A man buys a truckload of sardines from one man and sells them to another for a nice profit. The new buyer sells them to yet another man, who in turn sells them to another buyer. The truck sits in front of the newest buyer’s house for several days, in full sight through his picture window, until his mouth begins to water for sardines. He goes out to the truck, unlocks the truck’s rear doors, swings one open and is blown back by a hot wave of rotten fish stench. He charges into the house, calls the man he bought the truckload from and starts screaming through the phone how he’s been cheated… the sardines stink to holy hell, they’re rotten and inedible! The previous owner calmly explains to him, “Those aren’t eating sardines, you schmuck, those are buying and selling sardines.”
In the frenzy of excess speculation, greed and irresponsibility that infested our economy all too recently, yesterday’s derivatives became today’s buying-and-selling sardines. No matter who opened the package then, they stunk.
We’re left with the big guys blaming the other big guys for not examining the “truckload” closely enough to get a whiff of the rot within—or, to put into plain language what the big guys converse in with numbers, for not being distrustful enough.
A brief recap (in plain language): AIG was the primary insurer of Goldman Sachs’ derivatives, thereby enabling the ratings agencies to give their triple AAA blessing to Goldman Sachs’ “sardines.” Goldman Sachs repaid them by playing both ends against the middle: selling the derivatives and selling AIG short in the event AIG couldn’t fulfill its insurance commitments, ultimately making a fortune; and by demanding additional collateral from AIG, which hastened its downfall, and by subsequently receiving 100 cents on the dollar when the government bailed out AIG. Do you believe this—there’s nothing wrong with any of it?! Unless you believe in ethics. Disclosure. Fair play.
Thus far (in plain language): Thanks to government funds fulfilling AIG’s commitment, the bottom line is AIG saved Goldman Sachs’ ass. And thanks to the staggering cost to the government, AIG became, overnight, the newest company everybody loved to hate.
Business is business (in plain language): AIG planned to retain Goldman Sachs to advise the company regarding its restructuring. But the government stepped in again, this time to make Goldman Sachs the newest company everybody loves to hate.
Of what interest is it to this site? Two days after our Pickle Award Poll asked: Which Partnership Was Most Clearly Not Made in Heaven?, AIG broke off its almost-on-again relationship with Goldman Sachs to run to the open arms of two waiting suitors, Citigroup Inc and Bank of America Corp. Frailty, thy name is Finance! At the altar stood the intended, Goldman Sachs, solemnly swearing to take this fallen wastrel AIG for counseling or worse—but at the prospect of getting back into bed with an entity presently in more disrepute than itself, AIG grew cold-hearted and hot-footed it to the competition.
In plain language, payback is a bitch.
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I would like to add a little more to this story of greed and irresponsibility. Goldman Sachs created a Fund without disclosure that shorted the Sub-Prime Mortgages.
ReplyDeleteNot only was the Fund not disclosed, the Fund wasn't even available for the average investor as an ETF or Public Hedge Fund. As a matter of fact, to add insult to injury, Goldman Sachs continued to add positions to that short and held more of that position than any long position in any risk-oriented back mortgages.
While at the same time they were in direct communication with banks like Washington Mutual. Washington Mutual offered employees huge bonuses and perks to close the most risky mortgages, knowing full well that those clients could not afford those payments.
WAMU employees would cut-and-paste financial records to make it look like those clients had more income and assets. What many people did not know is that Goldman Sachs was in direct talks with those executives of companies like WAMU bragging that those mortgages will never be repaid. Thus, Goldman Sachs saw an opportunity to create a private Fund that was not made available on the open market to short those very high risky sub-prime mortgages.
"buying and selling sardines"...
ReplyDeleteI still can't get over how clever that was.
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ReplyDeleteRay, you're way of describing derivatives with sardines was brilliant.
ReplyDeleteIn my opinion, it was treyf and unethical the way the large investment firms played with OPM to invest in the excessive speculation, and "irrational exuberance" of the housing market along with 19 unprecedented rate hikes that precipitated the greatest downturn of our economy since the "great depression". It was no coincidence that Alan Greenspan retired almost immediately following his nineteenth rate hike as he began to realize the "domino effect" of his poorly timed, failed fiscal policies, that further exasperated the "sub prime" mess leading to the eventual collapse of our economy and the international markets. The stock market in the U.S. may appear healthy as the dollar gains in strength; however, our country still has double-digit unemployment along with major budget concerns in many states while our Government continues to print more money without a monetary goal as it pours billions of dollars to support two wars without an endgame in sight.
Once again, Claude Rains saying "I'm Shocked, tha there is gambling going on here Ricky" is apropos, mes amis. Goldman et les autres criminales du Wall Street are complicit with the government from the president on down. Indeed, it is Mr Obama with his hand behind him taking the million dollar bribe (campaign contribution) as he cries "I'M SHOCKED!". How did this court jester get elected being so shocked by so many things. He was shocked that the Time Square Bomber was acting in concert with Al Qaeda in P-ahk-ist-ahn. He was shocked at the BP accident a week after he declared off shore drilling on again. He is shocked at criticism at him by gays whom he promised to end don't ask don't tell over a year ago. The altar of the annointed crumbles at his own feet and yet people still believe he will part the Red Sea and heal the lame. See Greece. See Greece Riot. Coming soon to a town square somewhere in America near you.
ReplyDeleteElsie is moving to India where she will be safe among her "beefy" brothers. Moooooo.