Shorts: He's not referring to underwear

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Thom's picture

Lawrence Summers said on Sunday that emails sent by Goldman Sachs executives making money by betting against risky mortgage securities highlight the need for transparency in financial markets. The release of the emails comes after the SEC charges that Goldman hid vital information from investors about a subprime mortgage-linked security. One email from Goldman Chief Executive Lloyd Blankfein dating from November 2007, said bluntly that the Goldman gambling machine "made more than we lost because of shorts."  By shorts, he's not referring to underwear.  Blankfein is talking about bets that your mortgage would explode and you'd lose your home.  He was betting in favor of that.  And his bet paid off big.


Art's picture
Even more interesting,

Even more interesting, Goldman Sachs is no doubt shorting its own stock. They can claim that their stocks lost $90 million, but that doesn't tell you who lost that money. It wasn't Goldman Sachs.

Here's how it works. They sell all their own stock at the top, then they short-sell all of their own stock that they can leverage, the stock goes down, they buy to cover when the stock hits bottom and they keep the difference. Who loses? Anybody owning Goldman Sachs stock during the plunge. Goldman stock is tanking right now. I have no doubt that Goldman is cleaning up as we speak.

I would suggest that any financial reform bill should outlaw companies from short-selling their own stock.

Kerry's picture
Aw, the wiles of the 'free

Aw, the wiles of the 'free market' being run by a relatively few major money movers from the top.  Gotta love it. 

In that same vein, if these major money movers don't mind using their own company for their own gain against their own stockholders, then the charge that they could do the same to the U.S. currency itself if the occasion calls for it doesn't become quite so.....'unlikely'.....

Kerry wrote: Aw, the wiles of

Kerry wrote:

Aw, the wiles of the 'free market' being run by a relatively few major money movers from the top.  Gotta love it. 


Run by the few and funded by tax dollars. "Hope & Change" Obama inserting Geithner must have been a plant by Goldman Sachs.

Art's picture
I don't think people have any

I don't think people have any idea what the nature of these investment banks really is. Their first mission is to take money away from investors. As long as the market is rallying, they're happy to see investors run up the price of their stock. Everybody's prospering, right? When the market reverses, they are the first to bail. Because they are huge, they are market makers. By selling, they drive the stock down and  they take the entire market with them. It was the financials that led the market to the bottom in 2008. Grandma and Grandpa can only watch their savings disappear. It is their money that Goldman is profiting from.

Run by the few and funded by tax dollars. "Hope & Change" Obama inserting Geithner must have been a plant by Goldman Sachs.
I can't disagree. Nobody understands why President Obama thinks that Geithner belongs in his cabinet.

DRC's picture
Geitner was at the NY Fed,

Geitner was at the NY Fed, but the Goldman Sachs brand is worn by others and they do include the Wall St. perspective.

Slab, you act as if Obama introduced Wall  St. to DC and has proposed using tax dollars to fund his corporate cronies.  No, that happened a good while back and was institutionalized in Supply Side and then amped up into K St. Project crime sprees.

Obama keeps getting blamed for Bush and Paulson's bailouts and gets no credit for the actual stimulus.  I have said elsewhere that he is taking the political rather than the economic path, but that just means he is not confronting when he can expose and reform.  

Do you go after the center of power or pick off the fringes?  Obama generally tries to dispel the paranoia and see who might break out of the cult.  Only after he has given them a real opportunity to look good coming to the bipartisan table do they really begin to look bad.  The best sniping comes from the moral high ground.

Imagine, Bill Maher, Kucinich and Glenn Beck are all for radical reductions in military spending.  I think it is time to press Beck on this issue and go for it.  We are all tired of war and the sorrows of empire.

Buck Flood
Shorts allow someone to bet

Shorts allow someone to bet on an assets price decline. The argument for allowing shorts is that it aids price discovery – that the asset owner’s bullishness on an asset is tempered by the shorts’ bearishness.

That argument is nonsense! The value of an asset is not discovered until that asset sells. The rest is just bets and better confined to an actual casino, rather than occupying a place in our financial system. The shorts distort prices and can become a self-fulfilling prophesy.

Complex systems fail. The more complex the more likely they are to fail. If we were actually concerned about optimizing our financial system and our economy we’d assume that the longs (asset owners) knew what they were doing when they laid their cash down for the asset in the first place. KISS – Keep it simple, stupid! Should be the operative principle in designing a financial system just as it is in other vocations. And, it would be if complexity did not give scammers an advantage.

 In my mind there is a larger point to be made here. The existence of all the derivatives on WS are symptoms of dying economy – one that merely shifts money from one account to another without serving any useful purpose. This money is not invested in any way that will produce an improved standard of living, it aids none except the winner of the bet and the house (that handles the bet). But because so much money can be made so quickly with so little effort it has the effect of drawing investment from productive ventures. It’s much easier than earning money by creating something of value to sell. It’s another manifestation of the principle that it is much easier to destroy than create.

 Can we make the Indians take Manhattan back?

"When plunder becomes a way of life for a group of men, they create for themselves, in the course of time, a legal system that authorizes it, and a moral code that glorifies it.” – Political economist Frederic Bastiat, The Law [1850]