The Stig
Diamond Hoya (over 2500 posts)
Posts: 2,844
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Post by The Stig on Apr 16, 2010 10:21:44 GMT -5
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Post by strummer8526 on Apr 16, 2010 10:29:39 GMT -5
Boom goes the dynamite.
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SirSaxa
Silver Hoya (over 500 posts)
Posts: 747
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Post by SirSaxa on Apr 16, 2010 10:46:03 GMT -5
It is VERY big news. It is killing the market today. And, it could have an impact on the banking regulations bill in the Senate right now.
Pretty bad though. John Paulson, no relation to Henry Paulson, and his firm helped put together a batch of CDOs -- Collateralized Debt Obligation (i.e mortgages) for Goldman Sachs to sell to investors.
As soon as they were sold, Paulson sold them "short" -- essentially betting that the price of those CDO's was going to drop precipitously and soon. Paulson made a TON of dough -- BILLIONS -- in this and similar deals.
The issue for Goldman, they sold the CDOs partly on the info that Paulson helped choose them, but did NOT disclose that he was selling them short. In other words, Goldman sold toxic assets to its clients while knowing that the key guy who assembled these products for Goldman to sell, was betting heavily that the value of these CDOs would drop FAST!
Pretty unethical (at least) on the part of both Paulson AND Goldman.
Only Goldman is being charged so far because only Goldman miscommunicated to clients.
Lots more fallout to come from this one.
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Post by jerseyhoya34 on Apr 16, 2010 12:38:05 GMT -5
Is this unrelated to the municipal derivatives mayhem that has been ongoing for 2+ years, it seems?
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jgalt
Diamond Hoya (over 2500 posts)
Posts: 4,380
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Post by jgalt on Apr 16, 2010 14:23:20 GMT -5
Its big, but in my opinion Goldman is Getting off easy. This, again in my opinion, is the "least worst" thing Goldman has been doing. They are basically doing the same thing with Greece debt but just cutting out the middle man.
Also the Goldman/Paulson relationship is not unique and there were many others. I guess all those relationships were disclosed. It makes sense though because Goldman would not have been able to make these CDO with out Paulson agreeing to buy the worst parts (that is at least my understanding of the situation). And if the CDOs arent created then Paulson cant bet against them.
Of course because they load the CDO with the worst bonds it makes it more likely to default. If you want more on this listen to this past weeks episode of This American Life- its all about this same relationship, but with different parties.
In the end Goldman will keep being Goldman and the SEC will get a nice check in the mail and it will all go away.
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Bando
Golden Hoya (over 1000 posts)
I've got some regrets!
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Post by Bando on Apr 16, 2010 14:32:47 GMT -5
It is VERY big news. It is killing the market today. And, it could have an impact on the banking regulations bill in the Senate right now. Pretty bad though. John Paulson, no relation to Henry Paulson, and his firm helped put together a batch of CDOs -- Collateralized Debt Obligation (i.e mortgages) for Goldman Sachs to sell to investors. As soon as they were sold, Paulson sold them "short" -- essentially betting that the price of those CDO's was going to drop precipitously and soon. Paulson made a TON of dough -- BILLIONS -- in this and similar deals. The issue for Goldman, they sold the CDOs partly on the info that Paulson helped choose them, but did NOT disclose that he was selling them short. In other words, Goldman sold toxic assets to its clients while knowing that the key guy who assembled these products for Goldman to sell, was betting heavily that the value of these CDOs would drop FAST! Pretty unethical (at least) on the part of both Paulson AND Goldman. Only Goldman is being charged so far because only Goldman miscommunicated to clients. Lots more fallout to come from this one. Correct me if I'm wrong, and this might be nitpicking, but I think Goldman actually told its investors that these were being picked by "independent analysts", hence the fraud. |
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SirSaxa
Silver Hoya (over 500 posts)
Posts: 747
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Post by SirSaxa on Apr 16, 2010 17:17:40 GMT -5
It is VERY big news. It is killing the market today. And, it could have an impact on the banking regulations bill in the Senate right now. Pretty bad though. John Paulson, no relation to Henry Paulson, and his firm helped put together a batch of CDOs -- Collateralized Debt Obligation (i.e mortgages) for Goldman Sachs to sell to investors. As soon as they were sold, Paulson sold them "short" -- essentially betting that the price of those CDO's was going to drop precipitously and soon. Paulson made a TON of dough -- BILLIONS -- in this and similar deals. The issue for Goldman, they sold the CDOs partly on the info that Paulson helped choose them, but did NOT disclose that he was selling them short. In other words, Goldman sold toxic assets to its clients while knowing that the key guy who assembled these products for Goldman to sell, was betting heavily that the value of these CDOs would drop FAST! Pretty unethical (at least) on the part of both Paulson AND Goldman. Only Goldman is being charged so far because only Goldman miscommunicated to clients. Lots more fallout to come from this one. Correct me if I'm wrong, and this might be nitpicking, but I think Goldman actually told its investors that these were being picked by "independent analysts", hence the fraud. Bando, my comments were based on what I've heard so far -- preliminary info. Lots more details to come. But, John Paulson would be an "independent analyst" in terms of GS. It would seem as though Paulson should also be in trouble if he put this stuff together, thus had "insider info" and should be at risk of an insider trading accusation. We'll see. |
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hoyainspirit
Platinum Hoya (over 5000 posts)
When life puts that voodoo on me, music is my gris-gris.
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Post by hoyainspirit on Apr 17, 2010 14:56:00 GMT -5
Is this unrelated to the municipal derivatives mayhem that has been ongoing for 2+ years, it seems? It is the same in that it is once again an example of market failure concerning derivative products. Since the purpose of government is to intervene where markets fail, regulation of these markets is clearly required. |
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EasyEd
Platinum Hoya (over 5000 posts)
Posts: 7,272
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Post by EasyEd on Apr 17, 2010 15:05:44 GMT -5
"Since the purpose of government is to intervene where markets fail, regulation of these markets is clearly required."
Guess that's news to me.
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hoyainspirit
Platinum Hoya (over 5000 posts)
When life puts that voodoo on me, music is my gris-gris.
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Post by hoyainspirit on Apr 17, 2010 15:08:35 GMT -5
"Since the purpose of government is to intervene where markets fail, regulation of these markets is clearly required." Guess that's news to me. B School 101. Markets don't provide for defense, gov't does. That's a market failure in which gov't intervention is required. The situation in derivative markets as it currently exists allows for privatized gain, but socialized risk, amongst other ills too numerous for this post. When all goes well, bank employees and shareholders are richly rewarded, yet when things go to hell in a handbasket, the taxpayers pick up the tab(See financial system bailout). Spread that risk among the many, concentrate those profits amongst the few. As a market oriented individual, and one who does not enjoy his taxes used for that purpose, the derivative market situation does not work for me. Hence, mkt failure, and the need for regulation. |
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jgalt
Diamond Hoya (over 2500 posts)
Posts: 4,380
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Post by jgalt on Apr 18, 2010 13:05:03 GMT -5
"Since the purpose of government is to intervene where markets fail, regulation of these markets is clearly required." Guess that's news to me. B School 101. Markets don't provide for defense, gov't does. That's a market failure in which gov't intervention is required. The situation in derivative markets as it currently exists allows for privatized gain, but socialized risk, amongst other ills too numerous for this post. When all goes well, bank employees and shareholders are richly rewarded, yet when things go to hell in a handbasket, the taxpayers pick up the tab(See financial system bailout). Spread that risk among the many, concentrate those profits amongst the few. As a market oriented individual, and one who does not enjoy his taxes used for that purpose, the derivative market situation does not work for me. Hence, mkt failure, and the need for regulation. The only reason taxpayers are burdened with the cost of market failure is because the government chose to employ your ethos that "the purpose of government is to intervene where markets fail, regulation of these markets is clearly required." If the government read its constitution once and a while it would see it has no right or responsibility to do so and therefore it would not pass the burden on to taxpayers and you would not have anything to complain about. |
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The Stig
Diamond Hoya (over 2500 posts)
Posts: 2,844
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Post by The Stig on Apr 18, 2010 13:48:02 GMT -5
B School 101. Markets don't provide for defense, gov't does. That's a market failure in which gov't intervention is required. The situation in derivative markets as it currently exists allows for privatized gain, but socialized risk, amongst other ills too numerous for this post. When all goes well, bank employees and shareholders are richly rewarded, yet when things go to hell in a handbasket, the taxpayers pick up the tab(See financial system bailout). Spread that risk among the many, concentrate those profits amongst the few. As a market oriented individual, and one who does not enjoy his taxes used for that purpose, the derivative market situation does not work for me. Hence, mkt failure, and the need for regulation. The only reason taxpayers are burdened with the cost of market failure is because the government chose to employ your ethos that "the purpose of government is to intervene where markets fail, regulation of these markets is clearly required." If the government read its constitution once and a while it would see it has no right or responsibility to do so and therefore it would not pass the burden on to taxpayers and you would not have anything to complain about. The government took that stance in 1929, and it didn't go so well. I think a lot of people don't realize how much worse this financial crisis could have been. What we've gone through is pretty small stuff compared to what would have happened if the big banks had all collapsed, taking the entire financial sector, then the entire economy with them. |
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Post by jerseyhoya34 on Apr 18, 2010 14:17:10 GMT -5
I am not sure how the deregulation/regulation debate comes into this but for an apparent need to revise history in light of the near collapse in 2008. I am curious to know exactly which regulations are to blame for that near collapse. Particularly, do we blame Ponzi laws for making Bernie Madoff's behavior criminal - but for those, we wouldn't know, and he and his investors could have kept their hard earned money? Do we blame the laws that limited speculation in the housing market?
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SirSaxa
Silver Hoya (over 500 posts)
Posts: 747
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Post by SirSaxa on Apr 18, 2010 17:01:46 GMT -5
Without the government assuring depositors their money is safe in US Banks, the banking system would never have grown so large and profitable, and neither would the US economy.
Without Government regulators assuring investors that Financial Statements are accurate, that investment vehicles are subject to full disclosure, basically, that investors can trust and rely on the information that is made available on all sorts of equities and bonds, the "market" would be nothing more than a wild west crap shoot.
Yes, there are still instances of fraud and deception, but the penalty for doing so can be extreme (Skiliing, Ley, Madoff, Milken, Kozlowski, et al). The governments role is to supervise and regulate markets, and ensure honesty and compliance -- just as the government does with building codes, fire codes, air traffic control, Highway construction and management, traffic rules, health codes, food regulations... the list goes on an on.
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EasyEd
Platinum Hoya (over 5000 posts)
Posts: 7,272
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Post by EasyEd on Apr 18, 2010 18:47:37 GMT -5
"Since the purpose of government is to intervene where markets fail, regulation of these markets is clearly required." Guess that's news to me. B School 101. Markets don't provide for defense, gov't does. That's a market failure in which gov't intervention is required. The situation in derivative markets as it currently exists allows for privatized gain, but socialized risk, amongst other ills too numerous for this post. When all goes well, bank employees and shareholders are richly rewarded, yet when things go to hell in a handbasket, the taxpayers pick up the tab(See financial system bailout). Spread that risk among the many, concentrate those profits amongst the few. As a market oriented individual, and one who does not enjoy his taxes used for that purpose, the derivative market situation does not work for me. Hence, mkt failure, and the need for regulation. Who said this, Karl Marx? |
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Post by strummer8526 on Apr 18, 2010 21:58:21 GMT -5
B School 101. Markets don't provide for defense, gov't does. That's a market failure in which gov't intervention is required. The situation in derivative markets as it currently exists allows for privatized gain, but socialized risk, amongst other ills too numerous for this post. When all goes well, bank employees and shareholders are richly rewarded, yet when things go to hell in a handbasket, the taxpayers pick up the tab(See financial system bailout). Spread that risk among the many, concentrate those profits amongst the few. As a market oriented individual, and one who does not enjoy his taxes used for that purpose, the derivative market situation does not work for me. Hence, mkt failure, and the need for regulation. Who said this, Karl Marx? Any number of people with a shred of common sense. |
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hoyainspirit
Platinum Hoya (over 5000 posts)
When life puts that voodoo on me, music is my gris-gris.
Posts: 8,392
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Post by hoyainspirit on Apr 19, 2010 9:13:26 GMT -5
I am not sure how the deregulation/regulation debate comes into this but for an apparent need to revise history in light of the near collapse in 2008. I am curious to know exactly which regulations are to blame for that near collapse. It's the lack of regulation that bears the blame. The size of the Municipal Bond market is approximately $2.7 trillion. The size of the Corporate Bond market is approximately $4.0 trillion. These are highly regulated markets, requiring, among many other things, that financial institutions maintain certain capital ratios which effectively limit the amount of these securities they may own in inventory or underwrite, thus reducing exposure, or risk. The size of the CDS(Credit Default Swaps) derivative market alone is in the $30 trillion range, down from its pre crisis high of $60+ trillion. This is but one derivative product among many. The CDS market is unregulated, with no capital haircuts or position limits imposed. As well, commissions are higher than in regulated fixed income and derivative markets. The absence of regulation allows financial institutions to take on far greater risk relative to their capital size than is otherwise allowed in regulated markets. In other words, they get to play de facto hedge fund with your money and mine. As we have seen over the past few years, that's not such a good idea. The lack of regulation allowed AIG to sell $100 billion of naked(i.e. not hedged, purely speculative) CDS, on which it took such a bath that it threatened to bring down the entire system (or at least significantly contributed to the crisis). That market failed. The gov't had to respond in a drastic, costly manner. To prevent future failures of this type, intervention in the form of regulation must happen. That is the role of government, to intervene where markets fail. |
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SirSaxa
Silver Hoya (over 500 posts)
Posts: 747
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Post by SirSaxa on Apr 19, 2010 10:07:47 GMT -5
I am not sure how the deregulation/regulation debate comes into this but for an apparent need to revise history in light of the near collapse in 2008. I am curious to know exactly which regulations are to blame for that near collapse. It's the lack of regulation that bears the blame. The size of the Municipal Bond market is approximately $2.7 trillion. The size of the Corporate Bond market is approximately $4.0 trillion. These are highly regulated markets, requiring, among many other things, that financial institutions maintain certain capital ratios which effectively limit the amount of these securities they may own in inventory or underwrite, thus reducing exposure, or risk. The size of the CDS derivative market alone is in the $30 trillion range, down from its pre crisis high of $60+ trillion. This is but one derivative product among many. The CDS market is unregulated, with no capital haircuts or position limits imposed. As well, commissions are higher than in regulated fixed income markets. The absence of regulation allows financial institutions to take on far greater risk relative to their capital size than is otherwise allowed in regulated markets. In other words, they get to play de facto hedge fund with your money and mine. As we have seen over the past few years, that's not such a good idea. The lack of regulation allowed AIG to sell $100 billion of naked(i.e. not hedged, purely speculative) CDS, on which it took such a bath that it threatened to bring down the entire system (or at least significantly contributed to the crisis). That market failed. The gov't had to respond in a drastic, costly manner. To prevent future failures of this type, intervention in the form of regulation must happen. That is the role of government, to intervene where markets fail. For a jazz fan, you know a helluva a lot about the markets and government regulation! |
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hoyainspirit
Platinum Hoya (over 5000 posts)
When life puts that voodoo on me, music is my gris-gris.
Posts: 8,392
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Post by hoyainspirit on Apr 19, 2010 14:27:14 GMT -5
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jgalt
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Post by jgalt on Apr 19, 2010 16:15:49 GMT -5
I dont know why i think it will be constructive to engage in this debate, but i feel compelled to only if to give me something to do besides homework.
Look, the Financial industry is one of the most if not THE most regulated industry in the world. The number of government agencies, personnel, and resources dedicated to the "regulation" of the financial industry is outstanding. But yet all that precious regulation has never prevented any bubble from bursting and never will. It is impossible. Its like asking someone to perfectly time the market every day, every year. It will never happen, it cant happen. And for everyone to run around shouting about how the regulators failed, but in the same breath asking for more regulation is ludicrous. No rational person could possibly look at the actions and failures of regulators for the past hundred years and reasonably conclude that MORE regulation is necessary.
The fact is that this crisis was only enhanced by the actions of the government, who, for the past 80 years (since the last huge crisis) have been peddling the myth that everyone should own a home and this will increase wealth. It is total BULL , period. Owning a home is out of reach for most citizens. It is incredibly expensive and will never "create" wealth. If you look at the data, equity in the CDO and CDS market greatly increased once Fannie and Freddie (government agencies no matter how much you want to spin it) decided to lower their standards and begin to buy CDOs. Federal regulation, i.e. that Fannie and Freddie are set fourth by the government to increase home ownership among lower income families and that they are essentially backed by the US Gov, created much of the crisis we are in now.
It is highly irresponsible for the government to promote any financial action be undertaken by its citizens. By promoting home ownership as the American Dream and by putting in place financial incentives for people to buy homes they are to blame for the lowering of lending standards across the country. The government continues to promote home ownership and it is completely disgusting.
Do i think any of this has changed anyone's minds? No. Do I think that regulation will increase during the Obama administration only to be repealed in 3 years when a Republican is president? Yes. And the hole cycle will repeat again, decreased, but still inefficiency causing, regulation will create a second bubble that will burst around about 2018/9.
Nothing will be fixed until the government chooses between a full free market system or a full socialized system. A mix doesn't work and never will.
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