More on GoldmanSachs

[Craig234]

That's actually my point, the fed funds rate or repo rate in question are sitting at 0-.25% for overnight term. That is, you'd have to find something with a higher yield for the same term to make profit.

There are enough institution with access to the discount window that any excess return is arbed away (ie the spread for say borrowing at the discount window and lending at overnight libor only compensates you for counterparty risk)

OK, you didn't say you were making an issue of the 'overnight' borrowing rates being the term instead of a longer term; you thought, I presume, you were implying it.

That puts the ball back into Ayabe's court to respond to your argument that low 'overnight' borrowing rates are not providing inappropriate cheap money to Wall Street.

 

[daishi5]

OK, you didn't say you were making an issue of the 'overnight' borrowing rates being the term instead of a longer term; you thought, I presume, you were implying it.

That puts the ball back into Ayabe's court to respond to your argument that low 'overnight' borrowing rates are not providing inappropriate cheap money to Wall Street.

I may have to double check, but I don't think the FED normally lends money on longer terms. The FED acts as a lender of last resort so the banks can meet their balance requirements on a daily basis, but I don't believe they normally loan capital to banks for long term use. So, Halik should not need to specify that he was referring to overnight rates, because those are the only rates.

(for some reason I have this horrible nagging feeling that I am forgetting something from that financial markets class a couple years back.)

 

[Craig234]

I may have to double check, but I don't think the FED normally lends money on longer terms. The FED acts as a lender of last resort so the banks can meet their balance requirements on a daily basis, but I don't believe they normally loan capital to banks for long term use. So, Halik should not need to specify that he was referring to overnight rates, because those are the only rates.

(for some reason I have this horrible nagging feeling that I am forgetting something from that financial markets class a couple years back.)

This isn't a pissing match over who should have done what, but it would have helpd fr him to be clear what he was disagreeing about, since his point was exactly that Ayabe's annual rate was apples and oranges.

You might have a point had Halik not been replying to a post, but since he was specifically addressing annual versus overnight as a correction, it was usefl to say that.

 

[daishi5]

This isn't a pissing match over who should have done what, but it would have helpd fr him to be clear what he was disagreeing about, since his point was exactly that Ayabe's annual rate was apples and oranges.

You might have a point had Halik not been replying to a post, but since he was specifically addressing annual versus overnight as a correction, it was usefl to say that.

I looked it up to double check myself http://www.federalreserve.gov/pf/pf.htm The relevant part starts at page 46 of the PDF.

When the Fed lends money to banks it is overnight, so for Halik to specify that he was referring to the only lending rate available seems redundant. It appears Halik made the mistake of assuming people knew how the Fed worked, when it is clear from Ayabe's statement he does not.

 

[halik]

I looked it up to double check myself http://www.federalreserve.gov/pf/pf.htm The relevant part starts at page 46 of the PDF.

When the Fed lends money to banks it is overnight, so for Halik to specify that he was referring to the only lending rate available seems redundant. It appears Halik made the mistake of assuming people knew how the Fed worked, when it is clear from Ayabe's statement he does not.

I believe you can arrange to borrow longer term from the discount window, but it certainly will not be at the overnight rates.

I don't work for a depository institution, so I honestly can't tell you how those deals are structured. That being said, I can guarantee you there are no opportunities for arbitrage simply given how many players have access to the discount window.

 

[daishi5]

I believe you can arrange to borrow longer term from the discount window, but it certainly will not be at the overnight rates.

I don't work for a depository institution, so I honestly can't tell you how those deals are structured. That being said, I can guarantee you there are no opportunities for arbitrage simply given how many players have access to the discount window.

Extensions are available for up to a few weeks, but requires oversight and justification for the inability to acquire funds, and they say that large institutions rarely qualify. Also, if they do it with any form of regularity, they will require additional oversight. So, even if they could do arbitrage on it, they cannot do so often enough to get decent returns.

 

[blackangst1]

How shocking. Nothing of substance in the OP. Its an OP-ED piece with nothing to back it up.

From the op-ed:

Because the deal was structured as a currency swap (a type of derivative) and not as a loan, it was secret, bilateral and off-book. Goldman may have been the only party that knew about it, leading many to speculate how it may have profited from the knowledge.

Says who? The author? A known hack who has it in for GS? Please.

And then, the misleading title of the OP containing GS, somehow implicating them as the sole toxic part of the equation; however, in the op-ed piece:

Federal Reserve Chair Ben Bernanke told Congress that the government was looking into Wall Street's use of credit default swaps to bet on a Greek collapse.

Another misleading bash from a delusional poster.

 

[gingermeggs]

It's all about ethics, if you feel that an institution should be allowed to fuck people as a business model as long as they don't explicitly break any laws, then you are probably a fan of GS and other houses of ill repute such as payday lenders.

I think, I LOVE YOU MAN!

 

[halik]

It's all about ethics, if you feel that an institution should be allowed to fuck people as a business model as long as they don't explicitly break any laws, then you are probably a fan of GS and other houses of ill repute such as payday lenders.

Actually the main thing that they drilled into us was that reputation always comes first. You can fix equipment in days, replace people in weeks, but reputational damage takes years to fix. It's the second business principle.

Note that historically it was other banks that got into deep shit for doing illegal or gray-area things (look up the sec settlement for investment research).

Finally and for the record, there is nothing shady, illegal or unethical about the Greece FX derivative transactions that goldman and other ibanks conducted. Anyone that talks about "secret transactions" doesn't know anything about derivatives.

 

[brandonbull]

Wasn't stock exchanges giving GS a small time window to preview pending transactions and then place transactions based on that which allowed them to profit?

 

[halik]

Wasn't stock exchanges giving GS a small time window to preview pending transactions and then place transactions based on that which allowed them to profit?

/facepalm

Exactly what I'm talking about.

 

[Craig234]

Actually the main thing that they drilled into us was that reputation always comes first. You can fix equipment in days, replace people in weeks, but reputational damage takes years to fix. It's the second business principle.

Note that historically it was other banks that got into deep shit for doing illegal or gray-area things (look up the sec settlement for investment research).

Finally and for the record, there is nothing shady, illegal or unethical about the Greece FX derivative transactions that goldman and other ibanks conducted. Anyone that talks about "secret transactions" doesn't know anything about derivatives.

There are various points on that about 'reputation'.

One is that protecting reputation doesn't mean, to many, not doing wrong. It means having the tools in place to get away with doing wrong. The right 'corporate image', 'damage control', etc.

Recall Machiavelli's advice to a prince taking ove a new people: appoint a ruthless general who goes in and executes the troublemaklers and pacifies the people with threats, then the prince shows up and expresses his shock at what has happened and executes his own genereal for his 'crimes' - resulting in good 'reputation' for the prince with the people who are in no position to resist any longer.

Businesses make choices every day based on the odds, taking chances, in the tradeoffs between 'bad behavior' and 'reputation', where often can be bought - marketing sells it.

Second, not all businesses are very susceptible to publc opinion. Goldman Sachs, Northrup Grumman - they have a little concern about the public's opinion, but not much. They are selling to the power brokers.

As for your last paragraph - come on. Every commentator I've seen said that Goldmans' efforts were aimed at helping Greece get into the EU by hiding things that would threaten its admission.

 

[halik]

There are various points on that about 'reputation'.

One is that protecting reputation doesn't mean, to many, not doing wrong. It means having the tools in place to get away with doing wrong. The right 'corporate image', 'damage control', etc.

Recall Machiavelli's advice to a prince taking ove a new people: appoint a ruthless general who goes in and executes the troublemaklers and pacifies the people with threats, then the prince shows up and expresses his shock at what has happened and executes his own genereal for his 'crimes' - resulting in good 'reputation' for the prince with the people who are in no position to resist any longer.

Businesses make choices every day based on the odds, taking chances, in the tradeoffs between 'bad behavior' and 'reputation', where often can be bought - marketing sells it.

Second, not all businesses are very susceptible to publc opinion. Goldman Sachs, Northrup Grumman - they have a little concern about the public's opinion, but not much. They are selling to the power brokers.

As for your last paragraph - come on. Every commentator I've seen said that Goldmans' efforts were aimed at helping Greece get into the EU by hiding things that would threaten its admission.

I didn't realize that there was some sort of moral obligation attached to derivatives or for that matter securities transactions...

If you go buy GM or vonage, would TD ameritrade say no on the basis that they think it's a bad idea?

But more to the core point, you honestly think that Greek treasurers, central bankers and other gov't figures didn't know EXACTLY what they were doing? We're talking about seasoned finance professionals here, not mom & pop going to the bank for a loan.

I can guarantee you their outlook was that if we get into EU, we'll have higher gdp growth and our currency will appreciate and we'll end up with the better leg of the swap.

Edit:

On the point of reputation, we were specifically told that if anything seems in the gray area, don't do it. Same goes for money laundering, Chinese walls etc. There most certainly isn't any sort of culture of shady behaviour.

 

[Craig234]

I didn't realize that there was some sort of moral obligation attached to derivatives or for that matter securities transactions...

If you go buy GM or vonage, would TD ameritrade say no on the basis that they think it's a bad idea?

You don't really want to open the can of worms on morality here IMO. GOldman Sachs will come up short.

But more to the core point, you honestly think that Greek treasurers, central bankers and other gov't figures didn't know EXACTLY what they were doing? We're talking about seasoned finance professionals here, not mom & pop going to the bank for a loan.

That's a bizarre inference - of course Greece knew what they were doing as far as I've heard.

GS is being accused of being an accomplice with Greece, not of fooling them.

I can guarantee you their outlook was that if we get into EU, we'll have higher gdp growth and our currency will appreciate and we'll end up with the better leg of the swap.

Guarantee is a bit strong but I agree that's likely - and doesn't make it ok. Didn't work out that way, did it.

Now, as a commentator said last night, 'they all cheated to get in the EU', but it's still a problem.

Edit:

On the point of reputation, we were specifically told that if anything seems in the gray area, don't do it. Same goes for money laundering, Chinese walls etc. There most certainly isn't any sort of culture of shady behaviour.

I don't know your context - are you speaking as someone who was with GS?

Come on, unethical schemes don't mean unethical behavior throughout a company. Most people at Enron and MCI were behaving ethically.

 

[halik]

You don't really want to open the can of worms on morality here IMO. GOldman Sachs will come up short.



That's a bizarre inference - of course Greece knew what they were doing as far as I've heard.

GS is being accused of being an accomplice with Greece, not of fooling them.

I can guarantee you their outlook was that if we get into EU, we'll have higher gdp growth and our currency will appreciate and we'll end up with the better leg of the swap.

Guarantee is a bit strong but I agree that's likely - and doesn't make it ok. Didn't work out that way, did it.

Now, as a commentator said last night, 'they all cheated to get in the EU', but it's still a problem.



I don't know your context - are you speaking as someone who was with GS?

Come on, unethical schemes don't mean unethical behavior throughout a company. Most people at Enron and MCI were behaving ethically.

I've worked at Goldman before grad school. The reason why I'm so adamant about the topic is because culturally the place was very straight edge. That being said, EVERY company will come up short when it comes to any sort of moral framework - people have this misguided view of what corporations do. The purpose of a company is to generate profit for the shareholders; anything beyond that can be attributed to public image or goodwill moves. Color me shocked when an insurance company denies $2M operation for a dying cancer patient.

And 'guarantee' is definitely the right word in this case - the Greek government wouldn't have entered into swaps if they thought they'd end up on the wrong side of it.

EU should've done due diligence on the members and this sort of issue would come with or without derivatives in the place - many economists have said in the past that this issue will come up. It's very difficult to have a singular monetary union when you members are all over the place in terms of culture and GDP/capita. Sooner or later the wealthier countries will have to subsidize the poorer ones, especially if they like to run heavy public sector and social spending.

 

[Craig234]

I've worked at Goldman before grad school. The reason why I'm so adamant about the topic is because culturally the place was very straight edge.

As I said, it's typical for corrupt organizations to be 'squeaky clean' with most people, I listed Enron and MCI at their worst as examples. Few employess saw anything not normal and ethical.

Its very naive to try to infer the company not doing unethical things from that, from the view of a lower level employee.

However, there are still some useful things at times you can add from that.

That being said, EVERY company will come up short when it comes to any sort of moral framework - people have this misguided view of what corporations do. The purpose of a company is to generate profit for the shareholders; anything beyond that can be attributed to public image or goodwill moves. Color me shocked when an insurance company denies $2M operation for a dying cancer patient.

You convinced me, there's no such thing as ethics, all companies are equally good.

You sound like the type of person who has adopted a world view around working in an industry and is very ready to rationalize. Soldeirs do it, economists do it, health insurance (oops you used that that) does it.

That doesn't make it ok. Look at the Cigna VP who has left the industry to write a book and do publicity exposing the way the industry works, with moral criticisms and suggestions.

Look at General Smedley Butler who, then the most decorated man in US history, wrote 'War is a Racket' and discussed how he realized the corrupt use of the US military.

I'll tell you one you might not know - the man who through the US had the right approach, and, as a senior figure in the USSR's nuclear weapons, leaked documents - and was executed when caught.

I don't know if you have seen The Corporation', but the reason wy we have a democratic government who can reglate corporations (where the corrupt court hasn't prevented it) is the amorality you admitted.

Corporations need to be reigned in to serve the public good - of if that's too traditional for you, at leaqst not hurt it terribly. The 'profit motive', like personal desire for property or sex, is expected to be reigned in.

You don't say rape is ok, because 'some men have taken sex from women when they want for thousands of years, it's a natural urge'. Same for robbery, etc.

You concern me, that I can't tell if you list the bad things corporations can do with concern or none.

And 'guarantee' is definitely the right word in this case - the Greek government wouldn't have entered into swaps if they thought they'd end up on the wrong side of it.

You guaranteed they 'knew fully they were taking shortcuts for EU approval'. That's not the same as thinking they won't get screwed. Ask Bernie Madoff investors how well that works sometimes.

Im criticizing your logic but as I said, I agree with the previous conclusion, Greece obviously knew they were obtaining backdoors from GS to deceive the EU approval, from what I've seen.

EU should've done due diligence on the members and this sort of issue would come with or without derivatives in the place - many economists have said in the past that this issue will come up. It's very difficult to have a singular monetary union when you members are all over the place in terms of culture and GDP/capita. Sooner or later the wealthier countries will have to subsidize the poorer ones, especially if they like to run heavy public sector and social spending.

Ths is 'blame the victim' nonsense. If someone breaks in your house and shoots you tonight, we should
post not how terrible they were, but how you should have done due diligence buying more security.

If someone shoplifts from a store, who cares - the store should have done due diligence to catch them.

Those EU countries face challenges to make the Euro - so misleading them is not a problem, you suggest?

The group who sells techniques to food sellers to not get caught by regulators, that cut their costs but sicken people, didn't do anything wrong, right?

Oh, and the fact they invest heavily in wheelchairs just before the product is sold, knowing the sickness causes paralysis, and makes a good profit - no problem.

 

[halik]

Long post, so I'll respond to gist of it.

I'm not making an assessment or implying that the lack of ethical standard is ok; I'm merely pointing out that these entities do not have them by design. Anyone that expect some sort of a moral behaviour from any corporation is delusional at best.

It is you that somehow expect companies like Goldman to warn all their counterparties that they're making the wrong bet or Cigna spending millions of dollars on experimental treatment for some dying person... that's simply not how it works. *

Any financial services company out there looks at a swap in terms of the return and risk and that is it.

* on a corollary, do you think that Allstate "you're in good hands" or any other company that plays the we're your best friends angle actually means it?

 

[daishi5]

Craig, do you understand the "moral good" from investments that pay out if a company or country fail, such as short selling?

Also, can you produce any instance of a company in the US that has engaged in a practice that might cause people phyiscal harm while at the same time investing in treatments to cure the harm it caused? I assume that was a form of hyperbole, but I was wondering if you had an actual instance of it occurring?

 

[lothar]

You say they're not a traditional bank and therefore don't need to be regulated. Again, it's a matter of having your cake and eating it too, they are afforded the same benefits as a real commercial bank without any of the restrictions.

Wrong.
Here's what I said.

Goldman is not a "traditional" bank.

Nothing needs to be regulated.
What Goldman esesentially is doing is doubling down their bet at the scraps table.
If they win, they win the lottery. If they lose, they lose big.

Notice there are 2 paragraphs separated.

JPM is a traditional bank and also is involved in the Greece scandal. I guess they're having their cake and eating it too without any restrictions, huh.
People just like to blame "Goldman" for everything when Greece was the one who went to them so they could gain EU membership.

 

[wwswimming]

Sounds esoteric, why bother? Because this might be the window for years to come, and deregulating Glass-Steagel seemed esoteric at the time a decade ago.

Our democracy is broken that very few citizens will bother to get involved in this. You have an interest to get involved. Wall Street is very involved. Can democracy work a bit here?

http://www.commondreams.org/view/2010/03/02-5

i respect your idealism, i think your heart is in the right place.

but your post implies that the United States is an operational democracy. i don't think that's accurate.

both Bush and Obama have passed up the chance to make the bankers who created the largest financial fraud in history, pay for the fix of the banking system. no new laws are necessary, they just have to enforce existing laws about financial fraud.

in other words, a conscious decision to let corporate bankruptcy not only go unpunished - but be rewarded.

quite a huge contrast with the Bankruptcy "Reform" bill that Bush passed. it tightened the screws on individual consumers a lot. again, a deliberate act.

About America being a democracy - the vote in 2006, the return of Democrats to the House leadership, was a clear vote to end the Iraq War. same for the election of Obama in 2008.

it's 2010. The war is still going.

Exhibit B regarding my statement about American Democracy - the Patriot Act, and Obama-Care. Bush started the job of shredding the Constitution. Obama is close to finishing that job.

 

[rchiu]

Long post, so I'll respond to gist of it.

I'm not making an assessment or implying that the lack of ethical standard is ok; I'm merely pointing out that these entities do not have them by design. Anyone that expect some sort of a moral behaviour from any corporation is delusional at best.

It is you that somehow expect companies like Goldman to warn all their counterparties that they're making the wrong bet or Cigna spending millions of dollars on experimental treatment for some dying person... that's simply not how it works. *

Any financial services company out there looks at a swap in terms of the return and risk and that is it.

* on a corollary, do you think that Allstate "you're in good hands" or any other company that plays the we're your best friends angle actually means it?

I agree with you and I would extend that anyone that expect some sort of moral behaviour from any "organization" is delusional at best.

Seriously, all these socialism/communism vs. capitalism is nothing more than have not's vs. haves. You think it's the moral that drive all these, ha, tell that to the Stalins and Maos. Once the socialists took over, it's just the same game with different people enjoying the benefits.

Why is corporation govern by greed and profits, well that's just human nature. What makes the idealist/socialist think that the same human being will change when they run a big "democratic" government that governs everything instead of corporation.

Right now there is check and balances between corporation and the rest of the society. This system allows the US to achive the #1 economy in the world, and one of the top GDP per capital for a nation this size, and at the same time decent consumer voices and democracy If you listen to all these socialist, you'd think the US is poor and under developed, but that's not the case. US has actually done quite well with the system in place, and the result speaks for itself.

To change the system and place more restriction and more regulation on private sector like the socialists here suggest is risky. it interrupts the rules and check and balances currently in place and give another monster, the government, more power and possiblility of abuse. It introduce uncertainty to what's already mature and stable system that produces result. Is the risk worth it? Well I'd say if there were any country with the US size and diverse population that achived great result with socialist ideas, that would make it worth it to give it a try. But just look at recent history and you'd find more disaster than good result.