Goldman v Geithner

OK, some second thoughts on the Goldman Sachs case, with an attempt to be "objective".

The major charges from the SEC over Abacus 2007-AC1, and Goldman's rebuttals, appear to be as follows:

Charge 1) Goldman and Paulson deliberately brought in ACA as an "independent third-party collateral manager" because it knew that, if Paulson was identified as a party constructing the portfolio with a view to shorting it, Abacus would be impossible to sell.
Rebuttal 1) Goldman said that "in trades of this kind, there is always an investor going short" and that it was normal practice for market makers not to disclose the identities of buyer to seller and vice versa.
Birks view 1) If Goldman can show that it did not disclose the identity of buyer IKB to seller Paulson, just as it did not disclose the identity of seller Paulson to buyer IKB, it has a case. But I suspect that it won't be able to show that, because Paulson was kept far more in the loop than was ACA and IKB. That said, I think it would be an odd (financial) world indeed if a middleman was forced to disclose the identities of counterparties before a deal was signed. Then again, US securities law never ceases to find ways to surprise me.

Charge 2) That Goldman made investors think that Paulson was long on the portfolio.
Rebuttal 2) "Total bollocks" said Goldman. Because, well, it has to. "Goldman Sachs never represented to ACA that Paulson was going to be a long investor", GS said on Friday.
Birks view 2) As I wrote before, I think this is the key point, and that there is a big difference between failing to say something (=, as far as the SEC is concerned, "lying by omission") and actually saying something which is not true. We could encounter interesting uses of the words "implied" and "inferred". The SEC might claim that, by remaining silent, Goldman "implied" something, whereas Goldman would reply that you can't imply anything by remaining silent -- the listener can only infer it.


Goldman has one strong defence -- that it lost $75m on the deal, even after the $15m fee from Paulson. And the SEC seems unwilling to address this point. Meanwhile, Tim Geithner, US Treasury Secretary, actually declined to comment on the matter when on a TV show on Sunday morning, which seems to me to indicate that he is not confident enough to nail his colours to the mast.

GS remains convinced that this is a political stunt rather than a proper investigation. It claims that the SEC made no contact with it between a Wells notice last July and the announcement last Friday. The SEC said that such lack of contact was normal. GS would point out, I assume, that, even though it might be normal, a nine-month gap between the notice and the charge, with no contact, most definitely isn't. Goldman's defence, it now seems to me, will be on two main planks:

1) That any accusation that it told ACA or IKB that Paulson was long on the portfolio is untrue.

2) That it provided ACA and IKB with quite enough information to see how risky the investment was, but ACA still backed it and IKB still invested in it. (Clearly, if Goldman is found guilty on the first plank, the second plank falls apart).

My money is still on a "settlement without admitting liability". But for how much? Probably a lot, maybe just shy of the amount GS would have been fined anyway if it had been found guilty. Because this is all about reputational risk and GS remaining "the company you have to go to". Its major strength here, perhaps, is that there isn't really another company around that is ready to step into GS's shoes.

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Not-very-well-disguised-bad-beat-story

I'm beginning to despair on Pokerstars. I know it's variance. I know that the long run is longer than you think. I know that, one day, you will hit a run that you can't believe possible. I know all these things. But looking at the stats brings home to me what an incredibly high-variance game poker is. Indeed, it's clear that in pre-internet days there would be social players who could play an entire life of poker, and end up winners, solely because they were lucky. In terms of the B&M poker player's life cycle, it actually doesn't all "even out in the long run", because, in B&M, you could play all of your life and not even reach what in poker terms is "the long run".

Here's the graph in big blinds on Stars this month (mainly $1-$2, a fair bit of $2-$4).



Depressing enough, eh? But it's only 10,000 hands. That's only 300 hours of live play -- about two to three months for a pro, maybe a year for a regular social player.

So, here it is for this year.



Nearly all of it at $1-$2. In cash terms, this is 11 buy ins below EV, or $2,200.

This is 68,000 hands, or over 18 months' live play for a pro, or six years' play for a regular social player.

Surely we are reaching the long run by now? Oh no. Here we have my last 100,000 hands, or about nine months' play for me on Stars.



This is about three-quarters $1-$2, with most of the rest 50c-$1. It equates to $2500 less than EV, $970 winnings instead of an "expected" $3,500.

It also equates to about three years' play live for a pro, and well over a decade for a regular social player.

For the 100,000 hands previous to this, I actually ran "in line" with EV. I certainly wasn't more lucky than I had a right to expect.

Here's the 155,000 hand graph (everything that I have on HEM), more than 20 years of B&M play for a regular social player.



At which point, I fear, that even I start to feel the strain. The only thing you can do is "carry on". And I like to think that I have one of the best "anti-tilt" personalities at the table (where "tilt" takes the form of "not spewing your cash and making plays that you know are bad"). I feel sure that most players would have cracked in the face of numbers like this, falling either for the "if I bet bigger, that will make my hand better" fallacy or the "what's the point of playing properly when that just costs me money" fallacy, or the "I'm going to call here, eeven though I know I ave been outdrawn, because I want to prove how unlucky I am" fallacy.

I haven't fallen into any of these traps over the past nine months. I've just kept going. But, I'll be honest.

It's fucking getting me down.

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