Tag: demagoguery

Goldman Sachs

I feel sorry for some of the people – astonishingly few – who realized what a house of cards we were living in financially two years ago and who put their money where their mouth was by short-selling.

Why should I feel sorry for them? Because they called it exactly right, but lost money anyway because the government bailed out some of the companies they were shorting.

Not so John A. Paulson. Although the New York Times re-tells his story today – under a headline that sounds like a lament (Investor Who Made Billions Not Targeted in Suit) – he got exactly what he deserved: richly rewarded for an audacious big-time bet that was spot on accurate. (It was more complicated than regular short-selling, but the concept was the same: he foresaw the collapse of collateralized debt obligations in mortgages and sought a way to profit if he was correct.)

Why should anyone think for a minute that he would be targeted in a lawsuit?

Has it come to that? Anyone who gets rich gets sued by some ambitious prosecutor playing to the rubes in the peanut gallery?

Yeah, in New York state it did come to that under the corrupt Eliot Spitzer, whose disgrace from whoring around is fading waaay too fast. Before he was governor, he was Attorney General, and made his political fortune filing extortionate suits against people who had committed no recognized crime but had made out well enough to incite envy – or to be susceptible of inciting populist envy if Spitzer played it right. This, for just one instance (suscription may be required).

Kudos to prosecutors who targeted double-dealing Goldman Sachs (I’m not prejudging the criminality of this particular case – though it seem likely to me) and left Paulson alone. May their tribe increase.

UPDATE:

It’s worse than I thought for Goldman. Here:

Among other things, the commission alleges that, starting in early 2007, Fabrice Tourre, a vice president working in Goldman’s New York headquarters at the time, structured and marketed Abacus 2007-AC1 — a syntheticcollateralized debt obligation tied to the performance of a bunch of residential mortgage-backed securities. The problem was that he did this without telling Abacus investors that John Paulson, a prominent hedge fund manager who made billions of dollars by famously betting against the mortgage market, had selected the mortgage-securities that went into Abacus specifically because they were so lousy.

And then, the S.E.C. alleges, Paulson bet against Abacus and made $1 billion, while the investors — among them, ABN Amro and IKB, two big European banks — lost $1 billion when the real-estate market collapsed.

So Goldman helped Paulson package bad mortgage-backed securities so that when the unwitting bought them, Paulson could borrow them and short them? I think so. And then Goldman sold them to the unwitting without mentioning that “this package was specifically bundled to be especially crappy”? So says the complaint! And here:

A number of journalists and commentators (yours truly included) have taken issue with the fact that some dealers (most notably Goldman and DeutscheBank) had programs of heavily subprime synthetic collateralized debt obligations which they used to take short positions. Needless to say, the firms have been presumed to have designed these CDOs so that their short would pay off, meaning that they designed the CDOs to fail. The reason this is problematic is that most investors would assume that a dealer selling a product it had underwritten was acting as a middleman, intermediating between the views of short and long investors. Having the firm act to design the deal to serve its own interests doesn’t pass the smell test (one benchmark: Bear Stearns refused to sell synthetic CDOs on behalf of John Paulson, who similarly wanted to use them to establish a short position. How often does trading oriented firm turn down a potentially profitable trade because they don’t like the ethics?)

Yet the author of that block quote continues:

Strange as it may seem, structured credit-related litigation is a new area of law, with few precedents. Until the credit crisis, unhappy investors seldom sued dealers and other key transaction participants.

This may be why the commission is pursuing this as a civil case rather than criminal. What Goldman did was not clearly a crime.

But it sure smell bad.

Culture war update

My posting that used my spiritual doppelganger Frank Schaeffer as a launching pad was in the works for several days, but coincidentally, the AOI blog featured Schaeffer’s odd behavior as its centerpiece just a day later.

I underestimated the depth of the problem, having only sampled what Schaeffer offers to wallow in. There’s something seriously wrong when an Orthodox Christian of Schaeffer’s reported status can write this generally and this in particular:

The [Manhattan] declaration was the brainchild of a far right Reconstructionist extremist, Roman Catholic scholar, Robert P. George. George is a Princeton University professor of jurisprudence and probably the most influential Reconstructionist thinker to try to derail our democracy … Of course George would disavow being called a Reconstructionist. Rather he would claim he’s an advocate of the so-called Natural Law school of Roman Catholic theology.

Well, yes, Frank: George would deny being a Reconstructionist. Because he isn’t one. And he’d claim the Natural Law mantle. Because it fits.

And if you don’t know that, I’ve got bad news for you: you’re an idiot. (Shall I write that slower? You. Are. An. Idiot.)

Or as George put it:

I remember meeting him [Schaeffer] only once. Admittedly, it was a memorable experience. We were on a panel together at Princeton discussing contemporary politics in the midst of the 2008 presidential election. I knew nothing about the man, but he immediately struck me as an odd and, frankly, somewhat creepily emotive character who, as they say, “had issues.” He seemed pathetically desperate to be important or, at least, to be regarded as important in elite intellectual circles. I’ll leave it to the psychiatrists to decide whether this had to do with his being reared by fundamentalist Christian parents, a fact which, for some reason, he insisted on making a very big deal out of in his remarks. His speech was an emotional tirade that was perhaps the most self-referential piece of oratory I’ve ever heard. It was, you see, all about . . . him! We were supposed to be talking about the election, but what the audience got from Frank Schaeffer was autobiography—an account of the life and deeds of Frank Schaeffer. (Evidently, he was once himself connected to those dreadful right-wing fundamentlists until he “realized just how anti-American they are,” which led him to forums like the the Rachel Maddow Show and the Huffington Post where he warns the Enlightened about the nefarious plans of his former comrades in arms “to derail democracy.”)  It was so painfully embarrassing that even people on his side (that would be the pro-Obama side) were rolling their eyes to make clear to the rest of us that they found his behavior as peculiar and embarrassing as we did.

Schaeffer once said Orthodoxy was his last stop in Christianity – as if he’d apostatize entirely if Orthodoxy didn’t suit him. So as a litany in the St. Ambrose Prayer Book has it:

On those who at this moment are in danger of losing Thee forever, Lord have mercy!