Claire McCaskill: Synthetic CDOs Are Not Like Corn

One of the highlights of today’s hearing on Goldman Sachs (aside from my Senator saying “shitty deal” over and over, was Claire McCaskill’s insistence on referring to Goldman Sachs’s Synthetic CDOs as gambling. (She did this earlier with another of the Goldman execs, after which John Ensign defended his state’s biggest industry, pointing out that everyone knows the odds are gamed to make sure casinos win, whereas with finance, the House keeps changing the odds after bets have been placed.)

But don’t worry. Lloyd Blankfein tells us none of this is immoral.

57 replies
  1. alinaustex says:

    Hi EW (hope you all had fun in Yosemite)
    I was able to watch most of the hearings on Bloomberg TV .
    My question to CEO Blankfein is if you Sir did not know about all these conflict of interests and backroom deals – and if the allegations are true -outright fraud – why the f—k CEO Blankfein do you even deserve one percent of your total salary and bonus ?
    Let the Repubitards resist the Financial Reform – we can frame this debate the way that Sen McCaskill has and beat the Grand Old Poopers about the head and shoulders with this as a winning mid term election closer for our side .
    Double dog dare Minority Leader McConnel to keep filibustering this till November –

    • Petrocelli says:

      According to GS, it’s only immoral if you lose $$$ at it. That’s why they were all so despondent that they lost a few pennies, while Rome burnt …

  2. Peterr says:

    A semi-serious question for the attorneys in the crowd:

    Is there some wrinkle in NY state law that makes it illegal to bet on the Super Bowl but legal to bet on the default (or lack thereof) of a portfolio of mortgages that neither party to the wager actually owns?

    Michael Jordan, Tiger Woods, and Guido the Bookie want to know.

    • scribe says:

      Actually, the qhole “this is gambling” riff refers back to the Gramm-Leach-Bliley Act and a section in that act which specifically stated that these derivatives (of all sorts of flavors) are not gambling – so as to not run afoul of federal laws prohibiting use of interstate or foreign communications or commerce for gambling purposes. Those prohibitions were enacted to get a hold, under the criminal law, on bookies and wire rooms. To allow the i-banks and hedgies to do their securities gambling business legally, they had to get out from under the laws enacted to criminalize bookies and bookmaking.

      I’d suspect that there’s another section in the laws somewhere which pre-empts state gambling laws if and as they might pertain to derivatives, in favor of the federal law allowing that conduct.

  3. orionATL says:

    “synthetic cdo’s”

    now that is a very interesting phrase.

    it suddenly sharpens my focus.

    (i once was blind but…)

    goldman-sachs deliberately created “financial instruments” on which they could make money either way.

    deliberately created a misleading investment opportunity.

    in doing so, g-s defrauded the national economy and at least some of their customers.

    this explains to me why blankstein has appeared so preternaturally unpreturbed in public about his corporation’s contribution to the 2008- 09 near greatest depression ever.

    and has failed to acknowledged so little wrong-doing on the part of goldman-shits (on their customers).

    • prostratedragon says:

      But, leaving aside for the moment the always contentious matter of the justification of short-selling, what GS appears to have done is much worse, imo, than inventing shorting platforms.

      They appear to have created these betting vehicles and then sold them to marks like IKB under the guise of something altogether more staid, which among other things was likely to see the kind of routine good performance in the related assets that would earn the CDOs a tidy bit of income.

      The angle that Levin in particular, and many of the others was trying was to get this crew to admit that the entire stance of their firm from late 2006 through 2007 (while ABACUS 2007 AC1 among others was being planned), so far as mortgage assets were concerned, was dedicated to the forecast that those reference assets were going to sink like a blown-up oil platform at any second.

  4. cregan says:

    At least, Sen. Kaufman, unlike some posters here, thinks the future cannot be predicted.

    As I have said before, hind sight is 20/20.

    Yes, there were a few people saying a bubble was about to burst. But, that didn’t mean it was going to happen. In hind sight, it always looks obvious.

    As an example, at the same time, there were also writers and experts saying the credit card lending was too easy and likely to lead to some disaster. It didn’t come true. There were problems with credit cards, but no collapse of the market.

    Just because someone predicted something, doesn’t mean it is going to come true and therefore everyone should follow that advice.

    As noted before, no one on this blog can predict even today where the housing market will be one year from now. You can hazard an educated guess, but that is all it is.

    As for shorting and selling long at the same time. Kaufman brings up, “well what about if you have someone who you sold a long position in some investment and now you are shorting it, is that a conflict of interest?”

    It is, ONLY IF YOU HAVE A CRYSTAL BALL AND KNOW FOR CERTAIN WITHOUT ANY DOUBT WHAT YOU ARE THINKING ABSOLUTELY WILL COME TRUE. At the time, the guy long could be just as right as you. Shorts lose money ALL the time. And man, they are convinced whatever they are shorting is going to go down.

    What if they shorted something, told the guy in a long position to get out, and then the investment went up?? Do you think that guy might come back to them for some payback?

    Investment banks are constantly selling stocks and investments that one guy thinks are going bad to another guy who thinks they are going well. Which of them is right? Only hindsight tells.

    In March of last year, I told my brother in law to get back into stocks at the point the Dow was 6500. He did and it worked out well. But, it could have gone down too.

    Those bozo’s on the dias generally had no idea what they were talking about. They were talking as if GS had an absolute knowledge of the future.

    Take Levin, he’s berating some guy Sparks because Sparks boss thought the Timberwolf deal was shitty. (I think, as Sparks noted, the guy was talking about a shitty deal for GS, not the customer). Even if it referred to the deal from a customer perspective, he’s just one guy. What, Sparks is supposed to stop selling a security because one guy at GS says it’s shitty? Yeah, hindsight, it was shitty. But, Levin goes on like it was something Sparks said or thought, even though Sparks tried to correct him numerous times.

    In hindsight, Levin looks like a genius. But, everyday, all kinds of people are predicting all kinds of futures for the economy as a whole and specific investments THAT NEVER COME TRUE. All predictions having good logical reason and evidence behind them.

    So, what is the big deal about one guys advice? It’s a big deal only if you think someone has a responsibility to predict the future. Or, you’re a bozo Senator trying to make a grandstand play while actually not trying to implement any tough legislation.

    And, with the kind of clients they were dealing with, it is highly likely they KNEW what they were buying–subprime mortgages. They generally do their own due diligence.

    And, if John Q’s posting on this blog knew (or at least claim they knew) what sort of lending was going on, I would guess a sophisticated investor in mortgage securities knew exactly what was going on the market from top to bottom.

    Why did they buy? Rightly or wrongly, they thought the market was not going to tank.

    They were kind of dumb because those companies could have hired some blogger from FDL who could have told them it was tanking and saved them a lot of money. At least, that’s my understanding from reading here today.

    • prostratedragon says:

      The casino doesn’t know it’s going to come out ahead at the end of any particular day, either.

      But it’s an awfully good business so long as other costs are kept down and the fact that the odds favor the house is not unduly emphasized.

      If you want to know what GS really thought and knew, the exhibit book (lots o’ MB) is a good starting point.

  5. cregan says:

    Overall on this mess, here’s what I think:

    1. those mortgages never should have been given to home buyers, they should have stuck with the tried and true standards.
    2. Glass Steagal (sp) should never have been repealed.
    3. All securities markets should be fully transparent.
    4. reform is needed of the mortgage giants Fannie and Freddie

    Congress is just as responsible as Wall Street–and I mean both parties; Congress as a whole.

    It irks me to see these guys, both parties, parading around in a hearing as if they are blameless babes in the woods. Taking money right and left from all sides and then never taking any responsibility.

    I’d really like to see a hearing where the banking committee members are put on the stand under oath.

    • PJEvans says:

      Congress is just as responsible as Wall Street–and I mean both parties; Congress as a whole.

      It irks me to see these guys, both parties, parading around in a hearing as if they are blameless babes in the woods. Taking money right and left from all sides and then never taking any responsibility.

      Remember that Wall Street bought Congress, not the other way around.

      • cregan says:

        I remember when Microsoft was riding high and not making any political contributions, they began to get in more and more trouble with the government and word came down to them, “What, you think you can make money in this country and not pay up to us? You’ve got another thing coming.”

        If you don’t think these Congressmen, especially Chairmen, don’t press and leverage their case, you are dreaming. You are naive.

      • cregan says:

        Likely none. That’s the point.

        They take the money, get in bed, and then strut around in these hearings making like they had nothing to do with it.

  6. orionATL says:

    prostrate dragon @10

    i sensed what you describe, that g-shits deliberately misled their customers and in a way calculated to benefit themselves.

    what i did not have,

    that you do,

    and thank you for your very articulate and detailed comment,

    is a knowledge of just how g-s pulled off their caper.

    do i understand correctly that g-s’s “products” were years in the making and selling ( you mention 2006)?

    from my standpoint as a concerned but ignorant citizen

    any and all educating you can do on this issue will be much appreciated bt me.

    (and i doubt i speak for myself alone).

    what a great tool for learning is the worldwideweb!

    • prostratedragon says:

      I’m still crawling through. It’s really helpful to have those exhibits now, but I have to go upside my head with it a few times to get all the details.

      There’s at least one big, encompassing timeline that has to do with GS’s overall investment stance. This seems to have swung from long to short on the mortgage market beginning late in 2006, about the time that bad housing news went daily.

      Then there are the embedded threads of individual deals, which some of the finance bloggers like Yves Smith and her recent guest poster Tom Adams see, at least partly, as the means by which much of the change in stance was executed. (Hope I’m not accusing them falsely.)

      The best overview so far on ABACUS 2007-AC1, the center of the SEC complaint, is the court filing, which is no too long or technical. According to that document, Paulson & Co Inc began planning for a short vehicle in late 06, and brought GS along in Jan 07. But the Senate exhibit book has a lot of material from that time, some of which definitely relates to negative evaluations of the market by GS people.

      Reviewing news from as far back as 05 this week, I was reminded that it was no secret at all by late 06 that housing/mortgage were headed for a big, big fall, and should have been considered old news by those truly in the business. So, of course, the “need” for real marks, like foreigners, nice people who sit on their pension boards as financial amateurs, and the like.

  7. orionATL says:

    prostrate dragon @15

    that was very informative. thanks.

    the last paragraph beginning

    “…reviewing news from as far back as 05 this week…”

    has me intrigued.

    the media acounts i read leave the impression that g-s’s questionable conduct was fairly contemporary, e.g., 2008-09.

    • bmaz says:

      I give the Cregan credit for hanging with what he believes, being nice and staying with us even though he is often on a different wavelength. Even if they are perceived to be wrong, there is no problem with a dissenting voice that is not monotonous and dissenting just for the sake of being so, Cregan often enough actually agrees with us here; I ain’t gotta agree with him, but but I have come to grudgingly respect that he argues and comments in good faith. And he likes Pac-10 football. That is good enough. Quite frankly, I am not sure he is even wrong here; I cannot see anything I do not agree with with in his comment @11.

      • Rayne says:

        You may agree with most of what he says at (11), but much of what he says at (9) is crap.

        Like this:

        It is, ONLY IF YOU HAVE A CRYSTAL BALL AND KNOW FOR CERTAIN WITHOUT ANY DOUBT WHAT YOU ARE THINKING ABSOLUTELY WILL COME TRUE. At the time, the guy long could be just as right as you. Shorts lose money ALL the time. And man, they are convinced whatever they are shorting is going to go down.

        Goldman Sachs knew exactly which way the market was going to run on the CDOs they were pushing, on which they were taking a counter-position. No crystal ball required.

        • scribe says:

          You forget to mention that Goldman Sachs was and is big enough to push the market in the direction they desire, either by twisting someone’s arm in to setting off a run, or by setting off the run by their own actions.

          In becoming acquainted with various i-bankers over the years, I noted that at some point of their rise in the heirarchy they suddenly went from pretty voluble, sociable people willing to discuss almost any inestment strategy or gossip about markets or whatever to seeming almost afraid to open their mouths to ask for seconds at the dinner table, for fear that their statements would move markets in any direction (and engender a securities suit by someone).

          So, when one of these characters talks, you can be sure they have calculated the impact of their speech on whatever markets they might be interested in.

        • cregan says:

          Of course, this thread is likely dead at this time. I do have to sleep. But, I disagree.

          Only in hind sight is some future event CERTAIN. As I said in demonstration:

          1. none of you can even predict where the housing market will be in 12 months from today. 13 months from now though, it will seem quite obvious that was where it was going but not today.

          2. If it was SO obvious, why didn’t more investors short the mortgage market? The answer is easy; it was only to politicians. If some bloggers here thought it was so obvious at the time, why didn’t YOU short? Answer, it wasn’t THAT certain or obvious.

          3. Similar predictions were made for the credit card market at the same time. They never came true. The credit card market never collapsed. So, just because some guy or even guys predict something does not mean it is certain to come true.

          This is basic, basic to the entire argument.

          GS actions only appear wrong if you have the idea that future events can be 100% reliably predicted. Trillions of stock transactions over the years show that many predictions, feelings, analysis’s, etc. NEVER came true.

          Shorting an investment is a prediction. Maybe it will happen, maybe it won’t. Millions of shorts find out they were wrong and lose money every month.

          By the same token, if GS feels an investment is going to go up and has a long position in it, does that mean they can’t sell a short to someone??

          Lastly, there are many, many investors who go against the reports and trends and predictions.

          By the way the Senators were acting, it was like they felt that whatever predictions for the investment market an investment bank has, they should make sure all of their investors only do as they do.

          But, what if GS wouldn’t sell their customers anything that went against the grain of what GS thought was going to happen? And, their prediction doesn’t happen? Investors would be angry.

          Investment banks have to be neutral in this respect because their feelings, predictions, analysis’s could be right or wrong. NO bank has a 100% record of being right with market predictions.

          Against this, we have your position of “Well, you’re just wrong.”

          To me, so what if some manager says some deal is a shitty deal. My accountant thought my business was stupid, doomed to failure and that I ought to just get a regular job. He turned out to be real wrong. He could have been right, and then it would have been “obvious” I was dumb.

          Lucky for me, nothing in the 1 to 2 year future is obvious.

          • Hmmm says:

            You don’t think there was the teensiest bit of information asymmetry at work there? G-S is practically built on information asymmetry, see supra in re 1 mSec lead time on trading information.

  8. prostratedragon says:

    Random thought: the GS fellas might be victims of sort of a “sophisticated investor” scam triggered by the early release of a few rather suggestive e-mails over the weekend.

    Even rubes who have watched the other three COI sessions were doubtless aware that the exhibit books for each tended to be upward of maybe 400 pages, comprising scores and scores of individual items. A sophisticated witness would have taken that into account without needing to be informed, as an advisory against a full-throated outcry of “cherry picking!” in the media over just two or three.

    Or if you prefer, there’s the “teaser rate” variation in which the mark, given a tantalizing glimpse of just what he wanted, leaps in with full committment, only to meet with a titanic load of further, ah, adjustments

    Or-r-r, maybe in recognition of our young French participant, the weekend release was just a little petard by which a door could be opened …

  9. orionATL says:

    bmaz @21

    yeah, 11 was creagans concession that there was merit to what he was originally objecting to.

    but #9 is just the disguised right-wing
    b-s i was talking about.

    bottom line is c.reagan has more objections to small matters of fact than he has to the larger ethical or moral concerns raised by senators questioning the g-s boys.

    the lack of a wider concern is the “tell”.

    • karenjj2 says:

      Thanks for the insight; I “knew” something was “off” in some of creagan’s comments, but darned if I could figure it out.


  10. harpie says:

    I watched some of this yesterday. I’m very naive about the whole business. That said, the term “market maker” [I think I’ve got that right] was one of the intriguing items, to me.

  11. karenjj2 says:

    And no one’s mentioned the “computer program” that inserts their bets a millisecond before the dow gets the numbers.. That bit of info surfaced a millisecond in the news when one of the programmers disappeared.

    It looks more and more like the backroom horseracing scams.


    global GNP 60 trillion; backroom bets of 600 trillion dwarf the “legal” stock market casino. I’d support a 90% tax on all gambling winnings especially those labeled “bonus.”

    • Rayne says:

      Haven’t forgotten that, either, but with regard to the derivatives at hand, Aleynikov’s “skimming” program is not a factor because the number and type of transactions aren’t applicable.

      It’s more likely that GS could have used a program like this to generate the cash to pay down their TARP and interest obligations to the U.S.

  12. Leen says:

    Levin rubbed Goldman Sachs collective noses in their “shitty deals”. But ultimately why would they care? They have all ready walked with the $$. Unless we see these fat cat thugs in orange suits not much will change. Regulation? Sure. But all these thieves seem to be having to go through is a bit of humiliation. They walk out of those hearings get into their hundred thousand dollar vehicles, go home to their multimillion dollar homes, and take their hundred thousand dollar vacations and send their kids to Ivy league schools. They do not give a rats ass about how their actions have effected people’s lives. They don’t give a rats ass.

    The peasants go to prison for stealing from a corner drug store. These guys will not be doing any time for their crimes.

    What I am wondering is how much did Former Secretary of the Treasury and Former Chairman and Chief Executive of Goldman Sachs know when he was holding a gun to the heads of our Reps saying give me the keys to the because it is only going to hurt more later.

    How much did Paulson know when he helped his Wall Street pals dip their filthy paws into the U.S. Treasury?

    some tongue lashings from our Reps. They can take it. They will all walk.

  13. orionATL says:

    scribe @26

    now that is a mighty damned interesting observation.

    the clear implication is that this category of banking transaction was fully known to be a variant of gambling behavior years before 2008.

  14. ShotoJamf says:

    Lloyd Blankfein tells us none of this is immoral.

    This coming from a pure sociopath. You bet, Lloyd.

  15. orionATL says:

    leen @34

    “…The peasants go to prison for stealing from a corner drug store. These guys will not be doing any time for their crimes…”

    banking con games aside, that’s the central injustice in this matter.

    from “little man busted blues”:

    they to big to fail

    they to big to jail

    and the law done tossed my tail

    in the pen-i-ten-tiary

    oh, i got the little man busted blues.


  16. orionATL says:

    to my mind this is the premier news story of the week,

    if for no other reason than it directly involves the extraordinary depression that just barely didn’t happen.

    but take a look at the front page of the nytimes (wednesday, 4/28).

    the goldman-sachs hearing is a relatively small story by carl hulse and is presented as a democratic ploy.

    anybody want to bet against me that pinch sulztberger dines with lloyd “morals” blankfein.

  17. knowbuddhau says:

    Was that a blast or what? I was up till the early hours, watching and rewatching.

    The Goldies said, over and over and over, chanting it like a mantrum (strangely, it was a man-size tantrum, too): we’re market-makers, we make markets (just as god intended us humans to behave, goes the unspoken half).

    But they also turned it around, saying, The market made us do this or that. Huh? Does the market make the market-makers, or do the market-makers make the market?

    They want to both play god, and the victim of their god: the all-seeing, all-knowing, all-powerful Market.

    In his article out today, Noam Chomsky notes a similar oddity. He points out a crucial omission from reportage regarding Obama’s Cairo speech:

    Washington’s ‘evenhandedness’

    Obama’s June 4, 2009, Cairo address to the Muslim world kept pretty much to his well-honed “blank slate” style – with little of substance, but presented in a personable manner that allows listeners to write on the slate what they want to hear. CNN captured its spirit in headlining a report “Obama Looks to Reach the Soul of the Muslim World.” Obama had announced the goals of his address in an interview with New York Times columnist Thomas Friedman. “‘We have a joke around the White House,’ the president said. ‘We’re just going to keep on telling the truth until it stops working and nowhere is truth-telling more important than the Middle East.” The White House commitment is most welcome, but it is useful to see how it translates into practice.

    Obama admonished his audience that it is easy to “point fingers … but if we see this conflict only from one side or the other, then we will be blind to the truth: the only resolution is for the aspirations of both sides to be met through two states, where Israelis and Palestinians each live in peace and security”.

    Turning from Obama-Friedman Truth to truth, there is a third side, with a decisive role throughout: the US. But Obama omitted that participant in the conflict. The omission is understood to be normal and appropriate, hence unmentioned: Friedman’s column is headlined “Obama Speech Aimed at Both Arabs and Israelis.” The front-page Wall Street Journal report on Obama’s speech appears under the heading “Obama Chides Israel, Arabs in His Overture to Muslims.” Other reports are the same.

    The convention is understandable on the doctrinal principle that though the US government sometimes makes mistakes, its intentions are by definition benign, even noble. In the world of attractive imagery, Washington has always sought desperately to be an honest broker, yearning to advance peace and justice. The doctrine trumps truth, of which there is little hint in the speech or the mainstream coverage of it. [Source: Asia Times Online April 29 (Hong Kong), 2010 Peace that could happen (but won’t).]

    Sen. McCaskill’s casino analogy revealed the blind spot of the Goldies: they’re pretending they aren’t involved, that they’re the perfect embodiment of objectivity itself, when we can all see them standing there with their hands in Lady Liberty’s honey pot.

    What’s the mythology of the Great Collapse, as manifested in this hearing?

    Sen. Kaufman complained that the Goldies were making it out to be a natural disaster. Later, Sparks said, “I believe in markets.” And then just a moment ago, Sen. McCaskill, showing her frustration with the reluctance of the Goldies to adopt her casino view/analogy/cosmos-shaping narrative aka myth (this is the power of the Light side, so to speak, of the “vision thing”), said, “I don’t know why we have to dress it up.”

    BINGO! If they weren’t wearing fancy frocks and dressing up blatant thievery with grandiloquent BS, we’d see right through the charade. This is the process of the social-construction of reality.

    The Goldies are market fundamentalists. McCaskill is asking them to commit heresy, speak blasphemy, by acknowledging that they’re just a gang of back alley crap-shooters in fancy suits and office suites.

    They’re blind, or at least, want us to believe they can’t see, the way they structure deals–reality itself–to maximize their own hidden self-interest.

    See, according to their mythology, they’re the victims here. All they wanted to do was make the world a better place, they’ve deluded themselves into believing. Naturally, they want us to believe in their gospel, too. They didn’t mean to steal make billions, the Market made them do it. These are honorable men, high priests of the temples of market-making. Surely you don’t suspect market-makers of manipulating markets in the making, so that the house of GS always wins, do you?

    They want us to see them as the god-like judge standing between two warring litigants, when in fact, they just so happen to be either or both parties, or they change the rules after the case is plead. That makes them perps running a rigged casino, not the masters of god’s own justice-dispensing machine.

    The funny thing is, if you listen for the myth-making, you can see right through the masquerade.

    • dosido says:

      very good insight into the mythmaking, thanks.

      It is a natural disaster…kind of like the coal mining disaster. Gee, govt makes it too hard to keep things safe and it costs money and this tragedy is govt’s fault! Never mind doing all those things to keep people safe and alive!

      I would like to remind people that a shark will always act like a shark. It is the eating machine of the sea. Its one thought is to devour whatever is in its path. Period.

      Asking a shark to not eat because it would be “wrong” is beside the point. We need to declare the beach unsafe and not swim in it.

  18. cregan says:

    Here’s is one area I totally agree GS was in the wrong.

    They should never have allowed a firm shorting the mortgage market to pick what mortgages went into the pool. Or, at the least, it should have been disclosed.

    Not good if they didn’t know Paulson was shorting, worse if they did.

    But, that is very different from the general case the Senators were trying to make.

      • cregan says:

        Yes, I know.

        My posts yesterday were mainly about the bozo’s in the hearing who hit these guys up for money and then conduct a hearing where it’s obvious they don’t know a thing about what they are talking about, on top of trying to appear like they’re all pure as the driven snow. And I mean Dem’s and GOP.

        On the suit, even Bill Clinton thinks the timing was suspicious.

        We will see what the facts are, but if they had a short select mortgages to put in a pool for sale and did not disclose that–then, that’s pretty bad.

        But, I don’t yet know the real facts as to why they selected Paulson to do it, and if they knew for certain he was shorting and betting it would fail.

        If the answer to both questions are bad, then, some body f’d up bad.

  19. orionATL says:

    creagan @21

    as usual, you’re playing with the meaning of words and trying to make a silly argument appear sensible.

    take your #2 for example.

    here you are playing with the words “obvious” and “certain”.

    that the condition of the mortgage market was not obvious to many people does not mean it was not obvious to professional investors/risk managers like those at g-s.

    i didn’t short the market because i don’t have a clue about how the housing market works. i doubt many bloggers did either for the same reason. i doubt many politicians did either.

    furthermore, doing so requires access to very costly analytical tools

    and to large sums of money.

    playing in such a market would be a fools game (and impossible) for any but exceptionally wealthy and highly knowledgeable individuals and institutions such as g-s.

    but that i do not play in the market does not mean i cannot assert that some individuals or institutions such as g-s did guess at the market and did make a lot of money guessing at the market.

    to challenge commenters hear on the basis of “if it was so obvious why didn’t you do it” is silly.

    second, the likely fate of the mort market WAS very accurately predicted

    by some very astute market watchers, prof nouriel rabini for one, who did not play in the market.

    and of course by the clever lads at goldman-sachs who did play in it.

    it was g-s who played the market going long and short on a BET they made.

    and here is another way you practice your alchemy of making silly arguments appear sound.

    there is no aspect of large-scale social behavior that is perfectly predictable. g-s knows that.

    g-s makes bets, guesses, based on professional expertise and computer models.

    i know of no politician who claims that they personally saw the collapse coming. several politicians do say that g-s did see the collapse coming and profited by their professional knowledge at the expense of their customer

    to whom they COULD HAVE BUT DID NOT reveal their own suspicions and assumptions about the mort market..

    • cregan says:

      Rabini predicted last year that we’d be in an even deeper recession before the end of the year, too.

      That’s my point. So what? People predict things all the time for individual stocks, markets and the economy. Sometimes they happen, most times they don’t.

      Sure, some people did feel the mortgage market was going to go down. But, that had also been predicted by some for at least 3 or 4 years before. And, it kept never happening.

      So, there was no absolute certainty.

      This is different than Madoff where you had someone selling something for which there was no uncertainty that nothing was there.

      Future events only appear certain AFTER the fact. GS thought they were right when they shorted the market, but they could have just as easily been wrong–as many shorts (who also think they have great analysis in their favor) find out after they lose money when something goes up instead of down.

      As the credit card predictions were wrong.

      Sure, if like the gambler who pays off the jockey to throw the race, GS had it fixed for the market to crash, they’d be very wrong.

      In a sense, that is the flavor of the SEC complaint. And, in that case, GS would be very wrong.

      But, again, so one guy out of many thinks some deal is a shitty deal? You’re going to stop selling an investment because one guy thinks it bad? I would venture to say that on nearly EVERY investment deal at least one guy in GS thinks it’s bad.

  20. orionATL says:


    again you are dressing up silly arguments in finery.

    certainty was never at issue for g-s.

    neither they nor anyone else foresees the future perfectly.

    saying so, as you do, is a silly truism.

    what g-s did was make a guess, and not any ordinary guess (“people make assumptions…”) but a very professional, analytical guess the likes of which few others in the country could make.

    and they made that bet, used legalized hedging, and made a lot of money.

    the concern is not that g-s fixed the market.

    the concern is they exploited the market for their benefit without informing their clients of their suspicions.

    it wasn’t the market g-s fixed; it was an investment product they fixed, sold, and exploited.

  21. orionATL says:


    the paragraph beginning “future events only appear certain after…” includes one of the great “duh” statements of all time.

    furthermore it blythly treats g-s as if there were an individual who could have been lucky or unlucky.

    g-s may run into bad luck from time to time, but it is foolish to assert their investment decisions depend on being lucky.

    i’d like to see you try that argument out on some of some of g-s’s pro investment analysts at a brown-bag lunch in the cafeteria.

  22. Hmmm says:

    In addition, there certainly can be certain knowledge of certain future outcomes. For example, they knew the Titanic was going down as soon as they realized the third (of 5) chamber had started taking on water. Jump out a window and you’re going to fall down.


  23. orionATL says:

    hmmm @50

    just so.

    in addition,

    there can be uncertain but numerically bounded knowledge, e. g., statistics,

    e.g., g-s puts confidence limits around a “model” they have used and refined for years

    and use statistical approximation to get them “close enough” to make a velly, velly big bet with confidence.

    neither you nor i nor claire mccaskill nor creagan have those resources or skills – but g-s does, in abundance.

  24. orionATL says:

    hmmm @53

    when “information assymetry” popped up again in this latest comment of yours,

    i suddenly understood what the concept meant.

    previously, i had just read over it.

    following understanding,

    came the additional revelation that this concept could be a VERY powerful topl for explaining inequality, injustice, differential health care,etc.

    thanks for your persistence in employing the concept.

    it gave me time to “get a grip”.

  25. bobschacht says:

    Information asymmetry is the key. It’s easy to win at poker if you know what cards are left in the deck but the others in the game don’t. GS stacked the deck, and hid their knowledge from the other players. All that BS about predictions and the benefits of hindsight was way off target and wasted bandwidth.

    Bob in AZ

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