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Did Goldman Sachs Lie?

Leo Kolivakis's picture




 

Via Pension Pulse.

If you missed CNN's In The Arena
on Thursday evening, then you missed the fireworks. Eliot Spitzer
challenged investment banker Goldman Sachs: "Sue me. You lied to the
public. You should be prosecuted" during an interview with Sen. Carl
Levin, chairman of the Senate subcommittee charged with investigating
the causes of the financial crisis (see interview below).

Obviously Spitzer doesn't care much for Goldman Sachs and he doesn't
hide his political views, openly questioning why Republicans are moving
back towards financial deregulation. Is Spitzer wrong to go after
Goldman? It's a tough case to prove. I clearly remember doing research
on CDO-Squared and CDO-Cubed in the summer of 2006. The more I looked
into these "special purpose vehicles," the more certain I was that the
credit bubble was going to collapse. I could never have imagined how bad
it was going to be, but I was sure the bubble was going to end badly.

I also remember sending an email to Goldman asking them the best way to
short this credit bubble. The guy covering us called me back and asked
me "why would you want to do that?". That I remember -- crystal clear in
my head. I remember the research I did, and I remember the response. It
may have been that at that time Goldman was still long and genuinely
thought that it wasn't worth shorting these CDOs.

But at one point, Goldman placed "The Big Short" and profited from the
financial calamity that ensued. Did they lie to their clients? That is
going to be tough to prove but I can tell you one thing, somewhere along
the way, they reversed course and went short credit in a big way. I'd
like to know why they didn't share this information with all their
clients?

And it's not just Goldman. They're everyone's favorite whipping boy but
other investment banks engaged in equally questionable transactions,
selling CDOs and other structured crap to pension funds (who blindly
bought the crap!). The other investment banks just weren't smart enough
to reverse course at the right time, and they paid the price. Love them
or hate them, Goldman Sachs is a money making machine. They seem to know
exactly when to take the big risks, and the firm's reputation is such
that clients still want to do business with them (even clients that hate
them). They got smart people working for them and they do an
outstanding job servicing clients.

And what about increasing regulation? There is no question we need better regulation, but I also know that bankers are running rings around regulators.
I chuckle when I hear politicians in Canada saying they're going to
"increase taxes on the major banks". Good luck! If you do that, banks
will shed costs (fire people) and increase their tax arbitrage
activities which already makes them a killing. Bankers are always two
steps ahead of regulators.

That brings me to my final point, pension oversight. The people
overseeing pension funds should be qualified enough to know when
pension fund managers are taking stupid risks. There are no excuses. If
they aren't capable of asking the tough questions, and safeguarding
pension assets, then they shouldn't be supervising any pension fund.

 

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Tue, 07/26/2011 - 07:18 | 1493795 pama
pama's picture

You're missing the point, he was upset about foreign coutnries financing our debt, he did fix that.... Now we finance our own debt.
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Sun, 07/24/2011 - 09:13 | 1486896 pama
pama's picture

So now we have to ask the question you pose, why have regulators failed, and can we staff them with better men?
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Wed, 08/17/2011 - 17:05 | 1570507 karvilano
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best part of this post is " I clearly remember doing research on CDO-Squared and CDO-Cubed in the summer of 2006. The more I looked into these "special purpose vehicles" unlock iphone 4

Sat, 07/23/2011 - 16:01 | 1485389 pama
pama's picture

If we die grasping for gold we feel life was exciting while it lasted. If we die retching from cold we feel cheated before and after...to the same extent, double whammied.
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Sat, 07/16/2011 - 18:33 | 1462677 hama
hama's picture

The Yen, and Japan, raising cash to pay for the reconstruction of the country, is already on the path of Yen appreciation and will be assisted in their efforts by the other central banks. By acting in a co-ordinated fashion they will begin to reverse the worldwide race to the bottom.
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Sat, 07/16/2011 - 04:07 | 1461805 hama
hama's picture

If we die grasping for gold we feel life was exciting while it lasted. If we die retching from cold we feel cheated before and after...to the same extent, double whammied.
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Fri, 07/15/2011 - 16:51 | 1460905 hama
hama's picture

The normal guy/gal is scorned here but for what?? Not understanding the effect of Fukishima on the Llama prices in Zimbabwe?? If no one here can agree on anything how does a non-math or non-economic person have a hope of understanding.
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Fri, 07/15/2011 - 07:35 | 1458744 hama
hama's picture

same position experienced with a dour sailor's chord as living thread feels like insult being added to injury... there lies man's illusion of freedom. If we die grasping for gold we feel life was exciting while it lasted. If we die retching from cold we feel cheated before and after...to the same extent, double whammied.
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Fri, 07/15/2011 - 05:46 | 1458628 hama
hama's picture

we feel privileged as the fragile link to life is so precious in more ways than one. But the same position experienced with a dour sailor's chord as living thread feels like insult being added to injury... there lies man's illusion of freedom. If we die grasping for gold we feel life was exciting while it lasted. If we die retching from cold we feel cheated before and after...to the same extent, double whammied.
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Fri, 04/15/2011 - 13:59 | 1173296 Eireann go Brach
Eireann go Brach's picture

Eliot Spitzer was caught with a hooker, all of Wall St was just not caught yet. He should pursue this as much as he can

Sat, 04/16/2011 - 06:11 | 1175505 Seer
Seer's picture

The origin of Wall Street was to keep pigs from escaping into the public.  Clearly, it failed...

Fri, 04/15/2011 - 13:57 | 1173288 Eireann go Brach
Eireann go Brach's picture

Eliot Spitzer was caught with a hooker, all of Wall St was just not caught yet. He should pursue this as much as he can

Fri, 04/15/2011 - 13:28 | 1173114 AldousHuxley
AldousHuxley's picture

Spitzer was taken out because he was too dangerous to wall st.

Several congressmen for wall st. reform were take out too past election cycle.

Financial mafia is too powerful for external attacks. We will just have to wait until they destroy themselves amongst each other.

 

 

 

Sat, 04/16/2011 - 17:17 | 1176499 Boxed Merlot
Boxed Merlot's picture

We will just have to wait until they destroy themselves amongst each other...

 

Though patient endurance is a favored attribute by the divine, never underestimate the Power that parted the Red Sea.

 

Pray for justice and mercy. 

By the way, injustice is quite different from non-justice.  Mercy is non-justice as goes a long way in the rebuilding process when administered appropriately.

 

But by definition, it can Never be counted on. 

Fri, 04/15/2011 - 13:28 | 1173102 JailBank
JailBank's picture

Did Goldman Sachs lie? Were they talking? Then yes they lied.

Fri, 04/15/2011 - 13:25 | 1173089 alien-IQ
alien-IQ's picture

Leo, while some may debate the minutia of the wording around the "did they lie to their customers" question (which is just word games, lets face it they lied...but whatever)...There is another facet of this to which there is zero doubt. Several Goldman executives committed perjury before the Senate banking committee. That case is a slam dunk. And those motherfuckers should go to a real "pound-me-in-the-ass" kind of jail. No ifs and or buts about it.

Sat, 04/16/2011 - 05:54 | 1175500 Seer
Seer's picture

If the POTUS can lie and not be prosecuted then how can it be expected that those controlling commerce could be prosecuted?  Yeah, a piece of flesh here and there will be torn, but it'll be back to the same game of protecting TPTB.

Fri, 04/15/2011 - 11:38 | 1172602 Vendetta
Vendetta's picture

The lack of enforcement of regulations and then subsequent lack of prosecutions will be the root cause of the dollar losing its reserve currency status besides bailing out criminal institutions. 

Sat, 04/16/2011 - 05:49 | 1175497 Seer
Seer's picture

Th ROOT CAUSE is perpetual growth.  At first everyone in the Ponzi does fine, but later as new victims (physical resources) decline it becomes obvious that there's not enough fresh input to keep the game going.

Sadly, all of these people have only been telling us what we wanted to believe.  My brother is a perfect example of someone who is honest but is totally programmed by the system- he believed up to the very end (long after me, a lesser "educated" person, not running in "professional circles") that house prices would never go down.  I too once thought that the system spoke the truth, but then started to doubt its truths.  I suspect that many others here weren't born knowing that things weren't what we'd been led to believe.  And the point of this rambling is that it's quite possible that blind hope and ignorance are more ingrained in our society/system than we realize.  Are there crooks?  Sure, but, unfortunately, I fear that it's the non-crooks that present the greatest danger (to the system, which, anyways, is based on a big flaw and will collapse regardless).

Fri, 04/15/2011 - 11:21 | 1172528 tradewithdave
tradewithdave's picture

Indeed, but as a government sponsored enterprise banks can easily extort through threats of systemic collapse. Where's Reagan when it's time for terrorist negotiations.
Dave Harrison
WWW.tradewithdave.com

Fri, 04/15/2011 - 10:28 | 1172294 ZackAttack
ZackAttack's picture

Of course they lied; but they've already gotten away with the deed and the subsequent bailout. No one will be prosecuted because FIRE owns the government.

So, you can shake your tiny little fists in impotent rage on the internet, all while bent over and taking it up the chute.

Or you can do what needs to be done.

Fri, 04/15/2011 - 09:30 | 1172056 Careless Whisper
Careless Whisper's picture

If I were managing a pension fund, I wouldn't get within a 50 mile radius of anyone from GoldmanSachs, or their spouses, or their kids, or their dogs.

Fri, 04/15/2011 - 09:28 | 1172041 orangedrinkandchips
orangedrinkandchips's picture

I can imagine that Goldman broker talking it over with his superior and making a game plan before calling you back. Why would you want to do that? Would he have said the same thing with Google and their IPO? lol..That was an obvious red flag, no matter what they thought. They should always give you enough rope to hang yourself....

 

As far as your final point....exactly. What the fuck are the "investment" people, who are decorated with degrees from everywhere, when it comes to picking investments?? Shame is squarely on them. But, like sociopaths, their sense of right/wrong is broken so they see no fault even deep down inside.

 

If you are buying residential mortgages, no matter how high on the curve they go or how high they get, with billions on the line, would you not want to nose through one or two of these files that comprise the asset?

 

Shit fire, it would be fun. Even if it were all good (which Goldman would of course steer you to the best of the bunch) it would be interesting reading.

 

suckers.

Fri, 04/15/2011 - 09:14 | 1171991 bullchit
bullchit's picture

Government of the (long) future will be software.

Regards.

Fri, 04/15/2011 - 09:03 | 1171948 nopat
nopat's picture

It doesn't matter if anyone lied.  Politicians aren't administrators, they're rolling pins.  Someone feels wronged, and justice needs to be exercised.  It's their job to smooth out the inequity of justice and bake at 350* until a brown, flakey crust forms.  It only took 6 years from Enron going tits up to see a conviction, Worldcom 4.  Be patient young padawon, we still have 2 more years from market bottom and an entire presidential cycle to go through.

How else are we supposed to know if they're doing their jobs if no one's under some sort of blue-ribbon investigation? 

Fri, 04/15/2011 - 20:55 | 1174875 Confuchius
Confuchius's picture

Hang them all, and let god sort them out...

Fri, 04/15/2011 - 08:41 | 1171859 vast-dom
vast-dom's picture

Idiotic post title. Not even rhetorical.

Spitzer is the man. And no I don't mind whoremongering if it's tempered with substance and ethics and btw he did treat his hoes well and tipped accordingly to boot.

Fri, 04/15/2011 - 08:43 | 1171868 snowball777
snowball777's picture

Remember kids: there are no $5000 hookers, only $5000 johns.

Fri, 04/15/2011 - 09:03 | 1171824 Mercury
Mercury's picture

I repost here my comment from yesterday on the same subject.  Although I have no love for Goldman per se I think this whole issue betrays a misunderstanding of what was transacted and under what conditions.  Also, I haven't seen any evidence that these CDOs failed to function as advertised i.e. they were not a defective product, there were no performance guarantees that weren't honored and they tracked what they were supposed to track...

>>>At some level I think it's wise to keep in mind the difference between "client" and "customer" here.  I know every business likes to refer to their customers as "clients" but that doesn't actually make them clients.

A client is someone  whom the firm (Goldman here) is acting on behalf of in the capacity of agent and under an arrangement where incentives are usually pretty well aligned.

A customer is someone who buys stuff from a business which is not acting in an agency capacity [but as a counterparty] and does not have much legitimate expectation that the business will act in their best interest.  Buying an Ipad from Apple does not make you a "client" of Apple and it would be silly to presume that Apple has an obligation to disclose to you their business practices, profit margins on various components that go into the Ipad, what their larger strategy is or anything of the sort. If you hire Goldman to advise you on M&A that's one thing but if you allow yourself to be sold one of their shiny new structured products...buyer beware. <<<

- - - -

There's a much better argument to be made that the asset managers who bought this crap were criminally negligent.

Original post and ensuing debate here: 

http://www.zerohedge.com/article/goldmans-cds-market-manipulation

Fri, 04/15/2011 - 13:44 | 1173214 eatthebanksters
eatthebanksters's picture

Were ethical and moral trusts broken, you bet...don't rationalize criminal behavior by trying to lay it off on someone else.  My guess is you are a bankster yourself, trying to justify expedient behavior...

Sat, 04/16/2011 - 05:37 | 1175492 Seer
Seer's picture

Not trying to defend anyone here (just defending reason), but it's the very nature of all of this to deceive.  All that's done is done for the sanctimonious shareholders (who, without any regulations would become saints).

It's kind of like the tale of the Scorpion and the Frog (http://allaboutfrogs.org/stories/scorpion.html).  The system is eating itself...

Fri, 04/15/2011 - 09:42 | 1172082 Kayman
Kayman's picture

Merc

That is splitting hairs.  If I lied to my customers by betting against them, I would lose my business.

When you claim to be an "investment" banker and you bet against your customer or client, then you, sir, are a criminal.

You have confidential information making you a fraudster.

Fri, 04/15/2011 - 11:07 | 1172473 Mercury
Mercury's picture

Unfortunately (in some cases) many legal and financial matters depend on hair-splitting in terms of determining liability or whether or not money changes hands.  Of course Goldman customers are free to take their business elsewhere.

But the division of Goldman that sold these CDOs was not acting in an investment banking, agency capacity and that is hardly a hair-splitting factor.

Fri, 04/15/2011 - 08:30 | 1171821 WallStreetClass...
WallStreetClassAction.com's picture

These bankers have financed the repeal of the regulations safeguarding public and taxpayers (Glass Steagall). They said they were going to "supervise themselves" and then defrauded and melted down the economy, got bailed out, collected bonuses and now are hard at obstructing justice. Our very government is complicit, it is evident in the way SEC and Justice Department are p us sy-footing around the fat cats. The very fabric of our governance has been destroyed and more, bigger financial disasters await in the wings, unless we see to it that the justice is served.  "I hope we shall crush in its birth the aristocracy of our moneyed corporations which dare already to challenge our government to a trial by strength, and bid defiance to the laws of our country." - Thomas Jefferson once said. How fitting, how prophetic! How alarming that we failed to accomplish that! At http://www.WallStreetClassAction.com we organize a class action against the banks, the ratings agencies and other financial institutions involved in staging the colossal securitization fraud and subsequently crashing the economy and resulting in over $5 Trillion in asset losses in the US alone. We realize that our own government is effectively a captured entity, so no criminal indictments will be forthcoming. But WE THE PEOPLE will hold the fraudsters accountable. United we stand.

Sat, 04/16/2011 - 05:30 | 1175491 Seer
Seer's picture

I'm also a fan of justice, but let's check something here...

You're wanting to "correct" injustices brought within a Ponzi System by using the very essence of the Ponzi -fiat- to do this?  These fuckers will only just see to it that they're able to have more fiat printed so that they can bribe their way out of prisons (which they control anyway).

Oh, system, please don't be so cruel!  It's its very nature to be cruel, fix that and the system no longer exists.  Therefore, why bother putting ANY energy into the system at all?  Most who want to "fix" the system are only looking to get some payoff for their efforts, with the payoff only perpetuating the underlying crimes.

No, all these fuckers are only operating at peak efficiency of the system.  One cannot both condemn these folks AND praise the system (which is the logic failure that Zero Brains suffers from).

Humorous note: ZH's spell-checker doesn't know Ponzi! (hm, pausing to think about this one... it knows how to spell Gorbachev but not Ponzi!)

Fri, 04/15/2011 - 13:41 | 1173195 eatthebanksters
eatthebanksters's picture

SIGTARP (Neil Barofsky) estimated the total cost of the collapse since 2007 (with over 50 public bailouts) at $23.7 triliion...YES that's right...there is $9 trillion of lost residential real estate equity, just by itself.  Fuck the perp walk...put some of these fuckers up against a wall and make examples out of them to the rest of the banksters...

Fri, 04/15/2011 - 09:37 | 1172065 Kayman
Kayman's picture

 "our own government is effectively a captured entity"

Is an escort "captured" or a volunteer ?

Fri, 04/15/2011 - 08:27 | 1171815 jimijon
jimijon's picture

Open source regulatory system. Why have regulatory bodies? Why not just wikileak it. Publish the rules clearly, then have the data be published by all publicly traded companies and let the people and savants like Tyler peruse it.

The problem we have is one of not realizing that the old way of governance has not yet given way to the benefits of governance with the inclusion of the Internet. Hence while I have written a few different treatises on Socialocracy. 

Basically I envision our system but with a slight but very powerful change. Replace all regulatory bodies with public information and simple clear rules.

This would level the playing field and would eliminate the two party legal system of rules for commoners and rules for nobles.

http://jimijon.blogspot.com

I would love to post any other writings on this subject. So all contributors are welcomed.

Fri, 04/15/2011 - 13:58 | 1173277 Zero Govt
Zero Govt's picture

an 'open source' system is where it's at.. the free market is the ultimate regulator ..the mistake of both accountancy (see Enron) and regulation is who pays the piper. In both cases the Executives are appointing and paying for accountants and regulatory fees which turns both systems rotten and into crones like Leo here

the best system i've come up with is the simple whistleblower system. Shareholders should have a whistleblower system in place that rewards (handsomely) them for accurate info that blows the lid on fraud or dirty practice. 

You can then ditch the expense, constant failure and constant farce of both the worthless accountancy and regulatory professions, in the bin with both

Sat, 04/16/2011 - 05:17 | 1175488 Seer
Seer's picture

"Shareholders should have a whistleblower system in place that rewards (handsomely) them for accurate info that blows the lid on fraud or dirty practice. "

That's funny!

I'd love to see zero govt just so I could see your reaction when you discover that skittles and unicorns really don't exist and that things will be just like they've always been- controlled by a handful of oligarchs: of course, trolls for said oligarchs are never going to own up to their dirty-work.

2/3 of the world's population lives on $3/day or less.  You REALLY believe that 4 billion people are going to become empowered to the level that the handful that makes up the ruling class (govt or no govt)?

I agree only with your avatar name, all else is totally fucked up.

Fri, 04/15/2011 - 08:09 | 1171790 UninterestedObserver
UninterestedObserver's picture

"The other investment banks just weren't smart enough to reverse course at the right time, and they paid the price"

 

Leo you can't actually believe this bullshit you wrote - Goldman got a huge bailout from AIG.

Fri, 04/15/2011 - 08:44 | 1171862 snowball777
snowball777's picture

No, they got a huge bailout from you and me both, not AIG.

Fri, 04/15/2011 - 13:50 | 1173166 Zero Govt
Zero Govt's picture

taxpayers and AIG re-filled Goldmans bankrupt coffers...the rumour is Goldman used the regulator to change the rules from annual pay-outs on derivatives to monthly settlements which bled AIG dry and caused their collapse while feeding the Squid amongst others ...Goldman says they had no hand in the change of the regulatory rules ..yes and my names Leo Kockupalot !

Fri, 04/15/2011 - 07:41 | 1171735 farmer1
farmer1's picture

must be an election coming up soon so its time to shake down the banks for campaign funds.

Fri, 04/15/2011 - 07:37 | 1171730 Waterman Jim
Waterman Jim's picture

Does the pope wear a funny hat?

Fri, 04/15/2011 - 07:30 | 1171725 Fred C Dobbs
Fred C Dobbs's picture

I think it can be argued that there should be no government regulatory agencies.  Having them there makes people think government is out to protect them when it is clear they are there to protect a certain elite in Manhattan.  Getting rid of the illusion of law enforcement would make people think before investing.   

Fri, 04/15/2011 - 08:45 | 1171874 Monday1929
Monday1929's picture

Agreed

Fri, 04/15/2011 - 13:35 | 1173143 Zero Govt
Zero Govt's picture

Agree x2

Fri, 04/15/2011 - 07:25 | 1171711 Boilermaker
Boilermaker's picture

Does a bear shit in the woods?

Fri, 04/15/2011 - 06:59 | 1171665 Zero Govt
Zero Govt's picture

"There is no question we need better regulation"

Only for a brain dead unquestioning mind like yours Leo Kockupalot

There are thousands of questions about regulation because all the regulations needed already exist and are in place to do the job. Everything from basic laws on theft and fraud, to ever more complex laws on mis-selling, mis-representation and shafting clients.

The big question is why haven't they worked Leo? Pretty easy, because the biggest crooks in society are the political and legal establishment. The protection racket set up by The Parasite Club

Another is will they ever work? Again pretty easy, they never have before (AIG had 130 regulators worldwide. Enough, failure, already)

The free market works. Investors catch wind of the shit going on and the shit goes bankrupt. Your stinking fascist political 'system' not only failed to prevent, failed to convict but also actually rewarded the crooks and bankrupt bankers.

Your unquestioning dumb-arsed moaning for "more" regulation is another one of your truly stupid provenly failed arguments. Your regulatory system is a complete failure every time and everywhere it's practised.

Flogging another dead horse Leo? Still pushing green investing long past its sell-by-date to pension funds donkey brains? You were born behind the curve and born stupid by the look of every article you cut (crib) and paste. Born to be a crone

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