7 ms·

As a quick refresher, these guys sold CDOs that they knew weren't priced correctly, obfuscated the mispricing, and then profited on short positions against the

by ksar 11y ago

As a quick refresher, these guys sold CDOs that they knew weren't priced correctly, obfuscated the mispricing, and then profited on short positions against the securities. Took 7 years to settle for being straight up crooks. Still the Wild West out there.

tim333 11y ago
There should really be some way to punish the individuals responsible, even just a fine comparable to the bonuses they made, rather than just having their employer pay compensation while those responsible continue to get richer.
- ChrisAntaki 11y ago
  Is there a definitive list somewhere? If there was, a boycott could be organized.
  - tim333 11y ago
    I think one of the problems is that it's hard to allocate blame. The guy selling iffy securities will probably claim he thought they were good and so on. I'm not quite sure how you fix that. Require the bank to list individuals as part of the settlement perhaps?
- forgetsusername 11y ago
  >There should really be some way to punish the individuals responsible Honest question: do reasonable really look at the The Great Recession and think that there are "individuals" wholly responsible for what happened?
  - mtgx 11y ago
    I think the problem is not "we can't find anyone who did wrong here", but "there are so many who cheated people that we wouldn't know where to start, or we'd have to arrest thousands - so we might as well do nothing about it". Regardless of punishing those guilty or not (which I think they should be), it's absolutely criminal that virtually nothing has changed in how these companies operate, and that the "too big to fail" companies continue to remain too big to fail. The next time these banks crash - and they will crash - the taxpayers will have to bail them out in the trillions of dollars.
    - forgetsusername 11y ago
      >it's absolutely criminal that virtually nothing has changed in how these companies operate Except that this is simply not true if you've been paying attention beyond the populist headlines.
      - enraged_camel 11y ago
        Can you give some concrete examples of what has changed in their modus operandi? Preferably with citations,but I won't even hold you to that.
  - Lawtonfogle 11y ago
    >Honest question: do reasonable really look at the The Great Recession and think that there are "individuals" wholly responsible for what happened? Yes, that is how we handle complex issues. We look at the people who did the biggest wrong and hold them responsible for most if not all of the blame, even though we understand that there were far more actors who could've greatly impacted the actual harm done. Consider child abuse. There are certain forms where, depending upon reactions from parents and therapy offered, the outcome could vary greatly from extremely harmful to minimal damage to the child. But regardless of the outcome of the harm, and regardless if the outcome was influenced by other parties, we place the guilt of all the harm, both realized and risked, on the one who committed the abuse. We do not need mastery of how the financial system broke to deal out punishment just like we don't need mastery of the pathways by which emotional abuse leads to suicide attempts to punish the abuser. It isn't perfect, but it is better than just washing our hands after slapping a few wrists when we don't understand all the details.
- appleflaxen 11y ago
  > comparable to the bonuses they made I realize this might be what you are saying already, but to be clear: tt should be /multiples/ of the bonuses they made, if you want to discourage this kind of behavior.
VeilEm 11y ago
> that they knew weren't priced correctly Things are priced at what they will sell for. It's more that they were hiding information about the risk (which of course would have drastically lowered the value and the price people would be willing to pay). I think the difference is significant, however.
- jynnantonnyx 11y ago
  I have a box for sale labeled AAA. Price $5. Guaranteed to contain $6. Email me for details.
  - jevgeni 11y ago
    So, did anybody e-mail you?
- deciplex 11y ago
  Can you expand on the significance of this difference? I guess you're asserting that the "correct price" is the one that someone will pay for it, and that something is only "incorrectly priced" if no one will buy it. But the point is precisely that no one would have bought these goods for the indicated price had GS not obfuscated what they were selling in the first place. It seems to me that you're really splitting hairs.
  - shrewduser 11y ago
    there's no difference. they weren't priced correctly is a perfectly reasonable thing to say, and synonymous with they lied about their level of risk.
    - jevgeni 11y ago
      CDO's are huge and complicated deals. All the little details are documented in the prospectus. Granted it's 700 pages long on average, but maybe people shouldn't be buying 2-3 billion USD securities if they don't have the capacity to understand and model them properly.
javajosh 11y ago
The remarkable thing is that people still do business with Goldman. Why didn't the CDO debacle undermine people's trust in that firm? Isn't this a complete failure of the market?
- ksar 11y ago
  Partly because this wasn't Goldman specific behaviour. Those participating were systemically important financial institutions. In 2008, credit markets/money markets completely froze up and banks wouldn't lend to one another, precisely because trust had been eroded. No one had a clear view on the extent to which financial counterparties were exposed.
- rhino369 11y ago
  The problem is that depending on banks roles, they are supposed to be trustworthy or not. In arms length negotiations, the banks aren't even supposed to have your interests at stake. But if they are managing your money, they are supposed to have a fiduciary duty to you. Brokers don't owe you shit other than not lying to or defrauding you. But people don't realize this. Brokers are salesmen, pure and simple. Worse, now brokers often have bullshit titles that hide their nature. For example, financial advisers sound like someone who has a fiduciary duty to you, but really they are just brokers. Trying to sell you on investments. You should treat anyone who doesn't have an explicit fiduciary duty to you as you would a car salesman.
marklgr 11y ago
> Still the Wild West out there. Strangely enough, it is both a kind of freedom ideal to some, and an unfair, immoral and violent dog-eat-dog society for other.
deleted 11y ago
[deleted]
forgetsusername 11y ago
>As a quick refresher Maybe this topic isn't fit for "quick" refreshers. Some problems are more nuanced and complex. >these guys sold CDOs that they knew weren't priced correctly, obfuscated the mispricing What does that even mean? >then profited on short positions against the securities. What is the crime?

by ksar 11y ago

tim333 11y ago

There should really be some way to punish the individuals responsible, even just a fine comparable to the bonuses they made, rather than just having their employer pay compensation while those responsible continue to get richer.

ChrisAntaki 11y ago
Is there a definitive list somewhere? If there was, a boycott could be organized.
- tim333 11y ago
  I think one of the problems is that it's hard to allocate blame. The guy selling iffy securities will probably claim he thought they were good and so on. I'm not quite sure how you fix that. Require the bank to list individuals as part of the settlement perhaps?
forgetsusername 11y ago
>There should really be some way to punish the individuals responsible Honest question: do reasonable really look at the The Great Recession and think that there are "individuals" wholly responsible for what happened?
- mtgx 11y ago
  I think the problem is not "we can't find anyone who did wrong here", but "there are so many who cheated people that we wouldn't know where to start, or we'd have to arrest thousands - so we might as well do nothing about it". Regardless of punishing those guilty or not (which I think they should be), it's absolutely criminal that virtually nothing has changed in how these companies operate, and that the "too big to fail" companies continue to remain too big to fail. The next time these banks crash - and they will crash - the taxpayers will have to bail them out in the trillions of dollars.
  - forgetsusername 11y ago
    >it's absolutely criminal that virtually nothing has changed in how these companies operate Except that this is simply not true if you've been paying attention beyond the populist headlines.
    - enraged_camel 11y ago
      Can you give some concrete examples of what has changed in their modus operandi? Preferably with citations,but I won't even hold you to that.
- Lawtonfogle 11y ago
  >Honest question: do reasonable really look at the The Great Recession and think that there are "individuals" wholly responsible for what happened? Yes, that is how we handle complex issues. We look at the people who did the biggest wrong and hold them responsible for most if not all of the blame, even though we understand that there were far more actors who could've greatly impacted the actual harm done. Consider child abuse. There are certain forms where, depending upon reactions from parents and therapy offered, the outcome could vary greatly from extremely harmful to minimal damage to the child. But regardless of the outcome of the harm, and regardless if the outcome was influenced by other parties, we place the guilt of all the harm, both realized and risked, on the one who committed the abuse. We do not need mastery of how the financial system broke to deal out punishment just like we don't need mastery of the pathways by which emotional abuse leads to suicide attempts to punish the abuser. It isn't perfect, but it is better than just washing our hands after slapping a few wrists when we don't understand all the details.
appleflaxen 11y ago
> comparable to the bonuses they made I realize this might be what you are saying already, but to be clear: tt should be /multiples/ of the bonuses they made, if you want to discourage this kind of behavior.

VeilEm 11y ago

> that they knew weren't priced correctly Things are priced at what they will sell for. It's more that they were hiding information about the risk (which of course would have drastically lowered the value and the price people would be willing to pay). I think the difference is significant, however.

jynnantonnyx 11y ago
I have a box for sale labeled AAA. Price $5. Guaranteed to contain $6. Email me for details.
- jevgeni 11y ago
  So, did anybody e-mail you?
deciplex 11y ago
Can you expand on the significance of this difference? I guess you're asserting that the "correct price" is the one that someone will pay for it, and that something is only "incorrectly priced" if no one will buy it. But the point is precisely that no one would have bought these goods for the indicated price had GS not obfuscated what they were selling in the first place. It seems to me that you're really splitting hairs.
- shrewduser 11y ago
  there's no difference. they weren't priced correctly is a perfectly reasonable thing to say, and synonymous with they lied about their level of risk.
  - jevgeni 11y ago
    CDO's are huge and complicated deals. All the little details are documented in the prospectus. Granted it's 700 pages long on average, but maybe people shouldn't be buying 2-3 billion USD securities if they don't have the capacity to understand and model them properly.

javajosh 11y ago

The remarkable thing is that people still do business with Goldman. Why didn't the CDO debacle undermine people's trust in that firm? Isn't this a complete failure of the market?

ksar 11y ago
Partly because this wasn't Goldman specific behaviour. Those participating were systemically important financial institutions. In 2008, credit markets/money markets completely froze up and banks wouldn't lend to one another, precisely because trust had been eroded. No one had a clear view on the extent to which financial counterparties were exposed.
rhino369 11y ago
The problem is that depending on banks roles, they are supposed to be trustworthy or not. In arms length negotiations, the banks aren't even supposed to have your interests at stake. But if they are managing your money, they are supposed to have a fiduciary duty to you. Brokers don't owe you shit other than not lying to or defrauding you. But people don't realize this. Brokers are salesmen, pure and simple. Worse, now brokers often have bullshit titles that hide their nature. For example, financial advisers sound like someone who has a fiduciary duty to you, but really they are just brokers. Trying to sell you on investments. You should treat anyone who doesn't have an explicit fiduciary duty to you as you would a car salesman.

marklgr 11y ago

> Still the Wild West out there. Strangely enough, it is both a kind of freedom ideal to some, and an unfair, immoral and violent dog-eat-dog society for other.

deleted 11y ago

[deleted]

forgetsusername 11y ago

>As a quick refresher Maybe this topic isn't fit for "quick" refreshers. Some problems are more nuanced and complex. >these guys sold CDOs that they knew weren't priced correctly, obfuscated the mispricing What does that even mean? >then profited on short positions against the securities. What is the crime?