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Goldman urged bets against bonds it sold-paper

By Supantha Mukherjee

Goldman Sachs, which acted for the state of California in selling bonds, has urged some of its big clients to place investment bets against some of those bonds this year, the Los Angeles Times reported.

The paper said that Goldman declined to discuss the details of its trading strategy.

Goldman spokesman Michael DuVally told the paper that the firm was no longer giving the trading advice to clients. He declined to elaborate.

The newspaper said the company did not inform the office of California Treasurer Bill Lockyer that it was proposing a way for investment clients to profit from California’s economic downturn.

“It could exaggerate people’s worries about our credit,” the paper quoted Paul Rosenstiel, head of the public finance division of the treasurer’s office, as saying.

The investment bank’s actions are not illegal, the paper said.

Goldman is an important underwriter of California municipal securities and over the last five years has earned about $25 million in underwriting fees from California issues, the paper said.


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10 Responses

  1. One more reason to have states bypass private intermediators and go direct to the Fed window for population based loans.

  2. Agreed. Anyone who expects corporate America to act with any intelligence at the present time, the auto companies included, will be disappointed.

  3. Michael Lewis: I had no great agenda, apart from telling what I took to be a remarkable tale, but if you got a few drinks in me and then asked what effect I thought my book would have on the world, I might have said something like, “I hope that college students trying to figure out what to do with their lives will read it and decide that it’s silly to phony it up and abandon their passions to become financiers.” I hoped that some bright kid at, say, Ohio State University who really wanted to be an oceanographer would read my book, spurn the offer from Morgan Stanley, and set out to sea.

    Somehow that message failed to come across. Six months after Liar’s Poker was published, I was knee-deep in letters from students at Ohio State who wanted to know if I had any other secrets to share about Wall Street. They’d read my book as a how-to manual.

    In the two decades since then, I had been waiting for the end of Wall Street. The outrageous bonuses, the slender returns to shareholders, the never-ending scandals, the bursting of the internet bubble, the crisis following the collapse of Long-Term Capital Management: Over and over again, the big Wall Street investment banks would be, in some narrow way, discredited. Yet they just kept on growing, along with the sums of money that they doled out to 26-year-olds to perform tasks of no obvious social utility. The rebellion by American youth against the money culture never happened. Why bother to overturn your parents’ world when you can buy it, slice it up into tranches, and sell off the pieces?

    At some point, I gave up waiting for the end. There was no scandal or reversal, I assumed, that could sink the system.

    Michael Hollis:
    Believe in You Lyrics

    Hear it in my spirit
    I’ve seen heroin for myself
    On the street so young laying wasted
    Enough ain’t it enough
    Crippled world
    I just can’t bring myself to see it starting

    Tell me how I fear it
    I buy prejudice for my health
    Is it worth so much when you taste it?
    Enough there ain’t enough hidden hurt
    A time to sell yourself
    A time for passing
    Spirit
    How long?
    Spirit
    (Instrumental)

    — How long Warren? The heroin wall street is selling our kids must stop.

  4. good quote from Michael Lewis!

    I never knew him at Salomon, but did know some of the people in his book.

    For some history of where I’m coming from, back then I was deep into fixed income arb, and in the 80’s three managing directors at Salomon told me they got to where they were based on my arb ideas. And, just to check my recollection, if anyone can dig up the 1997 year end (I ran the III fund from 1982-1997 before turning it over to my partners) report from MAR (managed account reports) I think my fund was rated number first for one year, five year, and ten year risk adjusted performance. Just one down month in 15 years, and that month was a small mark to market that dropped performance to -.1 for the month. The performance subsequently got revised down by a sales group that marketed the fund with higher mgmt. fees, so they had to go back and figure what the performance would have been with those higher fees. Before that I had been working only with incentive fees, and never did have a losing trade. It sort of falls into ‘the older i get the better i was’ category. Since then others have been making all the calls based on a very different logic and approach- i just throw in my two cents worth from a distance.

  5. Warren I deeply appreciate your personal tale and sharing with the blog readers.

    I think of a young intelligent warren mosler who could have advanced cancer research, instead he worshipped the liquidity fetish devil of keynes nightmares and my heart weeps.

    “and never did have a losing trade.”

    A man that has never failed, has not risked enough and learned nothing new with his life. Taleb would probably have a lot to say to you about statistical outliers and “luck” 😉

    The lyrics in the above song ask How Long Warren? How long before you never trade EVER again and make keynes’s ghost proud? Would one losing trade be what it takes?

    Funny how I blind myself
    I never knew if I was sometimes played upon
    Afraid to lose,
    I’d tell myself what good you do
    Convince myself

    You can’t serve 2 masters. I will always remember the picture of you sitting out under the stars looking up – perhaps that guy one day will never trade at the liquidity fetish pit again. I will leave now, I hope you and michael lewis succeed in what we all agree is important to the future, less people spending their lives doing what you and him did. The “bust warren’s chops” position is now open….

  6. “I will leave now, I hope you and michael lewis succeed in what we all agree is important to the future”

    What? Tragedy! All because of a little comment from me about your repeated attacks on Warren?

    How sad – I quite enjoy reading your posts. I was not trying to shut you down… just add some perspective, perhaps. I’m sorry if it came across that harshly.

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