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I read this and thought of the many ways that you all earned fees last night. The story is about the hearings in Washington and describes the cultural divide between Wall Street and Congress. Here is an excerpt:
The Fab Four [the first Goldman Sachs representatives at the hearing] made clear that there was no such thing as a bad deal or a crappy security, only mispriced risks. Nor were there winners and losers, only willing buyers and sellers. Concepts such as fairness, loyalty, shame and greed simply had no meaning on Planet Wall Street.
The whole story is here.
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I think these hearings really point to the fact that the Efficient Market Hypothesis and ideal macroeconomic principles simply do not work in the real world. The executives at Goldman Sachs and other Wall Street firms hide behind the idea the the invisble hand should have correctly priced those risks. However, it is obvious that these firms receive asymetric information and use this information to their advantage. While it may not be ethical its certainly legal, profitable - and as I learned last night - a whole lot of fun.
ReplyDeleteI think Tuesday night's game really put us all in the same situation and showed how easy it is to get sucked into making transactions even when we weren't sure what we were doing. Goldman Sachs probably knew what they were doing, unlike us, but the line that was really scary to me was, "And as Goldman sees it, the firm has no legal or ethical obligation to inform those buyers of its views or its conflicting interests."
ReplyDeleteWhat we think are reputable banks now remind me of something similar to shady pawn shops or people scalping tickets. We should be allowed to trust these long standing firms, but I know I certainly don't carry the same regard as before.
That statement to me makes it seem like the transaction is all that matters not the well being of the investor. "Only willing buyers and sellers", regardless of the fact that the investments being sold and purchased were dangerous. When we watched "House of Cards" it showed how the banks were selling these securities left and right, investors were under the impression they were receiving safe long term investments backed by American mortgage payments. The willingness of an investor can be manipulated by information from the seller. It reminds me of boiler room.
ReplyDeleteSimilar to Dana's post, the line: "the firm has no legal or ethical obligation to inform those buyers of its views or its conflicting interests" really stood out to me. I feel that consumers need to be less naive and pay more attention to what they are buying. At the end of the day, this is a company that operates in the competitive world of big business. If people don't doesn't their research, then they are taking a risk. Additionally, if they read the fine print and still don't understand then common sense would suggest that they invest in something else.
ReplyDeleteI really agree with what Chloe said - this whole debacle essentially disproves EMH. If there were no winners or losers, then why is Goldman making record profits and Lehman a ghost? The answer is pretty simple, these guys are the smartest on the street and made billions off of asymmetric info.
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