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We all know that Warren Buffett came out defending Goldman Sachs this weekend. We all know that the SEC is suing Goldman Sachs for fraud, and is also opening a criminal investigation. We all know that the Senate recently grilled Goldman exectutives JUST PRIOR to bringing out President Obama's financial reform bill for debate. For just a minute, try to put aside our populist notions about Goldman Sachs (and Wall Street in general), forget what Obama, Geithner, Barney Frank and all the politicians and their media lackeys have been telling us and read the linked New York Times article with an objective mind. I think Buffett and Munger make some very convincing arguments.
You can all say that his stance is a result of his rather large investment in Goldman, but if he really thought that Goldman engaged in fraud, he could sell out even now at a tremendous profit. After all, why would he want to do business with someone who defrauds it's clients? In the 1980s, he spent 18 months as acting CEO of Salomon Bros after they were accused of fraudulent trading in government bonds. He cleaned house, revived the company's reputation, and prepared the company for eventual sale, which went through to Travelers Group, after which he sold his investment and got out entirely.
In my humble opinion, it's just more proof that Buffett thinks on a higher plane than the rest of us. Compare Buffetts reputation, which has grown over the last 50 years versus the that of some of the politicians I've named, and that of the "all sizzle, little substance" media who is trying really, really hard to tell us what to think and tell me who is more believable?
From Buffett, Thought-Out Support for Goldman - Yahoo! Finance (http://finance.yahoo.com/news/From-Buffett-ThoughtOut-nytimes-1724696747.html;_ylt=Ak7ee_NSodaOcgk85ypcAcS7YWsA; _ylu=X3oDMTFmYXBlamxsBHBvcwMzBHNlYwNleHBlcnRPcGlua W9uRHluYW1pYwRzbGsDaW5oaXNkZWZlbnNl?x=0 - broken link)
The media highlights what they want you to know. Who determines what the media thinks is top priority ???? Who really knows..but my bet is the administration. Just too many coincidental MSM articles that tend to sway in favor of what the administration is currently dealing with.
Notice how all the health related headlines have all but disappeared since the bill got passed ?
Now it's all financial and Wall Street stuff since Congress is dealing with that.
Next it will be cap and trade and then immigration.
And..BTW GS got slapped with a $450K fine....chump change to them for their short trading.
The media highlights what they want you to know. Who determines what the media thinks is top priority ???? Who really knows..but my bet is the administration.
I think it's more the Democratic National Committe than the administration itself. And I think your comments about current headlines is right on the mark.
We all know that Warren Buffett came out defending Goldman Sachs this weekend. We all know that the SEC is suing Goldman Sachs for fraud, and is also opening a criminal investigation. We all know that the Senate recently grilled Goldman exectutives JUST PRIOR to bringing out President Obama's financial reform bill for debate. For just a minute, try to put aside our populist notions about Goldman Sachs (and Wall Street in general), forget what Obama, Geithner, Barney Frank and all the politicians and their media lackeys have been telling us and read the linked New York Times article with an objective mind. I think Buffett and Munger make some very convincing arguments.
You can all say that his stance is a result of his rather large investment in Goldman, but if he really thought that Goldman engaged in fraud, he could sell out even now at a tremendous profit. After all, why would he want to do business with someone who defrauds it's clients? In the 1980s, he spent 18 months as acting CEO of Salomon Bros after they were accused of fraudulent trading in government bonds. He cleaned house, revived the company's reputation, and prepared the company for eventual sale, which went through to Travelers Group, after which he sold his investment and got out entirely.
In my humble opinion, it's just more proof that Buffett thinks on a higher plane than the rest of us. Compare Buffetts reputation, which has grown over the last 50 years versus the that of some of the politicians I've named, and that of the "all sizzle, little substance" media who is trying really, really hard to tell us what to think and tell me who is more believable?
From Buffett, Thought-Out Support for Goldman - Yahoo! Finance (http://finance.yahoo.com/news/From-Buffett-ThoughtOut-nytimes-1724696747.html;_ylt=Ak7ee_NSodaOcgk85ypcAcS7YWsA; _ylu=X3oDMTFmYXBlamxsBHBvcwMzBHNlYwNleHBlcnRPcGlua W9uRHluYW1pYwRzbGsDaW5oaXNkZWZlbnNl?x=0 - broken link)
Was it legal? Yes... Was it ethical? Now that's debatable...
But unethical things happen every day in business. Personally, I like to invest my money in companies that I feel aren't trying to defraud people by proposing investments that will hurt their clients.
But no, the government can't go after Goldman for any of this. Its not illegal to be unethical. And besides, the government only goes after what will benefit it.
Now what IS illegal and what IS a crime is the seizure of WAMU while they still had liquid capital. WAMU was essentially HANDED by the FDIC to JPMORGAN for the low low price of (200 million!)
1.9 billion deal - 1.7 billion from WAMU's tax revenue = 200 million
Fair? No. Illegal? Yes. Especially since WAMU had plenty of liquidity... Will the government point out the FDIC's error? No-- because that wouldn't benefit them... Oh the hypocrisy!
Imho if GS had offered the Abacus deal in the open market it would have been ok. BUT since they sold directly an otc product created specifically for a client to another client they breached fiduciary duty by not disclosing to their clients (the buyers) the details of the product. Obviously one can argue that by doing this they would be breaching confidentility with their other clients (Paulson - sellers). It seems to me that there is conflict of interests and they should have refrain themselves from doing it, even from the ethical point of view.
But since they are in the business of making money, so I can see why they did it. In the end, who knows what's going to happen.
Disclaimer: I'm not a lawyer so take what I said with a grain of salt.
Buffett offering his unstinting support for GS is not suprising. I would have much more respect for him had he subtitled his article as follows;
"I OWN ??,XXX SHARE OF GOLDMAN STOCK. SINCE THE BAD NEWS STARTED THE SHARES HAVE DROPPED BY $XX.00 AND I HAVE LOST $XX.00, IF I CAN 'TALK IT BACK UP' A BIT I WON'T LOSE AS MUCH."
We do know that the SEC (and now the DoJ) have access to ALL INTERNAL DOCUMENTS which we do not.
For a fuller understanding of the entire CDO/CDS debacle I suggest everyone read "The Big Short". Michael Lewis explains arcane trades in a way that make understanding easy for those who are not as financially sophisticated. Actually GS doesn't come off as bad in the book as they might.
by not disclosing to their clients (the buyers) the details of the product.
But that's just it - they DID disclose the details of the product. Nobody is accusing Goldman of not disclosing the details of the investment to the buyers. The buyers in this case had all the information they needed about the investment to make a proper investment decision, including a full review of all of the subprime mortgage contained in the investment. This is clearly stated in this article. The supposed fraud the SEC has accused Goldman of is because they did not disclose the fact that Goldman themselves, and John Paulson, another client altogether, were shorting it. Paulson and Goldman were right about it, IKB and ACA were not. Unsavory? Sure. Unethical? Possibly. Illegal? Not at all. Brokerages do this all the time with stocks, why not with mortgage backed securities?
Think about it for a minute - Should your broker be accused of fraud if they sell you a stock like Blockbuster, even if they think the company is going bankrupt? No, of course not. In the end, the decision to buy the stock is yours and yours alone. The broker may well feel Blockbuster is a bad investment, and they themselves may even be shorting it, but they are not REQUIRED to tell you anything at all. And in the Goldman case, the investors involved were a LOT more sophisticated than any of us are, so, in my mind, the responsiblity is theirs. They should have known that a big package full of subprime mortgages was a bad deal. If the investors were so convinced that ABACUS was a great investment, then Goldman's disclosure of their short position may not have mattered at all - for all we know, it might have been ignored. And why is the government arguing that they should have revealed Paulson's short position to the other investors? As far as Paulson's position goes, Goldman has no right whatsoever to disclose that to other investors. They should be protecting their clients confidentiality, right?
When you really tear it all down and remove all the emotion and anger from the whole issue, Buffett's argument makes sense. The governments case is weak, and the timing of it seems awfully coincidental to me.
Buffett must be laughing at the idiot media in the US right now. "How stupid can be these people be? Don't they have anything better to do?"
-He's been in the game for 50+ years, he's seen everything. In his logical, rational mind, goldman was probably a good move for him. When has the media ever been logical or rational?
I think the goldman deal is a late inning blip on his radar.
The media and the public is a mob. He's basically an island among the mob. While they're still worrying about goldman, he'll be making more money and more deals.
Imho if GS had offered the Abacus deal in the open market it would have been ok. BUT since they sold directly an otc product created specifically for a client to another client they breached fiduciary duty by not disclosing to their clients (the buyers) the details of the product. Obviously one can argue that by doing this they would be breaching confidentility with their other clients (Paulson - sellers). It seems to me that there is conflict of interests and they should have refrain themselves from doing it, even from the ethical point of view.
But since they are in the business of making money, so I can see why they did it. In the end, who knows what's going to happen.
Disclaimer: I'm not a lawyer so take what I said with a grain of salt.
Wasn't the deal first offered to Bear Stearns, which turned it down as not being beneficial to all of its clients? So Goldman takes the deal and gets bailed out monetarily (by US Gov't) and verbally (by Buffett) while Bear Stearns goes down in flames.
When I first saw the breaking news about the SEC investigation I knew that people would come out in defense of Goldman Sachs. Their tentacles run deep in the government and select "friends". They used the capitalist free market to become extremely wealthy and they had better learn to police themselves lest the Gold-laying Goose gets shot down by the anti-capitalists. This free-for-all, damn-the-idiots, we-win attitude (because we control the Treasury) has got to end.
But that's just it - they DID disclose the details of the product. Nobody is accusing Goldman of not disclosing the details of the investment to the buyers. The buyers in this case had all the information they needed about the investment to make a proper investment decision, including a full review of all of the subprime mortgage contained in the investment. This is clearly stated in this article. The supposed fraud the SEC has accused Goldman of is because they did not disclose the fact that Goldman themselves, and John Paulson, another client altogether, were shorting it. Paulson and Goldman were right about it, IKB and ACA were not. Unsavory? Sure. Unethical? Possibly. Illegal? Not at all. Brokerages do this all the time with stocks, why not with mortgage backed securities?
Think about it for a minute - Should your broker be accused of fraud if they sell you a stock like Blockbuster, even if they think the company is going bankrupt? No, of course not. In the end, the decision to buy the stock is yours and yours alone. The broker may well feel Blockbuster is a bad investment, and they themselves may even be shorting it, but they are not REQUIRED to tell you anything at all. And in the Goldman case, the investors involved were a LOT more sophisticated than any of us are, so, in my mind, the responsiblity is theirs. They should have known that a big package full of subprime mortgages was a bad deal. If the investors were so convinced that ABACUS was a great investment, then Goldman's disclosure of their short position may not have mattered at all - for all we know, it might have been ignored. And why is the government arguing that they should have revealed Paulson's short position to the other investors? As far as Paulson's position goes, Goldman has no right whatsoever to disclose that to other investors. They should be protecting their clients confidentiality, right?
When you really tear it all down and remove all the emotion and anger from the whole issue, Buffett's argument makes sense. The governments case is weak, and the timing of it seems awfully coincidental to me.
Paulson had Goldman Sachs put this deal together and find some sucker buyers because he wanted to short it. Got it? So Goldman Sachs goes out to find clients who can be convinced to buy it fully knowing that their real client wants to short it, AND apparently Paulson was the one choosing the mortgage tranches that would be sold.
This splitting hairs between ethical versus legal is pure B.S. We need a transparent financial system that works towards the savings and investment of money into productive assets. These financial crooks work only to make easy money and provide NO SOCIETAL FUNCTION.
If I caught my broker cheating me in this manner, it would be their final business with me and I would be LOUD AND LONG in telling the world what crooks they are.
I don't care what Warren "God" Buffett says about it. Let Becky Quick and the other CNBC groupies hang on his every word.
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