Blankfein: We wouldn't, couldn't, and didn't
An interesting article, which provides some insight into the thinking of GS's top brass. The interesting thing is, how easy it is to hide one's real thoughts by using hedges. I even think Blankfein & Co must half-believe their own fairy tales. Because a company may stay invested in a bubble for a variety of reasons (for example, they think they have Hank Paulson to back their bets, or their TA tells them the bubble could still last for a while), Goldman's net exposure to subprime MBS does not tell us what they really thought about that market. However, when they need to please the angry public, a hedged strategy proves to be a wonderful multifaceted thing which can be used in any imaginary scenario. They accuse of you of being bearish on MBS securities? Here is the proof that you had a net long position, you only hedged it a little bit to diminish the risk. They accuse you of being bullish? Then you take your hedges out of the hat and demonstrate that you have always felt bearish. They accuse you of spending too much on hedges? Then you produce a hedge against your hedges to show that you never felt good about hedging. A heavily hedged portfolio is like a clock with 24 hands that will always show the time that you want to see at the moment. The truth is, we will never know what they really thought, and even they may not know it 100%.