Tuesday, April 20, 2010
Posted by Jeff Lipshaw
Regardless of one's stance (normatively speaking) on the the Goldman Sachs civil suit, it's tough to find reporting or commentary that gets the nuanced facts right. And because everything depends on the metaphor (see Erik Gerding's recent post - oh, and by the way, isn't cool to see how the way our minds categorize and analogize makes such a difference in the real world?), seeing that entire industry as a kind of casino makes a difference in things like duty and materiality. So kudos today to Andrew Ross Sorkin in the New York Times for getting it right. (Erik is also quoted extensively.)
Moreover, Sorkin frames what I think is the real issue: is there a social value to this kind of derivative trading? That's a question whose answer I don't know. I know there is social value, for example, in currency derivatives. It allows companies that want to be conservative lock in their profits against currency devaluation, while foregoing the possibility of speculative currency gains. It does mean, however, that the conservative company either needs to have a counter-bettor that is either another company with a similar but reversed conservative position, or a pure speculator. So that's the question: what, if any, is the conservative strategy to lock in non-casino gains that products like synthetic CDOs serve?