Speaking somewhat anecdotally, Goldman Sachs in 2020 does not resemble Goldman circa 1998 or even 2008. A lot of brain trust was lost following the post-crisis de-risking and vilification. The move into retail finance, to me, solidifies its mystique shedding.
Whistleblower: Wall Street Has Engaged in Widespread Manipulation of Mortgage Funds [1].
Commercial real-estate was already going to absolutely hammered.
> Some of the world’s biggest banks — including Wells Fargo and Deutsche Bank — as well as other lenders have engaged in a systematic fraud that allowed them to award borrowers bigger loans than were supported by their true financials, according to a previously unreported whistleblower complaint submitted to the Securities and Exchange Commission last year.
> Whereas the fraud during the last crisis was in residential mortgages, the complaint claims this time it’s happening in commercial properties like office buildings, apartment complexes and retail centers. The complaint focuses on the loans that are gathered into pools whose worth can exceed $1 billion and turned into bonds sold to investors, known as CMBS (for commercial mortgage-backed securities).
> Lenders and securities issuers have regularly altered financial data for commercial properties “without justification,” the complaint asserts, in ways that make the properties appear more valuable, and borrowers more creditworthy, than they actually are. As a result, it alleges, borrowers have qualified for commercial loans they normally would not have, with the investors who bought securities birthed from those loans none the wiser.
> ProPublica closely examined six loans that were part of CMBS in recent years to see if their data resembles the pattern described by the whistleblower. What we found matched the allegations: The historical profits reported for some buildings were listed as much as 30% higher than the profits previously reported for the same buildings and same years when the property was part of an earlier CMBS. As a rough analogy, imagine a homeowner having stated in a mortgage application that his 2017 income was $100,000 only to claim during a later refinancing that his 2017 income was $130,000 — without acknowledging or explaining the change.
> It’s “highly questionable” to alter past profits with no apparent explanation, said John Coffee, a professor at Columbia Law School and an expert in securities regulation. “I don’t understand why you can do that.”
Exact same trick as last time, just last time residential and this time commercial.
Time to start anti-trust breaking up the 'too big to fail' banks, they are a national security issue and ultimately a bad actor in fair markets.
Commercial mortgage backed securities are severely overvalued since deregulation after the Great Recession largely because people weren't watching commercial as much and there was a hypernormalization of the idea that the economy was somehow good. All it was was over leveraging, opportunities zones that have less tax revenues if any, that led to stagnation in other areas, so other loans were taken out on future good economic conditions that will not exist for years if not a decade now.
The carnage is going to be immense with the attack vectors of less retail, restaurants going under, less consumers buying physical places, less people and retail/restaurants able to pay rents to landlords that then owe these commercial real estate entities, less office need with more remote, etc etc.
Retail was already on a downtrend but valuations and loans were going up in commercial real estate. This is going to be a problem.
The only area that might be possible is more commercial real estate that is more about moving products back to the US but that really is a fantasy in many areas.
So this was a solved problem with the Glass–Steagall Act (1933) brought in after the, you guessed it, great depression [1]. It was of course repealed (by Bill Clinton), as we'd learned our lesson thoroughly and completely. This led to 2008. And 2020.
So naturally, given the broad-based success of the repeal, there's no interest in reviving it.
Clinton did not oppose the repeal at all. He was a cheerleader for the process.
Here's a snippet from his signing speech.
>You heard Senator Gramm characterize this bill as a victory for freedom and free markets. And Congressman LaFalce characterized this bill as a victory for consumer protection. And both of them are right. And I have always believed that one required the other. It is true that the Glass-Steagall law is no longer appropriate for the economy in which we live.
The repeal of the Glass-Steagall Act had bi-partisan support. Following 2008, Dodd-Frank Act was passed by Democrats, opposed by Republicans, signed into law by Obama in 2010. After multiple attempts by Republicans to repeal it, they succeeded in 2017 and 2018, without bi-partisan support, both partial repeals signed into law by Trump.
>they succeeded in 2017 and 2018,without bi-partisan support
You might want to do a little reading on the repeal of sections of Dodd Frank.
>The measure’s framework is expected to eventually pass the Senate thanks to a dozen finance-friendly and swing-state Democrats who have openly announced their co-sponsorship. With Republicans in control of the House, the bill seems destined to reach President Donald Trump’s desk this year.
>Time to start anti-trust breaking up the 'too big to fail' banks, they are a national security issue and ultimately a bad actor in fair markets.
More like time to stop propping them up. If the government hadn't stepped in to save them during the last crisis, a bunch of those banks would have gone the way of Lehman Brothers.
I think the parent post is recommending an orderly breakup as opposed to a collapse where society is left to pick up the pieces.
The issue comes back to foreign competition. As much as Glass-Steagall made sense to some, it was repealed because US banks faced increasing competition from European banks that were able to bundle advisory with retail bank deposits. Unless everyone takes similar position globally (or we block foreign bank access to our markets) it’s hard to justify a handicap on the home team.
Banking is a sector where it's easy to win on a short term (10year) horizon and lose everything on a 20 year horizon. Ultimately if the taxpayer is going to foot the bill on the 20 year horizon then they should be able to ensure that only players obeying the guardrails are allowed to play.
Because GS has never been about having a "brain trust". It is about proximity to power.
That peaked in 1998 when Time magazine ran the "Committee to Save the World" cover, featuring Bob Rubin, Larry Summers, and Alan Greenspan. To this day, people talk about that cover.
Maybe the big names at Goldman aren't as big as they had been in 1998, but it's all still just a collection collection of social connections and who knows who and inroads into various power structures. And that's not just Goldman, that's banking and finance at a high level writ large.
It’s amazing how far a few kilos of cocaine will get one in those circles. Maybe the prohibition needs to be repealed to prevent cartels from running the markets.
Michele Sindona (Italian: [miˈkɛːle sinˈdoːna]; May 8, 1920 – March 22, 1986) was an Italian banker and convicted felon. Known in banking circles as "The Shark", Sindona was a member of Propaganda Due (#0501),[1] a secret lodge of Italian Freemasonry, and had clear connections to the Sicilian Mafia. He was fatally poisoned in prison while serving a life sentence for the murder of lawyer Giorgio Ambrosoli.
GS has always had among the best talent on Wall St. In modeling and software they’ve been a step ahead of everyone else. An extreme example: Fisher Black, a Nobel winning economist, used to work there in the early 90s.
And talent is not even the most distinguishing factor: it’s culture. Their culture is held to be the gold standard in corporate America, if you step outside the FANG bubble.
Cant say I agree. I worked for various European and US IB's pre 08, then have for the better part of the last decade been a client of them. IMO GS's culture has always struck me as a lot of self anointed hubris and resembles attitudes found on /r/iamverysmart, which when viewed from the outside it makes one laugh. All US IB's these days are largely just commodity balance sheets. None of them have any tangible edge over each other in the bigger picture.
I've worked with several ex-GS people, all of whom were convinced they were the smartest person in the room, none of whom were even close. Some of the 'GS do it this way' ideas were so terrible we wondered if part of Goldman's strategy was to seed their competition with them as part of a sabotage effort.
> IMO GS's culture has always struck me as a lot of self anointed hubris and resembles attitudes found on /r/iamverysmart
Having gone to a GS recruitment event, that was basically what I came away with. I’m sure they’re doing technically interesting things, but I honestly cannot sort it from the bullshit.
If you didn’t work there you didn’t see how the machine works. It was genuinely world class: they’re pulling right from the top to make you the best you can be, and the best get rewarded.
I know a few people (5-7?) from both high school and undergrad who went to work at Goldman Sachs. 2 in NYC, at least one in both of London and HK. All of them were pretty middle of the road in terms of academic achievement, smarts, leadership etc. The smartest people I know from back then are mostly working at NGOs or academia.
The one thing that all the GS people had in common is that they cared a lot about having a high salary. The kind of guys who like to buy expensive champagne at the club, is embarrassed if they don't make it to Bali for spring break. That kind of thing. Absolutely no moral judgement on my part, this is just what I noticed.
(1) Black-Litterman is literally the only useful thing to come out of GS ever.
(2) LTCM employed a Nobel winning economist too. Was that "brain trust" the source of PnL, or was it cheap leverage?
Fun fact on LTCM and GS and 1998: according to Lowenstein's account, the GS banker who came to diligence LTCM during the fed-forced bailout was seen furtively reviewing a laptop in a corner. The next day, all the positions recorded in that laptop moved sharply against LTCM... surely this was a coincidence. Great culture they have over there at Vampire Squid, Inc.
