street experience, that you probably have no idea what Goldman Sachs actually does?
Do you know the difference between being a stockbroker, financial advisor, financial planner, money manager, financial analyst, investment banker, or underwriter?
Do you know what a syndicate is?
If not, learn about Goldman Sachs before bashing their skulls in.
These leftists going after Goldman Sachs are the same ones that were convinced that Enron and George W. Bush were the same thing because they were both from Texas. Dubya was connected to oil. Too bad Enron was an energy company, not an oil company.
Dick Cheney led Halliburton, which had something to do with oil. Yet most people have no idea what Halliburton actually does. “Something with oil” is not an answer.
Now as for Goldman Sachs, depending on what actually happened will determine if they did anything wrong.
This is called relying on facts rather than raw emotion at “evil Wall Street.”
Let’s start with the basics. It is completely legal to bet that the market will go up. It is also legal to bet that the market will go down. That is called short-selling.
In some countries, short-selling is illegal. Richard Nixon called it unpatriotic. I used to hold that view. I was wrong. If I believe that the market is going down, I have every right to take that bet.
(It is also easier to make money on the downside because fear is more powerful than greed. Stocks do not go straight up, but they can go straight down. Even the “big boys” fear trying to catch a falling knife.)
If Goldman Sachs believed that the market was overvalued, and decided to place big bets against it, there is nothing inherently illegal in this behavior.
So what actions would be illegal?
A broker (or firm) is not allowed to “split their book in half.”
This means that they cannot make buy recommendations to half their clients and sell recommendations of the same securities to the other half. Two separate brokers can make different recommendations if they disagree.
With all rules there are exceptions. The key with trades is that they have to be justified. The burden of proof is on the firm. If a broker recommends that most of his clients buy shares of XYZ (a generic name used in examples similar to “widgets,” not an actual company), he will be questioned if his biggest client is selling XYZ. Perhaps that client already has a profit and wants to lock in the profit. Again, the explanation must be reasonable.
Being wrong is legal. What is illegal is not having a reasonable basis for making a trade.
A broker cannot take the opposite side of the trade of their clients. Analysts cannot go against their own recommendations. They cannot downgrade a stock to buy it at a cheaper price or upgrade it to sell at a higher price.
Trading on inside information is illegal.Information must be available to the general public before insiders can transact.
If Goldman Sachs had inside information that a certain market was going to collapse, and they transacted on that private information, they have broken the law.
If the firm recommended that their clients buy the very securities that insiders were selling, this must also be punished.
What we as Americans cannot do is rail against some undefined cliche of “Wall Street greed.”
Yes, there has been illegal behavior on Wall Street. However, every industry has bad apples. Plenty of Wall Street professionals are hardworking and honest.
It is possible that even the best and brightest on Wall Street got some very big bets wrong. In that case the firm is a victim of market risk, as we all are if we invest.
Yet if the game was rigged in their favor, and they played the rigged game against their own customers, then heads need to roll.
Before jumping on Goldman Sachs, remember that a firm is made of individuals.
Which individuals are being accused?
What are the exact charges?
What is the firm’s defense?
Was there criminal behavior, honest mistakes, or nothing illegal at all?
We should let the process play out.
It is difficult to breathe deeply and be patient when people are losing money.
Goldman Sachs is not an easy firm to defend from a sympathy standpoint.
Yet these are the reasons why we must be patient and find out exactly what happened and why.
Shooting first and asking questions later is not the solution.
eric
May 14th, 2010 at 6:33 pm
The investment banker did absolutely illegal, and this is the bottom line.
Where they acted immorally is another matter.
Folks, capitalism as an economic system is sometimes viewed
as morally corrupt, as it basis it’s entire structure on the backs of
someone ( hear workers).
But capitalism also requires taking risks. If someone bets wrong
(makes a bad investment) and THEY lose, no one in the liberal community
will feel any sympathy.
How many times have I heard, the rich get richer..you know the rest.
But often times, they lose both ways, no children (or fewer) and
their investments.
When the market plunged from 14,400 to 6800 within 1 year, who lost I ask, the most? The answer is obvious..they lost trillions. Additionally
home values went down 35% and commercial property 40%.
Were the liberals crying over their losses? I didn’t hear a whimper.
True, 401Ks lost equity…then regained some of it back. But,
no one forces anyone to create a 401K.
Many years ago, I invested in the market when interest rates were
high, too high for any stock purchases. My broker told me to sell the
shares which were doing poorly and replace with lower priced stock.
I listened. I erred big time.
I bought Apple stock at 18.00 ps., and sold in the 30s. I made a profit.
I didn’t realize that it would go to 265 per share. I acted prematurely.
I am an adult. I make mistakes. I admit to that.
The investors in Goldman knew what they were doing.
They lost. Goldman did nothing wrong. They did not make the
market. They bought and sold for their clients., who are not
unsophisticated.
The wrong was the bi-partisan bailout of these firms..handling
trillions to those firms too big to fail (Read: Too Big to Fail).
This is the real crime., when the US govt bails out (at a risk) large
banks, and car companies..while you and me are given no financial
support. There is something unfair about this.
Was the failure of Lehman Bros smart? Was giving billions to AIG smart?
Should we have allowed GM to have a fresh start with out money?
Was giving money to people who could not afford the mortgages smart?
Was America smart in purchasing foreign made cars, even though
parts were made in the USA, wise?
Columbia will increase it’s production of oil to over 1.2m barrels/day, thanks to discoveries and foreign investment. It is the 4th largest
supplier in South America, behind Mexico, Venezuela, etc.
Yet, the liberals under Pelosi won’t allow it to have special trading status,
claiming US workers will be hampered (from outrageous contracts) AND
guerrillas still blow up oil wells and lines (what?).
At the same time, Iran is trading oil (it claims it has none to use
for internal purposes), for uranium ore (yellowcake) with an
African country. What?
We all know WHY Iran wants more ore, to make more atomic bombs.
Folks, the Erics last post, he describes a liberal friend, who
thinks all this about Iran is nonsense, that Israel has nukes
more than sufficient to wipe out Iran.
One Iranian nuke over Tel Aviv, Haifa, Jerusalem, and it’s all over
but the ruined bagels, and kishka and pita bread. Millions of Jews
Arabs, and others will be burned to a crisp.
Speaking of crisp, anyone see the LA Timess article about a Sunni
lad dowsed with flame by as yet unidentified Arabs. You see
his parents are mixed Sunni and Shia.
I keep asking myself, why are not his fellow Arabs intervening in these
wars (which are civil wars in reality)? With 1.4m Muslims, all hating
we Jews and Infidels (Christians), and focusing their attention to US,
why not instead use their massive armies in their own region to end
the bitterness and infighting?
Where are you Obama in all of this? How many more US boys and girls
will be killed in Afghanistan before you get it? The Taliban are
Afghans. The insurgents are Sunnis and Shias. The Iranians
are out real enemies. Where were you during their protests against
Ahmad? Why are you silent? Why are you demanding we Jews vacate
our spiritual capital city 11,000 miles away? Hows about using our
3 fleets to take out Tehran, Hez and Hamas instead?
May 14th, 2010 at 8:13 pm
“I keep asking myself, why are not his fellow Arabs intervening in these
wars (which are civil wars in reality)? With 1.4m Muslims, all hating
we Jews and Infidels (Christians), and focusing their attention to US,
why not instead use their massive armies in their own region to end
the bitterness and infighting? ‘
If the Saudis actually helped the Palestinians and others fueding they would lose the sublime proxy base for their cause.
This way they leave opportunity for Israel to slip and blame them or at least leaving things as they are gives promise to jew free middle east.
Its like being pricipal of a school where a kid you dont like gets in a fight everyday, but wins everyday. You do nothing in hopes that one day he’ll end up dead
May 15th, 2010 at 12:20 am
There is such a thing as institutional corruption. Goldman Sachs is the epitome of that. Ben Stein wrote a great piece that other day about the “drunken frat boys” on Wall Street. It’s time to rein these sleazy crooks in.
“If the Saudis actually helped the Palestinians and others fueding they would lose the sublime proxy base for their cause.”
Which is also why Iran will never nuke Israel.
JMJ
May 15th, 2010 at 5:36 pm
“Which is also why Iran will never nuke Israel.’
I wouldnt bet on that, but it doesnt really matter if they use a nuke or not, does it ? And in a way, you’re right. Israel will probably b*tch slap dizzy them before they can actually produce a deliverable nuke
They’ve already funded enough weaponry to Hamas where blowing their a$$es away today would be justifiable.
May 17th, 2010 at 10:51 am
> Barney Frank and Christopher Dodd want to look tough and accomplish nothing (in keeping with their entire careers).
Oh, come on. Give the piece of ecreta penishead Frank his due.
He almost singlehandedly brought down the American Economy by shielding Fanny and Freddy from official scrutiny as head of the Senate Banking committee.
Hardly nothing. He almost achieved the dream of ultraliberal twits everywhere.