Friday, Jan 08, 2010
Still doing God's work?
Counterpunch: How the Teamsters beat Goldman Sachs
A trucking company in the US with 30,000 employees was going bust unless bondholders swapped debt for equity. But those bondholders had bet, thro' CDSs, on the company's going bankrupt - and the gain on those CDSs was going to outweigh any losses on the bonds. The company tried to restructure its debts only to find all this was going on. The shedding of 30,000 jobs was just another day's work GS and its buddies. This practice, known as "basis packaging," is thought to have been a major factor in several big US company bankruptcies. This time, however, the union fought back, identifying and threatening to name and shame the vampire squids. GS et al caved in and started bending over backwards to do the right thing. Lesson - Find out what they're up to and where they're vulnerable.
10 Comments
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1. shipbuilder said...
Another inevitable consequence of the money from money economy. The thing is, if money and the most efficient way of making it is the ultimate goal of the system, isn't this type if thing the logical conclusion of capitalism? Just a thought.
2. rumble said...
I see this as a perversion of capitalism. You invest in a company and bet against it? Make a commitment or piss off. However I don't have much faith in regulation - the street finds it's own use for things (William Gibson) - people will find new ways of playing the regulations, the regulators always a step behind.
3. Mikelivingstone said...
Rumble, I See this as not so much a perversion and more as illegal.
It is fraud to take out a CDS and then try and bankrupt a firm.
How about I buy life insurance on someone before I murder them? No I thought not.
Time to wind up Goldman Sacs and strip all current and ex employees of GS of their last 20 years earnings.
4. mander said...
Thanks to Bill Clinton we had this utopic sytem "CDOs capitalism" that now is falling apart. But the tax payer is forced take part in the pyramid too now in order to save what? CDOs?
5. dead spider said...
"This time, however, the union fought back, identifying and threatening to name and shame"
American shipping company ?
The Unions ?
"Buried in unidentified grave if you fack wit me muther focker" !
I don't think even GS would screw with the old skool mob , unless of course associated .
6. drewster said...
This sounds like fraud to me. Who took the other side of Goldman Sachs' bets? Did they know that Goldman was also the croupier at the casino?
Given that the odds can be stacked like this, why do others even attempt to play the game? Was it the likes of AIG, Bear Stearns, or even our RBS on the losing side of these bets?
7. icarus said...
Then there's the possibility that those who stood to lose on the CDS bets would step in to save the company in order to win their bets, since this appears to be the cheaper option. The bondholders who bet the company would go down would then accuse such company saviours of financial malpractice. (Pots and kettles.)
dead spider - if the union leaders are like that maybe their best ploy would have been to do a deal with GS and pocket some of the CDS winnings.
8. d'oh said...
Ah, the joys of unregulated freemarkets. Only someone who didn't take a basic game theory class in theor B.Econ. would argue that unregulated markets lead to efficiency and benefits to all.
9. Simply Sam said...
There will always be martyrs but majority are for survival and so they will try and out do others in what ever arena..life,finance,social standing, power, etc etc. There are few rules (if any) when there is a gun war and this probably applies to "non-gun wars" also.
I keep seeing examples of systems with a two prong approach...one is defined as good and the other as bad yet both are operated by the same creator (perhaps a government, religion, investment banker, prime minister, president, company director, etc). The creator has caused the two, observes what is going on and cashes in on the difference.
Words like committment, allegance, fidelity, faith, start to lose their meaning especially from those who say them. Are these words that just have meaning for the troops?
10. monty032 said...
Mander - CDOs are Collateralised Debt Obligations, in which typically residential mortgage-backed securities are 'sliced and diced' to create a range of synthetic securities with more or less risk. They are completely different to CDSs, Credit Default Swaps. Despite the name, CDSs are in effect insurance that pays off when a company goes bankrupt or defaults on its bonds. The article is about CDSs that would have paid off should the trucking company default on its bonds. You are in good company confusing the two. Last year I had one lecture slide on CDOs immediately followed by one on CDSs, but in the exam many of my third year BSc finance students confused one with the other.
The article is quite right that we are courting disaster as long as CDSs on the default or bankruptcy of a third party can be bought and traded without restriction. Imagine the chaos that would ensue if something similar were available for individuals. Anybody could take out a £1m life assurance contract on an enemy's life, without them even knowing about it, and then arrange for an unfortunate accident.