Wednesday, April 21, 2010

Janet Tavakoli: Goldman Sachs: Built to Fail

Imagine that Goldman packaged a herd of cattle for sale. Industry standards require it to investigate the herd. (Rating agencies do not perform the inspections; it was Goldman's responsibility.) Cattle had a history of health problems, so Goldman had all the more reason to perform thorough due diligence on each herd. A sample would have revealed that, say, 60% of the healthy-looking herd tested positive for hoof-and-mouth disease, and the disease could possibly infect the others.

Goldman claims it did nothing wrong when it slapped good labels--via complicit rating agencies--on its loan packages, and then sold them. Goldman claims to be good at risk management, yet despite public red flags, it now claims it didn't know any better.
Read the rest.