tag:blogger.com,1999:blog-4812039228646601640.post491477550135323961..comments2023-06-01T08:12:44.757-05:00Comments on Ward on Words: Unlocking the code to financial innovation!Ward on Wordshttp://www.blogger.com/profile/16395634759293431481noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-4812039228646601640.post-72569087651404978572010-01-22T18:12:59.798-06:002010-01-22T18:12:59.798-06:00Great discussion guys. I'm on the housing mark...Great discussion guys. I'm on the housing market industry, and it's a thorn how all these can affect the trends. This page is an excellent resource.Jeff Greenhttp://www.alternative2foreclosure.comnoreply@blogger.comtag:blogger.com,1999:blog-4812039228646601640.post-90655017356355976142010-01-03T22:33:02.270-06:002010-01-03T22:33:02.270-06:00Anne,
I definitely don't think we need CDOs (...Anne,<br /><br />I definitely don't think we need CDOs (by which I mean ABS CDOs), and I couldn't care less if regulators crack down on them significantly. CDOs are beastly to work on, and for all their complexity, they're inevitably very shoddy transactions. I'll be re-retired in a couple of years anyway, so I have no real monetary stake in the issue. I think it's undeniable that CDOs' costs massively outweigh their benefits.<br /><br />That said, one of the reasons I push back so hard against Goldman critics is because their criticism is <i>so</i> misplaced. Goldman was a relatively minor player in both cash and synthetic CDOs. And you can't just blame them for selling CDOs that turned out to be toxic, because it's not that simple.<br /><br />Imagine you're Goldman in 2005, and one of your big pension fund clients comes to you and complains that it can't find any of those sweet, high-yielding mezzanine CDO tranches to buy. The pension fund asks you to arrange a synthetic CDO so that it can buy (i.e., sell CDS protection on) the mezzanine tranche. What do you do? You're an investment bank, and a big client has just asked you to arrange a transaction -- this is exactly the kind of service you're supposed to provide. Even if you're bearish on housing at that point (which Goldman wasn't), do you tell the client not to do the trade, and risk insulting/offending him? The fund manager is, after all, one of the biggest institutional investors in the market, and he gets paid millions of dollars a year to make exactly these kinds of investment decisions. Doesn't "putting clients first" mean doing what your clients ask you to do? You wouldn't be much of an investment bank if you only accommodated clients when they agreed with you!<br /><br />The bottom line is that a client has asked you to take the other side of a trade. You do it. (This is, believe it or not, how the majority of synthetic CDOs were created in 2005 and early 2006. Goldman didn't become bearish on housing until quite late -- just in the nick of time, really.)<br /><br />And now Goldman is getting vilified in the press for this? Huh? Criticize Goldman's huge bonuses all you want -- I think they're outrageous too. But journalists shouldn't invent controversies just because anti-Goldman articles get lots of pageviews.<br /><br />(By the way, if you're interested in learning about CDOs, I'd be happy to email you some good reference materials on them. I always enjoy your comments. Just let me know.)Economics of Contempthttps://www.blogger.com/profile/17251622598490403638noreply@blogger.com