I don’t disagree with what you are saying. I worked in the industry in the 1980s and clearly didn’t have the right attitude (one of my clients even said, “You are putting yourself at a competitive disadvantage. You care too much that the deals make sense.”). And in those days, the industry had a sense of propriety which kept the worst behavior in check.

But if you are going to take aim at Goldman, Jan Hatzius is probably the worst place to start. He is a macro analyst. They are about as removed from specific deals as you get. Moreover, Hatzius was negative on the housing market in 2006, when Goldman was still selling CDO garbage. If the guy had the influence that Stein claims, and firm was out to use him to promote their interests, they would have gagged him then.

So Stein, by making half-baked charges, actually damages the cause of unearthing what is wrong on the Street, and particularly at Goldman.

They were laughing up their sleeves. They were short mortgage bonds out the gazoo in their proprietary accounts. And one bank (not goldman) in particular had been buying protection in various ways against mortgage bond failures for years while continuing to sell out the front door.

If a bank has a client that wants to package assets, and a customer that wants to buy a package, the deal gets done. Whether it makes sense or is good for society isn’t something a banker is programmed to think about.

Thus, while your critique of Stein’s reading of the Sloan piece is accurate in detail, broadly speaking, his point seems to me well taken.

I have spent zillions of hours on the phone with bankers as they put their deals together. There is no sense of propriety or social care, and even often an angry insistence that the law must be circumnavigatable if the lawyer were only “smart” enough.

i think Stein is off the mark. I agree with Yves re article.

The comment re Alpha losing money is to say that Goldman gets it wrong too. A discussion of Goldman is long overdue, but it is more complex than fire in the movie theater. No doubt that the “walls” inside Goldman leak like SIVs. When people start to talk about how much “smarter” GS is, it is a top. GS is a hedge fund that owns a broker dealer. All the comps are broker dealers buying hedge funds. They will continue to outoperform until this changes. GS should be given credit for moving much faster than the peers, but the peers will catch up or cease to be. i’ll leave it to you to comment on what you think needs to be done about hedge funds etc… the discussion is long and complex…

No Purchased
Loan permits the release or substitution of collateral if such release or
substitution (i) would create a “significant modification” of such Purchased
Loan within the meaning of Treas. Reg. ss. 1.1001 3 or (ii) would cause such
Purchased Loan not to be a “qualified mortgage” within the meaning of Section
860G(a)(3) of the Code (without regard to clause (A)(i) or (A)(ii) thereof).

Re: (vi) UCC Financing Statements for filing in each of the UCC Filing
Jurisdictions described on Exhibit XIII hereto, each naming Seller as “Debtor”
and Buyer as “Secured Party” and describing as “Collateral” all of the items set
forth in the definition of Collateral and Purchased Items in this Agreement,
together with any other documents necessary or requested by Buyer to perfect the
security interests granted by Seller in favor of Buyer under this Agreement or
any other Transaction Document;

(vii) any documents relating to any Hedging Transactions;

(viii) an opinion or opinions of outside counsel to Seller, substantially in
the form of Exhibit XIV;

The article notes that Hatzius has been bearish on housing since 2006, and (the article isn’t crystal clear) he isn’t alone among Goldman analysts having that view.

Nouriel Roubini has been putting out pieces discussing the hard landing sceanrio and how it is now inevitable. He drove it mainly off demand and consumer spending. Hatzius could just have easily been stirred to write by 1) questions from clients asking how bad he thought things would get; 2) an uptick in the level of worry among serious bears; 3) the widespread discussion of whether further Fed cuts are warranted by the economic fundamentals. The ONLY reason for a Fed cut now is to hold off further damage to the financial system. Hatzius’ quick and dirty estimate is one way to size up the problem.

In other words, it’s just as easy to come up with scenarios that Hatzius had his own reasons for writing a piece on macro damage and the firm decided to promote it heavily because it served their interest.

Goldman did have one high profile shill, Abby Joseph Cohen, but Stein hasn’t made the case convincingly that Hatzius is a shill. Stein says that Goldman pressured Hatzius, perhaps subtly, to put out a bearish piece. I don’t think Cohen was pressured into being a shill. She realized being a shill made her very valuable to the firm and gave her great profile on the Street. But she was also a constitutional bull. Remember, these people talk to clients a lot. They are not going to be convincing if they have written something they don’t believe themselves.

And if you want to think along conspiratorial lines, I find it more plausible that Goldman took or adjusted its positions in advance of its economists’ releases, both for their information content and the market impact they might have, rather than the economists are pressured into writing tout pieces.

Again, I am NOT saying that Goldman is pure as the driven snow. I am saying that Stein makes charges he didn’t support.

Actually, I don’t disagree. The guy has a serious platformm yet he misuses it. How many of us get to write in the New York Times weekly? But his articles come off as being throwaway, as if he can’t be troubled to do the work to make a tight, factually supported argument.

I’m afraid you missed my point re the Stein piece. I am not defending Goldman, but Stein completely failed to make his case on any axis. For example, re the Hatzius article, all he did was fulmiinate that he didn’t agree with the conclusion and the Fed could flood the market with enough liquidity to prevent Bad Things From Happening.

As Krugman pointed out with respect to the Depression, the Fed, contrary to the way most historians portray it, did in fact attempt to increase liquidity. They increased the monetary base, which is what they control. But money supply fell anyhow because people took cash out of banks.

Similarly, I don’t find it hard to believe that Goldman was short while it was selling dodgy product. Indeed, the fact that Goldman and others were selling paper that was clearly hugely risky in large sizes is deserving of criticism. But Stein didn’t prove the first argument, and only mentioned as an aside, rather than a core argument.

Anon of 11:02 AM

Agreed that the Hatzius paper is likely sloppy, or as one might say, speculative. I don’t have a copy, I can only go on what Bloomberg said about it (reading between the lines; they didn’t assess it). But Stein said he had a copy. He should have taken it apart if he disagreed. But no, all he could be bothered to do was say he didn’t like the conclusions and the Fed could rescue the economy.

been there,

I had a senior position in the Japanese hierarchy (unheard of for a Westerner) one of the biggest banks in Japan at the time of the crash, and therefore was an insider.

The MOF would have first asked the banks to stop lending 100% against commercial real estate (and 50- year mortgages against residential real estate) had anyone wanted the bubble to stop. That was the most direct and surgical action to contain/reverse the bubble. It also would have been hugely effective.

Japanese banking was strictly regulated (the MOF for example only permitted a limited set of retail products) so this would not have been an extreme regulatory move. That didn’t happen.

There is some comment in the Western media about the imposition of transaction taxes on real estate leading to the contraction. That isn’t accurate. Income taxes on real estate were so high that it never traded. No kidding. You had basically fictitious valuations on non-trading assets. The one time when I was involved with Japan that I can recall a piece of central Tokyo real estate trading hands was after a massive fire. The imposition of transaction taxes was an ineffective populist gesture. In fact, the name of the game was to APPEAR to be doing something about the bubble, since it was disruptive to Japan’s heretofore egalitarian society, and hope that the participants would start behaving responsibly. Remember, the securities firms bribed the members of the Diet (they ramped stocks via “stock of the week” and other schemes and tipped off the politicians first, or sometimes even gave gifts of stock). The BOJ is the least independent central bank in the advanced world. If Bernanke can’t stand up to the markets, multiply that by 3 or maybe even 10 for Japan.

The BOJ started tightening in 1990, AFTER the market peaked in 1989. The unwind was already underway when the BOJ goofed (or maybe they wanted to signal it was OK by them for stock prices to fall) and the leverage was so pervasive that any unwind was going to be ugly.

But something about him just does not sit well with me. (I realize this is a shaky and questionable basis on which to critique someone’s work.)