<p>Is this bigger than Lehman Shock?
Any Prediction ?</p>
<p>I’m not quite sure what you mean by “shock”.</p>
<p>Lehman collapsed and almost brought down the entire economy with it. Comparing the recent charges against Goldman to what happened with Lehman is like comparing the shoe bomber incident to 9/11. The latter might even be a closer comparison.</p>
<p>Why the heck is this in the Michigan forum?!?</p>
<p>for bearcats</p>
<p>No, it’s not going to be like Lehman, no way. It’s certainly a bad time for Goldman but I don’t think it will affect them dramatically. The stock price might plummet a little. This story will make the case for financial reform much stronger.</p>
<p>The whole thing is political. The administration is just trying to steer public opinion against bankers/traders and push obama’s destructive financial reform. </p>
<p>Look, the way I understand it. Paulson made a bet that the mortgage market would go down. Goldman took the other side (if someone go short, someone has to be on the other side going long) to collect the fee. Goldman doesn’t want to take the risk, so they offloaded the long positions to the not-as-bright guys as a basket of structured products (sales and syndicate people call these dumber companies stuffys). I don’t see anything illegal with this. It’s just the nature of market making, which is basically someone putting an order with a bank, traders hedge the position and sales people offload the positions on other clients who WILLINGFULLY buy these products). The counterparty only has themselves to blame for the lack of due diligence before entering a buy agreement. The biggest argument the SEC is making is that GS didn’t make full disclosure by telling the investors that Paulson is on the other side of the trade. However, anyone familiar with market making would know that there is no rule/tradition to disclose who’s on the other side of the trade. </p>
<p>This is like someone buying a house through a real estate agent. The house starts depreciating and the buyer blame the agent for promoting the house. </p>
<p>[Goldman</a> Sachs | Media - Goldman Sachs Makes Further Comments on SEC Complaint](<a href=“http://www2.goldmansachs.com/our-firm/press/press-releases/current/sec-response.html]Goldman”>http://www2.goldmansachs.com/our-firm/press/press-releases/current/sec-response.html)</p>
<p>the problem isn’t that they didn’t disclose paulson was on the other side, which is perfectly legal, but that they misrepresented paulson’s involvement in structuring the security, which is not so legal if true. IF paulson did in fact influence security selection and IF goldman did in fact misrepresent this to abn amro and the others (saying that only aca independently selected securities, and also misrepresenting to aca what paulson’s equity investment would be), it is a problem. </p>
<p>on the other hand, are all those if’s necessarily true? we will see.</p>
<p>also, I don’t really think the due diligence argument holds too much weight - the suit isn’t about the quality of the securities, but instead about false representations made in the sale of the securities.</p>
<p>and i second the earlier point: why exactly is this on a michigan forum?</p>
<p>Concerning my college fund position
swap to safety fund or hold on >_<</p>
<p>I bought in huge on a strangle with a skew on the long side (premium was quite high though). I expect this to be temporary and should rebound in the near future (hence the long skew). Never bet against these people…they control everything :p. Either way, you could expect volatility to remain high and that goldman is going to either jump (if the case goes nowhere) or plummet (if the case has legs). There’s really no middle ground that would cause the price to stagnate, hence the straddle. I also bought some ^VIX put at 19 as a hedge of the long position.</p>
<ul>
<li>Disclaimer: Nothing in this post shall be construed, implicitly or explicitly, as containing any investment recommendations. Bearcats is not registered under the U.S. Investment Advisers Act of 1940. Accordingly, nothing in this post constitutes an offer by or on behalf of Bearcats to purchase or sell any shares or securities nor should it be considered as investment advice.</li>
</ul>
<p>The biggest problem surrounding goldman as an investment play is that it is obviously being targeted by the government (and by european governments now, too). This means that it could potentially be subject to a huge number of largely unpredictable political attacks which could do a lot of damage to the firm, even if it wins this case. Of course, if it loses the case, all bets are off and I probably wouldn’t want to be holding it, especially if the DOJ somehow gets involved.</p>
<p>If you’re a passive risk averse investor, as you probably should be as a high school/college student investing a college savings fund who asks college admissions boards for investing advice, you should probably stay away medium term until all the political/legal uncertainty gets resolved. Short term it will probably rebound slightly barring any new negative news about the case or new political attacks, but who knows what will happen there (well, i’m sure some people do and i’m sure they’ve traded on it already haha).</p>
<p>^
“This means that it could potentially be subject to a huge number of largely unpredictable political attacks which could do a lot of damage to the firm, even if it wins this case. Of course, if it loses the case, all bets are off and I probably wouldn’t want to be holding it, especially if the DOJ somehow gets involved.”</p>
<p>Do you understand the point of a straddle/strangle? The only risk is the current high option premium and the possibility that goldman’s stock price staying flat at current level for an extended period of time, which is very unlikely no matter what happens.</p>
<p>i was responding to the op, not to you. i absolutely refuse to advise any inexperienced investor to use short-term options investment strategies for their college savings fund, so i was giving advice from the perspective of buy/dont buy equity. The fact that you are suggesting that strategy implies you agree there is a ton of expected volatility going forward, which was exactly my point.</p>
<p>What expiry are you buying on those options? price could stagnate for a while if this goes to court, new lawsuits come out, financial reform both attacks goldman and gets stretched out for a while, etc. My point was that uncertainty means an inexperienced, risk averse investor (ie the op investing his college fund) should stay the hell away.</p>
<p>Edit: umich said roughly what I was going to say ^</p>