
Goldman's Libya Salesman Was a Little Too Good - IBM
https://www.bloomberg.com/view/articles/2016-09-29/goldman-s-libya-salesman-was-a-little-too-good
======
smallnamespace
One good point this article makes is that despite popular opinion, just
because someone is suing a bank doesn't mean that the bank actually did
anything wrong.

Any party that's suing a bank will act the part of the unsophisticated victim,
even if they knew exactly what they were getting into.

 _If a salesman offers you a bet that Citi shares will go up, and you take the
bet, and Citi shares go up, and you don 't get any money, and you ask him what
happened, and he shrugs and says "derivatives are complicated, man" \-- you
should probably sue him. But if a salesman offers you a bet that Citi shares
will go up, and you take the bet, and Citi shares lose 96 percent of their
value, it looks a little funny to go to court and say "well we didn't
understand the structural nuances of the bet." The nuances are not your
problem._

~~~
cloudjacker
I take issue with that, the article alluded to the reason but never mentioned
it: why did the put option fail to hedge the forward?

That really does sound like a big freaking problem!

What the hell happened!? Volatility went through the roof that option should
have been a gold mine! What was the underlying asset for the put option, the
shares or another forward that would pay out the difference??

If shares, did the short selling restrictions the SEC put in place adversely
affect the viability of that option? Was the SEC colluding with Goldman to
wipe out Libya's bet? Even unwittingly?

If not shares, did something happen to OTC options in the forward market that
is not common news??

This lawsuit could have many legs. Not in compensation but information, and if
the bank doesnt want that information out there then compensation.

~~~
smallnamespace
> why did the put option fail to hedge the forward?

They essentially bought a call option. Remember, (bought forward + put option)
= call option [1]

They weren't 'hedging' anything, they just wanted to gamble that the stocks
would go up. Obviously, that didn't happen. Because all they bought were
options, they lost a lot _less_ money than if they had simply bought the same
notional amount in actual bank stock.

> Volatility went through the roof that option should have been a gold mine!

Options increase in value when volatility increases _only if the stock price
doesn 't change_. If you hold a call and the underlier tanks, it generally
doesn't matter than the volatility shot up (unless the option is super long-
dated). Try it yourself: [http://www.option-price.com/](http://www.option-
price.com/)

[1]
[https://en.wikipedia.org/wiki/Put%E2%80%93call_parity#Implic...](https://en.wikipedia.org/wiki/Put%E2%80%93call_parity#Implications)

------
ahh
Matt Levine's column/newsletter is one of the things I look forward to each
day. His vignettes into finance are consistently interesting, discussed both
in depth and understandably to neophytes, and with a dry humor not matched by
any other financial journalist. Him talking about DTC settlement is more
interesting than anyone else I've seen talking about...pretty much anything in
the news.

It's a bit hard to find from the website, so here's the RSS link for
everything he writes: [http://www.bloomberg.com/view/rss/contributors/matt-
levine.r...](http://www.bloomberg.com/view/rss/contributors/matt-levine.rss)

~~~
IBM
His calling is definitely writing. It would have been a shame if he stayed in
banking and didn't end up at Bloomberg. I'm not sure how he ended up doing
that because there's probably almost no chance he's making more money blogging
than working at Goldman, but I'm glad he did.

~~~
lint_roller
A family with money. No need. We're all better off for it.

------
RangerScience
_" They don't seem to have ... asked?"_

I think this is my favorite bit.

Which actually brings up a good proactive defense for the salesman: Make sure
you let you client know what they should be asking, not just what they ARE
asking. Not that this an easy question to answer - you're asking someone else
to point out your unknown unknowns, but in turn, they're blinded by
familiarity (example: I actually do experience slight surprise when people
haven't heard of Hacker News).

------
tominous
> He treated them to dinners, musicals and prostitutes, with the "Lord of the
> Rings" musical being a particular favorite

Can anyone explain why the words _corruption_ and _bribery_ are missing from
the article? Is it normal to treat government workers to prostitutes?

~~~
peteretep
What makes you think it _isn 't_ normal in the developing world?

~~~
tominous
I'd expect firms that are based in the US or UK would be subject to laws
against bribing foreign officials, e.g. the FCPA:

[https://en.wikipedia.org/wiki/Foreign_Corrupt_Practices_Act](https://en.wikipedia.org/wiki/Foreign_Corrupt_Practices_Act)

------
princeb
> "To help plan the training sessions, one of Kabbaj’s colleagues e-mailed to
> ask about the level of the Libyans’ knowledge of derivatives. He responded:
> 'Baaaaaaaasic.'"

bizarre. you don't really expect to have to walk through finance 101 with a
67-billion-dollar SWF... you just have to believe the guys hired to manage
that fund are qualified right? these are not your grandma's retirement
savings.

and then they turn around and say they don't understand what they bought?

~~~
trhway
>you just have to believe the guys hired to manage that fund are qualified
right?

being a second cousin of a wife of the "beloved leader"'s chief of security is
the best qualification, easily beats your Princeton's MBA in Finance.

~~~
barry-cotter
Princeton doesn't have any professional schools, neither law, medicine nor
business.

------
rexf
For what he (Kabbaj) did in Libya, he never got his 'guaranteed' $9M by
Goldman.

> the bank was willing to guarantee him $9 million in pay. It was an
> astonishing sum, even at Goldman.

> Kabbaj never got his $9 million.

via [https://www.bloomberg.com/features/2016-goldman-sachs-
libya/](https://www.bloomberg.com/features/2016-goldman-sachs-libya/)

~~~
rmason
I was left wondering what happened to the Libyan officials in question? In
those days it wasn't unusual for those who displeased Kaddafi to face a show
trial and quick execution.

~~~
ptaipale
Later developments didn't bother with much show in trials.

It appears the mainly involved persons, Layas and Zarti, emigrated to live in
Egypt and Vienna, respectively. I'd say that if Zarti applied for asylum in
Austria, he'd be one of the applicants with best reasons to get one, by the
terms of refugee treaties.

[http://www.telegraph.co.uk/finance/newsbysector/banksandfina...](http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/11052281/How-
Libya-bet-billions-on-prosperity-and-lost.html)

------
Iv
> But "duped" is not exactly the right word. Libya knew it was betting on bank
> stocks to go up, and those stocks went down. It's not claiming fraud. It's
> claiming "undue influence." The problem is not that Kabbaj was lying. It's
> that he was too charming. Libya isn't saying it was duped. It's saying it
> was seduced.

Interesting twist here. I guess it must be hard to discern for someone who has
lived in this trade for so long, and used this mindset as the core of his
trade for most of his career but there are simple things that technical people
(or even just lawyers) will easily discern: omissions and hiding of a client's
best interest.

If you _know_ something is wrong in a company and you don't tell it to your
employer, in many fields, that makes you at least negligent. If you know
something is wrong and you don't tell it because it causes personal gain to
you, it is actually illegal in most jobs and likely criminal.

If you are paid for giving advices in the interest of your consumer and you
hid an honest assessment of risks because you profit in your client's risky
behavior, yeah, that's fraud. A doctor prescribing an addictive medicine, an
IT guy selling a faulty software because he got share in the selling company,
etc...

------
lifeisstillgood
I struggle with this. If you are buying billions of dollars of anything, it is
incumbent on you to make sure you get a good deal. You can clearly afford good
advisors, and you should not be treated like a consumer walking in off the
street.

The fact that a while oil rich country had given the nephew of someone the
right to buy billions of dollars is the fault of the fucked up dictatorship
ruling the country

I can see why the new government wants to sue - but I suspect a new moral
hazard should be introduced - when a dictatorship is buying, it should be
automatically assumed that subsequent democratic governments can come and ask
for the cash back no questions asked

That alone should stop most dictatorships doing anything. Interesting idea?

~~~
JohnnyFang
Interesting idea, although not new. It's called odious debt.

~~~
lifeisstillgood
[https://en.m.wikipedia.org/wiki/Odious_debt](https://en.m.wikipedia.org/wiki/Odious_debt)

"""In some respects, the concept is analogous to the invalidity of contracts
signed under coercion."""

(Thanks - V interesting)

------
aurelienb
So a bank has an extraction team. Looks like a cyberpunk novel. I suppose
extraction team come from a "security/mercenary" company. I'm curious of the
legal implication.

~~~
lmm
If you're large enough it makes sense to be vertically-integrated with
services you need frequently. They have a lot of wealthy people who need to
operate in insecure regions, it makes sense that they'd deal with kidnappings
etc. relatively frequently (indeed I'd look askance at an employer that
expected me to work in a dangerous region and _didn 't_ have a policy/plan for
such occasions).

There are any number of private security organizations; like any industry most
(but not all) are professionals who know and operate within the relevant laws.

------
droithomme
Not all cultures are the same. The article assumes a universal culture and
values of "buyer beware" in which personal assurances, friendship, and honor,
all mean nothing at all whatsoever.

This is not how most of the world sees things.

In the eyes of those who were assured of sure things, the brutal dismemberment
and evisceration of the scammers, their families, and their pets, is
justified, reasonable, and pretty certain to happen at some point, to protect
one's honor.

If one wishes to do business in other cultures one should understand those
cultures.

~~~
peteretep

        > Not all cultures are the same
    

No. The one in question armed the IRA and friends, blew up an American
civilian airliner over Scotland, and shot a British police officer who was
protecting their embassy. Babes in the wood.

~~~
saiya-jin
so west disposed of him only to create proper civil war in that country, with
ISIS cells and in the end, kill at least tens of thousands indirectly, still
counting.

way to go west! something about lesser evil and whatnot

~~~
peteretep
When people begin by describing Westerners as too noble and too high-minded
that they're taken advantage of by other cultures, your comment will be _on
fleek_. Until then, the originating comment smacks of Enlightenment-era anti-
Semtisim with the roles reversed.

------
blizkreeg
I was checking out Matt Levine's articles here
[https://www.bloomberg.com/view/contributors/ARbTQlRLRjE/matt...](https://www.bloomberg.com/view/contributors/ARbTQlRLRjE/matthew-
s-levine) and it's interesting how the title of 99% of his articles is
"Something and Something Else", "Something, something else, and some other
thing". Wonder if he's aware of it himself :-)

~~~
imrehg
He has two series: one is Money Stuff, the daily (?) newsletter of finance
news, that has such titles, and it is on purpuse for sure. The other is Wall
Street (where this article is, the articles that have header images) that seem
to have a pattern too, but less clear cut.

------
csomar
I think the author is hiding (intentionally or not) an important part: The PUT
option. This is supposed to hedge against the risk of the stock going down.

It's very possible that the Libyans were informed that they are hedged against
a crash, only to discover later that the PUT counterparty got liquidated.

Any one willing to investigate this particular point deeper?

~~~
tedunangst
They had a forward contract, which is not the right, but the obligation to buy
citi shares at some price (though it was cash settled). If citi tanks, you can
lose more than just the initial investment. The put was so that they only lost
all their money, not more than all their money.

The forward is identical to (long call, short put). You can see that would be
bad if the stock goes down. So they bought puts to close out their short put
position, leaving them with a long call which expired worthless.

------
Iv
Forget about the salesman, that's the best bit:

"Did you know Goldman had an extraction team? In my time selling equity
derivatives, it never came up."

------
pamelabuck
Umm.... is this this how business is done in all 3rd world countries?

