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Comment by camus | Hacker News Reader

as outragious as it sounds , banks can bet against their own clients , in fact , that's how they make most of their money, they have the duty to protect shareholders interests , and respect a few laws but that's it.

If they do not guarantee any return on whatever investment they sell then they are under no obligation to look for their clients best interests.

It happened during the subprime mortgage crisis where banks would sell derivatives to their clients and short the same clients because they knew the products were bad. And it is totally legal.

So who is to blame ? the banks ? or the elected representatives that made these things legal ? in the end the people is , for electing people that serves bank interests.

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I don't believe this is legal. Goldman was convicted and fined doing exactly what you describe. The investment banks are not allowed to intentionally deceive their customers.

http://www.nytimes.com/2010/07/16/business/16goldman.html?_r...

However, it is worth noting that after Goldman agreed to pay the fine their stock price rose. This indicates that the stock market believed they got off lightly, so while officially illegal it does appear to be a reasonable business model.

> banks can bet against their own clients

This is indeed true.

>in fact , that's how they make most of their money

This however requires some proof. They do make money this way but to say that this is how banks make "most" of their money is way off by my understanding and I work in the industry.

Likewise, I'd not say that it's 'most' of their money, but pretty much every bank I know of will happily take the opposing position to their clients. In many cases though, this is just the bank providing the market to their clients, especially in the cases of less liquid products.

The only people I see "guaranteeing any return on whatever investment they sell" typically turn out to be ponzi schemes.

My only question is, Who is still stupid enough to be a Goldman client? What more can they do to demonstrate they are more than willing to screw over their clients in order to increase their profits.

The devil you know and all that. Goldman might screw you, but you're still getting a good deal compared to the bank you don't have a long term relationship with.

In many ways it's no so different with the managing agents my building co-op appoints. We know they're screwing us every year, but at least we know how they're doing it, while with a new agent we'd have no idea!

Clients can also bet against their banks. Everyone making million dollar trades is a grownup, and should know what they're betting on.

And plenty of those trades aren't designed to make money anyway, they're made to hedge other risks that clients have.

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