IDK I think maybe people have started to read Matt Taibbi a little too literally? It's possible that things actually seemed better at one time at GS, or that not every investment banker and trader and manager in every department had an alter to satan on his desk at which he promised to screw over clients in every way possible.
― the prurient pinterest (Hurting 2), Tuesday, 20 March 2012 14:08 (3 years ago) Permalink
GS is the Duke basketball team of Wall Street sports.
― dandydonweiner, Tuesday, 20 March 2012 14:27 (3 years ago) Permalink
xxp I worked as a bond salesman on Goldman’s London trading floor in the early 1990s.
according to michael lewis's liar's poker, bond traders are the worst of the worst right?
― dayo, Tuesday, 20 March 2012 14:38 (3 years ago) Permalink
I feel like every book about every kind of trader makes that claim
― the prurient pinterest (Hurting 2), Tuesday, 20 March 2012 14:40 (3 years ago) Permalink
idk - I think the rogue's gallery in http://en.wikipedia.org/wiki/When_Genius_Failed:_The_Rise_and_Fall_of_Long-Term_Capital_Management are all former bond traders
― dayo, Tuesday, 20 March 2012 14:42 (3 years ago) Permalink
Here's a more critical look: http://epicureandealmaker.blogspot.com/2012/03/hypocrisy-as-business-model.html
Everyone knows there are sophisticated clients and "sophisticated clients." Your client trust shtick is tailor made to fleece the latter.
This reminds me of the old adage: If you don't know who the sucker is at the table, then it's probably you.
― o. nate, Tuesday, 20 March 2012 14:46 (3 years ago) Permalink
that is one of my favorite blogs, O.Nate.
― dandydonweiner, Tuesday, 20 March 2012 14:47 (3 years ago) Permalink
This point needs to be made more. There's a HUGE difference between a hedge fund and an icelandic municipal pension fund. It's basically the larger scale version of why boiler room guys love lawyers and doctors as clients -- professionals with a high estimation of their own intelligence and some real money to invest, but whose professions actually don't require them to have any financial or investing acumen, so they're easily suckered.
― the prurient pinterest (Hurting 2), Tuesday, 20 March 2012 14:55 (3 years ago) Permalink
you can actually reverse that from the perspective of lawyers and doctors too
― iatee, Tuesday, 20 March 2012 14:57 (3 years ago) Permalink
Anyway I don't think Goldman is doing anything that different than anyone who trades in specialist merchandise (be it antiques, art, or whatever) just that they do it on a larger scale. If you don't know anything about antiques and you go shopping for something, you're likely to overpay, because only an expert really knows how much these things are worth. It's nice to think the salesman will sell it to you for what it's really worth, but perhaps a bit naive?
― o. nate, Tuesday, 20 March 2012 15:09 (3 years ago) Permalink
yup, in fact art dealers (and probably investment bankers) like to go after newly minted celebrities, athletes who just won their first championship, etc.
― the prurient pinterest (Hurting 2), Tuesday, 20 March 2012 15:10 (3 years ago) Permalink
difference being that GS hedges against their clients with their client's money
― dandydonweiner, Tuesday, 20 March 2012 16:15 (3 years ago) Permalink
Not sure what that means, unless you're talking about margin?
― o. nate, Tuesday, 20 March 2012 16:23 (3 years ago) Permalink
Actually, something I kind of don't get about investment banking: once a bank is both selling and trading for its own account, isn't it almost by definition betting against anything it sells? Like, GS has investment product X; if it thinks X is such a good investment, why not hold onto it? I'm not talking about underwriting, which is a huge part of their business, but investments where GS actually takes a position and then later sells the position to a "client" -- why the fuck would you ever want to buy what they're selling in that circumstance, if GS is really so smart?
― the prurient pinterest (Hurting 2), Tuesday, 20 March 2012 16:28 (3 years ago) Permalink
I mean I guess there are other reasons to sell things -- liquidity, short-term versus long-term, appetite for risk, etc. But the whole thing still sounds like a very funny business model to me, and this would be equally true for any investment banking firm.
― the prurient pinterest (Hurting 2), Tuesday, 20 March 2012 16:29 (3 years ago) Permalink
I mean this Nate:
GS claimed the shorts weren't a hedge, but people like Matt Taibbi don't believe that.
― dandydonweiner, Tuesday, 20 March 2012 16:35 (3 years ago) Permalink
I thought the whole issue there was that they were trading against the clients with their own (ie., Goldman's own) money - not with the clients' money. If I was to put that in terms of the antiques dealer analogy, that would be more like selling a counterfeit antique - clearly wrong and illegal because it involves lying about the merchandise.
― o. nate, Tuesday, 20 March 2012 16:42 (3 years ago) Permalink
hurting, if gs feels like they have too much apple stock and owning more isn't worth the risk, and you feel like you don't have enough tech stocks and that position might be risky, both sides can gain. in theory it does not have to be a zero sum game.
― iatee, Tuesday, 20 March 2012 16:44 (3 years ago) Permalink
I mean they can't own everything in the world
― iatee, Tuesday, 20 March 2012 16:45 (3 years ago) Permalink
Don I think you are getting confused, although that bloomberg article itself is somewhat confusingly written. I believe if they WERE a hedge, that would be more defensible, since any investment bank would hedge its positions to "reduce risk." The problem is that if they weren't a hedge but a "bet," at least according to the critics making that argument.
― the prurient pinterest (Hurting 2), Tuesday, 20 March 2012 16:46 (3 years ago) Permalink
Uh, well I was making a point badly (although I sense you know what I was trying to say.) My bad.
From afar, selling securities to a client and then turning around and shorting those securities (as a hedge against their own long mortgage portfolio) isn't quite the level of sophistication in most specialist merchandisers. It's that level of speciality I think that separates traders in a hedge fund from an antique dealer. Seems like a lot of the positions that GS takes are with pretty complex instruments.
― dandydonweiner, Tuesday, 20 March 2012 17:13 (3 years ago) Permalink
That's a good point. Antiques dealers can't go short, afaik. So it's a bit of a different ballgame. Also, obv much bigger stakes are involved. I was mainly talking about the client/counterparty distinction and how it's a grey area.
― o. nate, Tuesday, 20 March 2012 19:12 (3 years ago) Permalink
― dayo, Wednesday, 21 March 2012 11:29 (3 years ago) Permalink
ha, when i saw "goldman nuns" in the url i thought itnwas a reference to "some get shot locked down and turn nuns/cowardly hearts and straight up shook ones." like greg smith had "turned nun" #morningthoughts
― i don't believe in zimmerman (Hurting 2), Wednesday, 21 March 2012 12:16 (3 years ago) Permalink
stop us before we kill again: http://www.cnbc.com/id/47018347
― s.clover, Thursday, 12 April 2012 16:55 (3 years ago) Permalink
Ok this isn't exactly about "the finance industry" but I have been puzzling over the ideas of David Graeber, and I don't understand this:
http://inthearena.blogs.cnn.com/2011/07/05/david-graeber-studied-5000-years-of-debt-real-dirty-secret-is-that-if-the-deficit-ever-completely-went-away-it-would-cause-a-major-catastrophe/The current financial system – based on central banks – really goes back to 1694 when a group of London merchants made a loan to the King of England to fight some war in France, and he gave them the right to call themselves "the Bank of England" and loan the money he owed to them to other people in the form of bank notes. That's what British money actually is - an IOU from the king, an uncashed check.
What I am missing in this formulation is how did the Bank of England "loan" "debt"? Are they lending the privilege of being owed money? Normally I thought debt was sold, not lent.
― i don't believe in zimmerman (Hurting 2), Monday, 23 April 2012 22:25 (2 years ago) Permalink
Let's use fantasy numbers, just to make the idea emerge more clearly.
We'll say the Bankers loan the King a million gold coins, each worth "ten" and he agrees to pay them back "twenty" for every "ten" he recieved. In one scenario, the Bankers just sit around waiting for their million "twenties" to dribble back in from the Exchequer, until they're all paid. Fine. They will make 100% profit. But they have to wait for it until the King coughs it up.
The smart Bankers realize that the King's promise to pay back is worth something. People trust it, sort of. They decide to monetize this promise to repay by dividing it up into twenty million notes, each worth "one". This is what the King promised, after all. Now they turn around and make loans, but instead of lending gold coins (the King has most of them atm), they lend these notes. They are as good as gold, because hey the King would never default, amirite?
The clever bit is that they lend all these "good as gold" notes at interest and announce they will take either gold coins or these notes back as payment for the principal and the interest. History ensues, to much hilarity.
― Aimless, Tuesday, 24 April 2012 00:13 (2 years ago) Permalink
shareholders are suing jamie dimon over his compensation package
― BIG HOOS aka the steendriver, Tuesday, 24 April 2012 00:17 (2 years ago) Permalink
Isn't that Citigroup/Pandit?
― boxall, Tuesday, 24 April 2012 00:20 (2 years ago) Permalink
in any event I liked this exchange from an interview with a hedge fund director:
Q. What do you think in general about the influence of people with your means on the political process? You said shame on the politicians for listening to the CEOs. Do you think the ultrawealthy have an inordinate or inappropriate amount of influence on the political process?
A. I think they actually have an insufficient influence. Those who have enjoyed the benefits of our system more than ever now owe a duty to protect the system that has created the greatest nation on this planet.
― boxall, Tuesday, 24 April 2012 00:28 (2 years ago) Permalink
Obviously, "has created the greatest nation on this planet" should be read as "has made me filthy rich."
― Aimless, Tuesday, 24 April 2012 00:33 (2 years ago) Permalink
So, basically, the king wanted 1.2 mil. He gets some dudes together and names them the B of E, and they loan him 1.2 mil. Now, they own 1.2 mil in debt, payable from the king to them. They issue notes representing some portion of this debt. Now they can do whatever they want with these notes -- buy things, build little paper hats and boats, anything. You may have noticed that I said "buy things." That debt from the king, since it's backed by the power of the royal estate, is a pretty good fungible currency -- good as gold, so to speak. And one thing you can do with currency, especially if you're a financier, is instead of buying things yourself, lend it to other people so they can buy things and eventually pay you back with interest. So that's the B of E. And it's a good story to think about when considering fiat money.
― s.clover, Tuesday, 24 April 2012 00:40 (2 years ago) Permalink
took me a long time to type that, on and off. aimless beat me to most of the punch.
― boxall, Tuesday, April 24, 2012 12:20 AM (12 minutes ago) Bookmark Flag Post Permalink
― BIG HOOS aka the steendriver, Tuesday, 24 April 2012 00:47 (2 years ago) Permalink
xposts: Ok, I think that makes sense with what I thought to begin with. There was just something confusing to me about the idea of loaning out what is essentially debt. Except in a weird way it seems like the currency ceases to have its debt connotations as it circulates, because people stop expecting "repayment" from the king.
So then what motivates the Bank of England to lend money to the king without interest?
― i don't believe in zimmerman (Hurting 2), Tuesday, 24 April 2012 01:03 (2 years ago) Permalink
Also, is there kind of an implicit assumption in all this war-borrowing by kings that "Well, of course when we win the war we'll have spoils to repay you"?
― i don't believe in zimmerman (Hurting 2), Tuesday, 24 April 2012 01:05 (2 years ago) Permalink
They actually loaned it at 8% interest. But they also got a bunch of privileges on top of that.
― s.clover, Tuesday, 24 April 2012 01:09 (2 years ago) Permalink
But if they loaned it at 8% interest then why are the bearer notes interest-free?
― i don't believe in zimmerman (Hurting 2), Tuesday, 24 April 2012 01:18 (2 years ago) Permalink
Because they kept the vig! Why wouldn't they?
― s.clover, Tuesday, 24 April 2012 01:19 (2 years ago) Permalink
I guess it just sounds like initially it would be hard to convince people to not only take these notes but actually pay interest to the bank of england on them. But I suppose the promise of the king was worth a lot, hence "fiat currency"
― i don't believe in zimmerman (Hurting 2), Tuesday, 24 April 2012 01:40 (2 years ago) Permalink
To be clear, as I understand it, they didn't pay interest on the notes, they payed interest on loans, which happened to be given in the form of notes (as opposed to, e.g., gold).
― s.clover, Tuesday, 24 April 2012 02:54 (2 years ago) Permalink
important to remember that all this government debt is an asset
― stay in school if you want to kiw (Gukbe), Tuesday, 24 April 2012 04:53 (2 years ago) Permalink
That all makes sense. But I think here's what's strange about it: BOE loans the King money. BOE issues "promise to pay" notes to BOE, which BOE in turn can lend out to third parties. But the result is that the King never actually has to repay the principal of his loan.
― i don't believe in zimmerman (Hurting 2), Tuesday, 24 April 2012 14:51 (2 years ago) Permalink
Sorry, that should say "KING issues 'promise to pay' notes to BOE"
― i don't believe in zimmerman (Hurting 2), Tuesday, 24 April 2012 14:54 (2 years ago) Permalink
You can learn more about the Bank of England and fiat currency by visiting your local library and looking under Stephenson, Neal.
― i love the large auns pictures! (Phil D.), Tuesday, 24 April 2012 14:54 (2 years ago) Permalink
in terms of trust, prob also remembering England was much smaller then (about 5 million, London half a mil) & traders, merchants, financiers would be way more likely to know each other personally + more able to assess trustworthiness and solidity of these plans - who else is in? Are they stupid? Who do they know?
And people were suspicious of notes I think - they're mocked into the 1730s at least.
― woof, Tuesday, 24 April 2012 15:20 (2 years ago) Permalink
(see Pope's Moral Essays, Epistle III)
― woof, Tuesday, 24 April 2012 15:23 (2 years ago) Permalink
Well yes, and my understanding is that banknotes under non-central-banking regimes were even more suspect. But I'm just trying to get my mind around the initial transaction and how these notes were created I guess. Like BOE lends money to the King, the King issues promises to pay that he will literally never fulfill, and then BOE lends out those promises. A strange arrangement.
― i don't believe in zimmerman (Hurting 2), Tuesday, 24 April 2012 15:24 (2 years ago) Permalink
As far as I know the loans were repaid eventually. The notes issued by the B of E were backed either by a claim on the royal debt, or by gold. On the other hand, even while individual loans were typically repayed, often this was accomplished by rolling over the debt into new loans. Think of modern treasury bonds, for example. They all pay off when they come due -- but there's always a large amount outstanding, and part of the issue of new debt goes towards paying off debt coming due. There's nothing especially tied to royal or governmental fiat about this either -- the same thing is true for bonds issued by most companies, or loans made to them.
― s.clover, Tuesday, 24 April 2012 15:28 (2 years ago) Permalink
But they're given sources of government revenue, so there is money coming from the crown.
― woof, Tuesday, 24 April 2012 15:28 (2 years ago) Permalink