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The End is Nigh: How Goldman Sachs Triggered the Apocalypse
In case you’re wondering, that whistling sound you hear is the sky falling. When Erin Burnett stays late to host a special report on something, you know it’s a “game-metamorphosizer”. Why else would all bank stocks tank because a firm they’re not affiliated with was charged with non-criminal fraud in one transaction after months of SEC digging? Why else, at this very moment, are traders in Tokyo and Hong Kong counting down the minutes to when they can sell every last security on the planet ahead of the rest of the world this weekend? Why else would the price of gold – the ultimate refuge in times of uncertainty – be falling?
The simple fact that the market knows is that there is no uncertainty: Armageddon is upon us, and thus all the gold in the world has no value.
In its infinite wisdom, the always-rational, level-headed market knows that Goldman is finished once and for all. In fact, it’s already just a memory. A civil case whose maximum damages, including treble damages for fraud, are $3B could easily bankrupt a firm that had only $45B in revenue last year. Especially since there’s no chance this case will be settled without a trial for a small fraction of that amount. Why else would the only Google search term related to GS that’s more popular than “Goldman Sachs fraud” be “Goldman Sachs careers”? Everyone knows that the imminent liquidation will require lots of manpower and overtime. And even if, by some miracle, GS emerges from the SEC and inevitable investor litigation without resorting to Chapter 7, no one will ever do business with them again, which will cut their revenue to $0.00, which will require them to resort to Chapter 7.
And GS deserves to be destroyed for this particular transaction. To put their egregious behavior in the complicated CDO market in perspective, let’s break it down in terms of equities:
Let’s say a sophisticated investor – call him “Johnny the Jackal” -- tells an investment bank – call it “Dewey Goldmanthem & Howe” -- that he thinks a select group of stocks in the Russell 2000 index is a real dog. He asks the investment bank to create a new ETF that tracks the performance of the stocks he selected so that he can short it. The investment bank agrees, takes a fee, and unveils the newest ETF, the “Bow Wow 30” (ticker symbol: WOOF). Now let’s say a second sophisticated investor comes along – call it “Head-Up-Our-Ass European Bank” -- and says they believe the Bow Wow 30 represents the best companies on earth, and they want to go Hail Mary long. Even if DG&H doesn’t have a crystal ball, and even if it’s not sure which way the Bow Wow 30 is heading, it has a make-believe fiduciary duty under the pretend law to tell Head-Up-Our-Ass European Bank that there’s another investor who thinks the Bow Wow 25 is flea-ridden. Sure, Head-Up-Our Ass has analysts, lawyers, consultants and accountants who could do their homework on the companies in the Bow Wow 30, but it’s up to DG&H to tell them Johnny the Jackal knows better than them. That’s why every time you want to buy a security your broker sends you a list of all the people who've shorted it. GS broke the law because it didn’t provide the short list.
In addition to being the polite thing to do, this rule serves the important public policy of dissuading potential investors from investing whenever another investor disagrees with their judgment. The efficient functioning of the capital markets is all about no one buying when someone else wants to sell and no one selling when someone else wants to buy.
Not that politeness, public policy or capital markets matter now that the end of days is apparently Monday. (Unless you live in Asia, in which case it’s Sunday). Time for everyone to get their affairs and souls in order.
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I believe the GS news while not maybe Armageddon in itself, is a chink in the already very weak armor of the imaginary rally fueled by nitromethane 0% free FED money. 6,500 to 11,000, how much further up with no point can they run it? No one believes their crap rally, but the new wisdom is 'better buy it hand over fist' its the new paradigm 'stocks simply cant drop'.
Well tell it to the poor suckers who loaded GS last week for the certain Tuesday earnings ramp, and saw $25 evaporate in minutes Friday. Massive Tower of Babel built with rice paper and playing cards and library paste.
Satire aside, all GS did was put a buyer and a seller together, albeit in a complicated instrument wherein one counterparty had done their homework and the other was a dupe. Yes, the disclosure appears inadequate but guess what? If not in this trade, the buyer of risk here (IKB and ABN) would've gotten long some other instrument and gotten their brains blown out anyway. Anti-Goldman fervor and Obama's cynical application of this claim for political purposes are driving the hysteria here, but it is how markets work, and what firms like GS get paid for. All who are hoping Paulson goes down over this will be disappointed.
Read the complaint. GS has certain civil liability for securities fraud. "All GS did" amounted to taking Paulson's hand selected bowl full of turds, getting ACA to agree to picking a few out of the bowl to use as reference securities, deluding ACA as to Paulson's "investment" in the equity tranche, and never told anyone the genesis of the mess, and took fees and god knows what else to pull it off. All they had to do to escape liability is disclose all this. Goldman deserves whatever they get out of this, and so do most if not all of the rest of the Wall Street banks. If we had prosecutors with balls, this town wouldn't be so full of outlaws, card cheats, and apologists for Goldman.
I would only agree with this "chicken little" diatribe if GS had been charged with criminal violations. A civil charge is a slap on the wrist and will amount to nothing more than grandstanding by the SEC. It might be a fun article, but it is filled with a lot of “speculation”. We would all be better off to wait and see if any of the state AG’s or foreign governments come forward with criminal charges, then we have something to talk about. The SEC is still a paper tiger!
ben dovers cousin is Phil McCavity by the way he is from another planet
still think that just because you pre-advise someone with disclaimers you are going to rip their faces off (rob their house, crash their car) it doesnt make you any less a thief (or toyota) when you do it. But I guess you can't have a market without this being legal hey? caveat emptor rules and the doctrine of privity doesnt apply and so rehypothecation isnt just a word for switching sides.
'Ben Dover the 3rd'? Damn good name for these days!
Has the planet gone mad? This is Zero Hedge. I would have expected more!
Readers here should know that the problem with Wall Street was NOT that they put together product like Abacus, but that there wasn't more of it.
Wall Street MUST hedge its bets. When they don't the bank goes down the crapper. Just ask Stan O'Neal who went "all in" on the very same toxic mortgage paper and blew up Mother Merrill. (Of course he was helped by the SEC who allowed ALL investment banks to leverage their balance sheets.)
Any sophisticated investor; no let me correct that, ANY INVESTOR WITH A BRAIN knows NOT to trust The Street.
We don't trust their research.
We don't trust their offerings.
We worry about the bid/ask on certain equities.
We worry about the spreads on all kinds of fixed-income products.
We worry about whether the trading desk we're working with is providing data back to the firms prop desk so they can front-run orders.
The assumption should ALWAYS be that the House is working AGAINST most of its clients.
Readers here should know better. Who gets the first call on key deals? The major institutional clients who are providing, fees and trading revenues to any given investment house. Who here does not believe that Goldman has key relationships with ALL the major hedge funds?
What the Goldman deal does is expose the broader business model of investment banks without explaining why someone must be on the other side of the trade.
Without speculators, investors have no means to hedge their investments. This includes the major banks. Why is it that this concept is NOT understood?
Unfortunately, we have a White House who wants to vilify everything about "real" capital creation and replace it with only Treasury debt...which of course is now the next bubble. So the question becomes, how will we provide liquidity to all the investors who want to short US Treasury and other sovereign debt?
Buyer beware. How many times do people have to be taught this lesson?
Read the complaint.
Maybe they'll try to make GS the "bad bank" - just put all the crap inside GS (and JPM while they're at it) and "poof" - goodbye liabilities.
There's no way to fix this problem. The root is the very nature of compound interest. There's a kid's book called "One grain of rice" that explains what happens eventually under compound interest. Fractional-reserve-central-bank-fiat-money are doomed to collapse because of simple mathematics.
I guess they don't have that book in the PHD program at Princeton.
Welcome back Benjamin! I was wondering if you still contributed. Outstanding as always!
I think that a huge proliferation of litigation against the TBTF banks will be the major impact of this SEC "case" and that this will have an impact on them nearly as severe as if the SEC had won that "case" against every one of them.
It's not lupus?
Creating a product so that it has a high chance of failing and offering it to a client as a worthwhile investment is premeditated fraud, especially if your buisness and expertise is investment advisor.
You earn your commission because of the expertise in directing customers to products with the best chance of making money in relation to the advised risk level.
Creating a product so that one person loses and another gains is fraud and criminal conspiracy, when it is your paid duty to protect customers from known risks.
GS are not meant to be a mafia unit.
obviously you have never seen "The Producers", imagine if those bonds had somehow become wildly popular, the ratings agencies would make them all AAA, and the guys who were shorting the paper would watch it blow up in their faces. I think I can get a screenplay out of this. Where's Mel Brooks?
Ben, a Car Talk fan!
I used to be able to pick that up on AFRN if I was anywhere near where the US has a military base, which is just slightly fewer places on this Earth than near a Starbucks.
I recall some names, though not the exact description, of some other Car Talk credits, along the lines of:
...we'd like to thank the head of our Moscow transportation pool, Mr. Pikup Andropov
...and a special thanks to our hygiene consultant in Tokyo, Go Taka Showa.
Dear Fabulous Fab,
I heard about your problems of late.
Does this mean we can't do the swinging thing tonight?
Oh yea, I still have crack leftovers from last weekend, so no need for more.
Please do tell all when you have a moment.
Kisses
Sweet
I posted this private missive from earlier this year here at ZH for a reason. Now to address your points...
I've already won on predictions (9) and (11). I try and keep a finger on the pulse of all the layers of the zeitgeist. The other points are to help people get their frame of reference right. Daniel was a minor prophet compared to Jeremiah and Ezekiel. Prophets get to glimpse pieces of the divine jigsaw puzzle. The Tanach is part : Genealogy; Drama; Law Giving/Interpretation; Jurisprudence; Chronology of Actual Events; Prophecy; Allegory; Metaphor etc. Weighing up the relevance of the different pieces should be left to very wise souls. The Tanach is the most important book in the world. The 79,976 words of the Pentateuch assume primacy. The "value" of all communications can be rated. Certain words carry more weight than others
Jesus was a real person, but not a prophet. Read the Tanach and then the New Testament and if you cannot see the copying that went on, then you are lying to yourself. On the spiritual mountain of life some people choose to stop at a conceptual ledge and decide never to leave. The Koran is a further ersatz copy of the Tanach for the easy digestion of pagan desert dwellers of Arabia 650 ace.
Not enough space here to tell you how the Third Temple will be built by the year 2050.
The red heifer you speak of was disqualified.
Shabbat Shalom, a day late...
Rabbi, a couple questions if I may regarding the markets.
1/ Will the SP500 close above or below 1200 by next Friday?
2/ Where will SP500 be at the end of May?
Thanking you in advance
P.S I had abalone & rice for dinner
They have covered all this on the History channel. Did you know the number one most likely cause for the destruction of Earth? One of our parallel realities begins to merge with our own. The metaphysics aren't clear, but consider a few clues. Parts of the parallel reality occasionally sneak across the barrier which separates us, Bigfoot, space craft, and then crop circles. In former times they had magic and sorcery to explain these things. And it is probably true that as our collective mind power grew stronger, the barrier between the realities grew stronger. Currently we are relapsing, perhaps dangerously into that altenate world.
Secondly if you are eating abalone you must be a sea lion. Abalone is protected, only sea mammals are allowed to dine on that delicacy. If you are an abalone and you are eating abalone, well I don't want to go there.
Back to Adam's Baker's Dozen-plus-two-predictions:
Tiger won't show until May, if the stories about Elin and an immediate divorce are true. Otherwise, you're probably right.
If we assume that the prophet Daniel and Jesus are right (the living shouldn't be spoken of in the past tense), He won't return until there's a temple to desecrate. By 2023-ish, somehow, the Dome of the Rock has to be moved to make room for that Temple. Maybe sooner--perhaps the Iranians will nuke it off the Temple Mount. Anyway, the 3rd Temple should be in place by 2030. Probably sooner, if that red heifer born in the late 90's in Israel is to be useful.
No value for Christians in that futures contract when He comes. Now, if you pay if He doesn't return by 2037 (1967 plus 70), THAT would be a meaningful contract to make your point. On the other hand, I'd be 86 or dead and wouldn't care, either.
Oh, regarding GS and Lord Vader--he took God's name in vain, and it seems God decided LLoyd needed some humbling. One can mock one's maker for only so long, you know....
Ah, I see the time--happy Lord's Day to all.
Hong Kongers are already lined up in front of their local mahjong parlors.
WOOF WOOF WOOF!:
http://www.youtube.com/watch?v=zhJZXOWNdMM&feature=related
http://www.youtube.com/watch?v=5pMeb4ZSHh8&feature=related
The start of the week will be known on the island in decades to come as "Mahjong Mad Monday". Bob Geldof will write an ode about it.
Crap! Monday we die?
There's so much to do, but I'm drawing a blank. The only thing that comes to mind is to do some raping.
Quick catch a learjet to Reykjavik. They are having a "Nordic End of the World Open the Gates of Valhalla Volcano Booze Up". Mental as Anything is being bussed in to play their 1982 classic "Berserk Warriors" at midnight. Those Vikings really do love to fight and play. The ratio of Swedish, Norwegian and Finnish Air Hostesses to invited male guests will be ten to one. No need for raping. A little pillaging of the local bars will be fine. The door prize is that you get to choose who gets thrown in the crater just before the big bang and global financial meltdown happens. The last song on the dance floor will be Madonna's "Burning Up".
If all the gold in the world has no value, I will gladly take it off of everyone's hands. I'll even exchange you something 'useful'--manure. Just hold out your hands and give me a minute.
I've been eating a lot of fiber lately, so there's plenty to go around. Everyone just line up.
Very funny stuff...keep it coming.
It's best to use the time from now till Monday morning learning how to play a financial instrument.
NEWS FLASH...Latest report from secret penthouse ivory tower, sorry seedy underground bunker in downtown Melbourne. The queues are building now. Special agents are reporting in via txt from all over the place. The cat is definitely out of the bag. The bank run of all bank runs is on in earnest. The drip has turned into a tsunami. The tip of the iceberg has been breached. It’s all over red rover. The last straw has been foistered on the camel’s back. The fat lady is singing. The first domino is falling. (Please excuse me. The editor said to make the report interesting. I told him that the end of the known world should capture some people’s attention, but he is old school. I have run out of clichés and doing the graveyard Sunday shift on my first week of job experience I didn’t expect to be hit with such a career-epoch-defining, once in a lifetime, 2001 "Caveman hits bone"/Apocalypse Now “Flight of the Valkyries”/Planet of the Apes "Last scene on the beach", there I go again, moment !) People all over Australia have dropped their garden tools, turned off their transistor radios, left the beach, stopped shopping at Bunnings (Home Depot to you Yanks out there who are hours behind us here in the Great Southern Land and thus will be able to deal with things better as you have more firearms.) and are now driving helter-skelter to their local bank branch. The riot police have been called out at the larger branches. Old ladies with handbags are being given priority ticket numbers just like at the delicatessen. Plumbers and burly tradesmen have so far been few in number as most of their cash is elsewhere. Even Aussie Rules games have been abandoned. The only thing to be seen at the grounds now is marauding seagulls fighting over the quickly discarded chip packets and pie wrappers. The scavengers may be up for some competition though in the coming days as people realise that the money has dried up and they seek other ways of getting a meal. Quick thinking Goldman Sachs executives, who are able through superhuman powers to think of every permutation long before everyone else and who are so far ahead of the curve that they left the ballpark long after the home run was/has been/is being (tricky use of tenses here) hit, have set up a Zombie Alert Protection Squad (ZAPS) to be hired out at $50000 per hour to wealthy investors marooned behind their gated communities. Side flame-throwing Mercedes Benz and city commute helicopters are now in extreme demand. Sao Paolo has banned all such exports. The Bovespa has just imploded. The Zombie Futures dated June 1st, 2010 have now gone berserk and a second board has been opened. The peasants are revolting !
Please stay tuned for more information. Next Hour. Same time. Same Zombie Channel. Signing off. You can e-mail me updates on orsonwellian2010@controlthezombies.gs I need this job !
My Melbourne crack buddy, all is good in the Northern Colonies; Under 15 cricket this morning followed by beers and more beers. No signs of any sort of impending catastrophe, just another boozy Sunday. Did I bring the kids home?
Any White Cliffs around ?
A little past Rye beach on your way down to your beach house in Sorrento
Your avatar is suggestive. Subliminal advertising going on I think. Its making me hungry...A millisecond thought...You've helped me decide something. Lots of choices. It's now a lay-down misère.
Eureka !
Fish and chips for dinner.
Kosher of course
Kevin Osher, or Kosher to his mates, does own a fish shop near the Bay. How did you know ? Are you blessed with subliminal anticipation ?
welcome back mr dover...nice to see you brought your poodle with you this time.
some sobering thoughts
1)Where will Obama get the money to run for reelection?
2)Without the landlords (Goldman as the rentier class) what will the tenants do?
3)Pension funds are surviving on mark to model. What happens when the model breaks?
4)The US Socialist States of Obama has been working really hard to keep the poor in Amerika from the soup lines, which includes all manner of price and market manipulation, for all you my little ducklings. What happens when they lose the juice?
5)What happens when the bankrupt war in Afghanistan runs out of public funding, and all those jobs go begging, along with all the healthcare jobs we should have lost with real healthcare reform.
6)Be careful what you wish for, and be ready for that day.
Respectfully noted, but then again what happens if those 6 don't happen. Either way, we're screwed:
If changes do not happen soon enough a slow tortuous societal decline continues because the new socialist goverment with fascists leanings cannot sustain the former capitalistic free market way of life.
If it happens too quickly, we enter a depression that rocks evryone to their senses more quickly, but with a much more devastating short term result.
Possible solutions to at least least some of the questions:
Don't worry about money for reelection. It will take care of itself. The sooner lobyist and special interest are stiphened by law in their contribution capabilities, the better for the masses.
End the war and use the money saved to help support the veterans with jobs and entrenpreneurial grants.
Over time, creative destruct the military industrial complex companies into more life enhancing companies with the help of the defense department astounding brain capabilities. They could help in the development of a new technological boom to support free market growth.
Some obvious areas needed for future survival are safe (small and large) efficient nuclear reactors. Without a sustainable energy source there will be no GDP growth.
A Rubik's Cube can always be solved in 27 moves no matter how diabolical the configuration. Very clever people at this moment are trying to work out the next steps on the global cube...
Certain command and control structures will need to be respected. Both the governed and government have certain roles and responsibilities.
Managing expectations is a key part of any success in statecraft. All the negotiating parties and individuals must accept the long-term vision for the World. Good leaders bring the people along with them, but as Moses did must assign them a "place". Most human beings will always ask themselves the question “What is in it for me ?” Such selfishness must be tempered with the idea that we are all connected in some way. Leaders must enunciate a realistic vision, goal and mission. However people must submit to the wishes of a higher power. They must show gratitude for the gift of life and heed G-d’s wishes. If they are unsure what these might be then they should listen to his righteous and divinely mandated representatives down here on terra firma.
Speaking of cobs and pens...
I went for a walk on the beach yesterday post shul. Whilst watching the sunset five black swans were ducking their heads under the water in the shallows fishing for some treats. (Swans don't normally like seawater but these ones have found a little sanctuary over the past nine months. Animals, and especially birds will always settle where they feel safe.) A small flock of seagulls was bobbing by their side. It was 23 degrees Celsius at dusk. A lovely Melbourne Autumn day. The interconnectedness of the universe will become easier to see as events unfold. How is that onomatopoeic Icelandic volcano going by the way ? G-d slowing everyone down peut-être...
The market was down on options ex day two months in a row.... And maybe two more days in between ??. This signals Armagaedon or just the usual 3rd Friday chicanery ?.
A govt agency has once again interfered on options ex day, luckily to wipe out the deep in the money call options from the parabolic melt up.. The buyers of cheap deep out of the money puts are happy. I'm sure we'll see the SEC look into that ...
Black swans seem to be very common these days..
It didn't take long for Gollem's Sack to float the rogue trader theory again... And they made him a Frenchy for those appreciate irony.
It just means JPM is king...The Holy Grail in America
Has been & always will be. G.S is merely a sacrificial offering by the TPTB
Seriously though. Why would anyone want to keep their money in Goldman Sachs in light of the recent allegations. How could you sleep at night knowing your money was integrated with such corruption ? What would your freinds think if you admitted you had an account there ? Bank run here we come ! Maybe they will get a taste of their own medicine in a similar negative spiral re massive withdrawals aka Lehman and Bear Stearns.
Those front doors of the banks this coming Monday morning sharp will be like the New Years Day sales at big department stores the world over. Only the burly will survive...
Hedge fund managers the world over will not know whether they are Arthur or Martha !
Confusion always precedes understanding...
What is not addressed is one thing.
We had an unprecedented market event and Goldman made a killing. The law of averages would suggest that if they were in the right place at the right time then they knew well in dadvance that these events would occur because they were putting into motion they exact events that would lead to THEE event. They were shorting the markets causing never before seen drops in order to induce a payout and buy at the bottoms.
That is why a market that looked like a lost cause and placed us in a depression has now been defended by the very same firm that in Q3 2009 had one day of trading losses. And trust me when I tell you that one day was intentional.
Goldman Sachs crashed the economy in order to destroy competitors and make money because they knew they had the right Federal pieces and media contacts (CNBC) to get away with it and they did...Until now.
Um, didn't Goldman lose money in the initial crash. Yes the ultimately came out OK but they had the help of some well placed friends and former CEO's.
I am not saying GS was not greedy but perhaps like all the other big banks and trading houses, think Bear Stearns & UBS, most of the team likely had no clue and no one bothered to see what risks were being run to generate out-sized profits.
As far as we know Goldman did not do a Paulson, though the AIG maneuver was slick, it was a CYA move not a land grab.
AIG should have failed and Goldman should have been broke. It wasn't divine internvention that saved them, it was their connection to Hank Paulson (not the hedge fund owner.) This is fact.
As Confucius say...
"Velly interesting !"