Tuesday, April 27, 2010

Goldman vs Senate Musings

My musings...

Is it a crime to take a short position on the structured financial securities that one is selling? Is it a crime if you tell the buyer that you are shorting?

Why can't you sell a "crappy" "shitty" security? There are tons of such securities which are eagerly snapped up by the investors today, even after the financial market crash we had. Junk bonds have been snapped up by investors betting on the price recovery. For that matter, people are still trading Washington Mutual and Lehman Brothers pinksheets.

If the German bank was stupid enough to buy the CDO without protection (CDS), the CDO that references to other CDOs which are based on the US subprime mortgages whose market the bank, being a foreign bank, couldn't have known well enough, shouldn't that be the German bank's problem, not Goldman's?

Why are we (or the Senators) concerned so much about the welfare of a big institution who bought the crappy CDO from Goldman?

If they are really concerned, not about a dumb international investor but about the wellbeing of the US financial markets and the housing market, instead of Goldman (or in addition to Goldman) they should haul the management of this black-box company that creates indices of asset-backed securities and supposedly prices various CDS and which happens to include the major broker-dealers including Goldman Sachs as equity partners - Markit. When this company concocted the ABX index in 2006, that was the beginning of the end.

More than anything else, this index has caused market dislocation and upheaval by enabling the short-sellers. But no, no one mentions Markit except for a very few writers. Here's one ("The Markit Group, A Black-Box Company that Devastated Markets" by Mark Mitchell, 11/17/2009 Deep Capture) well worth reading. And asking question: Why is the role played by this firm being ignored?


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