Another day, another dollar...

[hairyears]

I found myself working late this evening - not really late, but past 8PM - caught up in a piece of programming which was frustrating, difficult, and despite or because of that, perversely enjoyable.

Ever found yourself with a project like that? I love the sense of learning, of advancing your own abilities by stretching what you can do. Mind you,

Comments

[alexmc]

Thanks for this clear summary of the case. It sounds a lot worse than it is portrayed in the media. I have often heard that GS is being targetted just because it is big and currently a front runner. This tells me that there is good reason to look into their dealings.

[shermarama]

Interesting. I haven't been following it because I wouldn't know enough to follow it properly but good to hear from someone who does.

The question is, to what extent is this normal practice, albeit on the outer edge of normal?

[hairyears]

It's way the hell the other side of 'normal'.

Watch out for evasive statements about brokering deals where one party will lose if the other party gains: that's common in derivatives trading, and the broker may well have a position in the securities in the deal. But this isn't brokerage: it's about issuing and promoting an investment, and the SEC's accusation is that Goldman Sachs went ahead when they knew that a a party with a material involvement - selecting the constituents of the investment - was actively pursuing a strategy that yielded a profit if those constituents went down in value.

That's not just an undisclosed conflict of interest, it's acting in bad faith.

[shermarama]

I can see how it's bad, just not how much incentive companies have to not do it; Goldman Sachs have been caught at it, and are going to do their best to minimise the damage, but how many other companies don't get caught? It's just very easy to imagine that this sort of thing is easily fallen into. Like how many people were surprised that Gordon Brown bitches about people he's just met once he gets into the car? The only surprise there was that he failed to remember he had a microphone on.

[fivemack]

I had a look at the easiest-to-google documents about this case; what surprised me slightly is that, just by Googling the names of the instruments listed on page 55 of the flipbook, I found an analyst's report from Wachovia two months earlier with a long table on page 12 saying that, amongst others, FFML 2006-FF9 M8 was at that point already 3% delinquent - this was a collection of pretty dodgy securities.

Obviously analyst's reports from Wachovia weren't Googlable at the time, but if you're making a billion-dollar bet you'd have run it past someone who has such reports at their fingertips - wouldn't you?

What also surprised me about the flipbook was the volume of it devoted to two-paragraph biographies of the people who'd be on the board of the SPV in the Cayman Islands that was running the deal.

None of this alters the fact that telling your customers that a man on the short side of the deal is on the long side of it is inexcusable.

[hairyears]

telling your customers that a man on the short side of the deal is on the long side

Right now, the accusation is that they knew that, and failed to disclose it. There's a case to answer, that Goldman Sachs misrepresented a material fact - that they did as you suggest, and actively misled the Abacus investors - but that case will have to be tested in court. So we can't say that it's a fact; but I'd say that it's an unpleasant suspicion which GS have, so far, failed to dispel.

[jaq]

We are finding it amusing that the GS case is happening right at the same time as the Senate discusses bank regulation. I suspect someone planned that.

[palfrey]

Ever found yourself with a project like that? I love the sense of learning, of advancing your own abilities by stretching what you can do

I'm most fond these days of the projects that don't just teach you a new skill, but manage to make you to think in a new way. I'm not talking Cthulhu-esque knightmares where you need to hold 3 contradictory ideas in your head at once just to vaguely make it work, but things like my current on-and-off learning of Erlang. I'd sworn off functional languages after bad experiences with Haskell during the BSc, but this made me like them again. Your mind gets a bit warped, but it's in interesting and novel ways.