In the Senate chamber yesterday, our elected officials grilled reps from Goldman Sachs. The Senators illustrated, I think, the outrage felt by Americans over bailout dollars that turned into banker bonuses. Even if—Senator Carl Levin (D-Michigan) trash-talked like shock-jock Howard Stern:
“You knew it was a shitty deal and that’s what your e-mails show,” he said. “How much of this shitty deal did you continue to sell to your clients?”
I wonder if the FCC fines Senator Levin.
The Senators scored big on outrage. They fared less well on Abacus 2007-AC1, CDOs, and Goldman’s business practices. Specifically, productive dialogue broke down over the discussion of “market makers.” And at times, I felt like the two sides were speaking different languages. Here’s a video that captures the essence of the exchange:
Senator Susan Collins (R-Maine) kept asking whether Goldman had a duty to act in the best interests of its clients. Fabrice Tourre of Goldman became so exasperated he threw up his hands and said:
Mūsų pareiga klientams parodyti jiems kainos sandoris jie prašo kainas. Mes ne konsultantams investicijų klausimams.
Our Senators added zero clarity to what should be done about financial reform. It bothers me. And even though I’ve been critical of financial institutions, I believe Goldman’s executives furthered the discussion in a more productive manner than representatives from Capitol Hill.
Specifically, several Goldman executives endorsed: 1) hard caps on how much financial institutions can borrow; and 2) higher reserve requirements on illiquid assets. Said more simply, they recommended additional collateral as a requisite for hard-to-sell assets.
Tuesday’s proceedings demonstrate, in my opinion, the need to include the financial sector in all discussions about financial reform. Otherwise, it won’t work. What do you think?
The New York Times describes my novels as “money porn,” “a red-hot franchise,” and “glittery thrillers about fiscal malfeasance.” Through fiction I explore the dark side of money and the motivations of those who have it, want more, and will steamroll anybody who gets in their way.
If the system is flawed, let’s fix the system, not go after the people that were smart enough to make the system work for them, flaws and all.
Personally, I think synthetic CDOs are trash and should be eliminated. That would be a small fix to the system. In fairness, the guys from Goldman articulated at least two specific actions yesterday.
That said, I think something went wrong on the Abacus CDO. Aside from the obvious issue—the loss of $1 billion by those going long.
Paulson and ACA, according to the SEC, met several times to discuss the portfolio. Since when do two combatants trade strategies?
CDOs are a zero-sum game, and I find it odd that ACA thought Paulson was betting on the success of the pool.
You forget that stupid people hate smart people. Always have, always will.
Our esteemed elected representatives seemed to find the idea of a short position morally repugnant. Maybe going short will be outlawed. Gee, THAT would be a great solution.
Regardless of how the dreck was packaged (lipstick on a pig springs to mind), the hedgies and other purchasers should have done their due diligence before buying a “shitty” deal.