Speaking of Fareed Zakaria, he explains elsewhere in Newsweek that “the rush to crucify Goldman Sachs is clouding our judgment and distorting public policy.”
If you skip the rest of the article, at least check out the first paragraph:
Imagine that you want to make a bet against a sports team, say the New
York Yankees. The Yankees have had a strong run, but, poring over the
data, you have come to the conclusion that they’re going to start
losing. So you go to a bookmaker (in a district where bookmaking is
legal, of course) to place a bet. The bookmaker now looks for someone to
take the other side of this bet. Once the other party is found, the
deal is made. That, in essence, is the transaction that took place in
2007 regarding the future direction of the American residential-housing
market, in which Goldman Sachs acted as the bookie, and which the
Securities and Exchange Commission now charges was “fraud.”
Did Goldman Sachs engage in shady or illegal activity? Maybe. But Zakaria nails a prime problem with the “Sachs bashing” when he discusses the charge that fund manager John Paulson, who wanted to bet against the housing market, was allowed to select securities he wanted to bet against.
This is disputed?but even if it’s true, so what? Here’s what a routine
hedge transaction looks like on Wall Street. Somebody decides to place a
bet against some set of stocks or securities. That person approaches a
Wall Street firm and says, in effect, “Can you find me someone who wants
to take the other side of this bet?” And the firm goes out and finds
someone who has the opposite view on those securities. This is how large
companies offset the risks to their balance sheet from fluctuating
currency, energy, or commodity costs. They often choose the instrument
they want to bet against.
