Basic investing is, you put money into an investment hoping that it will increase in value. “Shorting” is where you bet the value of an investment will go down and you make money when it does.
The question is the legality and ethics of devising a financial product that is disguised as highly rated but at its core is risky, and having a financial stake in its failure all at the same time. Imagine Toyota sold you a car that Consumer Reports rated reliable, but secretly their engineers had intentionally designed it to fail, and they placed multibillion-dollar bets in Vegas on that failure.
The Goldman Sachs issue and the Wall Street culture that irresponsibly spread this risk throughout the financial system is an assault on America’s middle class. While mortgages make home ownership possible for millions of Americans, bankers like Goldman Sachs treated the mortgage market like they were running a financial casino, and regulators looked the other way. When the system was pushed to its financial limits, it collapsed.
Taxpayers bailed these bankers out because they had a gun to our heads while our retirement funds, hard-earned investments and house values plummeted. Just look at foreclosures and home values in Glendale and you see the impact.
Since Goldman Sachs is one of the biggest players in municipal finance, helping cities raise necessary capital, I wonder what effect this will have on our city’s finances as we likely will see a flurry of lawsuits against the company by angry investors.