Tuesday, March 09, 2010

"Goldman Sachs is a rogue firm that ought to be shut down"


chintan shah said...

If Prop trading is banned these Wall-street I-Banks will generate massive loss in bear markets.As only prop trading is the activity which allows them to profit in bear market as rest of the activities generate losses in bear market like M&A,issuing securities/derivatives etc...

I have a better solution for current problems!

Unlike other industries like basic materials,technology,healthcare where consolidation proves to be good.In financial industry consolidation brings systemic risk.
THats what happened in recent crisis.there were very few parties who were trading MBS/CDO/CDS and almost all of them had bullish bets on them.Instead of this 5-6 I-Banks there were 100+ hedge funds who were trading in these instruments then there wont have been any systemic risk or liquidity risk as herding can be avoided by adding more players in market.But right now some foolish steps are taken by authorities like banning prop trading etc..which is going to exacerbate the already less liquid credit markets.Instead in my opinion everything which is traded OTC should be stopped and these instruments should be traded on centrally cleared and settles electronic exchanges.So average joe can also trade this products and there wont be any systemic risk.

But unfortunately no one is going to read this except you ;-)

After a heavy earthquake ,all building should be made earthquake-proof so they can survive the next one.But rather than doing this right now these chaps are contemplating about stopping next earthquake.

pythagoruz said...

Hey Chintan,
What you're saying makes some sense to me. If you take away the prop trading from the ibanks then it will naturally go to the hedge funds. However, I don't think its necessarily true that just because it moves out of view that it would eliminate the systemic risk. Just look at what happened with LTCM.

I like the volker rule, I don't thin that taxpayer backed banks should be allowed to gamble in the markets.

Goldman is in a whole nother category, yeah they are an ibank that does a lot of prop trading but it goes beyond that. They exploit this country from the top of our political system for the sake their own profit. To a large extent they created the subprime crisis, profiting on the way up, then profiting back on the way down. The rest of the country is left in ruin but not Goldman. Then there is this recent accusation that their upper management is somehow above the law. In this video Mr. Norman states that Goldman and its executives were shorting their own stock as well as AIG. That is beyond fucked up, they should be going to jail.

chintan shah said...

Hey Hunter,
LTCM Guys were mother f****rs.They had solid contacts with influential personalities so they were able to get leverage of 1:30+ for trading bonds.They started placing convergence trades on off the run/on the run bond, undermining the liquidity factor of off the run bonds.they are still on universities and publishing stupid research papers on the most bunk filed of finance aka mathematical finance.Contrary to this those innocent traders who place bullish bets on housing markets are in jail due to their huge Loss.

LTCM can be taken here as an exception.Now in my opinion blaming goldman sachs is not good idea infact they should be appreciated as they had gotten bad smell about credit crisis and hedged all there credit portfolios effectively.Those bets were only for hedging but due to severity of of crisis they became profitable and goldman made profit.

Booms and Burst are part of capitalism ,one can not stop it but by taking good precautions major consequences can be avoided.

The Credit Crisis has created liquidity squeeze.if we imagine credit derivatives were traded on exchange like stocks/futures and there wouldnt had been any major herding in which almost all places bullish bets with solid leverage of CDOs.And counterparty credit risk could had been also eliminated to some extent.etc..etc..Just like Dot-Com bubble burst where stocks were hammered heavily but still easy money to borrow was there so things revived in just couple of years.

But these things are different.Due to liquidity squeeze easy money to borrow is not here.Banks are asking for better credit quality and charging higher IR and they are getting money from central bank at extremely cheap interest rate.To revive things once again low credit ranking loan should be granted so everyone can borrow money easily and economy shall come on revival path.

But right now these banks are reluctant to even provide cheap money to convertible arbitrage shops then how average joe can borrow money!

Officially its crime to short stock during lock-in period.So there is very low probability that some high ranking executives were shorting their own company's stock.
according to some anecdotes these pple cant even hedge their stocks with derivatives!

Some low level executives like analyst/associate who get mostly cash bonus and are not allocated stocks can officially short sell the stock of GS/AIG.so number of stocks shorted by these chaps would be very low after all these chaps are not cash rich.

After earth quake ,building should be designed in such a manner that it can survive the next one ,sending civil engineers jail would be bad idea.

but now its too late,these pple are not that intelligent enough to tackle this situation by once again revamping subprime market instead they are asking for higher credit quality.

So thing wont improve in near future.

One thing which can be done is making financial industry extremely fragmented by slicing these banks in 4 chunks.by doing this herding can be avoided and there would be more liquidity in market and many parties with different opinions making capital markets more efficient.

basically hedge funds dont like to make markets on otc credit instruments.most of hedge funds like to dabble in highly liquid markets so if banks are stopped from prop trading ,these instruments will become more illiquid.

pythagoruz said...

"LTCM Guys were mother f****rs"

lol, don't hold back. =)

Yeah, I agree with a lot of what you say. I don't know if I can beleive this stuff about GS execs shorting their own stock, but thats what this guy claims.

I do think that we missed a terrific opportunity for cleansing and reform in the recent crisis. Unfortunately the big i-banks are too in bed with our political system for anything to change unless there is a political upheaval. Perhaps that will come in the next election but I doubt it.

I also think the "brain drain" is/was a big long term problem for the world. We need smart people doing science and engineering to improve the quality of life on this planet not creating market liquidity. Yeah, market liquidity is important but solving world hunger, curing cancer, avoiding an energy crisis, etc are more important than increasing liquidity. We as a planet should be valuing science and engineering more but wall street pays more currently, maybe that will change but I doubt it.

chintan shah said...

Political leaders dont have such a kind of iq to comprehend the big picture and work accordingly.their thinking is extremely short-sighted and will take decisions which will improve things for short term but their long-term implications might be dire.

I agree with your thoughts about brain-drain.But intelligent-cum greedy minds still like wallstreet. .Right now world needs a newton or tesla like personality who does some breakthrough and once-again heavy interest in science-tech starts.

as far as your idealistic thinking towards world is concerned,there is a solution called capito-anarchism which can reduce vagaries of world significantly but greed of human-race is so high that this thing wont happen.If you think towards betterment of those who arent privileged.You should make a lot of money and give away large part of your wealth to physically disabled,orphan children.There are some nice chaps who are engaged in good things like Children's investment fund.this hedge fund gives 50% of profits to orphan children in 3rd world countries like india,africa etc..

My guess is after death, person's genetic code leaves our body via some sort of electromagnetic wave and goes in space and when person is born genetic code enters the body.This is pure speculation.

Stevenson has compiled 3000+ cases and surprisingly my grand mother had observed one incident of same kind compiled by stevenson ,when she was young.So Stevenson must be taken seriously.So if we conclude that these observations of pastlife memories are true then answer must be lying b/w physics and bioinformatics.

you should open a firm namely "HHH" (Hunter the Hedge Honcho) make millions and give away lot of money to these poor chaps for whom you have lotta sympathy.