THE FOUR AMIGOS

Riveting tv today as the heads of GS, MS, BAC and JPM sat down in front of a blue ribbon panel to explain wha' happened. Actually, it might have been shown in all the schools in the United States as a civics lesson as the commission, chaired by Mr. Angelitis demonstrated what a group of reasonably prepared, intelligent people could accomplish as opposed to the morons who sit on Congressional committees, writing laws about things of which they have absolutely no knowledge. It was not uniform to be sure as one of the members, the co-chair named Sullivan as a matter of fact began by proposing to channel the thoughts of the American people and the New York Times to the assembled gathering for a period of one year. I though for a moment I was witnessing Shirley MacLaine in drag but then it came to me that this was the Sullivan ex of Lehman Brothers which begins to explain why they're not around any more.

It was entirely a gentlemanly affair, perhaps too much so. Many of the questions were good but the follow-up was weak as if to avoid embarassing the attendees. Stinking was the soft-show grilling of Lloyd Blankfein as to Goldman's trading practices at the start of the crisis. Blankfein admitted that his firm was in fact creating product (CDOs) while at the very same time selling--or shorting--the same. Blankfein's position was that Goldman is a market-maker and therefor had to be on both the buy and sell side of the same issue. What was NOT directly asked was whether the selling occurred as part of the market-making for the issues involved or whether it was selling under the proprietary positioning accounts of Goldman. If the latter, was Blankfein aware that the prop account boys were acting in a manner detrimental to the long-term interests of his firm's clients and if so why did he not put a stop to an action which, if not illegal, was clearly (in my mind) among the worst examples of conflict and unprofessional behavior ever witnessed on the Street. Many years ago it was reported that the great man himself, Andre Meyer, responded to a question of conflict of interest by reply, "If there is no conflict, we have no interest." If the actions of Goldman were as described I'm certain it would have brought a tear to the old man's eye had he witnessed it. You may draw your own conclusions as to the reason.

Fascinating as was the exchange it brings one no closer as to solving the riddle as to why all this occurred. However, as the questioning continued, one thing began to emerge that I think did not receive enough attention. From approximately 2003, the size of the balance sheets of the firms grew enormously. Again, returning to Goldman, Blankfein stated that in June of 2008 Goldman's balance sheet was approximately 1.8 trillion dollars. Today, it is 860 million. It is astounding that in the period of a year an a half, the firm shrank by a trillion dollars; it is remarkable that it had grown to that size in the first place. How that happened, why it happened and what conclusions can be drawn from these facts are a few things I've been think about and would like to explore over the next few days. Stay tuned


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Received a few comments as to accuracy. A couple of you mentioned that Ms Bair should have been referred to as "Pooh" rather than "Poo." Whinnie the Pooh was a sweet, honest, cuddly little thing who, from time to time was a bit...ah...dim. Shelia the Poo is just a dope. It was deliberate.