Wednesday, April 28, 2010

This Is Okay?

The fallout of the financial crisis continues as Goldman Sachs is now being bought up on charges in America for selling financial products their own executives do not believe in.

In America, Goldman Sachs is accused of selling home-loan securities to clients that its own employees called junk and crap. Worse, investigators showed that the company then betted against its own products because they believed the housing market in America was going to burst.

The market did burst. Investors who bought the securities Goldman Sachs sold lost money, while Goldman Sachs (the ones who sold the securities) made money because they had betted against these same securities they were selling.

Nothing about the facts of the case is in doubt. Goldman executives admit selling the securities, do not argue about emails showing their employees’ misgivings about the securities, or even betting against the products they were selling!

What they are arguing is that there’s nothing wrong with what they did. They were not going negative on the securities, merely hedging their bets by betting against the same securities they were selling; the buyers of the products knew the products were risky; and Goldman Sachs did not have to tell the buyers they did not believe in the products they were selling. Goldman Sachs is basically saying they did not do anything illegal.

Experts agree with Goldman Sachs. Most experts in America agree with Goldman that there is no law in America that state financial firms cannot bet against their own products. In fact, investors are so confident that the stock price of Goldman Sachs actually went up.

I’m no expert in law, much less American law, but I’m shaking my head in disbelief as I follow this case. How can there not be a law in America against this even if it was a hedge? Goldman Sachs structured, packaged, sold a product (which their own people call shitty), betted against the product as a hedge and there seems to be nothing wrong with it because buyers knew it was a risk in the first place?

I mean that’s like saying Toyota sold faulty cars, did not believe in their cars and it's okay if the car crashed because buyers knows there’s always a risk of accidents when you get behind the wheel. How come Toyota got fined millions for selling faulty cars but its okay for Goldman Sachs to sell faulty, shitty, whatever-you-want-to-call-it financial products?

I mean what’s the difference between what Toyota did and what Goldman Sachs did? If the experts in America are correct, then it's time for lawmakers in America to add some laws in America.

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