Goldman—Market Maker or Sleazy Salesman?

This is a quote from the front page of today’s  New York Times:

“Our investigation has found that investment banks such as Goldman Sachs were not market makers helping clients,” Mr. Levin said. “They were self-interested promoters of risky and complicated financial schemes that were a major part of the 2008 crisis.” Wall Street firms, Mr. Levin said, were “all too often betting against the financial instruments that they sold, and profiting at the expense of their clients.”

I originated CMBS at a bulge bracket bank. In October of 2007, my team along with the head of credit for all of fixed income new damn well that Goldman had shorted its mortgage portfolio. “Brilliant,” I said.  “Unbelievable. It’s like they had a motherfucking crystal ball,” said the head of credit.

This bulge bracket bank knew that Goldman shorted its portfolio and could have mimicked the strategy if they had wanted to. Sure, the shorts were more expensive in October than when Goldman bought them a few months prior, but in Wall Street you can buy anything you want so long as you have the appetite for it. This bank clearly lacked the appetite.

As for the quote, that vilifies Goldman for shorting products it hawked to investors.  I’ve already wrote about this before, but the traders that make and sell securities are legally prohibited from talking to the traders that take positions for the bank.  This would have insider scandal written all over it if the two teams could talk and note that those are words that no one has used yet.

Goldman was a market maker. Now, perhaps HR should reassess the incentives these traders get.  Perhaps pegging bonus’ to a % of sales leads to reckless behavior.  Instead, Goldman should tie compensation to sales and credit losses.  Just an idea.

Sleazy salesman or market maker…you know what I think