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Goldman a Criminal? What's the Charge?
As of this writing there is no clarity as to what exactly the DOJ is
looking at in the Goldman case.
The WSJ has this as the status:
Federal prosecutors are conducting a criminal
investigation into whether Goldman Sachs Group Inc. or its employees
committed securities fraud in connection with its mortgage trading,
people familiar with the probe say.
What could a Federal
prosecutor be looking at is a question to ask. I wish I knew. There is a
lot riding on the outcome of this.
There are some things that are available to the public. I have some
question about some it. Quite frankly it does not pass my smell test.
Unfortunately I am not a lawyer, and therefore can’t really make any
conclusions. Possibly those lawyers who read this well help us bloggers
out.
We know from the Senate testimony by Josh Birnbaum that his unit, the
Structured Products Group “SPG” shorted the common stock of public
companies as part of their hedging strategy. Josh touted this in his
annual review. The SPG made big money in a bad market. They made over
three billion in revenues from shorts.
This from an Email from Josh in July of 2007:
Since 6/21, the SPG Trading group has paused in our
equities trading while we work with management and market risk to come
up with quantitative limits for these positions. It sounds like we are
getting close to having something systematic in place, but in the
meantime, we are looking for approval to opportunistically buy puts on
certain mortgage originators, insurers, mortgage REITs, broker-dealers,
and other related names exposed to RMBS, CMBS.
We also know from the testimony that Josh shorted the stock of Bear
Sterns as part of his hedging strategy. He said that the SBG group used
“mostly” puts in their activity. He described that he took a “macro
view” of the market and hedged his risks accordingly. Josh made the link
to his view of a declining sub prime/Alt-A market and the stocks of the
financial companies who would be most impacted if things went south in
high yield mortgage land.
Also in the testimony Josh stated that he had a number of names that he
used in his short hedging strategy. That was an important statement.
From the public documents made available from the hearing is the
following. I believe this is the trading/hedging positions for the SPG.
My reading of this is that they were short Bear Stearns (via puts). They
also were short WaMu.
Now consider this intro from a story
in the WSJ. Clearly GS was doing big business with WaMu and
their sub prime originator Long Beach Mortgage Corp.
Washington Mutual Inc. and its Long Beach Mortgage Co.
subprime-lending unit rang up one of the worst failures in U.S. history.
Left in the wake were billions of dollars of soured loans and
questionable lending practices. But when times were better, the two
companies had a powerful partner on Wall Street: Goldman Sachs Group
Inc.
From the same WSJ article is this information:
May 10, 2007: Goldman and WaMu underwrite bonds backed by
$532.6 million in mortgages.
So back in May of 07 GS puts a half-billion dollar deal together with
WaMu and uses mortgages from Long Beach as part of the deal. Just as a
guess GS had a pretty broad look at the quality of the mortgages at Long
Beach and WaMu. The SPG traded these securities. They knew that the
deal was a bomb, they probably connected the dots that WaMu should be on
the “conviction short list”. A little help for Josh?
I am not sure how to describe that situation. I was looking for shorts
in the summer of 2007. I wish that I had had the chance to look over the
books of Long Beach before I made my choice. It would have made the job
quite a bit easier.
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I am disapointed in the ZH readers (just this one time). Folks I was afraid to say it for fear of the squid. But to me this is an Insider Trading case. Josh and the boys and girls had insider information on the loan book of many of the companies they went short. They did not make great hedges. They used their position as middleman and created shorts of the common stocks of the companies they worked for.
I put this comment up so if and when the details prove me right I can come back to this comment. I am pretty sure I am right. If I am, this is going to sink GS.
I think #325966 Brian O'Flanagan has a good point. What do we think the charges are that GS should answer?
There have been so many articles posted about GS and its activities. There was an article on a blog site (may have been ZH!) about a year ago that outlined 14 such tricks employed by street hustlers that can be viewed to be directly portable into financial circles.
It is doubtful that GS will be proven guilty of any crime, without caveat emptor being overturned and the 4,000 paragraphs of disclaimers being shown to be invalid in any crime that has been committed. Along the lines of a disclaimer given to the host before a visit that says "I may steal all your furniture in your house after I visit you for drinks" and this being insufficient to refute the charge of theft.
Speaking of caveat emptor did everyone see Kaufman on the panel saying everyone is a grown up and caveat emptor does not apply at the Senate enquiry? D'uh..its GS defence that it does apply!
I couldn't find the list of 14 or so street hustles but here is an article that goes a little towards the concept:
http://www.business-standard.com/india/storypage.php?autono=298108
For GS to be found to be the Al Capone of the 21st century, it will be necessary to spot illegal acts that cannot be defended by disclaimers. It is a little ambitious for non-lawyers to know what will stick, suggesting that the law is ineffective in determining guilt either in the face of caveat emptor or disclaimers or not.
Typical criminal charges within finance cover Insider Trading (Mr O'Flanagans persepctive), "banging the close" in securities (ZH perspective) and Fraud (SEC perspective)
Other criminal acts that GS might need to defend are; Tax Evasion, Perjury, Racketeering, Blackmail, Extortion and Bribery to name but a few. I will leave out pimping, drug running and financing of terrorist activities.
These potential criminal charges will need the burden of evidence or they will be viewed as spurrilous and malicious and liable to counter suit. I am pretty sure that any GS client can bring any charge on any of these counts if they wanted. If GS has committed harm, then prosecute and be damned, if it has committed no harm then let's clear the air and stop whining!
I am not sure what the charge would be for subverting the rule of law at the Government level, but more importantly, what is the recourse if the rule of law is not competent to prosecute any of these charges or simply too corrupted.
Bit of a long bleat, but it was clear to me that Josh Birnbaum had zero intention of telling the truth, the whole truth and nothing but the truth. He acts for himself and not for anyone else. It is this meanness of spirit that a law court could prosecute as perjury if it had the whit and ability.
Should we start a national campaign (to be rolled out globally) where we bring test criminal cases on behalf of the victims?
Agree with the other posters that the whole GS thing is a distraction by this admin to give the FED even more power, while the real problem with with FRE (phony) and FMN (fraudy) and still is. I didn't need any special access to GS CDO information to short WM, LEH, MS, etc. using puts all through 2008 so the fact GS was doing it too doesn't bother me at all. This is why there's always two sides to every trade, long and short otherwise there is no market! What bothers me is the AIG bailout and Maiden Lane I, II, and III and the failure to pass any bill to audit the FED. This GS thing is just a minor distraction for the sheepie.
YK: Cheka
All-Russian Extraordinary Commission for Combating Counter Revolution and Sabotage
Case against Comrade Goldman et al:
Centrally Planned Monolith of Wall Street Socialized Crony Oligarchy.
Charges:
1. Left deviating Trotskyite agitation.
2. Counter revolutionary petty bourgeoisie sabotage.
3. Anti-socialist wrecking.
4. Deviant Goldmanite baldness....
Comrade Blank-dick-fein:
"Guilty. Sentenced to 20 years hard labor Kolyma Gold mines.... BAHahaha...."
Remember all those REITs they were doing secondaries for? Its been about a year now, but Goldman brought out a secondary, then switched the secondary from a hold to a buy, or a sell to a conviction buy. This was the same time Goldman was getting in trouble for leaking its conviction buy list to a few select clients.
We don't need to file criminal charges against GS. GS is a monopoly, and monopolies are illegal in the US. So don't despair or get tidys all wadded up, GS and others will be properly broken up and we'll reset Free Market good for another century.
The definition of conspiracy in Federal law is wide-open enough that virtually any one ever charged with in Fed court has been convicted...no doubt 90 percent population could be convicted of conspiracy in Fed court if DOJ wanted you, even if you are Ward Cleaver.
Not that I don't think GSacs committed real crime, fraud is obviously at top of list, but once in Fed targets, you would have to squeaky clean, anal about procedures, and never say anything to Feds about anything (Martha are you listening) to avoid being convicted by them for something, if they really want you convicted. Just generally, Fed courts have extremely high conviction rates, something like 95 percent. If you are charged with conspiracy, you are really likely to get convicted. But I'm not a lawyer, maybe some DOJer can correct me.
The smell test revolves around:
1. After many, many months the SEC goes after GS in sync with the shirtshow in DC over "financial reform". (Is this their best shot?)
2. In a civil case, typically those who suffer loss file the lawsuit. Where are the Abacus bag holders?
3. The Dems think they need to draw blood for Nov. That is so last week. The "recovery" will render that moot.
4. The DOJ is poking around because, well, someone told them to. Not because there is a crime scene.
pure politics
Lord BankMine has more\smarter\better lawers than the SEC\DOJ on this, and way more staying power. The WH\Dems will bail because they'll come to the realization that taking credit for the "recovery" (and a bit of Rep bashing) will give them far more mileage come November than just shirting all over GS. The SEC\DOJ will bail on this because, well, someone will tell them to.
RegFD:
1. The Dems will win in Nov, because of #2 below.
2. The Reps will miss out, because very few people drink tea in the USA.
3. I bot a bagload of GS today.
tradesafe
torture is a crime, US courts have consistently convicted people for torture in the past, even during brutal wars like WW2 and Vietnam. Several US soldiers fighting in Vietnam were convicted for torturing when a photo of them waterboarding was publicized. By such precendents, waterboarding is considered torture in US law and international law has long labelled water boarding as torture. This is why US state prison guards and local police are not known to practice waterboarding, they know it would be highly illegal and if they admitted to doing it, they would be convicted for treating a US citizen in this manner.
But no one has arrested and tried any torturers for their work in Iraq or in US since 9/11.
People were mad about 9/11, so we ignored clear cut existing law in regards to torture...its all politics....has nothing to do with what is legal or illegal or whether a crime was committed or not, politically Obama chose not pursue Cheney open admission he condoned waterboarding...Obama did not want to get bogged down with enforcing laws....its all poltics...
l
What I read was that upon returning to "the tank" where Senators can talk openly and without fear of "reporting" that the Jewish Senator from Michigan Carl Levin was heard to exclaim with nodding approval from both left and right both "god-damn friggin' Jews. They're gonna pay this time."
Well our friend Max Keiser might suggest charging them with terrorism. It is commonly known how easy it is then to just call in a chopper or a drone to dispatch the bastards... happens all the time... perfectly legal... no problem...
http://www.youtube.com/watch?v=LoQmuWvyEO8
sacrifice Goldman ... and pray.
dear mother god, "Goldman" you may want to find a new name the fiat mastermind /
regards your humble down trodden servant
dumpster
There is a whole lot more to this business than meets the eye. I don't think the DOJ or the SEC or public indignation are the drivers for this.
It's the Fed and the Treasury.
The Fed has some serious problems. Read both James Grant (for good, sensible reasons why Treasuries are a buy) and David Rosenberg (for equally good, sensible reasons why Treasuries are to be sold). Maybe, it's the other way around: in any event the outlook is a massive cash dollar liquidity squeeze! There are other non- fixed income demands on dollar liquidity as well.
Problem number two orbits monetary policy in the US. It is now made by the swing oil producer, Saudi Arabia. The Saudis like money but they like money that is worth something better. When the swing producer is ineffectual, the upper bound price - where the price causes demand destruction - sets the crude/dollar peg. At the point where prices stabilize either by the actions of the swing producer or by 'fate' US monetary policy is irrelevant.
Both the liquidity issue and the loss of monetary control are huge, interrelated problems for the Fed.
The crude oil/dollar trade is the only one that matters. If crude becomes a speculative asset the dollar weakens (temporarily) because the oil price skyrockets. The outcome is a general economic collapse. When crude is not a speculative asset with a stable price relationship the result is a hardening dollar, exchangeable for crude on demand.
A hard dollar is massively deflationary; people hoard it. A hard dollar creates a preference for cash currency which is fatal to both other currencies as well as dollar denominated debt. Hence the panic in Eurolandia, China and on Constitution Avenue. The Fed and the Treasury along with the other countries that use oil and have economies are between the devil and the deep blue sea!
Peak oil is real, we are living the consequences right now. It's going to kick your ass, Blankfein's too!
Bernanke may be a knave but he is brilliant, a true 'Dr Evil'. He realizes that he cannot break the dollar/crude peg. Printing currency - money - drives the stock market upward; equities are a liquidity trap. So is oil ... money printing is a positive feedback loop that will certainly destroy the USA economy. I have said since this crisis began that if the Fed got into trouble it would push one of its zombies into the abyss ... to burst the liquidity trap and trigger a flight toward Treasuries.
Bernanke's 'least bad' choice is to sacrifice Goldman ... and pray.
The best choice is energy conservation. Heaven forbid that the establishment might attempt to use common sense for once ...
peak debt is real...more oil and gas is being found every day in US with new drilling technologies...if price of oil stays high for a decade, tons of alternatives will be developed and price of both, oil and alternatives will drop...high oil prices cause unemployment in US because money leaves country (if oil was cheap and oil tax high, at least US govt would respend tax dollars here) once unemployment is high, there is deflation, and oil price and all other assets gone down in price see spring 2008, falll 2008...commodities always blow off at end of bubbly cycle...we had a rebound that is peaking...oil prices will come back down...peak oil as you think of it is not really the issue...not that certain commodities availability does not wax and wane and supply and demand adjust, but oil will not be this high for decades to come
Peak debt is connected with peak oil.
For the rest, pricing, money, it does not stand.
The free/non free (it does not matter) market does not provide new solutions, it structures around solutions technologically possible.
For your stuff to turn real, the new solutions to be available have to be more efficient than the current solutions.
Even if you dig in the big oil business manipulating the stage, sooner or later, you'll have to face that a lot of solutions are on the scene but all of them are outcompeted by a certain kind of oil because this is the solution providing the best advantages.
WaMu. Just the mention of that POS name makes my blood boil. Took a major bond shanking. Respectfully request you never mention that name ever again, Bruce.
throw much shit on the wall see what sticks
where's their shit theirs smell
I smell a spike in bullish sentiment brewing.
yet another distraction
C'mon Bruce. Give us a break. Do you need a post for Ritholz's article?
You write that you have no clarity on the Goldman case. Then why bother?
I wrote that there is no clarity from the DOJ as to what charges may be coming. This piec connects the dots to an insider case. You did not get that??
What's the charge? Blankfein turned them into a hedge fund.
Don't tarnish the name of legit hedge funds like that. More like a mafia crew. Wait, don't tarnish the name of good mafia crews like that.
Actually, I think they are doing as they are expected to. I would rather not have investors et al blame them for their own follies of not investigating their own investments thouroughly and taking them for granted. After all have we not seen the S&P500 soar to 1217 yet again during this new rally based on investor stupidity ? Who are investors going to blame when the next (inevitable) crash happens ?
Come on everybody, this should be a lay-up for ZH regulars. Let's go: Charges, criminal, Goldman, 1,2,3. This should be an open and shut case right? Where's the beef?
If you cheer the government on to crush Goldman because...well just because it's the right thing to do and everyone knows they're part of the problem and not part of the solution and they make a lot of money and Tyler hates them and you want your bubble back and you're really angry and...
Well then you might not be so happy about the next target crushed by the government on it-just-feels-right grounds.
Yeah, let's get back to the important stuff, like the WAR ON DRUGS. These pot smokers are driving this country to the brink.
Long as that target ain't deez nuts
Yeah, that's kind of the point.
That and while this circus is running it takes attention away from more important things like the administration's plans to cap and trade your ass into oblivion and give your money away to non-citizens inside and outside the country.
As William Black said before Levin's committee, fraud is both a civil as well as a criminal offense with the only difference being in the level of proof needed to gain a conviction.
If that is the case and IANAL, then the DOJ could just be reviewing the SEC fraud charges to see if they can plausibly bring criminal charges though why this was not done prior to the SEC's announcement was puzzling and it was not if you believe Goldman counsel Greg Palm's assertion that there had been 'no contact' between Goldman and DOJ prior to the SEC bringing its charge.
There was also a curious moment during WAMU CEO Kerry Killinger's appearance before Levin's committee. Senator Levin was reading some of Killinger's e-mail pertaining to the relationship with Goldman. Killinger wrote 'Goldman, those guys are traders!' and thus he did not want to bring the matter being considered to their attention. Unfortunately I forget what that matter was but you transcript sleuths might want to take a look because Killinger was obviously concerned!
It's a good day to have a squid in your shorts.
If they have any sense worth a Spitzer this lawyer thinks they are trying to construct a RICO action tying an originator, a rating agency, an investment bank and an insurer in one criminal racketeering enterprise.
And a former Sec/Treasury.
Charge them with whatever they charged those guys at Ruby Ridge with... selling a dangerous product or whatever... Then go in, guns blazing, and just massacre the whole place. Simple, yeah?
Not that it matters here, but the Ruby Ridge guy was wanted for failure to appear at court (on a previous charge involving an illegally modified shotgun).
seven,
As an FYI...the undercover agent asked the individual to cut the shotgun off a quarter inch shorter than legal...several times...until the guy broke down and did it.
Some would call this the definition of entrapment.
Just setting the record straight on the events leading up to a Federal sniper shooting an unarmed female holding an infant in her arms.
I lived in the region at the time.
The above post accurately reflects my understanding of the events in question.
Yeah, I think it was Waco?
Either way they got the bad guys at Ruby Ridge...shot that unarmed pregnant woman right through the head. She was probably an "enemy combatant."
The best way to remove the unfair cloud of negativity hanging over GS is to make public all the details of:
1. Why did Bear Stearns go down. Who shorted it ?
2. Why did Lehman go down?
3. Why did AIG really get bailed out and 100cents/$ paid to counterparties?
What exactly was the role of the NY Fed and WH in all this. What were the pressures from Foreigners on all this?
Why was the stock market allowed to collapse to 666 on SPX ( a clearly ridiculous level)? Where was the PPT put in place after the crash of 1987 exactly to prevent such panics? Was the crash engineered to get congress to sign off on the ridiculous TARP program and all the associated goodies?
Lets put all the emails and other info out there in the public realm - so all this unfair wall street bashing can be stopped.
like that 550 billion run on the banks in two hours scaring our dear leaders.
Who initiated that run?
Yes, PF, investigations of those questions regarding Bear Stearns, Lehman and AIG (as well as Fannie and Freddie etc.) will expose the illegal relationship between Goldman Sachs and Secretary of Treasury Hank Paulson, the former Goldman Sachs CEO. Under the cover of sensing what is happening in the turbulent markets of 2008, Hank Paulson was able to conspire directly with Lloyd Blankfein on sinking Goldman Sachs competitors. This is just one part of the overlapping criminal enterprises (RICO) that a real hard-nosed investigation could uncover.
Excellent questions.
I shorted the hell out of WM. Was my first real short and how I built what became a mighty stake lol
Good to be doing God's Work with Goldman for a change
"No, Lloyd, I'll show you what God's work looks like." -- God (v.1.0 -- Old Testament)
There is a lesson here: A big campaign donation will buy you a lot of slack when the candidate gets elected. But that runs out quickly if you then make him look like a patsy in front of the whole country. A little restraint, a little less arrogance might have produced a different outcome.
ultimately public perception trumps any insider power...of course power allows you to influence public perception greatly but ultimately you can not completely control people...unless maybe you lead No Korea...
And yes, their entitlement will bite their arses every time...like an embezzler that thinks just cause they got away with it the first few times, they will be able to do it forever, to a greater degree without ever getting caught...
Volcker was trying to save them from themselves, keep the system intact, but the brash, rich kids don't want to listen, this time is different, you old people don't know anything, I'm entitled...
what about insider trading? Haven't they been trading on material non public information (same can be said for Paulson & Co., no?)? Back in the day when I was a trader, my compliance people were all over us on MNI. Seems like a clear case to me.
Soon there will be a Conviction list at Goldman, but it won't be buy-sell-hold calls for various equities.
N1. I'll subscribe to that newsletter.
It must only APPEAR that the DOJ, aka Eric Folder, is doing something.
Much ado, etc...