In Defense of Goldman Sachs - A Forbes Report by Colette Martin

This article was recently published in Forbes.com..
I often wonder what people are thinking about when they speak.  I also have to wonder what Forbes is thinking about when it published this story.  Ms. Martin says we are using GS as a scapegoat.  Certainlly not.  Can so many - even in Congress, Ms. Martin - be so wrong?

I personally find her article hillarious and without merit.  Yet, I will give some weight to the last part of the story - the list - wherein she brings out some good points in an attempt to make her point.  I will offer my comments to those points below.  Your comments should also be interesting.

In Defense of Goldman Sachs
July 1, 2010 - 12:27 pm
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Colette Martin Bio | Email
Colette Martin is a thirty-year veteran of Corporate America and the author of When Fridays Were Fridays

Wall Street is the enemy. And if banks are bad, then surely Goldman Sachs must be the Big Bad Wolf, right?

In recent weeks Goldman Sachs executives have been paraded in front of hearing committees and held up as an enemy to the people. I can’t help myself. I have an opinion about this.

What is Goldman guilty of really?

The court will decide whether they actually “misstated and omitted key facts about a financial product tied to subprime mortgages,” as the SEC complaint alleges. Specifically, the SEC is saying that Goldman created a CDO (Collateralized Debt Obligation) for the hedge fund Paulson & Co. based on mortgage-back securities (specifically the ones that seemed most likely to fail), and that Goldman didn’t tell potential buyers that Paulson was shorting (or betting against) them. Does that make them responsible for the entire financial crisis?

What Goldman is most guilty of is making money when seemingly everyone else was losing money.

Let’s get real. Goldman Sachs is an investment banking firm. They invest in securities going up, and they invest in securities going down. They are supposed to create investment vehicles. They regularly take out insurance policies on their investments. They are supposed to balance their risk – that’s their job. Their ultimate responsibility is to their shareholders.

They are supposed to make money.

If we are so desperate to find a scapegoat for the financial crisis, perhaps we should start with this list:

* The consumers who purchased houses they couldn’t afford.
* The banks that agreed to give mortgages to these customers.
* The investment rating companies who over-rated the mortgage-backed securities and the CDOs.
* The buyers of the securities who failed to fully understand what they were buying.
* The lawmakers who failed to regulate financial products.

It’s just starting to feel a little bit too much like a witch hunt. What do you think?

Link to the original post...click here

Now let's look at her bullet points.

* The consumers who purchased houses they couldn’t afford.
[Larry]  This was the argument made - especially by the banks - at the very beginning of what was then called "The Mortgage Meltdown".  All the blame was put on the homebuyers "for buying homes they couldn't afford".  Well, duh!  Buying a home is not like going out to the department store and charging your purchase on a predetermined credit limit credit card.

Ms. Martin must realize and understand that the lender had to underwrite the loan to a set of established guidelines created by either Fannie Mae, Freddie Mac or our scapegoats on Wall Street.

And yes, I said it back then and still say it today, the guidelines were established to be "future foreclosures".  

But even with these guidelines, underwriting practices were often set aside and underwriters were instructed to "approve" the loan.  You see, the real money for the banks and Wall Street scapegoats was to pool these loans into securities.


Without the lax guidelines and non existant underwring and almost automatic loan approvals by the lenders, people who could not afford the home being purchased would have been denied and could not have purchased.  The loan guidelines and underwritng by the bank scapegoats was like taking a kid into a candy store telling them they could buy all the candy they wanted with no spending limit.  What do you think they would do Ms. Martin?


* The banks that agreed to give mortgages to these customers.[Larry]  Yes, the banks did agree to give mortgages to these customers.  As I said above, had they not we wouldl not have had the problem.  However, the banks were in need of mortgage "paper" as Wall Street (the scapegoats) had created - through fraud and misrepresentation - a seeminglyl bottomless market for their "creative" securities. 

* The investment rating companies who over-rated the mortgage-backed securities and the CDOs.
[Larry]  Oh yes, Ms. Martin.  Thank you for bringing this point out.  You see, we don't hear enough about these rating agencies.  Let's name them:  Moody's , Fitch and Standard and Poors.  They were all coerced by - guess who - the Wall Street scapegoats - to automaticallyl give these mortgage backed securities triple A (AAA) ratings which to any investor anywhere in the world meant that there was little risk in these investments.

This fact has been admitted to by many in the early days of the "mortgage meltdown" and reported on by programs such as 60 Minutes and other main stream media. 

Had these rating agencies NOT falslly and fraudulently rated these securities, Wall Street could not have sold them, Wall Street would not have created guidelines for so many sub prime, no qualifying loans and the banks (lenders) would have had no incentive to APPROVE loans they typically in the past DID NOT.


* The buyers of the securities who failed to fully understand what they were buying.
[Larry]  The buyers were fraudulently led to believe what they were buying was grade A, AAA rated investments with little to no risk.  They were "sold" these fraudulently rated investments by the Wall Street Scapegoats.

So, Ms. Maritn, depending on how you look at "fully understanding what they were buying", they could only understnad what they were told and sold and based their decision on the AAA ratings.  Wouldn't you have done the same?  Many governments, pension and retirement plans and millions of very sophisticated investors around the world did.  Almost sounds like a conspiracy to defraud.


* The lawmakers who failed to regulate financial products.
[Larry]  This is my favorite one.  The lawmakers turned a blind eye, why?  Because they were told too by lawmakers we voted in and people our elected officials appointed.  Again, had regulators been allowed to do their jobs many of these financial products and securities would not have existed therefore most mortgages could not have been made and there would have been no meltdown.

In addition, where did many of our lawmakers or appointees come from ?  Like our Treasurey Secretaries, advisors to Presidents, etc.  Why Goldman Sachs of course.

That is still the case today.  Goldmanites permeate our government, other governments and many regulatory agencies.

This is not a Democrat or Republican deal.  This planned bubble was the most bi partisan event in the history of our country.  It began in earnest back with the Clinton administration (laced with Goldmanites) continued with the Bush Administration (laced with Goldmanites) and continues with the Obama Administration (laced with Goldmanites).

Ms. Martin's points prove just one thing to me.  That the scapegoat GS, the larges bond trader and market maker in the world was behind all of this, compounded it by creating Credit Default Swaps, talking the largest insurance company in the world into insuring the CDS bets - sight unseen as to the content.  Further, GS and Henry Paulson (not the former Treasury Secretary but the Hedge fund manager) conspired to bet against what they knew would crumble making billions by doing so while still selling these investments as AAA rated to investors around the world.

i believe - as much testimony over the past 2 years has brought out - they (GS) were very responsible for the world's economic collapse while doing their jobs of making money for themselves and their stockholders.  They are not scapegoats, they are the guilty.

The blame and dislike - hatred - for Goldman Sachs is justified.  I don't understand how Ms. Martin, a 30 year veteran of Corporate America is coming from unless some or all of those 30 years were on Wall Street and Goldman Sachs specifically.  Her bio offered by Forbes says very little.  I also don't understand Forbes publisheing her article giving it any credibility at all.

It would be interesting to hear from both Ms. Martin and from Forbes.

What do you think?