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| I see no problem, moral or legal, to structure crap investment products and at the same time short-sell them.
If there is a group of stupid people demanding crap CDOs, give those to them.
If you believe you can make a buck by going short on them, do it.
This fraud thing with Goldman is just political circus. | |
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By and large the victims of the fraud are not those who participated actively in it but rather taxpayers and residents of communities whose treasuries were raided by selling them what purported to be hedges against interest rate fluctuations but were, in fact predestined to self-destruct, making the towns insolvent. (In the USA where Chapter 9 bankruptcy is available to municipalities -- most notably used by Orange County, Calif. in 1994
http://www.ppic.org/main/publication.asp?i=252 -- there is a source of relief, but this does not exist elsewhere aside from the inherent power of sovereign states to repudiate debt. Except insofar as such debt is deemed a "commercial transaction" in international law and not subject to state immunity; hence the new UK law depriving vulture funds of Third World debt from suing in UK courts:
http://www.wdm.org.uk/news/landmark-...-vulture-funds ).
Other victims were pensions funds both corporate and public. It has already happened that corporate funds have closed, been dissolved, and abandoned to State insurers (where these exist), limiting pension beneficiaries to the statutory limit, typically a fraction of what they were credited with or paid in for. In the USA where civil servant pension rights are often vested under State constitution, it is taxpayers who are on the hook.
And, as in Iceland where UK and other countries pressed the country to make good savers' losses from the collapse of Icesave etc.
http://blog.taragana.com/business/20...reement-38929/ (rejected by voters) the imposition of a debt of US$16,700 on every man, woman and child in the country of 317,000 threatened to lead to mass emigration. Where homeowners are already under water (mortgage debt exceeding house value) the imposition of increased property tax leads to absconding, bankruptcy or both.
Beyond that, securities are generally "sold", not "bought" and it is beyond the education and experience of consumers to evaluate securities. That's what the Securities Act, the Securities Exchange Act and the Blue Sky laws in the USA are all about. Yet there are loopholes, and in many or most cases investors (whether direct or, these days more usually through intermediaries like pension funds, mutual funds (SICAVs, unit trusts ...) or aggregators (the entities that funneled so much money into the Madoff scam) are dependent upon others, and on truth in advertising (and in prospectuses) laws.
Nobody "demanded crap CDOs"; they were foisted on them, generally through intermediaries. When Alan Greenspan deceived the USA, when Warren Buffett and Harry Markopolos were ignored; when other whistleblowers and doomsayers were threatened with suits for libel for crying "Ponzi", and when "irrational exuberance" was nearly universal; and, finally, when the ratings agencies failed to do their job (because they were being paid by the issuers of those duff securities) and rated the synthetic instruments AAA, anybody and everybody could be a victim.
Almost anybody can be victim of a scam. In the Lloyd's of London scam 37,000 persons of all walks of life from schoolteachers betting the value of their home to Robert Maxwell would up being defrauded -- and the fraudsters were protected by the State (both the UK and the US Government).
Almost anybody can be involved in a tragedy: few take the time to consider all risks, or are capable of evaluating every potentiality. Here's an article from March 8 Washington Post: from the most humble to the most educated, parents have forgotten infants in hot cars and left them to die:
http://www.washingtonpost.com/wp-dyn...022701549.html How much more likely is that someone will fail, or be unable, to evaluate the value of a synthetic investment "weapon of mass destruction" -- especially when it is not marketed to the end user but to trustees of "Other People's Money" who profit from taking the easy road, mimicking their peers. And of course we know that Goldman Sachs put its people into senior positions in all the finance ministries and agencies of the US Government.
I remember once (in 1978) asking Jim Ammerman, then the Treasury Attaché of the US Embassy in London (and a few years later Office of International Banking and Portfolio Investment at Treasury), what he thought of BCCI. He seemed never to have heard of it even though until shortly before then it had been 25% owned by Bank of America.
http://en.wikipedia.org/wiki/Bank_of..._International With the exception of those Goldman people lent to Washington for a few years to serve Goldman's own interests, and similar revolving-door lawyers from big firms dependent upon Goldman and others for their income, Washington staff (especially SEC and IRS staff) are outclassed by the highly-paid lawyers and financiers they are charged with regulating.
And you want the average citizen to protect him- or her-self? Often one doesn't even have the power and right, let alone the knowledge, to second-guess the trustees of a pension fund. Wherein lies the fraud of privatisation of Social Security and the tragedy of the end to defined benefit pension funds and the imposition of responsibility for investing (401(k)s, Third Pillar, and so on) upon those incapable of informed decision. (The result: massive abandonment to the default investment, leading often to total loss as in Enron, Lehman, Bear Stearns where employees left their investment in the shares of their employer. Note that participants in the US Government's 401(k)-type Thrift Savings Plan (TSP) have a choice of ten funds, it seems that many or most by dint of failure to choose wind up in the G fund (US Government securities): at least they can't lose. It is said (by psychologists who have done research) that the more choice that is given, the less likely it is that someone will in fact make a choice.
So there you are. The above is the state of my analysis of the topic you stumbled on, and on which you made a very foolish remark. There, but for the Grace of God, go you and I.
real fraud!
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