Saturday, September 27, 2008

Street Fighter Economics...

I was wondering how the hell Goldman Sachs dodged the bullet.... I did some quick digging and found out a little bit.... LOL.... apparently they hedged their exposure to the whole subprime with a hilarious number of shorts.... they totally bought some Turkey insurance.... and tagged out with another unlucky Turkey at an opportune time... (the Turkey scenario as told by Taleb in the black swan is that... if your a Turkey... the first 1000 days of your life you have an expectation that your going to be fed and treated nicely... because since the day you were born... thats all that happened... you never had any idea that on day 1001 (Thanksgiving) that your going to get your head chopped of.... Protect Ya Neck... a la' Wu Tang Clan... )
Big Ups to Goldman Sachs for Epic Finesse.

The Bloomberg Article that beautifully addresses the scenario

"Enter two smart guys who trade Goldman's proprietary books to argue to the CEO and chief financial officer that the subprime market feels soft and that Goldman should short it. This they do, in such massive quantities that they more than offset the long positions in subprime held throughout the rest of the firm, leaving Goldman short the subprime market and in a position to make billions when it crashes. End of story."

"The only difference between Goldman and everyone else was that Goldman had, in effect, an entirely separate enterprise, sitting on top of the firm, with the power to reverse the judgment of its own supposed experts in various markets. They were able to do this, apparently, without ever saying a word about it to their own traders. Instead of telling the fools trading subprime mortgages that they are wrong, and that they should unwind their positions, they simply offset their trades."

Here is another take on the bullet dodging... but with a little less warmth towards Goldman

"Put another way, Goldman Sachs cleaned up during this summer's collapse in subprime mortgage selling the subprime mortgage-backed market short. And why not?

It's not like Goldman is barred from shorting the investment markets that it helps bring into being. Nor did it have any special insight; all of the big investment banks were busy creating and selling subprime junk in 2005-2006.

None of the other big banks, however, had the chutzpah to short the very market in junk they'd given birth to - not yet, at least. And few banks seem to have created bonds quite as toxic as Goldman did."

Either way, I give big ups... to JP Morgan and Goldman Sachs... for dodging a serious psycho crusher... Especially to Goldman Sachs for going against the tide...

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