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.

Comments
5 comments so far

Yes, but did he address the giant blood sucking squid issue?

Posted by dlr | Report as abusive

Obviously in, uh, ‘dealing with’ AIG, Goldman lifted about half a page out of Animal House.

Verbatim:
“I’ll tell you what. We’ll tell Fred you were doing a great job taking care of his car, but you parked it out back last night and this morning… it was gone. We report it as stolen to the police. D-Day takes care of the wreck. Your brother’s insurance company buys him a new car…”

Preceded by:
“You [screw]ed up… you trusted us!”

By rights, Goldman ought to be paying Harold Ramis several billion dollars in royalties, pronto, no questions asked.

Posted by HBC | Report as abusive

Speaking of diplomacy:

http://blog.foreignpolicy.com/posts/2010  /02/03/ambassador_at_very_large

Akbar Zeb!

Going to start calling him “Zoobi Doo”

Also:

http://gawker.com/comment/19225482

Posted by Uncle_Billy | Report as abusive

How Goldman Sachs Helped Greece to Mask its True Debt

http://www.spiegel.de/international/euro pe/0,1518,676634,00.html

This company is bad news, anything they are involved in anywhere look for a mega scam . RICO type laws should be used if not already there written to put such rackitiers away.

Posted by deridem | Report as abusive

You’re comment about the “heart of the piece” doesn’t make sense to me, as I asked on your earlier post as well. AIG/Fed was long the CDO’s, they continue to be long the CDO’s. Terminating the CDS at market without buying the underlying CDO’s would, indeed, have locked in the AIG/taxpayer loss at the bottom of the market, but that’s not what happened in the real world.

Posted by niveditas | Report as abusive
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