Wednesday, February 24, 2010

Toyota and Goldman Sachs: Who's Bad?

So... I don't quite understand. Toyota is bad and evil because it built cars that occasionally failed for unknown reasons. Goldman Sachs is brilliant because it designed CDOs that would fail so that they could bet against them. And oh by the way in that process Goldman may have helped crash the world economy into the deepest recession since the World War II.

Here we have Goldman Sachs, who, from all indications, created CDOs (collateralized debt obligations) specifically designed to FAIL. Goldman sold them to either gullible investors or co-conspirators (think Societe Generale), often with AIG's insurance (CDS, credit default swap). Goldman itself shorted those CDOs through AIG's CDS. Sure enough, CDOs crashed when 1) underlying MBS (mortgage backed securities) crashed because of sub-prime loan debacle; 2) index that supposedly tracked CDS started to show unusually high spreads, making the securities insured with those CDS drop in price; 3) AIG got downgraded, triggering the collateral requirement and downgrade of CDOs; 4) all of the above and probably more. (Read AIG-related article by David Fiderer at Huffington Post, if you think you can keep your blood pressure from shooting up.)

Goldman Sachs has gotten away with it.

Now we also have Toyota, subject of media and congressional circus right now, whose Japanese CEO naively admits guilt, saying he is sorry, that his company shouldn't have expanded this rapidly, that they were remiss in quality, etc - the usual, honorable thing to do in Japan and totally stupid thing to do in the U.S., where anything he says will be used against him and his company in a criminal prosecution which the Obama government is so intent on pursuing.

For Toyota to replicate Goldman's success, Toyota has to build a car specifically designed to fail, sell it and take out huge insurance policies on the car and the driver. An accident happens, and the insurer cannot pay because the payout is simply too huge. The government steps in to pay on behalf of the insurer. When someone raises the question of a faulty car built by Toyota, Toyota will say "People are simply jealous of our performance, because we're so good." And people will say "Oh OK, I guess you guys are really good."

FBI raided the offices of Toyota suppliers Tuesday night. For what criminal offense?

Some people may say "Well, in Toyota's case, people actually have died from the defect." People have died from the stock market and housing market plunge at least in part caused by the products and trading strategies by the likes of Goldman Sachs. I remember a few who committed suicide.

Still, Goldman Sachs has gotten away with it.


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