Tuesday, July 21, 2009

Did We Stub Our Toe?

"In a way, I feel sorry for him. It's not his fault."
"Whose fault is it, the bloodsucking, capitalistic beasts of Wall Street."
Excerpt from Eye in the Sky, Philip K. Dick, 1957

On the way home from the clinic this evening, I scrolled through the dial and settled on NPR, a habit that has been easy to break over the last year as the general tone has seemed all too often to coincide with the daily musings of the MSM. However, I was ensnared by the mention of Matt Taibbi, whom I recently referenced in light of his poignant GS bashing. He took the host through his findings, and was emboldened by GS' recent earnings bomb, which has brought about new skepticism over our bailout system. Rolling into his next interview, the host introduced us to Charles Ellis, "founder and now senior adviser of Greenwich Associates, an international strategy consulting firm he founded in 1972. His book, “The Partnership: The Making of Goldman Sachs” came out last October."

Needless to say, Mr. Ellis, who sounded like he was 100 years old, did not concur with Matt's assessment of GS as a blood-sucking vampire. He quickly asked to be excused from the interview if it was going to be a GS bashing session, and then made the analogy of comparing our economic woes to stubbing your toe in the middle of the night. You're looking for someone to blame, the furniture, the bathroom, etc., but the finger should be pointed at yourself.

In a way, Mr. Ellis is right. Americans need to take responsibility for their glutonous spending and the ramifications of using money they didn't have and could never expect to have. But Mr. Ellis' analogy stank with the smell of corporate greed and protectionism. Posting record profits 9 months after being backstopped from bankruptcy both through TARP and AIG kickbacks doesn't make it appear as if GS is playing by the rules. As Taibbi pointed out, their VAR (value-at-risk) models, the very same models which Taleb has criticized as being woefully inadequate for evaluating large events, allowed for the largest daily losses in GS history last quarter. Is this a sign that these guys have learned their lesson? Are they really a bank? C'mon!



Anonymous said...

Goldman puts look mighty expensive to me. Perhaps a sign that many think the ship is not yet out of rough water...

AX said...

GS puts got very expensive. Longer-dated puts are still grossly overpriced, making it hard to price in collapse. Calls appear cheaper at the moment. Puts on COF remain extremely expensive despite an almost 50% run the last few weeks. Longer-dated homebuilder puts also extremely expensive still...market certainly doesn't believe worst is over.