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The great American Bubble Machine

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The great American Bubble Machine

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Introduction

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Goldman Sachs may have been among the late comers in the investment trust rigmarole. However, the company had the best game plan for the industry, which saw it emerge the best in the investment trust sector. The company has seen many economic bubbles, which it is taking advantages of by posing as an angel and acting like a vampire while going for the kill. All the five bubbles have seen the company come out as a winner. The main bubbles under discussion are the great Depression, Tech Stocks and the housing craze

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Bubble #1: investment trust and how led to the great depression

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When Goldman Sachs Trading Corporation was formed, it issued shares valued at $100 and later redeemed, the shares using its own money, but traded the shares to the public at $104. The investment company was exceedingly active, and the public had a positive perception and confidence. The company seemed exceedingly profitable, and investors who had an eye for fantastic deals made a surge take advantage of the new deals. However, when the company realized how profitable it was, they developed another investment trust and used the Goldman Sachs Trading Corporation money to establish the Shenandoah Corporation and Later another investment trust company called the ‘Blue Ridge Corporation.’ The endless investment pyramid was an orchestrated game of the Goldman Sachs as the majority shareholder.

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The plan was not supposed to be negative, however, when the company started making loses, it spiraled down to the first investment with the parent company Goldman Sachs bearing the brunt. The investment however, was weary as the company failed to pay back its shareholder as the decline in the performance of the banks and investment trusts was the main cause of alarm. The chain of broke investors who could get back their money became extremely long as the company took money from both the poor and the rich. Then company benefited from the inherent nature of lending, borrowing and investing and assumed that, as long as the investors are still w8illing invest, they will always make money unaware of the effect of the last fund on their investment.

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Bubble #2: Tech Stocks the Initial public offering, laddering and spinning

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The Company had a decidedly ingenious plan. It had changed the banking rules whereby they had two tiered investment system, and the insiders knew what was actually profitable while the investors were made to chase the rosy prices that were fictitious. The company capitalized in changes in the regulatory frameworks. The Goldman Sachs took small and emerging companies organized IPOs and exaggerated their profitability. This made the investors scampering for the shares of the company. As soon as the company is IPO are completed, they took their shares of the deal and left leaving the company and the shareholder on down south trend.

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Then company was involved in Laddering, as they manipulated the prices of new stocks during IPOs. They convinced the firm to place IPOs then convinced their clients of better prices and a large share volume and improved profitability. The strategy helped in buying large volumes of shares hoping that the shares prices will appreciate as promised by the industry giants, then double cross the investors in another company for the same shares take their share of the spoil and leave move the investors.

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Spinning is a corporate scandal that involves giving outstanding stock offering to executives in companies with the aim of getting a favors mainly underwriting deals in this case. Goldman and Sachs did this to the executives of those companies that they planned to take public. It was a vital part of a deceitful scheme to win latest investment-banking deals. They offered corporate executives low prices for shares in the market as a way of influencing the future deals such as their company future underwriter. The discount offered as bribes is covered with the investor’s money. The practice was wrong as the company diverted the ash belonging to other investment, which could have been distributed to investors as dividend.

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Bubble #3: “Goldman Sachs’s mortgage strategy and Collateralized Debt Obligation”

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Previously it was not easy to get mortgage for the customers who failed to meet requirements of the mortgage industry standards, for example, being able to make a down payment of 10 percent or more, show a stable income and appropriate credit rating, and possess a valid first and last name. The company went against the grain and offered the potential home owners mortgage facilities. First, the company bundled the mortgages into collateralized debt obligations. This involved turning the junk-rated mortgages into AAA-rated investments. Secondly they their own bets on the CDOs (credit default swaps) by selling them to insurance companies like AIG, hoping that AIG will default. Being that the AIG are ex-cons with history of defaulting.

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Conclusion

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While Goldman Sachs is accused of all the woes facing the financial sectors, the company is like a deep-seated cancer that cannot be routed out. Many people have learnt for the losses and the gains associated with The Goldman Sachs saga and are still in the market. These people may want to make good their loss. For this, the economy should prepare itself for financial scandals in the future as the Goldman Sachs alumni are out there. What is not known is when and how they will strike this time. The economic bubbles are still coming, and the company is likely to reincarnate into another beast.

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