Goldman Sachs was singularly vilified by politicians (not Obama, more on that later), talking heads and even people on the street for their role in the Great Recession. At the time I thought that they might have been unfairly become the target of public anger for no other reason than they had managed to figure out ways to make money at the expense of less savvy investors.
When GS was sued by the SEC because two investors (both sophisticated investors, one was a hedge fund I believe and the other was an institutional investor from Europe, we’re not exactly talking about a couple of blue hairs pulling their last fifty bucks from under the mattress) lost boatloads of cash taking the long-side of a bundle of securitized mortgages. The basis of the suit (and this is extremely simplified) was that the investors wouldn’t have taken the long position if they had been informed that John Paulson (no relation to former US Treasury Secretary Henry Paulson) was on the short-side. There were other factors like claims that Paulson cherry picked the mortgages in the bundle, but at the end of the day, these investors didn’t do their due diligence and they paid the price. Who gives a shit who was on the other end of the trade? They had to know that someone thought the short-side was a good bet, so what does it matter who that party was? No one forced them to take the long position. It stunk to me of gratuitous piling on.
But my opinion on the innocence of Goldman Sachs has changed. Wall Street and the Financial Crisis: Anatomy of a Financial Collapse, the 650-page report just released by the Senate Subcommittee on Investigations is pretty damning against Goldman Sachs. The report is just as damning against the environment in which Goldman was allowed to operate. I remember right after Obama was elected and he started to name his cabinet that I told my wife (huge Obama fan) that she could forget about the “Change” that Obama promised. Every financial position in Obama’s cabinet was filled by guys with deep Goldman Sachs ties (as all of these positions have been since the Clinton administration).
The excerpts of the Senate Reports that I’ve read paint a pretty bleak picture of GS. The case for fraud against them seems pretty cut and dried. Yet the Justice Depratment hasn’t done anything, leading us back to the conflict of interest of the Obama administration.
If you want to read a good article on the latest happenings vis-a-vis Goldman Sachs, I would suggest Matt Taibbi’s article: http://www.rollingstone.com/politics/news/the-people-vs-goldman-sachs-20110511?print=true
Taibbi is one of my favorite writers, if for no other reason than his ability to describe Boston Red Sox Third Baseman Kevin Youkilis’s beard so elequently in a Men’s Journal article:
Then there’s Kevin Youkilis. Youk has only three body parts, all hideously oversized: an enormous set of gnomish, bushy forearms; a massive, casaba melon–size white head; and a cauldronlike belly. He has a truly awesome bristle of thick red chin hair that makes his face look like a cross between a vagina and something out of The Hobbit. At the plate he disgustingly gushes sweat by some means previously unknown to science in which the moisture travels upward along his body, racing in a cascade from his balls and armpits up his neck, over his head, and back down over the bill of his helmet to shower the plate. Whereas a guy like Teixeira was born with a swing so gorgeous you want to paint it, Youkilis fighting a middle reliever to a nine-pitch walk looks like a rhinoceros trying to fuck a washing machine.
Disclosure: In case there is somehow an SEC Nazi reading this, I have a position in one of John Paulson’s funds.