Goldman Sachs Round Up

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As I mentioned in class, as the Senate Hearings continue this week is producing a range of opinions.

David Brooks, a conservative columnist for the NewYork Times, sees a typical story of dumb politicians:

First, as is traditional in our culture, the elected leaders of the clueless establishment have summoned the leaders of Goldman Sachs to a hearing so they can have a post-hoc televised conniption fit on the amorality of Wall Street.

Paul Krugman, now considered  a progressive, but I am old enough to remember him being disliked by the left for arguing for free trade back in the 1990s, is reliably more focused on economics in “Looters in Loafers.”

We’ve known for some time that Goldman Sachs and other firms marketed mortgage-backed securities even as they sought to make profits by betting that such securities would plunge in value. This practice, however, while arguably reprehensible, wasn’t illegal. But now the S.E.C. is charging that Goldman created and marketed securities that were deliberately designed to fail, so that an important client could make money off that failure. That’s what I would call looting.

Part of his article relies on the investigative reporting of ProPublica on Magnetar, a hedge fund that modeled much of what Goldman Sachs is accused by the SEC of doing, as presented in this podcast: Inside Job.

For a more comprehensive overview, here is our friend Bethany McLean (here on the Daily show) (of the Smartest Guys in the Room) on the Goldman Sachs story:

That is, there are no good guys here. It’s dishonest and ultimately dangerous to pretend that Goldman is the only bad actor. And the worst actor of all is the one leading the charge against Goldman: our government.


Finding Fact Through an Aggregate of Opinion

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As I wrote about last week, my interest in the Great Recession lies in exactly what caused the events leading up to the crash.  Now, I believe that most of my information will be derived from subjective feeds such as interview transcripts, court proceedings, and blogs about the crash.  The reason I believe this type of information is just as useful (if not more) than objective data because it incorporates a humanist perspective into the equation.  And really, if it weren’t for the inherent human flaws in the system, the Recession may have never of happened (plug for Adam Smith there). Continue reading

Blame Someone Else? Citigroup’s “Effective” Risk Management

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As I wrote about last week, the problem of the recession was partly caused by the failure of large firms to manage risk effectively.  In taking this research further, I hoped to find specific examples of certain firm’s crisis management plans and how these corporations reacted to economic problems.  After scouring library resources and SEC filings, I found that the best way to get this information was directly from the websites of these companies and from government websites such as the Financial Crisis Inquiry Commission.

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Next steps for paper

This post is due Friday by 4 p.m. instead of the usual Wednesday.

By now, you have a topic. If you do not, you can still switch or even write a new post testing out an idea. I think it is a good idea to start with some aspect of the Great Recession you want to learn more about.

Once you have a general idea of a topic, you have explored it through last week’s post. Now you can ask next questions. For example, why did this happen? Who was involved? What are the causes and what are the outcomes? At what level of analysis do I need to focus? What concepts or theories that we have learned seem relevant?

This brings us to the next post. With your next questions, you are going to need more info on X, where X is your topic and questions you have. Recall what I said in class, you are making yourself more of a relative expert on your topic and using your research skills and the analytical tools of organization theory to analyze or explain some aspect of the Great Recession.

Hence, we have this general flow:
Topic→ Your preliminary exploration→ Next Questions→ Need for more data or information.

Where will you get more information or data?

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Best of How To Understand the Great Recession

CONGRATULATIONS, Will! Your post on Financial Innovations in the Banking Industry is this week’s Best of the Blog!

The Blog Council for this week (Macey, Jessie, and Jordi) would also like to highlight other notable posts:

Derek for Most Passionate: The Great Recession: Making Fools of Economists

Emily for Best Use of Resources: The Great Recession and Reform

Molly for Most Original IdeaLehman Sisters?

We would also like to give a SHOUT OUT to Christian for redefining eloquence in An Eloquent Reflection on Innovation in The Wire

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Whose Fault Was It? Reagan? Greenspan? Someone Else? Everyone?

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I really like that Jordi posted that first quote regarding history and those who do not know it are doomed to repeat it.  In fact, when it comes to the Great Recession as a whole, I’m not really concerned all that much about learning exactly what happened during the crash.  I think everyone is pretty well aware, having lived through it, what happened.  Moreover, as we fix everything over the next half a decade, people will be paying attention to what regulations are set in place and what other measures are taken to “prevent” this from happening again — or at least try to.  Continue reading

Financial Innovations in the Banking Industry

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For this post, I wanted to look at the role that financial innovation played in the Great Recession. Financial innovations are ways in which banks foster investments and are able to create value (often times false value) through different methods. These new forms of investments have really only been developed since the 1970’s, and were formed in an effort to move the banking industry from a stale and constricted marketplace to a vibrant and accessible one. Continue reading