Large brokerage firms like Goldman Sach, Merrill Lynch, Edwards Jones, etc can make markets in offerings they handle, (eg IPO). Although I don't have the actual facts, I assume Goldman Sach did something like the following.
Goldman Sach put together investment packages made up of mortgages they acquired from various sources. The mortgages in the investment package was layered as to risk of default and shares in the investment package were sold to the general public. Those who brought into the higher risk layers of the investment package got a higher return on their shares in the investment package, and those that brought shares of stock in the lower risk layers of the investment package received a lower return on their investment. The investment packages were thought to be safe; because, the mortgages were collateralize by commercial and home real estate, which could be repossessed and resold, if a mortgage defaulted. Goldman Sachs had a rating agency rank the investment package as AAA, (eh very strong investment with low risk). Some period of time after Goldman Sach sold the IPO in the investment packages the real estate market and entire financial system began to crater, so Goldman Sachs began selling shares in these investment packagers short. A short sale works something like this. Suppose I have an account with Edward Jones, and I wanted to sale share in the investment package short; because, I'm very sure the shares in the investment company will go down in price. On 6/30/2008 I borrow 100 share of the investment package from Edward Jones and sell them for $75.00 per share and have $7,500 deposited into my Edward Jones account. On 12/31/2008 I purchase 100 shares in the investment package for $10.00 per share and pay $1000 out of my account. I have now covered my short by returning 100 shares to Edward Jones, and the $6,500 cash still in my Edward Jones account is profit. If Goldman Sachs sold the investment package short some period of time after it had completed selling of the POI in the investment package, and only after it became clear that the real estate market was experiencing a decline in value, its hard for me to place any blame on them, even if they were the firm that initially made the market in the stock; because, the share had been on the market and traded around for some time before Goldman Sachs sold them short. This would be true even if Goldman Sach was the firm that made the IPO and made the initial market in the stock of the investment package, and even through they borrowed the shares from themselves, (eg other investors who had an account with them and had purchased shares in the investment package). Regards, LelandJ On 04/29/2010 09:08 AM, Virgil Bierschwale wrote: > a derivative is not a bond. > > On 4/29/2010 8:48 AM, Stephen Russell wrote: > >> On Wed, Apr 28, 2010 at 7:07 PM, Virgil Bierschwale<vbier...@ktc.com> >> wrote: >> >> >>> ask yourself a question. >>> >>> Self, my goal is to sell this mortgage bundle to client a so that client >>> a can make a profit because it is a good investment based on the rating >>> agencies. >>> Self, I think I will sell it short though once it starts going down so >>> that I don't lose money on it. >>> Self, Who cares about my client. >>> Self, I have no fiduciary responsibility to them. >>> >>> >> ----------------------- >> >> They were packaging a bond for sale. These were done daily and you >> have to inspect what is within the the bond if you are buying it. >> Your study of the market agrees with this as accepted or out of the >> ordinary? >> >> When you consider buying a mutual fund you investigate the holdings of >> the fund and the direction of the fund before you buy into it right? >> >> The people who were purchasing these bonds did their research or did >> they just get the insurance on top of the bond? Did they accept the >> FALSE rating of the bond and not do their homework? >> >> GS then makes a financial bet on the bond betting on it's failure. >> Did they set the bond for failure, or did they see the recklessness of >> the buyer and knew they shouldn't be in the business so they bet >> against success of that investment. >> >> This is America and we allow the little man to make it big time when >> he takes risks. Are you going to stop people from getting rich in the >> modern world when they see opportunity screaming at them in the face. >> >> I personally know a couple here in town who got millions of $$$ when >> they classified the father incompetent. They sold off just about >> everything but a few horses, Tennessee walking horses for breeding. >> They put him in the VA center and wasted all of that money trying to >> get filthy rich. >> >> So the douche bags at GS see a loser in front of them buying a bond >> and they say "Let's get a derivative on this one because it has to >> fail". >> >> The business of banking is risk / reward. There are no guarantees >> that you will make X% unless you find a ponzi scheme and you get in >> real early. hehehehe yeah no guarantees. >> >> Personally we need to identify the fraud in the bond credit rating >> aspect. This is way to close to buyers of the service that the >> results were questionable and now we know it was more out right lies. >> >> >> >> >> >> >> >> No virus found in this incoming message. >> Checked by AVG - www.avg.com >> Version: 9.0.814 / Virus Database: 271.1.1/2842 - Release Date: 04/29/10 >> 01:27:00 >> >> >> > _______________________________________________ Post Messages to: ProFox@leafe.com Subscription Maintenance: http://leafe.com/mailman/listinfo/profox OT-free version of this list: http://leafe.com/mailman/listinfo/profoxtech Searchable Archive: http://leafe.com/archives/search/profox This message: http://leafe.com/archives/byMID/profox/4bd9a768.5060...@mail.smvfp.com ** All postings, unless explicitly stated otherwise, are the opinions of the author, and do not constitute legal or medical advice. This statement is added to the messages for those lawyers who are too stupid to see the obvious.
