In tonight’s interview with Dan Stein, the head of FAIR, I believe that Rachel went over the line. She brought up some very questionable position points from a handful of people that are or were connected with the organization. The worst being some ideas taken from a founder of FAIR written in the 1980s.
As the interview went on though, I actually found myself agreeing with Dan Stein that this was McCarthy style journalism. Taking a single point from years ago and using it to paint an entire organization. I think Rachel was riled up and went into attack mode too quickly. The proper way to ask about these points would have been to have asked if FAIR, as an organization, still supports the beliefs that she brought up in her research or whether they’ll disavow the positions. If they won’t disavow the racist positions, then there is a story there, but for Rachel to make the accusation that because someone once said something reprehensible that the entire organization was racist was itself unfair.
Usually I’m a big fan of her reporting, but I think that in this instance she should have looked at what she had and decided that it wasn’t enough to build a story off of. She’s developing a great reputation as being a journalist that will stand up to anyone and ask tough questions, she’s just got to make sure that the quality of the story is there.
There was a bit of questioning of the Risk Management Manager that when added to that of the CFO led to some very interesting insights into Goldman Sachs. The market making staff has the ability to hold or sell items that are taken opposite those of the customers at a time and place that maximizes the profits for Goldman Sachs.
Goldman Sachs as a firm has internal views into almost every market there is. Seeing both sides of trades as well as the demand for creation of new products. The Manager would not say that internal talk among different groups wasn’t used in the determination on how to handle products that Goldman itself held. He squirmed out of taking any position.
The clear implication that you can take from these different data points is that Goldman Sachs has the ability to hold any product that they like and sell those that they don’t. They are not a neutral market making entity. They don’t see selling products that they don’t like to their own clients as a conflict of interest. Customers of Goldman Sachs need to ask themselves why the firm is selling any product. Because, if the item up for sale was worth holding, Goldman itself would hold it and not sell to the customer.
Goldman Sach’s ability to take positions and to be a market maker should be stripped. There should be a requirement that they can’t profit by taking positions as a market maker. There is no way to separate the conflict of interest otherwise.
I’m watching the testimony live on Bloomberg TV right now and a couple things are sticking out.
- The question is coming up about the ability for a party to be a market maker and to also take part in the market. With highly liquid stocks, it seems like this is OK since there is a fair amount of visibility into the market. There isn’t an information gap between different parties. But with illiquid assets like the CDOs, knowing who is involved and moving in which direction gives you a huge advantage over other players. It would only take a little bit of info to shift the advantage dramatically. If the Senators are smart they’ll see that with these types of assets market makers shouldn’t be allowed to take part in the market. It’s back door insider trading.
- There is another line of questions on rating the CDO. Goldman Sachs is sticking with the line that everyone was a big boy and should have been able to look at the security and determine the risk. The problem is that this has been proven to be completely false. No one was able to accurately determine the risk of these items. The fact that they allowed Paulson to pick the contents and then short the CDO gave him a huge advantage in the deal. Whether this was illegal or not isn’t clear, it should not be allowed to happen again.
- The Goldman Employees referenced the mathematical models that allowed rating agencies to take BBB+ sub-prime mortgages and rate them as a group as AAA. It’s shocking how far from reality this model was. It’s these types of models and economic thinking that has spurred my interest in this area. How can the supposed top economic minds get things so wrong?
So, I was doing the laundry today and realized that at 18 months Caitlin has hit a critical milestone. She now has more clothes than her dad, BY VOLUME, and I’ve got some pretty big clothes. I suppose I should just accept this and realize that as she moves on towards high school and college it’ll only get progressively worse, but it was still a bit of a shock.
What a crazy idea, ask an actual socialist what they think of Obama’s so called “Socialist” policies. Turns out real Socialists aren’t that happy with Obama, the candidate closest to real socialism is actually Sarah Palin.