OFFSPRING

Son #1 rang today. He is married, has a great wife, two fabulous kids, a really good job which he loves but lives inside the beltway (ok, just outside) which has done strange things to an otherwise pretty good brain.

"Watch the hearings, Pops?"

"Of course."

"Goldie, you think they're crooks?"

"Not crooks like in criminals."

"But you wouldn't have done any of that stuff, would you?"

"Wasn't smart enough."

Ah, come on. Did you see those jerks on tv yesterday? Smart? They're idiots!"

"I suspect that in most human interactions they would come off as such."

"But not at their jobs, eh?"

"Definitely not."

"But in that thing with Paulson, what the hell was the usefulness of that?"

"None, but you see that's what happens when you allow kids to play without supervision which I suspect you're learning. That synthetic was something you dream up when you have nothing better to do and you are a bit precoscious and overly-clever. In the great scheme of things it did nothing for Goldman, nothing for the market, nothing for anyone but Paulson--and I bet they are pissed off about that--and got them into a mess. If you're going to get into trouble, do it with something that counts."

"Is there anything that can be done to punish Goldman?"

"For what? They did nothing wrong unless you are a Senator and until proven otherwise, an idiot in the field of finance, and wish to change all the rules regarding markets. Unfortunately, they might try"

"My colleague who's almost as smart as you Pops..."

'You want money."

"Nah, just kidding but he is really smart, says that you really can't hurt them; the only thing that hurts them is to take their money away and that only happens if the entire world economy goes into the crapper."

"Huuuummmm. He's not entirely wrong, but the entire world economy did go into the crapper but with the Fed giving money away they made out just fine. But think about this. The business has changed tremendously since I was in it, and like most old guys, I don't think for the better. Goldman can talk all they want about their 'clients' but the fact is they don't really give a crap about their clients. That's why they four guys had such a hard time answering the questions about what they owed their clients, stupid though the questions may have been. They had never really given it a thought. Today, Goldman makes it's money in the capital markets--call it trading--and their 'clients' come to them for execution not because there is a 'relationship' as we defined it in my days.

You know, 40 years ago Salomon Bros. was the best trading house on the block and Billy Salomon used to say, 'If you don't own it you can't sell it.' Today you can in a variety of different ways. Which is why Paulson came to Goldman who would execute even after a..ah...less than prestegious house such as the late Bear turned it down. You think 'a client relationship' had anything to do with it? So what am I saying? You want to stick it to Goldman without changing the world?  Take away their ability to execute."

"How?"

"I've been out of it for too long but in my time someone would have suggested canceling their primary dealer status, not because you make any money in that role but because the info base is vast, the loss of prestige is terrible and in some situations, certain firms can ONLY deal with a primary dealer. Mind you, I'm an old guy, but you get the drift. You might also keep in mind that their primary regulator is now the Fed. The Fed is not the SEC. The Fed can be a real pain in the ass if they so choose which is the beauty of an independent Central Bank. No oversight...they can screw you over in a myriad of ways...got it?"

"No threats, just suggestions. The old Queen Victoria deal...'We are not amused.'"

"Precisely."  And it sends a message to everyone else without having to create some thousand page piece of...you know, the word Levin kept using in the Senate of the United States, the pig.

"Thanks, Pops."

"You're welcome. Love ya."

"Love you too."

...Nice kid. Takes after his mother.

More on the Greeks tomorrow.