Goldman Sachs joins the blogosphere

By Felix Salmon
February 9, 2010
jumping into the blogosphere.

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If I may put on my hat as Reuters Blog Ambassador for a minute (really, it says that on my business card), I’d like to congratulate the urbane and loquacious Lucas van Praag for finally jumping into the blogosphere.

A blog entry is pretty much the perfect medium for reacting to a story in the press: you can link to the story in question, quote various bits, and respond to them at whatever length you like. What’s more, from a PR person’s perspective, a blog entry is unfiltered: you don’t have to rely on partisan journalists to communicate what you’re saying in an accurate manner.

Responding via blog is a much better idea than responding via email, as say Citigroup did to my post yesterday on their end-of-the-world insurance. (And in fact I only got the email because I’m in England right now and wasn’t in the Reuters office to take Alex Samuelson’s phone call.) While I’m the kind of blogger who will always append such things to the blog entry in question, not all bloggers do that, and almost no newspapers will semi-automatically give the subject of their articles an unedited right of reply at the bottom of the article itself. What’s more, if you set up your own blog somewhere, then all your responses can be found in one place. (Memo to Goldman: Do make sure you archive all these blog entries at gs.com, rather than just having them up at HuffPo. Update: There it is!)

What Lucas did is very smart, then, and I like how he did it as well. For instance:

NYT assertion: “Perhaps the most intriguing aspect of the relationship between Goldman and AIG was that without the insurer to provide credit insurance, the investment banks could not have generated some of its enormous profits betting against the mortgage market. And when the market went south, AIG became its biggest casualty — and Goldman became one of the biggest beneficiaries.”

The facts: As we’ve already said, we were far from the biggest beneficiaries of the mortgage market’s decline. Through prudent hedging, we limited our losses, rather than generating “enormous profits.” AIG was only one of many counterparties with whom we had hedging arrangements.

This more or less speaks for itself, I think. Goldman didn’t make enormous profits in 2008, and it didn’t make enormous profits in mortgages, either. In fact, it made a loss on mortgages, but managed to mitigate that loss by hedging its position with AIG and others. Yes, the short side of the hedge made lots of money, but the fact is that Goldman would never have put on such a large hedge if it didn’t already have an equally large long position in the market. So ignoring the long side of Goldman’s book while concentrating only on the short side is rather disingenuous.

There is an entirely separate question, of course, surrounding the counterparty risk exposure which Goldman had to AIG: Goldman says it fully hedged that counterparty risk, while no one else really believes them or considers such a hedge possible. But that’s not what the NYT is talking about here.

Interestingly, Lucas doesn’t respond to what I think is the heart of the piece: the idea that Goldman managed to exit its short position, thanks to the US government, right at the bottom of the market, thereby maximizing the loss to taxpayers. Maybe he’ll talk about that in his next blog entry.

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