I need to be more careful about what I predict. My "Flip Side" on November 1, 2009 had this segment:
Goldman Sachs Partner, Ron Rapacious: I sell legal futures short. I bet that the price will go down and I can buy them back at a discount. Although being rated AAA, they are really trash. Thus far this year, we have made $700 million shorting legal futures.
Flip Side: One part of Goldman issues these securities and another part shorts them? Isn'êt this unethical?
RR: That not a word that we, at Goldman, understand. This is precisely what with did with subprime CMOs. We sold them to our valued clients, and then bought default swaps against them. This allowed us to escape the meltdown that killed Bear, Merrill, and Lehman.
Flip Side: Goldman sold subprime CMOs to their clients and then bet against them? Now you are selling CONS, SCAMS, and GYPS to your clients and making $700 million by shorting them. Doesn'êt this indicate that Goldman initially overcharged its clients?
RR: We should supply liquidity for free?
So then, along comes this story from The New York Times on December 23, 2009 (page one):
Banks Bundled Bad Debt, Bet Against It and Won
[Goldman Sachs] created mortgage-related securities, named Abacus, that were at first intended to protect Goldman from investment losses if the housing market collapsed. As the market soured, Goldman created even more of these securities, enabling it to pocket huge profits.
Goldman'ês own clients who bought them, however, were less fortunate.
Pension funds and insurance companies lost billions of dollars on securities that they believed were solid investments, according to former Goldman employees with direct knowledge of the deals who asked not to be identified because they have confidentiality agreements with the firm.
