“To be thorough, investigations of these and other questions would have to reach into the Obama Treasury Department. One of the most aggressive creators of the questionable investments was a firm called Tricadia, whose parent firm was overseen by Lewis Sachs, now a senior adviser to Treasury Secretary Timothy Geithner.”
Doing ‘God’s work‘!
During the bubble, Goldman Sachs and other financial firms created complicated mortgage-related investments, sold them to clients and then placed bets that those investments would decline in value. The practice, detailed in The Times by Gretchen Morgenson and Louise Story, allowed Wall Street to profit handsomely as its clients tanked. It also amplified the financial meltdown, spreading the losses to pretty much everyone.
These deals are now the targets of various government and industry-led investigations. It may turn out that some or all of the products and practices were not illegal, in part because the derivatives at the heart of the transactions have been largely deregulated since 2000.
There are several outrages here. Despite pledges to rein in the excesses, financial reform legislation is months away from passage. The House-passed bill would impose some controls over derivatives, although it is unclear whether it would stop this particular practice. The Senate has not yet produced a bill. And neither the White House nor Capitol Hill has adequately addressed the bigger question of how to curb the high-risk proprietary trading by banks that has created conflicts with clients and endangered the economy at large.
Meanwhile, Wall Street continues to defend what looks to us as rank financial speculation. The way the wizards explain it, betting against one’s clients is one of many techniques to prudently guard against loss.
The Times article points out that unusually large contrary bets placed by Goldman and others were not primarily defensive. According to industry experts interviewed, these bets put the firms’ interests clearly at odds with their clients’ interests. Goldman says that its clients knew that it might place contrary bets. But does that excuse placing them? What goals, other than lining it pockets, were served by the deals?
Disclosure doesn’t dispel another question: Did Goldman and other firms create securities that were bound to fail in order to up the odds that its contrary bets would pay off? Some of the securities were so prone to failure that they soured within months of being created.
To be thorough, investigations of these and other questions would have to reach into the Obama Treasury Department. One of the most aggressive creators of the questionable investments was a firm called Tricadia, whose parent firm was overseen by Lewis Sachs, now a senior adviser to Treasury Secretary Timothy Geithner.
Unsavory and dangerous practices like firms betting against their clients need to be thoroughly investigated. They won’t end until Congress adopts ambitious financial reforms.
Published: December 28, 2009
Source: The New York Times
Let’s take a look at ‘God’s work’:
…and remember who got the bailout money back then:
– AIG Discloses Counterparties as Obama, Cuomo Assail Bonuses:
This time the bailout money from the U.S. taxpayer went to:
Goldman Sachs led beneficiaries, with $12.9 billion, followed by SocGen, France’s No. 3 bank, with $11.9 billion, and Deutsche Bank, Germany’s biggest lender, with $11.8 billion. Barclays Plc received $8.5 billion from AIG, Merrill Lynch & Co. got $6.8 billion, Bank of America Corp. got $5.2 billion and UBS AG got $5 billion.