Love ‘em or hate ‘em Golman Sachs and investment banks have an important role.
Today much of the criticism of GS is that they “shorted” the housing market – in other words they bet that housing prices would go down rather than up. And the pundits are questioning if this process of betting that a price will go down is Un-American. The general media questions if there if we should even allow these firms to bet that prices of anything will go down. The exception is oil and gasoline – where the public and our politicians hate high prices.
When we have a price (whether it is oil, gasoline, the stock market, gold, real estate, or electricity) that is too high, the bubble will get much worse without the pressure of the “shorts”. The shorts help turn the price around to something that is more reasonable. And in the process the shorts make money while the longs lose money.
By the way if Goldman had gone long US housing prices instead of short, it would have simply meant bigger bailouts from Washington. And that is a discussion for another day.
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