Ferguson also has some interesting points to make about the failure of the FCIC in naming names of those who were guilty of criminal behavior and not using their subpoena powers to best effect.
Inside Job director on Geithner, Goldman, and criminal bankers
by Adam Lashinsky - Fortune (CNN Money)
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L: I do! [laughs] I want to remind our listening audience that this is the Commonwealth Club of California radio program, and our guest today is documentary filmmaker and Academy Award-winner Charles Ferguson, who is talking about his latest film, "Inside Job." Because someone in the audience wants to ask this, I'm going to open a hornet's nest here. We hear that Goldman Sachs and others sold securities and then, quote, "bet against them," unquote. Please explain how such a situation works? And you have two minutes to explain.
F: [laughs] Well the details are complicated, but yes this happened. And it happened on a very large scale, it happened in several different ways. If you really want to investigate this, you can Google things like synthetic CDOs, which were one of the wonderful things that were designed and developed during this period. There were a number of different mechanisms that the investment banks used to do this, but all of the major investment banks did it to some degree. And Goldman Sachs was the most successful one, and in fact made tens of billions of dollars by betting against both the specific securities that they were selling, and also the entire market. Some of the bets that they made were that the whole market would go down. In fact that was the majority of their bets, was that all of these securities as a group would suffer catastrophic reverses, and they did. And they also by the way, one of the ways that they were able to sell as much of this stuff as they were, was when they were selling it they would say, "If you're worried about this stuff you can insure it by buying credit default swaps from AIG." And they took such large positions, that at a certain point...and they also used AIG themselves, they bought credit default swaps from AIG directly. And at a certain point they realized that they had done so much of this stuff that AIG was very likely to fail as a company, and so they started buying credit insurance the failure of AIG. Which, that really I think...you have to give them credit for intelligence and imagination, but I wouldn't say...
L: Creativity... Now, so we're clear, if they were merely a market maker in these activities, making a market for someone else to make a derivative bet on, anything--whether or not you're going to speak now when I stop speaking, for example. Would you be OK with that, as long as they weren't also the investor?
F: If they were purely making markets, that would certainly help. But even when you're purely making markets, if you tell lies to both sides in order to make the market, that isn't such a good thing, in the first place. In the second place, they weren't just making markets. In addition to making markets, they were also making massive proprietary bets. And in fact, this is a very common parlance on Wall Street, many people on Wall Street describe Goldman in fairly literal terms as a gigantic hedge fund, that basically everything they do in one way or another is for their proprietary benefit.
. . . .L: In general, in the film and this evening, you have a rosy view of Silicon Valley and the technology world: they're the white hats, the good guys, compared with the investment banks, who wear the black hats and are the bad guys. Why is that?
F: Well, it's actually a very interesting question. You know, if Intel (INTC) made microprocessors that behaved the way Goldman Sachs' financial products did, they'd go out of business pretty fast. Why doesn't the same thing happen with the financial services industry? It's actually a very interesting question. And part of it is their political and financial power, part of it is that there's a long lag time between the creation and sale of something destruction and when the bomb goes off. But part of it I can't say I can totally explain. But it is true that I do have a considerable amount of affection and respect for the technology sector and the people in it, and in general I think the technology sector has been a force for good. Not always, there are problems in that industry as there are in any. But in general I think it's been good for the United States and good for the world.
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