Goldman's new money machine: warehouses

This has been posted here before. Part of me respects then for being such excellent hackers of the letter of the law, but mostly I agree that this firm in specific is a. Armpits squid which is out of control and distorts markets, causes widespread harm to markets and individuals, and is not effectively controlled by regulators (who are largely Goldman alumni, in their revolving door system). I have no idea what the right solution is to this problem. I am kind of ashamed to have several friends who now work for Goldman.

I think you raising "hackers" with this is the perfect way to describe the situation. Goldman are hackers in the same sense the main stream media refers to crackers as hackers, not hackers in the creative sense used by this community.

Futures markets have a purpose, in food and energy for example, but GS along with others has been manipulating them in dodgy ways. Ditto for this article and aluminum. They helped Greece cook the books to enter the eurozone, and then insured against Greek default knowing there would be bailouts. They recommended to various customers to invest in all sorts of CDOs while at the same time betting against them having internally decided they were going to fail. There is absolutely no doubt in my mind that there should be numerous prosecutions in relation to GS but incompetence in public officials with a generous sprinkling of corruption makes this unlikely.

I'm a big fan of America but I've never understood the romanticism around the mafia (the Godfather films and the Sopranos TV series for example). If I had friends in the mafia I would disown them, and I'd seriously rather die than join it. While GS is perhaps not as bad directly, indirectly the consequences of their actions have been and are enormously immoral. I recommend you challenge your friends on these issues firmly, send them a link to Salman Khan's story[1] and tell them to put their (no doubt considerable) talents to better use: doesn't have to be a non-profit either. Even if they decide not to leave they should be made aware that there is social sanction associated with being linked to, if not directly involved in, the vortex of corruption surrounding that company.

[1]http://en.wikipedia.org/wiki/Salman_Khan_(educator)

Investment banks do provide valuable services: market making (providing liquidity in many markets), capital raising, the creation of financial instruments so investors can hedge against certain kinds of risk and so on.

Unfortunately I think we're reaching the point of banks overstepping their bounds and creating far more problems than they really should.

This strategy seems similar to the "demand shock" approach they used in driving up wheat prices in recent years. And of course the subprime crisis was the result of lax regulation, arguably criminal negligence by Standard & Poor's and Moody's (who rated certain baskets of loans as AAA) and a lot of players who simply didn't have to bear any risk.

I'm really not sure what the solution is here but something really needs to bring this system into check. Such paper shenanigans are having real negative consequences.

In Australia we have a strict financial regulation regime, arguably too strict in some cases, but we didn't have the bubble in real estate prices that the US did. "No doc" and "low doc" lending never reached the point of collapsing the market.

One could argue that financial regulation is to blame and you're probably right but I have no faith in the US government's ability to correct this or pretty much anything else. Washington now seems to be nothing more than a battleground for special interest lobbying and ideologues devoid of rationality.

In the past ~30 years or so investment banks have generally undergone a change from being a partnership to being a corporation. The major difference between the two is partnerships have unlimited liability. Much like a law firm, the partners are personally liable for losses.

I've come to the conclusion that this change has been detrimental to the function of the financial industry as a whole. Combine this with Federal government bailouts and investment bankers seem to act with complete impunity with regards to risk.

Something needs to change.

No, I think it's still in the creative sense. Consider this question from the Y Combinator application:

> Please tell us about the time you, {name}, most successfully hacked some (non-computer) system to your advantage.

Other than the allegations of misleading clients regarding CDOs -- which, if true, are criminal and utterly reprehensible -- pretty much everything else on that list fits this criterion. Amoral and mercenary, but about hacking the system to their advantage.

It's regulators' jobs to close loopholes, but we should hardly be surprised when capitalist enterprises exploit them until they're closed.