Quick Remarks About Goldman Sachs' Testimony
Most investors make the assumption that people selling them securities want those securities to succeed. That's how our markets ought to work, but they don't always. The Senators who in the 1930s investigated the causes of the Great Depression stated the principle clearly:
Investors must believe that their investment banker would not offer them the bonds unless the banker believed them to be safe. This throws a heavy responsibility upon the banker. He may and does make mistakes. There is no way that he can avoid making mistakes because he is human and because in this world, things are only relatively secure. There is no such thing as absolute security. But while the banker may make mistakes, he must never make the mistake of offering investments to his clients which he does not believe to be good.
Goldman documents make clear that in 2007 it was betting heavily against the housing market while it was selling investments in that market to its clients. It sold those clients high-risk mortgage-backed securities and CDOs that it wanted to get off its books in transactions that created a conflict of interest between Goldman's bottom line and its clients' interests.
--Senator Carl Levin's remarks in yesterday's Subcommittee on Investigations testimony
Just a few remarks since the Goldman testimony has wrapped up. I took most of the day off and watched the testimony. I'm not sure anything criminally-damning was discussed but this is far and away the most damning information that the public has seen about the conflicts of interest, if not outright fraud, on Wall Street. In other words, the court of public opinion is going to be able to rule with even more moral clarity given this damning testimony. And I was right about my remarks some days ago re Blankfein not understanding markets, economics or business. His testimony was very perplexing on many topics - risk management, the role of banking in society, the role of Goldman's client in the success of its business, why we create markets, what role speculation plays in a business market, etc. Seemingly this CEO has a very limited grasp of reality or his special purpose granted to Goldman Sachs by a democratic society. In fact, after this testimony, I think it's high odds Blankfein will be given an opportunity by the board to leave Goldman Sachs.
Wall Street has so consumed itself with a business model that is so completely irrelevant to the economy that I don't think he or anyone else on Wall Street really understands they are completely irrelevant. In fact, a Goldman executive remarked today that were certain regulations enacted that American financial firms would be less competitive in those markets and we would most certainly lose business to overseas financial markets. That remark was specifically about derivatives but it could be expanded to a multitude of topics covering the vast majority of Wall Street's business model. My response to that loss of business is that we could only be so lucky to lose these businesses to any foreign financial market that would be so incompetent to embrace incredibly risky gambling schemes which add no economic value and, in fact, destroy society's wealth. Wall Street truly is in a bubble. And with it goes a completely deluded incompetence.
This testimony will be dissected countless ways by a somewhat rejuvenated "independent" press (what little of it remains independent) that has an axe to grind with Wall Street after being decimated by this crisis. This was far and away the most damning exposure yet. There is no way Wall Street will ever be able to return to the schemes of the past. Of course, we have been stating that since this crisis started. The status quo has lost even though they were temporarily bailed out and are still sucking society dry with their schemes and scams. The only question I have is given the advancement of electronic markets, why do we need Wall Street at all? Will Wall Street as we know it even survive the next ten years? It would surely be better were it to disappear and be replaced by a distributed electronic market for almost all of the services it provides.
Investors must believe that their investment banker would not offer them the bonds unless the banker believed them to be safe. This throws a heavy responsibility upon the banker. He may and does make mistakes. There is no way that he can avoid making mistakes because he is human and because in this world, things are only relatively secure. There is no such thing as absolute security. But while the banker may make mistakes, he must never make the mistake of offering investments to his clients which he does not believe to be good.
Goldman documents make clear that in 2007 it was betting heavily against the housing market while it was selling investments in that market to its clients. It sold those clients high-risk mortgage-backed securities and CDOs that it wanted to get off its books in transactions that created a conflict of interest between Goldman's bottom line and its clients' interests.
--Senator Carl Levin's remarks in yesterday's Subcommittee on Investigations testimony
Just a few remarks since the Goldman testimony has wrapped up. I took most of the day off and watched the testimony. I'm not sure anything criminally-damning was discussed but this is far and away the most damning information that the public has seen about the conflicts of interest, if not outright fraud, on Wall Street. In other words, the court of public opinion is going to be able to rule with even more moral clarity given this damning testimony. And I was right about my remarks some days ago re Blankfein not understanding markets, economics or business. His testimony was very perplexing on many topics - risk management, the role of banking in society, the role of Goldman's client in the success of its business, why we create markets, what role speculation plays in a business market, etc. Seemingly this CEO has a very limited grasp of reality or his special purpose granted to Goldman Sachs by a democratic society. In fact, after this testimony, I think it's high odds Blankfein will be given an opportunity by the board to leave Goldman Sachs.
Wall Street has so consumed itself with a business model that is so completely irrelevant to the economy that I don't think he or anyone else on Wall Street really understands they are completely irrelevant. In fact, a Goldman executive remarked today that were certain regulations enacted that American financial firms would be less competitive in those markets and we would most certainly lose business to overseas financial markets. That remark was specifically about derivatives but it could be expanded to a multitude of topics covering the vast majority of Wall Street's business model. My response to that loss of business is that we could only be so lucky to lose these businesses to any foreign financial market that would be so incompetent to embrace incredibly risky gambling schemes which add no economic value and, in fact, destroy society's wealth. Wall Street truly is in a bubble. And with it goes a completely deluded incompetence.
This testimony will be dissected countless ways by a somewhat rejuvenated "independent" press (what little of it remains independent) that has an axe to grind with Wall Street after being decimated by this crisis. This was far and away the most damning exposure yet. There is no way Wall Street will ever be able to return to the schemes of the past. Of course, we have been stating that since this crisis started. The status quo has lost even though they were temporarily bailed out and are still sucking society dry with their schemes and scams. The only question I have is given the advancement of electronic markets, why do we need Wall Street at all? Will Wall Street as we know it even survive the next ten years? It would surely be better were it to disappear and be replaced by a distributed electronic market for almost all of the services it provides.
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