One of my all-time favorite books about Wall Street is Fred Schwed, Where Are the Customers' Yachts? or A Good Hard Look at Wall Street (1940).
It begins with the wonderful old tale of the visitor to New York who admired the yachts that the bankers and brokers had in the harbor. Naively, he then asked where the customers' yachts were. Naturally, there were no customers' yachts.
I'm reminded of this story by today's bit of front-page boosterism in the New York Times. Goldman Sachs Rakes in Profit in Credit Crisis is all about how the boffins at Goldman were smart about the mortgate crisis, and got out of the dangerous securities a year ago, or if they didn't then insured them like crazy. So they're coining it this year, while competitors are hemorrhaging.
But in a classic case of totally missing the real story, we find the following down in paragraph nine:
Even Goldman, which saw the problems coming, continued to package risky mortgages to sell to investors. Some of those investors took losses on those securities, while Goldman’s hedges were profitable.
Goldman hedged, but its customers didn't. Were the investors so sophisticated that they have only themselves to blame? Were they properly advised, and ignored the advice? Or has nothing changed since the Roaring 20s?
Well, one thing has changed: We re-wrote the securities laws. And if I were a Goldman customer who had been sold radioactive sludge as a security in the past few months without a very stern warning about the unusual risk, risk so great the G-S itself wouldn't hold the securities without insurance, I'd be calling my lawyer about now to find out what my options were.