RoR: Forum

http://www.youtube.com/watch?v=cQ4axo9rmJY

Post 1

Wednesday, April 14, 2010 - 7:20pm

I have only read a little of the linked article so far. However, I don't believe Goldman Sachs (GS) is as squeaky clean as some people try to convey in the article.

Bear Stearns and Lehman Brothers were heavily involved in the securitization of shaky mortgages. From what I've read GS was not. But they were involved in it some. See here.

While GS may not have urged the government to bail out AIG and did "not take down" AIG, GS did indirectly benefit when the government bailed out AIG. GS was a counterparty to AIG in credit default swaps. See here.

(Edited by Merlin Jetton on 4/14, 7:22pm)

Post 2

Wednesday, April 14, 2010 - 10:42pm

Squeaky Clean... I don't think so. Skim through some of this:
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First, one has to place the blame where it belongs - on the politicians that sell chunks of our economy at the expense of our freedom. But that doesn't mean that slimes in the private market can't conive with them as lessor partners in crime.

Here is a radio transcription from a Glenn Beck show:
http://www.glennbeck.com/content/articles/article/198/27840/

Secretary Paulson runs the treasury. Secretary Paulson comes from Goldman Sachs. Secretary Paulson is saving all of these institutions, but Lehman Brothers, no, no, no, Lehman Brothers, that's got to fail. They gotta fail. Lehman Brothers, who was Lehman Brothers' biggest competitor? Oh, Goldman Sachs. Who is Goldman Sachs' biggest competitor? Oh, Lehman Brothers. Lehman Brothers, they can fail.

The very next day AIG, they can't fail. AIG needs to be saved! So the former employee of Goldman Sachs, now secretary treasury Paulson decides to bail out AIG. Who is one of the first companies that get the money from the bailout from AIG? Who does AIG pay off, one of the first ones in line? Oh, my goodness, what a coincidence. Goldman Sachs. So AIG pays Goldman Sachs.

Then the former Goldman Sachs employee, now treasury secretary Paulson says we've got to appoint somebody to really oversee and design this TARP thing; who could I get, who could I get, who could I you know what? I'm going to hire somebody from Goldman Sachs. He will design TARP.

At the same time Goldman Sachs calls their former employee who is now designing TARP and their former employee who's now the treasury secretary and says, you know what, we should be a bank holding company. A bank holding company? What? Are you kidding me? In the coming months that will take GE almost two days to have that happen. What, are you crazy? Wal Mart's been trying for years! "Okay, we'll do it." So the two former employees from Goldman Sachs now allow Goldman Sachs to be a bank holding company. Well, why would they want to be a bank holding company? Well, now they can get even more funds from the government. They cannot only get the TARP funds but they can also get FDIC funds. Oh, and there's also this other little pesky thing. The SEC, the SEC doesn't oversee bank holding companies.

The Federal Reserve oversees a bank holding company as long as it's the Federal Reserve where what town is Goldman Sachs? Oh, New York? Yeah. So you'll be overseen by the Federal Reserve chairman of New York who, oh, my gosh, what a coincidence! He's on your board of directors! Oh, well, that's great because he will know all of the stuff and he will be able to see if there's any kind of wrongdoings going on. The guy overseeing is on your board of directors, which is against the law. Boy, that's a bad thing that that's against the law. What are we going to do? Oh, oh, I just remembered. Not a problem! Because former Goldman Sachs employee is now the treasury secretary. So he just has to sign a waiver that says, "Don't worry about that! He doesn't have to get off the board. He doesn't have to sell any of his stocks. He will just have the former Goldman Sachs employee write a waiver to the Federal Reserve so the Federal Reserve chair can stay on the board and not only keep his stock but he can buy hang on just a second 52,000 shares of additional stock." Yeah. So now the guy who's overseeing Goldman Sachs, the watchdog, buys 52,000 shares more which up until today only made him three million dollars. I can't even imagine with a 65% profit increase how much money he's made. That's fantastic.

Oh, by the way, the biggest thing that Goldman Sachs was doing was derivatives. Derivatives, derivatives, what are derivatives? Oh, my gosh, derivatives, why do I know that? It seems like a bad thing. Is that CBO, isn't that the D and the C he owes? Isn't that what caused all of this mess? Wait a minute, wait a minute. No, the derivatives didn't cause that. That was the oil. Wait a minute, hang on just a second. Goldman Sachs was the biggest derivatives and also weren't they the biggest in oil speculation as well? Wow, they were in two of those. Huh. Well, it's a good thing that we're out of derivatives and oil and energy. They've learned their lesson. They've learned their lesson because they are onto something brand new. They are onto cap and trade. They are the biggest supporters of cap and trade next to GE, which is also weird because that's part of the government now, too. But anyway, they've gotten out of the derivatives and they've gotten out of oil speculation because they learned their lesson. Now they are just going to start creating the biggest derivative market of invisible gas for energy. That doesn't sound like there's a problem there at all.
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But it is much, much more than what is in that radio transcript. Here is just a partial list of the players that show you a cross-over between Goldman and our government:

Hank Paulson, former CEO of Goldman Sachs: (bails out Goldman Sachs, AIG, Freddie and Fannie - lets Goldman Sachs' chief competitors - Bearman Sterns and Leaman Brothers - go under, architect of the bailout. Permits Goldman Sachs to convert to a bankholding company to qualify for bailout funds (gets $10 Billion) and can now belly up to the Fed's discount window for cheap money.

Mark Patterson former Goldman Sachs employee becomes Treasury chief of staff.

Gary Gensler, CFTC (Financial regulative agency) chief, was the former Goldman Sachs cohead of finance.

Stephen Friedman, a Director of Goldman Sachs is at the same time the chairman of the New York Fed (which is supposed to regulate and oversee Goldman Sachs) and a major Goldman Sachs stockholder (buys enough stock to generate a $3,000,000 profit while he is running the Fed! That's illegal, but Paulson gives him a waiver.)

William Dudley, the next New York Fed president is another former Goldman Sachs alumni.

Lloyd Blankfein, Chairman of Goldman Sachs after Paulson. He graduated with Ben Bernake, serves on the board of the RobinHood Foundation with GE's Jeffery Imelt.

Robert Rubin, Bill Clinton's former Treasury secretary: Spent 26 years at Goldman before becoming chairman of Citigroup � which in turn got a $300 billion taxpayer bailout from Paulson. As Treasury Secretary he got Congress to pass the Commodity Futures Modernization Act that exempted Goldman Sachs trades of swaps without regulation.

John Thain, CEO of Merrill Lynch (remember the guy that bought an $87,000 area rug for his office as Merrill Lynch was going under; a former Goldman banker, received a multibilliondollar handout from Paulson.

James A. Johnson, board of directors of Goldman Sachs: was the campaign manager for Walter Mondale's 1984 presidential bid and chaired the vice presidential selection committee for the presidential campaign of John Kerry. He was involved in the vice-presidential selection process for the 2008 Democratic presidential nominee Senator Barack Obama. Received 'special' mortgage loans from CEO of Country Wide (was defended by Obama who said he was an innocent bystander). Raised up to $500,000 in donations for Obama. Past chairman and CEO of Fannie Mae.

John Bryan, board of directors of Goldman Sachs AND General Motors.

Neel Kashkari, 35 year old Goldman banker appointed by Paulson to administer TARP - $700 billion dollar bailout fund.

Robert Steel, a former Goldman Sachs employee - as head of Wachovia, issues $225 million in golden-parachute payments to himself and fellow executives while his bank was going under.

Joshua Bolten, Bush's chief of staff during the bailout, and Mark Patterson, the current Treasury chief of staff, who was a Goldman lobbyist just a year ago, and Ed Liddy, the former Goldman director whom Paulson put in charge of bailedout insurance giant AIG, which forked over $13 billion to Goldman after Liddy came on board.

Henry H. Fowler, 58th United States Secretary of the Treasury under LBJ, helped remove the states from what little remained of the gold standard. Went from there to Goldman Sachs as a partner.

Also, the head of the New York Stock Exchange, the last two heads of the Federal Reserve Bank of New York � which, incidentally, is now in charge of overseeing Goldman, are Goldman Sachs alumni.

Neil Levin, a former Goldman vice president, now in charge of the New York State Insurance Department grants AIG's request to exempt default swaps from regulation.

Reuben Jeffery, former United States Under Secretary of State for Economic, Business, and Agricultural Affairs was a Managing Partner at Goldman Sachs.

Robert Zoellick was President of the World Bank Group, United States Deputy Secretary of State, 3rd Under Secretary of State for Economic and Agricultural Affairs and was previously a managing director of Goldman Sachs.

Joshua Bolten, Chief of Staff for Bush, was Executive Director for Legal and Government Affairs at Goldman Sachs.

Jon Corzine, who just lost the race for governor of New Jersey, left Goldman Sachs after making $500,000 in commissions during 1999. He has been a senior partner, and former CEO of Goldman Sachs. Was on the Treasury Department's Borrowing Committee under Clinton. And worked on recovery packages for financial firms in trouble during 1998.

Al Gore, who is intimately involved with the planning of cap-and-trade, started up a company called Generation Investment Management with three former bigwigs from Goldman Sachs Asset Management, David Blood, Mark Ferguson and Peter Harris. (Read the Rolling Stone article - see below - to understand the bubble investment mechanism Goldman Sachs uses)

Senator Dodd... Remember his tie in to Countrywide? Countrywide sold $100s of millions of bundled mortgages through Goldman Sachs - many of them to city and state pension plans.

The Democratic Party, receives $4,452,585 in donations from Goldman Sachs.

Barrack Obama - receives campaign donations from employees of Goldman Sachs that total over $981,000.
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But if you want to understand the real scheme... the unbelieveable engine that Goldman has running to make money in quantities that are beyond belief... An engine that milks bubbles, makes money as they inflate, then makes money as they collapse, and then gets into a new bubble (5 to date), read this article at Rolling Stone.
(Edited by Steve Wolfer on 4/15, 9:08am)

Post 3

Thursday, April 15, 2010 - 4:43am

Steve, your link doesn't work. I guess it is suppose to go here:
http://www.rollingstone.com/politics/story/29127316/the_great_american_bubble_machine

I haven't read it either yet, but at first glance I would not give it much credibility. Does it cast any blame at Congress, the Fed, HUD, Freddie, Fannie?

Edit: I read the Rolling Stones article. Then I gave it the lowest rating I could, since it is mostly hysterics with allegations presented as facts.

(Edited by Merlin Jetton on 4/15, 6:29am)

Post 4

Thursday, April 15, 2010 - 9:20am

Merlin,

Thanks for the link. I edited my post.

Sorry you didn't like the article. It IS written in a lurid, tabloid style and the guy is sloppy with his language. And he is comfortable with a "blame the greedy corporations" POV that I don't share. But the degree to which Goldman Sachs is intertwined with government, and the way that they have used that relationship is identified in the article - not just as isolated incidents, but as a long-standing pattern.

If there are some unsupported allegations, or some errors of fact, it wouldn't surprise me, but I would be surprised to learn that it is totally wrong. That there is no part of crony capitalism at work here. That there was no incidence of wrongfully putting billions of taxpayer dollars into private pockets.

Post 5

Friday, April 16, 2010 - 8:18am

SEC accuses Goldman Sachs of fraud in failing to disclose conflict in mortgage securities

"The Securities and Exchange Commission announced Friday civil fraud charges against Goldman Sachs and one of its vice presidents. The agency alleges that the company marketed complex subprime mortgage securities and failed to disclose to investors that a major hedge fund had bet against the securities." - Associated Press

Edit: GS stock was down about 14% a few seconds ago.

(Edited by Merlin Jetton on 4/16, 8:23am)

Post 6

Friday, April 16, 2010 - 10:12am

Merlin, this latest development sure is interesting! And Paulson & Co not charged with anything.... I hope they end up having to go after him. From what I've read, it seems he was involved in some pretty shady dealings. Being a crony of those in power can enable you to get away with a lot, but not forever; Bernie Madoff being a prime example.

Post 7

Friday, April 16, 2010 - 10:37am

More detail on the story here.

I post the following to avoid possible confusion. The individual involved is John Paulson. He is not related to former Goldman Sachs CEO and U.S. Treasury Secretary Hank Paulson.

(Edited by Merlin Jetton on 4/16, 10:39am)

Post 8

Friday, April 16, 2010 - 10:49am

Thanks for the clarification, Merlin.

Post 9

Friday, April 16, 2010 - 12:54pm

From a CBS news source: "Goldman created a vehicle called Abacus 2007-AC1, which was filled with a bunch of toxic crap that would be sold to Goldman clients. Why would they do such a thing? The SEC believes that Goldman was acting at the behest of Paulson, whose hedge fund wanted a fat, sloppy mortgage mess to bet AGAINST. How? Paulson would purchase credit default swaps that would pay him if the bonds in the vehicle failed. Neat, huh?

Think of it like this: Goldman Sachs is asked by Paulson to sell a house that he knows is a fire hazard. Goldman markets the house to its clients and at the same time, Paulson purchases an insurance policy on the house in case it burns down. When the house does in fact burn down, Paulson collects a bunch of money (approximately $3.7B in 2007). And did I mention that Goldman ALSO bought some of that insurance too?"
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From a repeat of an AP story: "The SEC charges come after Goldman Sachs denied last week it bet against clients by selling them mortgage-backed securities while reducing its own exposure to them."

Post 10

Friday, April 16, 2010 - 1:30pm

Steve, I don't know that Goldman Sachs bet against Abacus 2007-AC1. However, GS collected $15 million in fees for the securitization, per Wikipedia. I read that somewhere else, too.

Post 11

Friday, April 16, 2010 - 2:00pm

It is going to look bad for Goldman Sachs if evidence surfaces that they did bet against the package they sold... and that the bet against it was placed with AIG, and that the bailout money to AIG was, in part, passed from AIG to Goldman Sachs as the payoff on the bet. And then I suspect that the SEC will look more deeply into all of the Goldman Sachs alumni in government - especially in areas where regulations were changed and permissions given that had the effect of making it easier to bet against packages like that. Or at least start to look but then be shut down or misdirected (No government people are going to get hung on this)

At the same time, I think that this is just Obama using Goldman Sachs (guilty or not) to kick-start his push for the financial industry regulation that he is pushing - purely for the purpose of furthering his socialist agenda. Goldman Sachs is a major Obama supporter but I've no doubt that he's thrown them under the bus to get him the tiniest movement towards his agenda.

Post 12

Saturday, April 17, 2010 - 9:11am

Steve,

At the same time, I think that this is just Obama using Goldman Sachs (guilty or not) to kick-start his push for the financial industry regulation that he is pushing - purely for the purpose of furthering his socialist agenda. Goldman Sachs is a major Obama supporter but I've no doubt that he's thrown them under the bus to get him the tiniest movement towards his agenda.

Egg-zactly. It's the 3-ingredient formula for taking over a free country:

1) tyrants gain coercive power
2) tyrants then blackmail those with productive power (capitalists), telling them that publically, they'll be 'whipping boys' (in order to dupe the masses into believing the tyrant is "helping" or is "needed to balance out the evil market forces"), while privately, making under-the-table deals with them
3) like being a cop in Mexico, you have 2 choices:
...a) take the money and live corrupt,
...b) or you (and possibly your family) will be killed

The solution is the same as it always was: Minarchy (where the government isn't even powerful enough to accomplish this kind of perpetuated corruption)

Ed

Post 13

Saturday, April 17, 2010 - 9:13am

I first wrote about Obama being fascistic like this here.

Ed

Post 14

Saturday, April 17, 2010 - 11:24am

The allegation is that Paulson & Company, the hedge fund that designed the collateralized debt obligations, designed them to fail in order to reap insurance benefits. If there is any evidence that is so, those executives should be looking at criminal proceedings.
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From Bloomberg, "Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, said the case demonstrates the need for Wall Street reform."

Dodd gets to jump on the bandwagon to lynch Wall Street firms for all financial problems - past and present, while helping fellow progressives with their financial regulatory agenda, and at the same time, as long as they are successul in rewriting history, shifting the blame and fooling the people, his part in the destruction of our economy won't get noticed. Three birds with one stone.

Dodd and Goldman Sachs paths cross again and again. For example, the article refers to Goldman Sachs, Washington Mutual's former CEO, "They are smart, but this is swimming with sharks,' Killinger wrote in an Oct. 12, 2007, e-mail to a deputy. 'They were shorting mortgages big time while they were giving CfC advice,' he added, referring to Countrywide Financial Corp., the home lender that ran short of cash the same year."
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On a side note: This is the same Countrywide Financial Corp that gave special mortgages to all of the following:

Senator Dodd,
Jim Johnson, former Fannie May CEO and Goldman Sachs board of directors,
Senator Kent Conrad, Senate Finance Committee Chair,
Clinton Jones III, senior counsel of the House Financial Services Subcommittee on Housing and Community Opportunity, and an adviser to Congress on legislation of the financial services industry - and currently the state director for federal residential-mortgage bundler Freddie Mac.
Alphonso Jackson, acting secretary of HUD at the time and long time friend and Texas neighbor of President Bush, received a discounted mortgage for himself and sought one for his daughter.
Franklin Raines, Fannie Mae�s chairman and C.E.O. from 1999 to 2004, using V.I.P. loans for nearly $1 million apiece, twice refinanced his seven-bedroom home.
Speaker of the House Nancy Pelosi's son, Paul Pelosi, Jr., also received a loan with Countrywide.
Senator Barbara Boxer,
Congressman Adam H. Putnam,
Richard C. Holbrooke, Obama appointee, former financial partner of Jim Johnson, former board of directors with AIG, policy advisor to Al Gore,
Congressman James E. Clyburn, House Majority Whip, Obama appointed his daughter to the FCC
Donna Shalala, former Secretary of Health and Human Services under Clinton.

-----------

The Bloomberg article goes on to say, "William Cohan, a former investment banker who is writing a book about Goldman Sachs, said the accusations are surprising because the firm generally is diligent when it comes to legal disclosures."

I suspect that he is right. I suspect that Goldman Sachs usually is helping it's clients to make a profit and that it stays within the law - but that is because of the relationship with the politicians that are giving it special advantages and it would not want to kill the golden goose.

And the real sins of firms like Goldman Sachs won't be prosecuted because they involve the politicians who control the prosecuters.

Post 15

Sunday, April 18, 2010 - 6:49am

Steve Wolfer,

Yes, politicians like Dodd are going to take maximum advantage of the allegations to divert attention to their own misdeeds and promote their own case for more legislation.

You wrote:

The allegation is that Paulson & Company, the hedge fund that designed the collateralized debt obligations, designed them to fail in order to reap insurance benefits. If there is any evidence that is so, those executives should be looking at criminal proceedings.

1. The SEC's allegation is not against Paulson & Company, but Goldman Sachs.
2. In the Bloomberg article you linked Paulson's firm said ACA selected what went into the portfolio.

We shouldn't rush to judgment. The same Bloomberg link has this:

In a statement, Goldman Sachs made what it called �four critical points� in its defense against the SEC�s accusations. The first was that Goldman Sachs itself lost more than $90 million because it had an investment in the deal that overwhelmed the $15 million it made in fees.

Also see here and here. If true why would Goldman Sachs have been apathetic about the riskiness of the assets that went into the CDO? Or did GS otherwise hedge its investment in CDO that offset the loss and GS was silent about?

My final point regards the Goldman guys' saying "most of the firm�s business is aimed at serving sophisticated clients capable of making their own decisions." CDOs are traded on the institutional market; they aren't sold to the general public. The CDO was not an SEC-registered security; it was not subject to all the disclosure rules that apply for securities marketed to the general public. (See SEC Rule 144a and Qualified Institutional Buyer.) Such buyers are assumed capable of doing their own due diligence. Also, buyers in this market are often themselves fiduciaries, which gives them the responsibility to act with due diligence.

I'm starting to think the SEC charge is mostly smoke. The SEC is alleging civil fraud. If it had much of a case, there would be criminal charges with an FBI investigation.

Post 16

Sunday, April 18, 2010 - 7:23am

Merlin,

I used the word 'alleged' when referring to Paulson because I don't know if the statement, made in some reports, that they played a part in designing the CDOs in a way that ensured they would fail is true. I'm aware that the SEC has made no charges against them, only against Goldman Sachs. Had I been clearer, you'd have understood me to have been saying that Paulson should be charged if those allegations are true.

The only judgments I've rushed to are conditional (i.e., "IF" such and such is true, then such and such should be done.)
--------------

My reaction to Goldman Sachs' defense that they lost money was that one of four things might explain that.
1.) They might be innocent of this charge - and that is likely since I believe that they make money by stroking politicians to change regulations and get special favors and never need to do fraud - and they would be unlikely to purposely stray into outright fraud since that would endanger their advantageous position with said politicians. And it is a bit of a coincidence that these charges surface as Obama starts his big rush to pass his financial reform package.
2.) The second possibility is that they normally don't do fraud but in the chaotic times they let it happen and were just feeling so arrogant with the political influence they were wielding and the money being made at the time that they blanked out that this amounted to fraud.
3.) Third is the possibility that one department or small group was willing to do what amounts to fraud in exchange for the big commissions and didn't let the rest of the organization know about it - then when the firm found out, they decided it was better to deny everything than to fire the rogue executives who had been operating out of policy.
4) They may be lying that they lost money (it would take a lot of clever and time-consuming forensic accounting to make sure they didn't make money on the knowledge that the CDOs were going to blow up - assuming they did know that.) Or, they screwed up and lost more than they made for reasons that had nothing to do with actually carrying out what amounted to a fraud.

I think #1 is the most likely answer. But I really don't care because I think the important issue is not the facts or the ethics of the corporation in this particular set of transactions but rather the deeply dishonest intertwining of government and industry - the politicians that are selling favors (Goldman Sachs just happens to be a poster boy for this and appears to have made an industry of it. They have been at it over generations of politicians.) It is the politicians that should be charged and on trial. Goldman Sachs just represents a current set of concrete facts that point at the politician's guilt.

Your point about the FBI is a good one. Another suspicious fact is that the SEC just released a report of their failure to act on knowledge that they held for a long time regarding the Stanford ponzi scheme - released just in time to act as evidence of the need to 'reform' financial oversight.
(Edited by Steve Wolfer on 4/18, 7:32am)

Post 17

Sunday, April 18, 2010 - 8:06am

More info in today's WSJ: "Goldman Sachs Group Inc. (GS) was warned nine months ago that Securities and Exchange Commission staff wanted to bring a civil case against it, but the investment bank didn't specifically disclose this to investors in regulatory filings, Bloomberg News reported Saturday, citing unidentified people it credited with direct knowledge of the communications.

Goldman Sachs responded to the so-called Wells notice from the SEC within months and met with agency officials in an effort to fend off the civil lawsuit, Bloomberg reported, citing its sources, who declined to be identified because the discussions weren't public.

The SEC sent Goldman the Wells notice in July 2009, and the company responded in September. In March 2010, the New York-based firm said in a regulatory filing that it was cooperating with regulators' "requests for information," Bloomberg noted.

On Friday, the SEC charged Goldman with securities fraud, alleging that the bank didn't tell investors in a collateralized debt obligation that hedge-fund firm Paulson & Co. had helped structure the deal and was betting against it."

The SEC might have timed the filing of the charges to coincide with Obama's financial reform package, but it is clear from this, that the charges were being put together long before.

And, the story repeats allegations that Paulson & Co participated in the structuring of the deal.

Post 18

Monday, April 19, 2010 - 5:00am

A look inside Goldman Sach's mortgage operation

The SEC's Case Against Goldman: Key Questions About John Paulson's Role

(Edited by Merlin Jetton on 4/19, 6:12am)

Post 19

Monday, April 19, 2010 - 10:18am