For those few who actually care (and I suggest that you should, if you want to progress in understanding the current American mania about Evil Wall Street!), here is Goldman Sachs’ brutal response to today’s rather wacko Times article. Setting aside the whole part where Goldman rather wildly describes the story as full of “grave inaccuracies” and as being “fundamentally misleading,” there’s at least one really great point made.
[QUESTION FROM THE TIMES}: At the Congressional hearings in April, documents were produced showing that Goldman’s mortgage department put on short equity positions in securities of four big clients in the mortgage arena: Bear Stearns, National City, Washington Mutual, Countrywide Financial. Were these clients aware at the time that you were betting against their stocks? Because of Goldman’s dealings with these companies in the mortgage area, was Goldman using nonpublic information (the â€˜mosaic’) about these companies’ weaknesses when the firm put on these negative trades? Does Goldman have internal guidelines about when the firm can and cannot take short positions in a client’s stock? How does shorting a client’s stock or buying puts on it comport with Goldman’s goal of putting clients’ interests ahead of the firm’s?
[GOLDMAN ANSWER}: One of the important functions we perform is to allow clients to increase or reduce various types of risk and we need to stand ready to allow them to accomplish that objective. Another very important obligation for any financial institution is to ensure its safety and soundness. To that end, it is essential that we appropriately manage our risks. It is only by doing this that we can continue to provide liquidity to a market place. Clients understand this. What is important is that we have the policies and procedures in place to ensure that we are conducting ourselves in an appropriate manner. Our goal is to always be best in class in this regard.
Shorting stock or buying credit protection in order to manage exposures are typical tools to help a firm reduce its risk. [Bolding original; indicates the remark was quoted in the Times story.] The intent is not to disadvantage anyone. In this regard, it is important to note that many institutions have long exposure to Goldman Sachs and it would be entirely consistent with prudent risk management practice if they bought credit protection or had a short position on our stock.
This is particularly hilarious, and is actually a good point! Clients, investors and institutions that are heavily into Goldman should also have themselves arranged (or you know, should “bet against,” in Times parlance) so as to deal with the risk of being exposed to Goldman-a firm that did, let’s remember, get hosed to the tune of $1.2 billion in the mortgage market in 2007–2008. And that is what financial institutions do! They attempt to manage risk so as to more likely make a profit!