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The Client Always Comes First At Goldman... Except When He Doesn't, Which Is Also Always

Tyler Durden's picture




 

One day after the Goldman hearings, we were left with the warm and fuzzy impression that the whole Goldman farce was for nothing, and that everything the firm had been doing for the past 5 years was perfectly legitimate. The prop trading abuse, the discount window generosity, the endless abundance of flow and prop inventory commingling, the endless client rape...All these allegations must have been for naught. Which is why we were thoroughly disappointed when our sense of sudden enlightenment that we may have been wrong all along about Goldman, vanished promptly and without a trace once we had a chance to read the 2007 self-evaluation of Goldman Managing Director Michael Swenson. The line penned by Michael, who incidentally was the least like of the three Goldman SPG MDs testifying on Tuesday based on peer feedback, that broke our collective heart is the following: "Once the stress in the mortgage market started filtering into the cash market, I spent numerous hours on conference calls with clients discussing valuation methodologies for GS issued transactions in the subprime and second lien space [redacted] is prime example). I said "no" to clients who demanded that GS should "support the GSAMP" program as clients tried to gain leverage over us. Those were unpopular decisions but they saved the firm hundreds of millions of dollars." Alas, we find that all of Goldman's sincere hypocritical lies before the Senate committee were... precisely just that.

As a refresher, the GSAMP, that Goldman was expected to support after demands by clients, refers to the Goldman Sachs Alternative Mortgage Product, or structured products such as the GSAMP 2006-S3 pictured below, which were originated by the firm in 2006, and which were largely wiped out by early 2007. See chart below (from Forbes):

So this is the GSAMP (in principle) that clients were asking for Goldman to support, incidentally at a time when Goldman was actively betting against it, and whose request denials were subsequently seen by Swenson as a boasting bullet that should be included in his self evaluation when demanding tens if not hundreds of millions of dollars in 2007 bonus.

But lets re-read Swenson's words again:

Once the stress in the mortgage market started filtering into the cash
market, I spent numerous hours on conference calls with clients
discussing valuation methodologies for GS issued transactions in the
subprime and second lien space. I said "no" to clients who demanded that GS should "support the GSAMP" program as clients tried to gain leverage over us. Those were unpopular decisions but they saved the firm hundreds of millions of dollars."

It is hilarious that Goldman would "spend countless hours" with clients to convince them of the Goldman trade only after the stops had been hit and Goldman was actively trying to cover shorts, i.e., when the stress in the mortgage market was plainly visible for all to see. Maybe Goldman should have spent just one hour with its clients when it itself decided to go short in the first place, instead of using its clients as spitoons for its toxic, HR Giger based saliva.

What is far more deplorable, is that Swenson admits that not only did the firm deny its client requests, but that these decisions lost the firm client credibility (although they saved Goldman "hundreds of millions").

And now you know why Lloyd Blankfein's statement that "the client always comes first" for Goldman is also merely anopther lie.

But we all knew that.

What deserves greater scrutiny is the question why Goldman thought it could get away with antagonizing clients in its pursuit for the almighty dollar? The answer is simple - Goldman knew then, just as it knows now, that it is a market monopoly, and that no matter how pissed off its clients get, they have no other options: Goldman has the biggest flow (which implicitly become prop) axes in the world, and the greatest "patzy" rolodex in the world. Well, after the implosion of every European bank, that rolodex was cut in half. But at least all the mutual and pension funds, not to mention momos, still remain, and are currently buying the market on the way up, just as Goldman keeps on hitting every new high bid. Yet the core premise remains: Goldman is a monopoly and the firm realizes this all too well.

But maybe not for long.

Very soon Zero Hedge will present our own proposal for regulatory reform, specifically as pertains to prop trading, which may hopefuilly make the lives of the incumbent market monopolist Goldman Sachs, for whom the client always comes last, just a tad more difficult.

Full peer-reviews of the 3 Goldman MD and Fab Tourre (Swenson is the second of the four).

Peer Reviews

 

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Wed, 04/28/2010 - 23:41 | 323143 vegvamp
vegvamp's picture

You guys living in America better DO something about all this...

Wed, 04/28/2010 - 23:47 | 323147 Problem Is
Problem Is's picture

We are... chetos another beer and watching the ball game...

At least until my SEC friend is done downloading the tranny porn...

Thu, 04/29/2010 - 01:21 | 323208 Captain Obvious
Captain Obvious's picture

I plan to pile on some shorts, and watch the nex meltdown with a 6pack. For some of us atleast it will be comical

Thu, 04/29/2010 - 00:00 | 323155 alien-IQ
alien-IQ's picture

This has not been America for a long time. It was sold long ago. However, the purchase came with the naming rights and thus your confusion about this being "America"...The America you seem to be speaking of was served with a cease and desist long ago...this is merely the shell.

Thu, 04/29/2010 - 00:58 | 323196 vegvamp
vegvamp's picture

Take it back...

Thu, 04/29/2010 - 07:32 | 323308 SWRichmond
SWRichmond's picture

working on it, and within the political process....and as a measure of thanks for my doing so publicly, I expect to be the subject of a no-knock 3am visit by a bunch of heavily armed men wearing body armor and masks anytime now...

Thu, 04/29/2010 - 01:02 | 323201 Glenjo
Glenjo's picture

Uh oh, looks like the vampire squid European sales desk has expressed some remorse in an email:

 

http://blogs.reuters.com/felix-salmon/2010/04/28/how-goldman-offloaded-i...

 

How unfab fab is that?

Thu, 04/29/2010 - 06:01 | 323290 Reggie Middleton
Reggie Middleton's picture

I was wondering when, and if the GSAMP slide would gain some traction. I wrote about this numerous times (see below). As for a solution, I have also come up with a very simple solution that will end this entire charade in about a fiscal quarter - tie the GS compensation directly to risk adjusted return, with deferral and clawbacks. That is RISK ADJUSTED returns, not revenues!

The Solution to the Goldman (and by Extension, the Securities Industry) Compensation Dilemma

Add to this the requisite Client's best interests/bank as a fiduciary standard (which will make the banks think twice before fornicating the patsy) and we have a recipe for a near instantly reformed financial system.

So, How Many Banks and Analysts Were Bearish On Goldman Before Today?

When the Patina Fades… The Rise and Fall of Goldman Sachs???

For Those Who Chose Not To Heed My Warning About Buying Products From Name Brand Wall Street Banks,

Reggie Middleton vs Goldman Sachs, Pt. Deux: Buy into a Collapsing Market to Fund Bonuses, PLEASE!!!

Reggie Middleton vs Goldman Sachs, Round 1

Wed, 04/28/2010 - 23:49 | 323150 digalert
digalert's picture

I saw and listened to a good deal of that sloppy CONgressional TV talk show. Not once did I hear the words, deception, lied or even FRAUD. Somehow I think those were carefully avoided by all the hosts and guests.

Thu, 04/29/2010 - 00:45 | 323187 SayTabserb
SayTabserb's picture

Jeff Skilling appeared before a joint committee, testified at great length without a lawyer and without invoking the Fifth, and later was sentenced to about 25 years. You can be assured that words like "unethical" are permissible, but no hard words like "fraud" and no reference to Rule 10b-5, etc.  All prearranged as part of the dog and pony show. The Grand Inquisitor, Sir Combover, gets to thunder self-righteously (hoping we forget his vote for the repeal of Glass-Steagall), strengthen his party's chances in November, and GS leaves mostly intact (with the SEC case slightly weakened, in fact) and can return to their real love, making risk-free money with money supplied by Levin's employer, the federal government. It's all so symmetrical, it makes you want to cry with the beauty of it.

Thu, 04/29/2010 - 10:17 | 323509 JohnKing
JohnKing's picture

It's just Goldman doing what Goldman does best, playing the shell game, sleight of hand..look deeply at this TRANSACTION, keep your eye on the transaction..

Thu, 04/29/2010 - 01:01 | 323153 sweet ebony diamond
sweet ebony diamond's picture

For the past 70 years or so, Goldman Sachs presented themselves as a respected financial adviser to the world.

Everybody (institutional investors included) called them for help and advice.

What happened?

I have an idea. And I don't agree that we the people (meaning relatively law-abiding, honest citizens) & Heidi Montag must pay for mistakes made.

Thu, 04/29/2010 - 00:02 | 323158 ghostpirate
ghostpirate's picture

the whole notion of self-review is one big pile of bullshit.

Thu, 04/29/2010 - 00:12 | 323164 Hephasteus
Hephasteus's picture

I just watched Bill Clinton yap on about the economy. He is completely full of shit and was defending "Gold Sachs".  He never found a concept he couldn't twist into meaninglessness.

Thu, 04/29/2010 - 00:58 | 323197 JR
JR's picture

Bill Clinton always slips and slides and twists the stories but he is solid when it comes to Goldman. Clinton’s former Treasury Secretaries, Robert Rubin and Larry Summers, called all the shots from the repeal of Glass-Steagall to the Mexican bailout for the benefit of Goldman after it had plunged billions into Mexican bonds. 

And now the world’s most intelligent woman, Hillary Rodham, while she does not have Bill’s gift of gab, is at least true to the Goldman rule.  Hence, with her full complement of press people and door openers she travels the world as the voice of America but trotting along is none other than Goldman Sachs in the person of Robert Hormats, former vice chairman of Goldman Sachs International, who nails down all those foreign entanglements and economic policies to the benefit of Goldman as Obama’s under secretary of state for economic, energy and agricultural affairs.   And wasn’t it Bob Rubin who was Hillary’s campaign advisor?

Lest we forget, it was Rubin under President Clinton who engineered international rescue packages not only for Mexico, but also for Russia and many Asian countries.

Tyler has it right.  It’s a monopoly. Hormats especially is critical for Goldman et al., advancing and protecting its worldwide enterprise. Goldman controls the treasury and all aspects of finance of the U.S. economy. 309,000,000 Americans and their national and foreign policies are keyed to the interests of a small foreign power.

Thu, 04/29/2010 - 08:38 | 323357 Problem Is
Problem Is's picture

Thank You JR For Connecting the Dots

Thank you for the excellent Goldmanite riddled, Clinton's as puppet props, idiot but too connected not to fail upwards Robert "What Me Worry About Massive Insider Trading at Citi" Rubin analysis...

Thu, 04/29/2010 - 00:26 | 323171 SilverIsKing
SilverIsKing's picture

Anyone on that conference call that bought GS' BS will be filing a lawsuit.

Thu, 04/29/2010 - 00:31 | 323178 buzzsaw99
buzzsaw99's picture

gs clients are chumps and deserve the screwing imo.

Thu, 04/29/2010 - 00:35 | 323180 dumpster
dumpster's picture

slowly the blinders come off the analyst eyes ,

the $250 guys plying their trade .

the slime and ooze has metastasized into noticeable lumps/

also the rank and rank .. the followers the believers , are slowly feeling the blood of the generations of Keynesian plunder coming to the fore,

last as gold makes its claim for  honesty and the scales of value.

the lost zit kids . will succumb and look to the giants . who have given warning from  the past ten years.

the little girl will proclaim that the clothes are missing . and what has been in full view will now be excepted .

the wave has gone out . even buffett is seen naked as a jay bird  

 

Thu, 04/29/2010 - 01:01 | 323199 jmc8888
jmc8888's picture

What's that I hear?

That's the sound of HR department trash bins being searched for other juicy tidbits across the country/world. 

A new QE has just been announced through Office Max, paper shredders.  Sorry, no discounts with the purchase of a Kindle.

 

Thu, 04/29/2010 - 01:01 | 323200 chindit13
chindit13's picture

I believe the key component of Goldman Sachs GSAMP program is that clients may use GS Award Points, aka Lloyd's Lucre, to visit any of a number of GS-run S&M studios where a range of women, sporting the most haut couture Dominatrix-ware this side of Place Pigalle or Kabuki-cho, are available to satisfy the Goldman Customers' ongoing and insatiable appetite for physical, emotional and mental abuse. After all, why else would they be Goldman clients if degradation and humiliation was not the goal in and of itself?

Some people are born to be customers, god bless'em.  Yo, Goldman customers...when you look at Goldman's P&L, prop desk or customer driven, does it look like they left anything at all on the table for you? 

As Swenson's self assessment makes painfully clear, the firm's goal in 2007 was to hose YOU.

 

Thu, 04/29/2010 - 01:18 | 323207 jippie
jippie's picture

Hey Tyler,

What about page 10 of the attachement wher someone talkls about

We were long and needed to reduce risk in a situation where there were few opportunities to shed
the ABX indices we were long. The CDO managers, had not grown concerned by that time. I recognized the enormous
opportunity the CDO market presented us and took advantage of the Index to single-name basis.In November and December of last year, we agressively capitalized on the franchise to enter into efficient shorts in both the RMBS and CDO space.

Doesn't that basically say: "We had all this crap sitting on our books and we needed some suckers to buy it. The CDO managers had no clue what was going on so we used the CDO space to rape all the people investing in that asset class."

Or how about page 11:

2. Personally meet with accounts more often and help our core client base get back on their feet post fall out.

" After we rape our clients, I need to be faster at helping them back on their feet to set them up for the next round"

Or how about the monopoly that GS is and noone seems to care about. Hello Anti-Trust law???

3. continue our dominance as the leading ABS CDS franchise allowing us to capture the extraordinary inefficiencies in the synthetic market

I am simply lost for words.

Thu, 04/29/2010 - 01:26 | 323210 gimli
gimli's picture

Sen. Ben Nelson, like GS, puts the people of Nebraska first.

Especially the ones who own $6 million in Berkshire Hathaway

 

http://www.washingtonpost.com/wp-dyn/content/article/2010/04/28/AR201004...

Thu, 04/29/2010 - 01:27 | 323212 jippie
jippie's picture

Jesus, I hadn't even started reading further. It just gets better:

1. Dec-Feb: With the desk quite long and ABX trading down from par to 95, we had a rough start to the year. The prevailing opinion within the department was that we should just "get close to home" and pare down our long. During this process, I had the following observations: (1) Given how much ABX we had purchased through the broker market in 2006, the world would think GS was very long for the foreseeable future. We could use that fear to our advantage if we could flip our risk, (2) After unsuccessfully trying to sell our long to some of _ accounts, I realized traditional distressed buyers were no more likely to buy ABX at 85, 75, 65, etc. than at 95. ~was just too binary, so there would be little support if negative momentum began, (3) The fundamentals for mortgage credit were undeniably deteriorating, (4) CDO managers were in denial, saying the ABX index was purely technical and the market for CDOs would bounce back in January. Manager's sentiments would allow us to amass large amounts of cheap single name protection if we desired, and (5) If the market truly tanked, the already large CDO warehouses would have to liquidate, further exacerbating the move and ultimately allowing us to cover. Given these 5 observations, I concluded that we should not only get flat, but get VERY short.

Further proof on how all of the GS deals in 2007 were fraudulent, i.e. sold with the intention of blowing up in the ivestors faces. Now whether legally this can be stablished I'm not sure. But it basically says that thee are two classes of GS 'friends'. Those who get to play with the gig boys and those who are just used to fund the annual bonuses.

Thu, 04/29/2010 - 07:56 | 323317 SWRichmond
SWRichmond's picture

Denial as a market force.  Just like now, with the fiat bugs.

Thu, 04/29/2010 - 01:36 | 323217 buzzsaw99
buzzsaw99's picture

I

Keep

Buying

Awful

Crap

Anyway

Thu, 04/29/2010 - 01:36 | 323219 strannick
strannick's picture

Jeff Christian at the CFTC hearings, Lloyd B. at his Senate Hearings.

They keep insinuating that its all a bit to sophisticated for us, they will try to explain it as best they can.

However it seems to keep slipping out in their testimonies that we're dumb not cause its to sophisticated, but cause we assumed they werent crooks.

 

Thu, 04/29/2010 - 02:35 | 323242 primefool
primefool's picture

Suggestion for an updated "Corporate Principles":

" Honor Thy Prey"

Thu, 04/29/2010 - 03:18 | 323254 vegvamp
vegvamp's picture

Oh Lloyd, we thank you for the food...

Thu, 04/29/2010 - 08:43 | 323366 Problem Is
Problem Is's picture

Is Lloyd B. God a short fucker? 5' 4"-ish?

He sure has an annoying sqeaky voice like Morey Amsterdam...

Thu, 04/29/2010 - 03:13 | 323250 laughing_swordfish
laughing_swordfish's picture

World"s Shortest Book -

Goldman Sachs Handbook of Business Ethics

 

Thu, 04/29/2010 - 03:55 | 323263 Apocalypse Now
Apocalypse Now's picture

This was all foretold by Andrew Jackson.  This farewell speech of his is the most insightful thing I have read about our current predicament.  It was so refreshing to read his warning and description of Gotham, I promise it is worth the time.

This was predicted 173 years ago, the banking system has only become more diabolical.  Andrew Jackson fucking nailed it, he was a genius and deserves a pulitzer.  This human being was a true american hero and would be infuriated about his likeness on fiat currency.  Where are our heros, where are our statesmen?

http://jessescrossroadscafe.blogspot.com/2010/04/quote-of-week-perils-of...

 

Thu, 04/29/2010 - 05:19 | 323277 AnAnonymous
AnAnonymous's picture

Imperialists and bankers have developped a love-hate relation for a long time now.

Imperialists are looking for power and control and are dependent on bankers to fund their endless spending spree (often finishing in deficit, fiscal austerity is a no go in war) required to enable their imperialistic policies, always bidding against their future conquest to cover for their spending spree.

Bankers are welcome to enable that. The problem turns up when the imperialist has to face that he is not struggling to put himself in power but will incidentally put the bankers in charge of the new order.

 

Guy is pushing hard to become the boss of the bosses just to face he has pushing up another boss higher than himself.

 

Thu, 04/29/2010 - 12:03 | 323764 weinerdog43
weinerdog43's picture

+1000

Totally agree.  I'm afraid that 90% of the American public couldn't get halfway through because Jackson uses a lot of multi syllable words.  I suspect he would have bitch-slapped that worm Levin and put a bullet through the noggin of Bernanke.   We know that Jackson was certainly capable of killing someone.  How far we've fallen!

Thu, 04/29/2010 - 04:35 | 323269 JR
JR's picture

The Interrogation of Lloyd Blankfein by Mike Whitney | CounterPunch Apr 28,2010

Tuesday's hearings of the Permanent Subcommittee on Investigations laid the groundwork for future criminal prosecutions of Goldman Sachs Chief Executive Lloyd Blankfein and his chief lieutenants whose reckless and self-serving actions helped to precipitate the financial crisis. Committee chairman Senator Carl Levin (a former prosecutor) adroitly managed the proceedings in a way that narrowed their scope and focused on four main areas of concern. Through persistent questioning, which bordered on hectoring, Levin was able to prove his central thesis:

1. That Goldman puts its own interests before those of its clients.

2. That Goldman knowingly misled it clients and sold them "crap" that it was betting against.

3. That Goldman made billions trading securities that pumped up the housing bubble.

4. That Goldman made money trading securities that triggered a market crash and led to the deepest recession in 80 years.

The hearings lasted for 8 hours and included interviews with seven Goldman executives. Every senator had the opportunity to make a statement and question the Goldman employees. But the day belonged to Carl Levin. Levin was well-prepared, articulate and relentless. He had a game-plan and he stuck to it. He peppered Goldman's Blankfein with question after question like a prosecuting attorney cross-examining a witness. He never let up and never veered off topic. He knew what he wanted to achieve and he succeeded. Here's a clip from his opening statement:

"The evidence shows that Goldman repeatedly put its own interests and profits ahead of the interests of its clients and our communities.....It profited by taking advantage of its clients' reasonable expectation that it would not sell products that it didn't want to succeed....

“Goldman's actions demonstrate that it often saw its clients not as valuable customers, but as objects for its own profit....Goldman documents make clear that in 2007 it was betting heavily against the housing market while it was selling investments in that market to its clients. It sold those clients high-risk mortgage-backed securities and CDOs that it wanted to get off its books in transactions that created a conflict of interest between Goldman's bottom line and its clients' interests." (Senator Carl Levin's opening statement for the Permanent Subcommittee on Investigations)

Levin's entire statement is worth reading, but these two paragraphs distill his plan for exposing Goldman. He was determined to "go small" and repeat the same points over and over again. And it worked. From a purely strategic point of view, Levin's battleplan was flawless. The Goldman execs never knew what hit them. They swaggered into the chamber thinking they'd breeze through the hearings and have a few laughs over cocktails afterwards, and left with their heads in their hands. They were outmatched and outmaneuvered.

Senator Carl Levin:

"These findings are deeply troubling. They show a Wall Street culture that, while it may once have focused on serving clients and promoting commerce, is now all too often simply self-serving. The ultimate harm here is not just to clients poorly served by their investment bank. It's to all of us. The toxic mortgages and related instruments that these firms injected into our financial system have done incalculable harm to people who had never heard of a mortgage-backed security or a CDO, and who have no defenses against the harm such exotic Wall Street creations can cause....

“These facts end the pretense that Goldman's actions were part of its efforts to operate as a mere 'market-maker,' bringing buyers and sellers together. These short positions didn't represent customer service or necessary hedges against risks that Goldman incurred as it made a market for customers. They represented major bets that the mortgage securities market - a market Goldman helped create - was in for a major decline. Goldman continues to deny that it shorted the mortgage market for profit, despite the evidence...

“The firm cannot successfully continue to portray itself as working on behalf of its clients if it was selling mortgage related products to those clients while it was betting its own money against those same products or the mortgage market as a whole. The scope of this conflict is reflected in an internal company email sent on May 17, 2007, discussing the collapse of two mortgage-related instruments, tied to WaMu-issued mortgages, that Goldman helped assemble and sell. The 'bad news,' a Goldman employee says, is that the firm lost $2.5 million on the collapse. But the 'good news,' he reports, is that the company had bet that the securities would collapse, and made $5 million on that bet. They lost money on the mortgage related products they still held, and of course the clients they sold these products to lost big time. But Goldman Sachs also made out big time in its bet against its own products and its own clients." (Sen. Carl Levin)

Levin had all the facts at his fingertips and put them to good use. Goldman's execs were on their heels from the start and never really regained their footing. Even worse, the hearings showed that Goldman cannot be trusted. Their reputation is in ruins. Levin proved that if Goldman has junk in its portfolio, it won't hesitate to dump it on its clients and then pass around high-fives at the prop-desk. Here's a typical exchange between Levin and the former head of Goldman's mortgage department, Dan Sparks:

SEN. CARL LEVIN: June 22 is the date of this e-mail. "Boy, that Timberwolf was one shitty deal." How much of that "shitty deal" did you sell to your clients after June 22, 2007?

DAN SPARKS: Mr. Chairman, I don't know the answer to that. But the price would have reflected levels that they wanted to invest...

SEN. CARL LEVIN: Oh, of course.

DAN SPARKS: ... at that time.

SEN. CARL LEVIN: But you didn't tell them you thought it was a shitty deal.

DAN SPARKS: Well, I didn't say that.

SEN. CARL LEVIN: Who did? Your people, internally. You knew it was a shitty deal, and that's what your...

DAN SPARKS: I think the context, the message that I took from the e-mail from Mr. Montag, was that my performance on that deal wasn't good.

SEN. CARL LEVIN: How about the fact that you sold hundreds of millions of that deal after your people knew it was a shitty deal? Does that bother you at all; you sold the customers something?

DAN SPARKS: I don't recall selling hundreds of millions of that deal after that.

Levin was just as tough on Blankfein, reiterating the same question over and over again: "Is there not a conflict when you sell something to somebody, and then you bet against that same security, and you don't disclose that to the person you're selling it to? Do you see a problem?"

At first, Blankfein acted like he'd never considered the question before, as if "putting himself in his client's shoes" was something that never even entered his mind. His look of utter bewilderment was revealing. Then he launched into the excuses, the evasions, and the elaborate, long-winded ruminations that one expects from schoolboys and hucksters. But Levin never gave and inch. He kept pushing until Blankfein finally gave up and responded.

"No," he stammered, "In the context of market-making that's not a conflict."

Blankfein's answer was a triumph for Levin, and he knew it. To the millions of people watching the sequence on TV, Blankfein's denial was as good as an admission of guilt. It showed that Wall Street kingpins don't share the same morals as everyone else. In fact, Blankfein seemed genuinely confused that morality would even be an issue. After all, it wasn't for him.

Levin covered some old ground, pointing to Goldman's dealings with Washington Mutual's Long Beach unit which was a "conveyor belt" for garbage subprimes which frequently blew up just months after they were issued. It's clear that Goldman knew the mortgages were junk that were “polluting the financial system”, but that made no difference. Goldman feels that it's responsible to its shareholders alone, not the people who bailed it out.

All in all, it was a bad day for the holding company that's come to embody everything that's wrong with Wall Street. Goldman entered the hearings as the most successful financial institution in the country, and left with its reputation in tatters and its future uncertain. Its CEO came across as shifty and jesuitical while his executives seemed arrogant and uncooperative. At no point during the hearings did any of the Goldman throng look at ease with themselves or their answers. They remained rigid and sullen throughout. On top of that, they were unable to defend themselves against the main charge, that they don't mind sticking it to their clients if it means a bigger slice of the pie for themselves.

The truth is, the Golden boys were handled quite capably by an elderly statesman who took them to the woodshed and gave them a good hiding. Levin's stunning performance is likely to draw attention to the upcoming SEC proceedings and, hopefully, build momentum for more subpoenas, indictments, arrests, and long prison sentences.

http://www.counterpunch.org/

Thu, 04/29/2010 - 08:57 | 323388 pan-the-ist
pan-the-ist's picture

I like most of what counterpunch has on its site, especially the stuff by Pam Martin and Mike Whitney.  I just wish it was a forum...  Maybe Mr. Whitney would consider publishing his stuff here too...

Thu, 04/29/2010 - 09:21 | 323414 Marvin_M
Marvin_M's picture

Alas, we are witnessing theatre of the absurd.  A corrupt, crony government putting on a show for the sake of the poor dumb mob who are shouting for blood.  A bought and paid for President surrounded by agents of Wall Street trying his best to keep his head down while appearing to be "angry as hell".  Where is FDR who begged the bankers to hate him, dared them to defy the government's and the people's wrath when the banking criminals last rose to this level of power.

From what I have read the SEC case is lame, probably by design.  It will be found that technically nothing illegal happened.  Charges of "moral crimes" coming from this immoral government will fall by the wayside just as any honest attempt to expose or change the trajectory of the militarist, corporatist, banking criminals who have seized control of the planet has been successfully trampled.

Thu, 04/29/2010 - 05:15 | 323275 mephisto
mephisto's picture

Reading Fabs review makes me sad, compared to the MDs he is clearly just a kid doing what he was told. Probably a good, smart, diligent VP, now SVP in London.

It makes less and less sense to pick one junior guy from the rest.

Thu, 04/29/2010 - 09:09 | 323402 pan-the-ist
pan-the-ist's picture

It could be the purpose of his life is an example to everyone else of "why you don't get in bed with the beast."

I am an Atheist so appreciate the allegory.

Thu, 04/29/2010 - 05:19 | 323278 primefool
primefool's picture

I fear that all this hand-wringing will lead to regulation that impose Fiduciary obligations on market makers. Then average investors will be truly treated like idiot-children and be led sheep like into "safe" products only . After all if you are a broker and have a legal fiduciary responsibility and the client wants to buy SKF ( double inverse ETF) - you really should'nt let him do that - too risky. At the end of the day if folks want to be treated like children and be kept "safe" bu the govt. they will get their wishes.

Thu, 04/29/2010 - 09:16 | 323410 pan-the-ist
pan-the-ist's picture

Some investors aught to be treated like idiot children.  Just look at the funds most investors have to choose from (401k etc)  There is an awful lot of dumb money to prey on.  My guess is that Wall Street salivates when they see these piles of cash sitting there, and stay up nights trying to think of schemes to take it.

This clearly defines the the problem with the relationship that Wall Street has with its clients.

Thu, 04/29/2010 - 05:24 | 323279 primefool
primefool's picture

short ETFs, Commodities, foreign currencies and other purely speculative investments - oh - and especially gold ( no earnings, no dividends). Not suitable for regular investors. No fiduciary should allow average investors to buy such dangerous products or the SEC will be all over him like a cheap suit. So treauries ( at a 4 basis point yield) will be deemed safe as will munis ( from bankrupt states). Of course the large international hedge funds ( who would have moved to Asia by then) will do whatever the hell they want and live like kings.

Thu, 04/29/2010 - 05:35 | 323281 primefool
primefool's picture

Hmm maybe these hearings are really a stage setting exercise so the govt can then impose all kinds of investment constraints to protect hard-working, regular folk from predators like GS. No more casino like wild gambling. Treasuries and munis for folks over the age of 52 1/4 ( unless you are blind in which case it will be 49 1/2). Brokers , with a dramatically lower trading volume will necessarily have to charge larger comissions for the sale of treasury /muni funds to Joe 6P. Sounds fair enough right? Bernanke will maintain rates just high enough , so after paying brokerage comissions and fund expenses the average investor will receive a Zero interest ( in nominal terms) . Since inflation will never again arise by law - this seems fair enough.

Thu, 04/29/2010 - 05:41 | 323282 primefool
primefool's picture

As for taxes - since investment income will become non-existent - it would only be sensible to raise tax rates on earned income. Hey the govt needs the money - OK?

Thu, 04/29/2010 - 05:46 | 323286 primefool
primefool's picture

Since it will become practically impossible for even people with substantial savings to earn investment returns to pay for the escalating healtcare, food and energy costs ( note: this is most definitely NOT inflation - OK?) - the govt will have to set up project style housing blocks where formerly well-off , prudent , savvy investors can get their allotted 500sf of living space and 2 hot-meals a day ( in the govt canteen). Apple pie on July 4 of course!

Thu, 04/29/2010 - 05:48 | 323287 primefool
primefool's picture

But - we can all be thankful - At least we are Safe - due to the tireless efforts of our govt.

Thu, 04/29/2010 - 06:16 | 323292 Temporalist
Temporalist's picture

 

Barofsky Says Criminal Charges Possible in Alleged AIG Coverup

 

“The definition of insanity is repeating the same actions over and over again and expecting a different result,” Barofsky says. “If the goal of TARP was to make sure we don’t have another financial collapse, well, obviously it’s made the likelihood of that much, much greater.”

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aVHMZwNcj2B0

 

Thu, 04/29/2010 - 10:17 | 323295 williambanzai7
williambanzai7's picture

The bottomline is no one should believe that Goldman is anything higher or mightier than the rest of the pack when it comes to business ethics. Its the law of the jungle, full stop.

GOLDMAN BOILEROOM

http://williambanzai7.blogspot.com/2010/04/goldman-boiler-room.html

THE SQUID WITH THE SCREAMING BRAIN:

http://williambanzai7.blogspot.com/2010/04/squid-with-screaming-brain.html

 

Thu, 04/29/2010 - 06:35 | 323296 primefool
primefool's picture

I think Mr Mike Whitney of Counterpunch is way off the mark though. Look if a hedge fund goes to GS and wants to buy xyz - and Goldman believes xyz is "crap" - what are they supposed to do. No sir I cannot sell you xyz because I believe it is crap and will not suit you?!!!!! This is what Blankfein kept trying to explain to Sen.Levin. But ofcourse Sen. Levin has already made up his mind to leave as his legacy the "Levin Amendment" - imposing fiduciary duties on market makers. Thats what troubles me.

Thu, 04/29/2010 - 06:43 | 323297 primefool
primefool's picture

Of course not being a mrket player, perhaps Levin does not realize that what is or is not "crap" is usually perfectly obvious 2 years AFTER one buys it! For instance I firmly believe that 10 year US Treasuries are the biggest piece of crap there is. We'll find out if Iam right or wrong in a couple of years!! But of course , if Levin imposes fiduciary responsibilities on brokers - then no responsible broker should sell 10 year Treasuries to his clients!!

Thu, 04/29/2010 - 08:12 | 323306 Astute Investor
Astute Investor's picture

Perception vs. Reality.  "The client always comes first...." mantra is simply a bold-faced lie.  "Never forget who signs your paycheck" is the real ethos.  Always has been and always will be.....

Thu, 04/29/2010 - 07:35 | 323309 dcb
dcb's picture
Sir, by avoiding the complete story regarding goldman's ethics you paint the firm in a very favorable manner 1) goldman sells loans they know are full of crap to clients 2) goldman (not even holding the loans bets against them with AIG 3) knowing that aig has insured so many crappy loans goldman takes out positions against aig           - goldman is sophisticated so they should know aig won't be able to pay and shouldn't have made these policies with them to that exent anyway 4) as the loans go sour goldman demands collateral, further weakening aig and therefore their bets against aig make even more money 5) aig goes bankrupt, andx the tax payer bails them out 6) the bailout money goes to pay off the insurance policies that were written against loans goldman knew were "shitty" ( I CALL WHAT THEY SOLD AND GOT INSURANCE AGAINST AN ACT OF FRAUD. IF I PLAN ON BURNING DOWN MY HOUSE AND TAKE EXCESS INSURANCE AGAINS IT IT IS FRAUD. HELL IF i BURN DOWN MY HOUSE FOR THE INSURANCE IT IS AGAINST THE LAW. BUT GOLDMAN DID THIS. IT BURNED DOWN THE PRODUCT IT SOLD FOR THE MONEY.  AND IT BURNED DOWN AIG FOR THE MONEY             but using goldman's arguments they should have known aig could not have paid off the loss goldma is in fact the definition of a sophisticated investor. Hell maybe goldman stick aig with so much crap on purpose so they knew their short positions on them would pay off.              therefore, using goldman's internal logic they should not receive any money form the aig insurance polcies. they are in fact sophisticated. 7) now lets add what goldman can do with their prop desk, their role as supplemantal liquidity provider, and their role as market maker.  YOU THINK THEY MAY HAVE DONE SOME ILLEGAL NAKED SHORTING. CONSIDERING THE INCENTIVES OF THOSE INVOLVED. HELL WHAT THEY CAN DO LEGALLY IN THIS SCENARIO IS VERY DISTURBING. NOW ADD THAT I KNOW AT TIMES FROM JAN TO MARCH 2009 THEY WERE TRADING 40% OF NYSE VOLUME. i HAVE SENT THIS INFO TO YOU BEFORE   so the people who bought the fraud filled loans loose out, but the people who wrote them get paid off by the tax payer via a bankrupt company. ( Via the NY Fed, which is currently being investigated for a "cover up" regarding this whole episode. )   You make Goldman out to be a saint compared to what really happened.   Let me add, you know about Greece. Does anyone doubt that perhaps goldman at points took heavy bets against the fraud loans to greece as well. maybe they are also taking positions against the people they know they sold the loans too, or the people who wrote insurance on them. Once more the IMF/ central bankers run to the rescue and reward the criminials.   This is the system of international finance you support. to say it hasn't happened before isn't realistic. while I don't know the nature of bets against other debt crisis. we can say latin america, russia, etc. Each and every time the tax payers pay for the mistake the banks make and those who made the mistakes make billions. Call it what you will, but to me this is clearly a criminial enterprise designed to transfer wealth. This is legal mafia.   now goldman is burning down the euro zone!!!!

 

Thu, 04/29/2010 - 07:54 | 323315 jkruffin
jkruffin's picture

How exactly is it that Goldman Sachs can negotiate their own settlement terms with the SEC?   The SEC is supposed to work for the people in a real world,  and last time I checked no one in America is asking for a settlement, they are asking for criminal, civil, and fraud charges to be filed and the case taken to court.  Funny how Goldman says they are not guilty, yet they want to negotiate a settlement.  The people should be demanding they be taken to court and taken down once and for all.

Thu, 04/29/2010 - 07:54 | 323316 primefool
primefool's picture

I hear ya - really do. I guess it comes down to this- You can have relatively unfettered "wild west" markets or you can have heavily regulated ones where politicians decide. In the Wild West markets - people get hurt, sharp operators take money from slow dim-witted ones, sometimes innocent bystanders get hurt, essentially a kind of Darwinism is in operation - Nature red in tooth and claw. Feel bad that the leopard catches and kills the young, slow moving, cute, antelope? The one with a thorn in its leg that unfairly slowed it down? Watch Natural geographic shows on TV - nature is brutal.

So it comes down to a preference really. Some folks just prefer the predictable dullness of life in a Soviet type system. Life is predictable ( hah!), the govt sends you a small check, you go to te office/plant and do as you are told, the govt sends you a small check. You buy some turnips and vodka and have a dinner party with friends. I admit it seems tempting. But not for me!

Thu, 04/29/2010 - 09:24 | 323423 pan-the-ist
pan-the-ist's picture

Hi Prime-

You do have quite a bit of insight to share and I enjoy diverse opinions on subjects, but please click the reply link just below the comment you are responding to so that we know who you are responding to.

Thu, 04/29/2010 - 08:01 | 323321 primefool
primefool's picture

But I can totally see why an antelope that had its leg torn off by the leopard(Through no fault of its own!!) might opt for a Soviet existence going forward- totally.

Thu, 04/29/2010 - 08:08 | 323327 primefool
primefool's picture

Hey dcb : I totally agree with you actually. But think about it. Who decided to take taxpayer money and bail out AIG? Hmmm. That person or persons should be investigated - even if they were govt employees dont ya think?

Thu, 04/29/2010 - 08:20 | 323331 primefool
primefool's picture

Therefore all the maimed animals with missing body parts ( through no fault of their own!) , the slow-witted creatures, the incompetents etc can be expected to team up and institue a govt to protect them from any further use of their bodies as protein snacks for nasty nasty predators. Make a flag, call themselves the peoples Republic of the United States. etc. I totally understand - totally. Just have no desire to be part of it - just a personal quirk- sorry!

Thu, 04/29/2010 - 09:29 | 323428 pan-the-ist
pan-the-ist's picture

Have you ever seen what a herd of elephants can do to a lion?  There is a reason they hide and wait for ambush.  The carnivore is always the parasite and a healthy herd has ways of dealing with them.  There are problems, of course, when the herd gets too big and they start to starve...

Thu, 04/29/2010 - 08:28 | 323336 ella
ella's picture

Goldman is correct, the Client always comes first at Goldman.  The problem is that Goldman is always the Client. 

 

Goldman's Prop Trading must be separated from their other business.  A entirley different company.  This would eliminate the profits from front running.

Thu, 04/29/2010 - 08:52 | 323379 TK
TK's picture

It's going to be unpopular to say this but my god there needs to be some balance in these posts. Goldman said that they thought it was a shitty deal, and they were selling it.  Somebody else bought the deal without properly examining it.

Goldman cannot act for both the buyer and seller, if they are selling something you would have to assume that they did not want it. You can't pull somebody up for selling something they think is shit.  EVERY time I sell something I think it's shit.

I can't see the case against them being successful, they're the scapegoat for the entire issue which is a larger, systematic problem in finance and financial regulation.  As far as prop trading and also having clients goes however - chinese walls are about as good as a one legged man in an arse kicking contest.  I don't believe that splitting companies up will solve the problem though.

Levin was shit, trying to get re-elected.  He suggested that Goldman should not sell products in anything that they have the OPPOSITE position in.  Well that just leaves selling products that you DO have a position in - pushing your position further onside.

All that matters is whether you were right or you were wrong. Goldman got it right others got it wrong. Blame them. For some reason Goldman attracts conspiracy theories and this witchhunt. Their just an easy target

Thu, 04/29/2010 - 09:25 | 323424 Commander Cody
Commander Cody's picture

So, do you trust GS?  Would you believe in what they were selling at face value given the facts at hand?  Would you deal with them?  Isn't trust a significant element in every deal?  Or, am I just being naive in believing in such an old fashioned concept?

Mon, 05/03/2010 - 02:24 | 328771 TK
TK's picture

I trust them to act in their own interests.  I wouldn't trust what anybody said at face value if I was investing that amount of money in it.  Would I deal with them? Yes if they had something I wanted at the price I wanted. 

Your 'old fashioned concept' is not an old fashioned concept, it's a naive view of the world.  I would ask this first question-why would somebody be selling something to you that was going to make you money? I can see why somebody would sell me something that would make THEM money but not me. 

This can't be hard for anybody to follow surely. It's a bastard of a place out there - don't expect anything less?

Thu, 04/29/2010 - 09:19 | 323411 Madhouse
Madhouse's picture

Who gives a shit about Goldman's clients ? If they were burned, then they won't come back. Period. If they do come back for some more, then who the fuck cares ?  What I am just still shocked/livid about is the $12 billion taxpayer funded back door bailout and how they had counterparty risk which should have left them with zero but instead they got 100% on the dollar. Some say, "But that was contract law". Sure, and I wish we had ineed let contract law rule and then we would not have been stuck paying this greedy group of leaches $12 billion as AIG would have been gone. Counterparty risk would have been realized. Period.

Let's review the players:

Bush  - 4 months until he was going back to the ranch for good and this dumb shit once again did not really understand what the hell was really going on. This time, he just didn't give a shit at all. Please argue with that notion, I would love to see it. I hate both parties but it is amazing how the Republicans have effectively ripped the Bush years (erh...2001-2009) out of the history books and pretend that a massive chunk (say 75%) of the problems we have now did not occur under his/their watch. They think of they say it enough, it will be true. Talk to anyone who grew up in Germany in the 50s and 60s. They did not know what happened in their country from 1933-1945 until they were adults. Its freaking amazing.

Paulsen  -  former Goldman head saw the end of his firm right in front of him and so he  engineered their rescue. Lamenting everything in a book is just the beginning of it Hank...you'll take that rape into your old age... 

Geithner - "Our man on Wall Street" who missed the warning signs. Sure. Going through his head in '06 and '07 was whether he should take the big Street package or get into the next administration and then he could raise his price after that. Either way, he was not going to make waves but he knew of the problems. When AIG collapsed (this was Sept of 08' all you insane revisionists), he was Paulsen's and Goldman's man on Wall Street, not the taxpayers'.

Goldman - They have probably snickered and had a few belly laughs at the whole thing. Paid that $12 billion out quick in bonuses, oh yea avoid those tax increases too. Probably hugely short the market earlier this week. Probably going to fire a few people, make it look like just a few rogues. Greece is burning badly now. I think what is disgusting is that we are in fact paying GS to make us all look bad and that will go down as one of the many of a long string of blunders that will bring us down...

Move to Canada. Buy a farm. Buy gold coins.

 

 

Thu, 04/29/2010 - 09:21 | 323415 anony
anony's picture

Wanna see who is on Goldamn Sucks' side of their trades?

 

http://news.yahoo.com/video/us-15749625/clinton-goldman-sachs-may-be-in-clear-19365192

Thu, 04/29/2010 - 10:02 | 323481 Hugh Janus
Hugh Janus's picture

the word shitty is allowed though.

Thu, 04/29/2010 - 10:51 | 323578 McGriffen
McGriffen's picture

Goldman's behavior, while reprehensible, wasn't necessarily out of step with other B/D participants.  Citi and Merrill were peddling the same crap, but these two were stupid enough to retain much of the risk (or just not bother to properly hedge).

Was Lehman ever going to step up for any clients owning their SAIL product...likewise Merrill for anyone who'd bought their First Franklin originated crap?  With the voluminous MBS issuance in 2006-2007...hold your breath & turn purple.

Which begs this question:  just what is Stan O'Neal or Angelo Mozilo up to lately?

Thu, 04/29/2010 - 11:19 | 323647 rleberenz
rleberenz's picture

 

If the investors who sat down at this table actually read the prospectus they would know that they were essentially buying a security that was the first of it's kind EVER. This thing was a pipe dream product from the start. Essentially a synthetic synthetic CDO, if there ever was such a thing, oh wait that's ABACUS. 

Normal CDO's are tied to cash flow producing assets. Synthetic CDO's are derived by selling CDS (default insurance) to buyers of the underlying 'reference portfolio', in a given CDO contract. Then ABACUS came along... ABACUS is a synthetic CDO which is only tied to CDS's in theory, because it has no FL, D,C, or B tranches. It only has A tranches. That means that it couldn't exist if it was tied to any actual financial product directly or indirectly, because for a tranched syn. CDO to work, there must be a "first loser" (FL), then second loser (D), third loser (C), and fourth Loser (B). Here there was only a first and second loser, but they were rated AAA and AA. That's an impossibility to the informed syn. CDO market maker. 

ACA and IKB sat down at the table and made a conscious decision to invest in this thing. They have more than enough resources to at least read the prospectus and understand that they were doing nothing more and nothing less than GAMBLING with an unknown sell side big boy. The prices of ABACUS contracts were nothing more than an agreement, and Goldman's legal responsibility and endowed trust was merely to the correctness of the product as entailed in the prospectus. There was no obligation to disclose who the seller was. Goldman was a market maker. They made the market. 

If you don't like the security that's fine, but to say that Goldman put some major short on the housing market and caused main street to suffer because of this deal is ridiculous. This is nothing more than a populous witch hunt. Furthermore, it shouldn't be surprising to anyone that publicizing the internal emails and communications of some of the most powerful traders and investment bankers on the planet is going to turn the stomach of main street america.

Read the prospectus and then come check out further analysis at:

http://www.diamondslice.com/2010/04/the-abcs-of-goldmans-abacus/

 

Fri, 04/30/2010 - 13:11 | 325732 McGriffen
McGriffen's picture

Interesting points, while I don't precisely agree on all counts the housing market would've failed on it's own.  Lot of hocus on a $1 billion synthetic transaction (so we can all ignore the GSE / FNM / FRE issues, which legitimately distorted risk).

BTW, might you have access to a dealer table listing stats for synthetic CDO issuance?  I believe Merrill or Citigroup stood atop the cash CDO market.

Thu, 04/29/2010 - 13:13 | 323926 JR
JR's picture

The public is not going to be swayed in its opposition to Goldman and Wall Street.  Even the NY Times recognizes that the public perceives the stock market as rigged.   The public sees who has the money and who doesn’t—whose home equity has been lost, whose job was lost, whose tax money and savings were commandeered for someone else’s bailout, whose car is a clunker, whose family is working three jobs, kids and all, to pay for it and whose family is relaxing on their yachts and personal estates.

Joe 6Pak doesn’t buy the Goldman’s story anymore that “You have to trust us, we got all your money legally.”

Levin clarified the Goldman heist in general terms, not legalese; he cut through the impenetrable financial legalese and deliberate obfuscation to the transparent.

His principal point was that the housing debacle was caused by the people who designed a product that made housing collapse and then bet against that product and make billions. 

It was devastating—for Goldman.

Levin went to the overview, not to the specific of the problem that nobody understands or can untangle because of financial gobbledygook entwined with the misuse of terms that not even half of the Goldman people probably can understand.

A lot of people may not like Levin politically, but he’s tough.  He used language that zeroed in on the problem.  And what it said was, “Everything that you think went wrong, went wrong because of people like Goldman.”

And, of course, only a minority of people actually watch the hearings.  So they don’t get the details of Goldman’s defense. But what they do get over and over is the politicians, posing as  moral judges, asking these accusatory questions.

The fact that DC is even having a congressional hearing means that the politicians perceive the public as believing Goldman is guilty. There is no hearing without someone to attack.  And, of course, it was a means for the Democrat to push their “reform” legislation through..

The bottom line: Goldman is suffering a tremendous loss of stature. The public is now realizing, that of all the bankers who did them wrong, here is one who did it.

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