I like this theme:

At the Los Angeles Times, this story: (excerpts)

Pointless deals line Wall Street pockets, Goldman Sachs suit shows

The real issue isn't what Goldman knew or didn't know about the larger economy. The issue is that Wall Street's business model has become corrupted into one dependent on creating transactions that spin financial wheels to virtually no economic end, merely to generate fees and profits.

You see, the synthetic financial instruments and insurance contracts on subprime mortgage securities at the center of the commission's case didn't have anything to do with raising capital for the broad economy, much less helping to expand the nation's housing stock or ownership by financing the building and purchase of homes. (...)

The SEC complaint concerns an April 2007 transaction called ABACUS 2007-AC1, cooked up by a Goldman employee named Fabrice Tourre ...

... the ABACUS deal wasn't a mortgage or a bucket of mortgages. It wasn't a mortgage-backed security or a portfolio of mortgage-backed securities. It wasn't a collateralized debt obligation, which is a security backed by securities backed by mortgages. It was a "synthetic" version of the latter, which is to say an investment that tracked the performance of certain collateralized debt obligations without actually requiring ownership of them. (...)

In other words it was four degrees of separation, maybe five, from anything that provided money to a human being to buy, improve, or refinance a home. (...)

Let's not pretend that Goldman is unique in its impulse to treat high finance as a self-contained game. This is the way Wall Street has operated for years: An enormous amount of effort has gone into ginning up outlandishly complex deals that are miles removed from the business of economic growth. Bankers take home millions of dollars in bonuses for these achievements, while the economy at large stagnates for want of capital.

The question remains, why did anybody purchase these synthetic instruments? Maybe it was a (futile) search for high returns.


posted by Quiddity at 4/17/2010 06:12:00 PM