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Did Goldman Sachs Lie?
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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"There is no question we need better regulation"
I read that exactly as it is - we don't need MORE regulation, we just need BETTER regulation of the rules already in place.
DavidC
David - so let's recap
1. we have warehouses full of regulations but they failed
2. we have hundreds of regulators but they all failed
So now we have to ask the question you pose, why have regulators failed, and can we staff them with better men?
Fat chance. Regulators are inter-changeable with the bankers they regulate. Your Mr Ben avatar might suggest we hiring clowns but the truth is we're hiring in-bred ex-banking staff. Apparently we do this for the "regulator to keep up with the latest in the industry". So where did this incestuous in-breeding benefit the peanut brained regulators?
The fact of the matter is regulation and their offices were set up by the banking establishment under a mask of policing when in fact it was little more than a prtection racket to stiff the free market (as Govt does in any industry).
You can't have the fox guarding the hen house. Govt is rammed with vested interests like bankers who push (fund) politicians to do their bidding and protect these big establishment monopolists from competition. Regulators hassle, drive up costs and complexity and shutter competitors. That's precisely how Britain has got 5 big fat cat banks and not a single new entrant in banking 100 years. It is a closed shop, the free market is not allowed to operate
So your good intentions to staff regulatory offices with more honest men is wishful thinking. Like every Govt system it is only a matter of a short while before it gets riddled with corruption again.
Govt and regulation is a failed (monopoly) model. It will never ever work and has never ever worked. Only the free market model, totally unregulated, works. The time for meddling and experimenting is over. The data and conclusive proof is in. Govt is a 'fail' and regulators are a 'fail'
"Only the free market model, totally unregulated, works."
The one without ANY regulations, without any punishment?
Clearly you don't have a clue about history, about human nature.
I don't agree with Leo's philosphy, but I can say that it's closer to reality (even though it's running us head-long over the cliff) than your hollow mouthings. Really, whining about criminal activity and then refuting regulations? That's fucking funny!
Change your name to "Zero Brains," your "zero govt" positions give anarchism a bad rap.
We'd be better off without the SEC....folks think they are being protected, but obviously they are not.
folks ARE being protected by the SEC ....Goldman Sachs, JP Morgan, BoA, Bernie Madoff ....just as the regulators were designed to do, portect the vested interests that got their cornes in the US Govt to erect the regulatory system
Regulations, laws and legislation are the fascist-socialist States controls on free markets (and society) ...they are part of the system of parasites
With all of this talk about the free market regulating itself a question occurs to me:
Are corporations (ie: govt.created entities for the purpose of protecting capital from the consequences of its choices) part of the "free market"?
At the bottom corruption is a foregone conclusion because corporate "persons" must, by their very nature, violate laws and regulations when it is more profitable than obeying them. What does the "free market" say about that?
DavidC, it's best to ignore "Zero Brains" and other trolls around here. If you engage them, you give them a platform to spew their venom and lies.
Leo Kockupalot - you're way too thick to get the message around here bloggers hate your guts because you're a snivelling little crone. When it comes to failure nobody attaches themselves to more of it than you (Pro green investing, shoring up the broken pension industry, pro "more" regulations when all of them in every country has failed).
Regulation is a failed model, like pensions and like Govt. Nothing is failing more around the globe than regulators and Govt, all of it rotten to the core. And you're swimming in this failure, in fact you want "more" of it! You haven't got a fuking hold on reality you delusional Canadian crone
You are the twat that takes on every lost (socialist) cause, the ultimate behind the curve dork who also can't see anything coming, the ultimate fuking socialist loser. Why don't you piss off and write your tedious cut (crib) and paste articles for the bankrupt rotten losers in the public sector who might think you're smart because everyone around here sees right through your corrupt little articles
Better? No the problem was lack of enforcement of regulation already in place. New rules don't fucking matter if certain institutions are allowed to break them with impunity. And who gives a fuck what ONE unnamed person at Goldman told Leo,like that means anything at all.
Did Goldman Sachs Lie?
Is that some kind of jail house koan ;-)
I wish there were some mechanism to "flag as awsome."
Best. Comment. Ever.
A better question.
When are they Not Lying ?
indeed.
word of the day: koan
"They are on the wrong side of history..."
1933:
For a year, a commission established by the U.S. Senate Committee on Banking, Housing and Urban Affairs has supposedly been investigating the causes of the Wall Street Crash.
Initially, the investigation" is little more than a whitewash. The first two commission counsels are fired and the third resigns in protest because there is no power to subpoena witnesses, which makes the whole exercise a bit of a farce.
But things take a remarkable turn when a remarkable man, New York City prosecutor, Ferdinand J. Pecora, accepts the position of Chief Counsel to the commission.
In February, Pecora begins a real investigation of what Franklin Roosevelt called "the ruthless manipulation of professional gamblers and the corporate system" which caused the Great Crash of 1929 and led to the Depression.
By the time Pecora begins calling the boys in the back room to account, forty percent of all U.S. banks have gone belly up taking the savings of nine million Americans with them. Millions of Americans have lost everything on stock market and "investment" scams. Homes, farms and businesses are being repossessed by the thousands. Seventeen million Americans are unemployed. And, through it all, through all the misery and hunger and despair, some people, already unimaginably wealthy, are getting richer and richer.
As the hearings unfold, America's leading financiers and industrialists, the "cream" of American society, the ruling class, are shown to have engaged, yet again, in an almost endless series of ruthless conspiracies against the people of the United States.
Charles Mitchell, President and Chairman of the Board of the Rockefellers' National City Bank (Citicorp) and a director of the American branch of the Nazi cartel, IG Farben, is the first Wall Street tycoon called to testify and his grilling by the courageous Pecora sets the tone for the rest of the hearings.
Pecora uncovers the fact that National City Bank is really little more than an enormous criminal conspiracy dedicated to swindling small investors out of their savings.
For years, the bank has been, via a subsidiary, the world's leading shill for what, in the biz, are called "securities", a direct violation of U.S. law which forbids banks to trade in "securities".
Mitchell tells the Committee that he "did not see it as a problem."
Of course for National City Bank, it wasn't a problem. His very good friend, Andrew Mellon of Gulf Oil, Mellon Bank and Alcoa had been essentially running the country for the benefit of the ruling class via the presidencies of Harding, Coolidge and Hoover since 1921.
Mitchell is forced to admit to evading his personal income tax by way of imaginary interest payments on an imaginary loan of $2,800,000 from the National City Company.
Mitchell was receiving about one and a half million dollars a year a time when the average industrial wage in the U.S. was about fifty cents an hour.
Mitchell is forced to confess that a series of unsecured and unpaid loans for millions of dollars was made to National City insiders to cover their stock market losses. The beneficiaries of this theft from the bank's small stockholders include Percy Rockefeller and Mitchell himself.
Mitchell admits to conspiring with the U.S. puppet dictator of Cuba, Gerardo "The Butcher" Machado, to dump $31 million worth of useless Cuban sugar loans on the unsuspecting small stockholders of a National City affiliate.
Pecora uncovers the fact that, in 1927 and 1928, National City Bank dumped $90 million of worthless Peruvian government bonds on customers in the U.S. Pecora forces to Mitchell to concede that millions of dollars were made on insider trading and manipulations of Anaconda Copper subsidiaries by National City Bank insiders including Percy Rockefeller, James Stillman Jr., Mitchell himself and Anaconda President John D. Ryan.
The bank and Anaconda conspired to defraud the public through massive manipulation of Anaconda stock, fueling a speculative mania which pushed the stock to record highs far beyond its true value.
Mitchell is forced to confess to a series of National City/Anaconda conspiracies which were the greatest frauds in the history of American banking up until the time of the hearings.
It is revealed that Mitchell, Rockefeller and Ryan set up a "joint account" of nearly a million and a half shares of Anaconda stock, at no cost to themselves, which was repackaged and aggressively marketed to the public through a National City affiliate. The "joint account" was manipulated by Mitchell and Ryan who ran the share price up, from $40 in December 1928, to $128 in March of 1929. The trio then dumped their stock.
This single scam netted Mitchell, Rockefeller and Ryan at least $150 million. By the time of hearings, Anaconda stock had collapsed to $4 a share.
Scheduled to follow Mitchell for a further uncovering of the Rockefeller-Mitchell-Ryan conspiracies is National City Bank director and Anaconda Copper chairman John D. Ryan. Conveniently, Ryan dies under mysterious circumstances three days before the hearings are scheduled to start and takes his secrets to the grave.
Percy Rockefeller, although apparently not too ill to engage in vast criminal conspiracies with Mitchell and Ryan, is allegedly "too ill" to appear before the Committee to answer Pecora's questions.
When asked by Pecora if he paid any income tax in 1930, J.P. Morgan Jr. replies, "I cannot remember."
Neither could Morgan remember if he had paid any income tax in 1931 or 1932. In fact, of course, he had paid not one red cent. Question after question was answered with "I cannot remember."
Pecora reveals that all of the Morgan family and their partners in their vast financial empire had paid a total of only $5000 in income taxes in the previous five years on hundreds of millions of dollars of income. And, it was all thanks to Treasury Secretary Andrew Mellon who had crafted U.S. income tax law so that the very wealthy, himself notably included, seldom paid any taxes at all.
During the Pecora Hearings, the financial gangsters who had brought ruin to so many came to be known as "banksters".
One of the slickest banksters to be summoned before the hearings was Clarence Dillon (nee Lapowski) of the "financial house" of Dillon, Read, by the time of the hearings heavily involved in financing the rise of Adolf Hitler and the Nazis in Germany.
Nazi public relations specialist Ivy Lee is hired to "prepare" Dillon for his appearance before the Committee. Among Lee's other esteemed clients are Nazi fuel supplier, William Farish of Standard Oil and the Rockefellers' partner in crimes against humanity, IG Farben.
Clarence Dillon and his son C. Douglas had been directors of United States and International Securities, a massive speculative pyramid scam which swindled Americans out of hundreds of millions of dollars.
Miraculously, Dillon, Read insiders cashed in their chips just before the Crash, walking away with $6,844,000 for stock which had cost them $24,110, a return of 28,000%.
Ain't "free enterprise" wonderful?
Pecora uncovers the fact that Albert Wiggin, Chairman of the Board of the Rockefellers' Chase National Bank, had surreptitiously sold short 42,000 shares of Chase stock just prior to the Crash through a series of front companies. Other senior executives did the same thing, driving stock prices down and then making millions as share prices collapsed.
It goes without saying that no one named Rockefeller, Mitchell, Morgan, Wiggins, Dillon or even Lapowski ever goes to jail for their crimes and the pinstriped gangsters unmasked by Pecora were no exception.
Only a single minion of the ruling class, Richard Whitney, a long time associate of the Morgans and president of the New York Stock Exchange at the time of the Crash, ends up behind bars. But his crime was very serious, stealing from the ruling class.
The misguided Whitney pilfered $800,000 from his father-in-law's estate and then also stole from the New York Stock Exchange Gratuity Fund and, gasp, from the New York Yacht Club, all in order to prop up his liquor business.
Stealing from your clubmates just isn't done, old boy, and Whitney is sentenced to ten years in the slammer for his breach of ruling class etiquette.
Of course, he only does three years and is then given a nice little place in the country by his Wall Street buddies, where he lives a quiet and peaceful life until his death in 1974.
As the gangsters in pinstriped suits are called before the Pecora Committee one after the other, one of the biggest swindlers is noticeably absent.
It's Joseph "Jittery Joe" Kennedy who, as newly appointed chairman of the SEC, seems to have to be immune to the attentions of the Pecora Committee in the same way he was immune to the draft in World War One.
The Pecora hearings lasted over a year and provoked outrage among Americans. The stupefying greed and criminality of the ruling class so clearly exposed by Pecora, led to the Crash of 1929 and plunged the U.S. and much of the world into the Great Depression, causing untold hardship and misery for hundreds of millions of people.
But like so much of American history, the findings of the Pecora hearings and even the fact that they were held, are virtually unknown in the United States.
Following the Pecora hearings, a wave of regulatory legislation attempts to keep America's corporate criminals under control, although "short selling", one of the financial games most beloved of experienced Wall Street swindlers, was not outlawed.
Almost all of the protective legislation would vanish or be diluted in the 1990s by William "Slick Willy" Clinton, leaving the savings of Americans once again completely at the mercy of financial racketeers with entirely predictable results.
1934:
The Securities and Exchange Commission (SEC) is created, theoretically to clean up the financial swindling industry which has ravaged the wealth of Americans. Franklin Roosevelt, having a puckish sense of humor and owing a favor or two to Joseph "Jittery Joe" Kennedy for cash received, appoints him as the SEC's first chairman.
As one of America's leading financial scam artists and stock market swindlers, Kennedy certainly knows how the crooks work. Roosevelt justifies the appointment by telling an advisor that it takes "a thief to catch a thief."
You can't make this shit up.
Awesome post. There was a fight between the power brokers back then, I believe Joe tried to subvert the Rockerfeller/Red shield Ideology by planting his boys in their system. Having them infiltrate their schooling, learn their thinking and use it to gain power. Once Kennedy got the presidency he then spoke out against them and disagreed with the Asian policy they were trying to install at the time. http://www.youtube.com/watch?v=DxnpujfanUM This stuff runs deep and intertwines with the mafia and organized religous institutions which by no coincidence label their own by http://dictionary.reference.com/browse/denomination.
I would only add that JP tesitified with a midget on his lap; presumably a PR stunt to create the impression that he cared about the "little people".
What a great read! Source, please?
David Pierre
Good post. The Government (and its vested/monied interests) are the 'enemy within' we have always been looking for. The system (Govt) is the biggest criminal in society. Empty the jails and fill it with the establishment
How you can believe that the "bad guys" only can exist in govt is beyond me. Go ahead, wipe out govt (would be fine with me), but don't cry (make up some other BS reason why things are so fucked up) when stuff continues to deteriorate.
That you can, on one hand, use the words "criminal" and "enemy" and on the other hand promote lawlessness (vacuum from NO govt) shows that you are lacking any sense of reason. Such is the case with those who have hidden agendas...
It's an issue of BIG = FAIL. And this goes to the bigness of the human population (overrunning the planet's resources- if there were plenty of resources people [like you] wouldn't be bitching about anything).
Agreed.
Instead, revoke the bank's charters and nationalize them.
You don't need a private banking system. But if you want one, it has to be 100% private - No public support, period.
Bingo.
A few, no a flood of, prosecutions would be welcome too.
GS believes it can't be material non-public information as long as the whole company knows.
The only schmuck in jail in the last couple of years is Madoff and that's only because he didn't buy a bank and go to the hand-out window. "Uncle, can you spare a billion?" That would have flushed him up and nobody would know who he is today.