A More Wretched Hive

by va

Megan McArdle is agonizing over whether Goldman Sachs committed the economic equivalent of homicide or mere vehicular manslaughter in its part in the recent financial troubles. This is a very important question for her, and she thinks, contrary to Matt Taibbi, that it was all a big mistake. Her theory is that the CDOs Goldman was stuffing with shaky mortgages should in theory have made money forever, barring some catastrophe no one could predict.

[I]f you pool the risk [in CDOs], only some of the bonds will go bad, while others pay off. The result is a less risky, less volatile investment than any individual junk mortgage bond. And it would have worked, too, if it hadn't been for those crazy kids a collapse in the housing market of a scale not seen since the Great Depression.

You see, it is a tragic story of a wrathful invisible hand and a collapse that came from nowhere. Taibbi is perfecly capable of defending himself, but this presents an opportunity to bring up a relevant quote from this article by Michael Lewis in Vanity Fair about why and how AIG and specifically Joe Cassano decided to insure those CDOs. One day, after hearing from a few people that maybe they were not so great...

Cassano agreed to meet with all the big Wall Street firms and discuss the logic of their deals—to investigate how a bunch of shaky loans could be transformed into AAA-rated bonds. Together with Park and a few others, Cassano set out on a series of meetings with Morgan Stanley, Goldman Sachs, and the rest—all of whom argued how unlikely it was for housing prices to fall all at once. “They all said the same thing,” says one of the traders present. “They’d go back to historical real-estate prices over 60 years and say they had never fallen all at once.” (The lone exception, he said, was Goldman Sachs. Two months after their meeting with the investment bank, one of the A.I.G. F.P. traders bumped into the Goldman guy who had defended the bonds, who said, Between you and me, you’re right. These things are going to blow up.)

Now, Michael Lewis, that is perhaps too big a universe of anonymous skullduggery to cram between parentheses. Still, that is some high stakes fuck-your-buddy and damn the consequences, a "show of sinister cartoonishness too cartoonish not to have happened pretty much exactly as described" as Moe Tkacik says. Oh by the way, apropos of nothing old boy, between you and me and taxpayers and municipalities and pension funds and other international interessengemeinschaften propping up a few national economies here and there, and contrary to what we said before in the board room, we're just having a bit of fun inflating a bubble; nice suit, I should add. Another martini? Capitalism!

That all allegedly happened in late 2005 to early 2006, so at last, O miracles, it appears somebody predicted something. And indeed, Goldman was "first at the door" looking for collateral from AIG when subprime collapsed in 2007, and was busy making tons of money shorting their own bad deals in the meantime. To take up McMegan's analogy, it seems to me that Goldman is the kind of villain that rammed the guy in the garage, stole his shit, and sold it on e-bay. We're talking about knaves, ne'er-do-wells, monsters, villains; they are--what's the most horrible word in the world? Oh right, they are BLOWJOBS. And they might not have gotten away with it either, but for those crazy kids working for them in government.

Comments

[El Cid]

It would be so totally awesome if I'd make some unintentional errors and ill-thought ought decisions which resulted in such massive short-term enrichment for myself that I'd be living like those people in cartoons who get riches granted to them by genies.

I guess we should be lucky that people running companies like that have no idea what they are doing or the likely consequences, unlike clever glibertarian bloggers, so we know that when they massively profit from the power they wield and from a lack of drive or ability to regulate their dangerous actions, it simply must be some sort of odd coincidence.

I mean, if people like this intended to do something wrong to enrich themselves, then, like, it'd be really, really bad, unlike the current situation, which is only a little bad because some of these important enterprising figures have had to endure occasional insulting headlines and a few minutes here and there in some powerless Congressional hearing.

Only bloggers and liberal writers have the capacity to envision the likely consequences of self-enriching actions; businesspeople don't, because, you know, that would be like crazy and fringe and Marxist to think so.

[Righteous Bubba]

[I]f you pool the risk [in CDOs], only some of the bonds will go bad, while others pay off.

Sorcery: good when it works.

[DrDick]

Sort of makes you sympathize with Pretty Boy Floyd, John Dillinger, and Jesse James.

[va]

Til those guys come back, DrDick, it's pretty satisfying to root for ACORN.

[DrDick]

va -

Like Pretty Boy, I am a native Okie and tend to take an "unproductive" response to this kind of bullshit. ACORN, a fine upstanding and socially useful organization (in stark contrast to the Republican Party), just will not cut it. I want blood in the streets.

[va]

Blood in the streets! It's not unappealing. In my ideal world ACORN would have guns to stop foreclosures and cops wouldn't. Can we arm community organizers and social workers? I bet Jake T. Snake has something to say about this.

I didn't know you were from Oklahoma originally. I'd love to see it one day.

[Thers]

I didn't know you were from Oklahoma originally. I'd love to see it one day.

I've been to Tulsa.

So I've seen Oklahoma.

I got that going for me.

[va]

Oh c'mon Thers, you've never been to Tulsa.

Anyway, I'm going. I read The Grapes of Wrath a few weeks ago (comps coming up)--did you know Oklahoma was FULL of socialists at one point?

[DrDick]

I've been to Tulsa.

I actually grew up just north of there and did my undergraduate degree in Tahlequah (capital of the Cherokee Nation!).

[DrDick]

did you know Oklahoma was FULL of socialists at one point?

At one point in the 10s 0r 20s Oklahoma elected more socialists and communists to office than any state in the history of the US. I am still trying to figure out where it all went so desperately wrong. I also left the state more than 20 years ago.