www.mcclatchydc.com/227/story/77841.html

I'm normally laissez-faire in these matters--people get what they deserve. However, if Goldman was knowingly misrepresenting the risk associated with these "assets", they should fry.

DD means nothing if the originators aren't telling the truth.

There just isn't any new news here. We already know that Goldman Sachs hedged their subprime investment in 2007. Simply put, that's all they did, hedge their risk.

What HTWW doesn't mention (the article does) is that Goldman was paid twice - once on the hedge and again on the bailout (via AIG). Brilliant mother fuckers.

I demand that in the spirit of communism they lose money forever. This cannot stand.

OK, I'm not one to defend Goldman normally (especially since I work as a competitor), but this article is badly misleading. Consider the situation Goldman and the rest of the investment banks were in: they had huge inventories of mortgage-backed securities (including subprime) on their books. In order to manage their risk, it was perfectly sensible for them to hedge those positions by buying CDS. That isn't "betting," it is prudent risk management. Indeed, NOT hedging their positions would have been betting. That's what Merill, Lehman and many others did, and if they had been as prudent as Goldman, they'd they'd still be in business today.

In terms of their obligations to clients, Goldman again comes off looking pretty good I think. Their chief US economist, Jan Hatzius, was one of the earliest and most vocal economists on the street arguing that there was a housing bubble. If clients chose to disregard his analysis (as well as their own--they do have some obligation to do their own research, right?) and to buy mortgage-related securities, I don't think that Goldman can be blamed for selling them the stuff. Remember, Goldman didn't KNOW that these things were worthless, they just knew that there were risks associated with the securities. Goldman chose to hedge their bets. It isn't their fault that others didn't.

At this point all of us in the banking sector are damned if we do and damned if we don't. Citi and B of A get slammed for inadequate risk management while Goldman gets slammed for prudent risk management. Regulators don't want investment banks to give opinions to clients, but then Goldman gets reamed for not being aggressive enough about sharing their opinions with clients.

There's enough sanity for one day: Salon readers, please resume your normally-scheduled bank bashing.

But a host of securities experts say, well, maybe, citing the Securities Act of 1933, which "imposes a special disclosure burden on principal underwriters of securities, which was Goldman's role when it sold about $39 billion of its own risky mortgage-backed securities from March 2006 to February 2007."

I understand risk mitagation, but since they were principal underwriter, didn't they have more responsibility here?

This story is several years old at this point. The core point was that Goldman wasn't just hedging. If you have been reading it since the beginning (and reaffirmed in the article) they had a large net SHORT position that took quite a bit of effort to hide in order to not let the spreads blow out.

They also talk about how GS took net short positions against MBS that they knew had large amounts of outright fraud.

Please read the article before contrarian defenses that they were being "prudent."

The McClatchy article from today, Nov 2nd, 2009, is much better than the one from yesterday.

Did GS pay the government back all of the money that AIG got to cover GS positions? NO.

And GS would have gone under without Treasury monies, so people have an obligation to be appalled by the behavior of GS and it's ilk.

Then there's the flash trading, which in other words is ...

You mean more than having their chief economist talk explicitly about the housing bubble and the rising likelihood of defaults?

As to the specific securities: if Goldman KNEW that these things were toxic and continued to sell them, then yes--that would be a problem. But simply knowing that there was RISK associated with them does not prevent them from selling the bonds--even if they themselves thought the risk was rising. And believe me, if Goldman KNEW the securities were toxic, I promise you they would have not just hedged their bets but run a massive short position in the securities and made enough money to hire John Paulsen as a butler.

Oh heck, just nationalize everything.

http://www.bloomberg.com/apps/news?pid=20601109&sid=a7T5HaOgYHpE

Looks an awful lot like insider trading to me.

Prospectuses have to reveal risk. That is the basis of lawsuits. You say the regulators did not want too much 'risk revealed'!! Even the toothless SEC knows that prospectuses are key, and risk levels are key. Who are you trying to kid? The rating agencies were asleep at the wheel too, so even their input into a prospetus would be about useless.

It is not the issue of CDS's so much - it is the issue of 'short positions', which another writer brought up. Shorting your own issue? Come on. Winning at both ends, I think. They knew by then it was shit.

You may now go back to defending your employers, TBRAX34.

On the subject of lawsuits - class actions and FINRA suits over Lehman Brothers and AIG bonds, RBS and other banks, leveraged and inverse exchange-traded funds, money market funds that broke the buck like the Reserve Fund, etc. are all hitting the Wall Street brokerage firms everyday. Since the government was and still is asleep, the bettors in the casino want their money back. These firms sold the crack - and the investors smoked it. All legal!

This is an informative read:

http://www.rollingstone.com/politics/story/30481512/wall_streets_naked_swindle/print

Makoweb - contrary to your claim, there is no reference in the article to Goldman being net short, either explicit or implied.

Perhaps Goldman was net short. No evidence to support the claim. Clearly, they wanted to be. But at the time liquidity was evaporating fast. We don't know exactly how quickly they liquidated the long book and entered into the short positions.