The Great Debate UK
- Laurence Copeland is a professor of finance at Cardiff University Business School and a co-author of “Verdict on the Crash” published by the Institute of Economic Affairs. The opinions expressed are his own. -
In a previous blog, I expressed the fear that in the aftermath of the financial crisis we were going to see either the innocent punished or guilty men convicted of the wrong crimes, or maybe both.
A topical case is Goldman Sachs, an investment bank which weathered the crisis better than most, only taking Fed money when all the other dominos had already fallen, repaying it extremely quickly, and facing accusations ever since of having been too clever for its own good.
The latest charge is that they foisted a type of complex securities known as Collateralised Debt Obligations – essentially, securitised mortgage packages – on their unwitting clients, in spite of the fact that the underlying assets were of extremely poor quality, as Goldman were allegedly fully aware.
Europeans won't be amused by the alleged Goldman Sachs scam. ABN Amro, and therefore ultimately Royal Bank of Scotland, ended up losing $841 million in the allegedly fraudulent collateralised debt obligation investment concocted by the investment bank. Meanwhile, IKB, the bust German bank, lost nearly $150 million.
These European banks were some of the biggest financial mugs in the last years of the credit bubble. But the allegations levelled by the Securities and Exchange Commission don't concern the folly of the buyers and insurers of subprime mortgage investments. Goldman is accused of misleading investors. The UK and German states, which bailed the banks out, will be livid if the case is proved. Goldman denies the charges.
from The Great Debate:
-- John Kemp is a Reuters columnist. The views expressed are his own --
It is now virtually certain financial reform legislation will go sailing through the Senate, following the complaint filed against Goldman Sachs and an employee in the U.S. District Court for the Southern District of New York by the Securities and Exchange Commission this afternoon.
Filing a complaint is not the same as proving it. Goldman Sachs has already stated that "The SEC's charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation".
By Chris Hughes
Even the mighty Goldman Sachs makes mistakes. The Wall Street bank's decision to help Greece keep some of its debts hidden from public view in 2001 was one of them.
The transaction allowed the Greek government to present accounts which understated the state's liabilities by 1.6 percent of GDP.
What is an acceptable return on equity (ROE) for a bank? That question is likely to dominate the debate among executives, investors and regulators in the coming year. After the spectacular losses of the crash, there is no doubt that banks' future returns should be lower than the super-charged profits earned during the credit boom. But if ROEs fall too far, the consequences could be severe.
Returns are already on the way down: just look at Goldman Sachs. Between November 2007 and September 2009, the Wall Street bank's tangible common equity swelled by 74 percent. In 2007, its best-ever year, Goldman earned a 38 percent return on that equity. This year the bank is expected to report the second-highest profit figure in its history. But its ROE is likely to be just half its level of two years ago.
The number of London's trademark black taxis booked and waiting outside the European headquarters of Goldman Sachs -- meters running -- was once used by some as a barometer of the health of London's investment banking business.
When times were good, the queue was long and it was impossible for anyone else in the vicinity to hail a cab. But when the fees dried up, or markets turned, the cabbies who'd been at Goldman's beck and call suddenly had to find new customers.
Susanne Craig uses 2,200 words in today's Wall Street Journal that state the obvious: Goldman Sachs treats big clients better than small ones.
In any other industry, a company giving favourable treatment to its best customers would stand accused of nothing more than sound business practice.
Hard as it may be to believe, shares of beleaguered Citigroup are on fire.
The stock of the de facto U.S. government-owned bank is up some 300 percent after it cratered at around $1 back in early March.
The over-caffeinated stock maven Jim Cramer keeps calling Citi a "buy, buy, buy" on his nightly CNBC television show. Even the more sober-minded writers at Barron's are pounding the table a bit, predicting Citi shares could double in price in three years."
from The Great Debate:
-- Heidi N. Moore is a business writer in New York City. This article originally appeared in The Big Money. The views expressed are her own. --
Maybe, but it's damn hard to prove. That's why it's so unimpressive that a fervent 10,000-word rant by Matt Taibbi in Rolling Stone's July 9 issue-devoted purely to "Goldman's big scam"-spent 12 pages on the subject of Goldman Sachs' "Great American Bubble Machine" but never delivered any plausible proof. The mammoth article disappointingly failed to provide the smoking gun that so many people on Wall Street-who have envied and admired and hated Goldman for much of this decade-would have been delighted to see.
In late 2006, Goldman shrewdly began backing away from the residential mortgage market. With little fanfare, the firm began aggressively hedging its exposure to home loans, in particular mortgages to borrowers with shaky credit histories.
This savvy and somewhat stealthy strategy enabled Goldman to pawn off lots of its soon-to-be toxic mortgages and mortgage-backed securities on other institutions -- forcing those foolhardy speculators to pay the price when the subprime market blew up.