From Andrew Ross Sorkin's Dealbook column in the NY Times:
To be sure, Mr. Blankfein was correct in saying that his firm had sold the bundles of mortgages, or synthetic collateralized debt obligations, only to sophisticated professional investors who managed large amounts of money and had an appetite for the securities.If there is one thing that this financial crisis has made clear is the fact that the actions of professional and wealthy investors can clearly have systemic repercussions. The losses from their investments tanking don't impact just their personal wealth and portfolios but have the potential to impact the lives of millions of people around the world and the stability of the financial system itself. I also especially like the last paragraph of the quote above: the technical, forecasting and predictive capacity of institutional investors is not any better than your typical amateur investor. People believe that equity markets and most of these other investments can be gamed and strategically coerced to do what you want them to do. Truth is, a lot of it is just a random walk.
He was trying to distinguish them from individual retail investors. And those investors probably should have known better. But, of course, those investors also relied on rating agencies to evaluate these securities — and as it turns out, the ratings were often way off.
For years, most financial regulation has been focused on protecting the individual investor (though its effectiveness is obviously questionable), leaving professionals and wealthy investors to take whatever risks they choose.
But if we learned anything in this crisis, it is that most of the sophisticated financial professionals in the world were no better at predicting the market than some amateur investors. Even Mr. Blankfein highlighted that he did not see the crisis coming.