For Goldman-Sachs (GS) clients, the question now is not why GS bet against
the housing market. The question is 'Why didn't you tell me?
One might hope that one could hire such brilliant analysts to defend one's
own financial interests (say by putting it into a contract or something).
Recent evidence suggests that even if you find and hire firms that do
understand reality, and can tell a bubble from real value growth, they
will not help YOU.
It is clear that GS did not err in serving their clients out of ignorance,
or incompentence, like the other Wall Street firms - Their record in
serving their own financial interests here proves that.
Can self-interest explain GS perfidy? Wouldn't an investment advising firm
stand to gain when its reputation is enhanced by its clients either
gaining more, or losing less, than other firm's clients?
Here, GS missed the boat, so rational self-interest fails to explain the
firm's behavior, if we assume that clients can learn from reality, and that free markets work, etc.
GS, although perceiving their immediate self-interest in hedging their housing
bets, did not perceive any self-interest in actually serving their clients
Perhaps we have only one of three conclusions left:
1) GS is stupid. This is countered by the facts of their success.
2) GS is crazy - crazy like a fox.
3) GS thinks their clients are stupid, too stupid to see GS's perfidy, and
that there is no market-driven need to actually serve their clients
competently, or honestly.
Or is there another, more innocent explanation? Perhaps GS knew that their
clients did not trust GS enough to believe GS when it gave accurate, but
unpopular investing advice. (Cue: violins) GS, knowing that it could do nothing for its insufficiently-trusting clients, was left with no recourse but to survive
alone financially, without its irreparably-doomed clients (Sorry, guys - no time to explain).
While one might be able to discern, with further examination, which of
these best explains our reality, perhaps it is enough to see that any one
of these are true, as one considers investment advisors, or government
management of financial firms.
In sum, the only people wise enough to see the housing bubble were not
honest or sane or trusted enough to tell their clients about it.
And Goldman-Sachs, in its exceptional and now-proven wisdom, knew that the
free market does not work (for you).