Did they tell their clients that these investments were sound? In 1999, I could have called my financial advisor and told him I wanted to buy Pets.com (or whatever) stock. He might advise me against it, but would have sold it to me. And, he might have had it shorted in his personal portfolio at that time without disclosing this to me. Does that make him a bad guy?
I believe the best known of the ones that failed was called "Abacus" - there is a lot of documentation publicly available.
From my viewpoint, representing an investment aas having a particular rating from Moody's or S&P would indicate that they told their clients the investments had a certain ratio of risk/reward.
Common stocks have no ratings from Moody's or S&P; these are interest-bearing investments that supposedly have a certain rate of return per year; though unlike CD's they do not have a fixed lifetime as mortgagees can repay a mortgage early, or refinance, without penalty.
I wasn't so concerned with the specific nature of the investment vehicle in question as it seemed the complaint about GS was simply that they had sold to a client a product which they implicitly had deemed a poor choice.
Not being a securities lawyer I don't have a 100% accurate answer for you; however I would say there is a difference between common stocks which have no performance guarantees and bonds/warrants/etc which do have guarantees (with risk/reward taken into consideration of course).
Actually, to make the analogy to Goldman closer, your financial advisers wife would be the one actively managing his personal portfolio. And his wife would be legally barred from telling him what positions she held.
Interesting. So, some SEC regulations required there to be a Chinese wall between the part of Goldman which was betting against the MBS market and the portion of Goldman which was selling long to clients? If this is the case, then those complaining of the practice must believe that Goldman had some moral obligation to ignore SEC rules.
A better question is, "what parts of Goldman do not have Chinese walls between them?"
To be fair, some information leaks over the walls. For example, consider investment advice. Within a bank, you have "Investment Advice", and you have !Investment Advice. IA doesn't really get to talk to traders, all they do is provide unbiased recommendations to clients.
However, there is another department, which I'll call "Conflict of Interest Watch" (CIW, the name varies from bank to bank) which tags every report from IA with possible conflicts of interest. So if someone in IA writes a report about Facebook, some computer system in CIW will apply the label "Warning: GS has a business relationship with Facebook." So an analyst can write a report, submit it, and read the tags to determine if Goldman is doing business with Facebook (of course, reading the newspaper is also permitted).
The SEC fines the company $200k per report if they fail to report a relationship and $80k if they report a nonexistent relationship (to prevent companies from just tagging every report as "conflict of interest", a response to Wachovia doing exactly this). A certain investment bank (maybe Goldman, maybe not) is currently devoting tens of millions of dollars to doing a better job of this.
Wow, so those complaining about Goldman's seemingly two-faced behavior are implicitly complaining that the firm was actually following SEC regulations?
Umm wrong analogy, unless I've not understood. The difference is that Goldman (analogous to your broker) soliticited you to buy the product Goldman had created. And then having sold it you, bet against you.
Did they tell their clients that these investments were sound? In 1999, I could have called my financial advisor and told him I wanted to buy Pets.com (or whatever) stock. He might advise me against it, but would have sold it to me. And, he might have had it shorted in his personal portfolio at that time without disclosing this to me. Does that make him a bad guy?