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.

Comments

[What_Me_Worry]

RICO charges, if there is any justice left in this country.

Obviously, this latest debacle is just the tip of the iceberg when it concerns GS.  Bring ole' Hank back for some real questioning, on the witness stand.

[walküre]

RICO against Goldman?

Why? All they did was to enrich Americans and increase the reach of the US banking cabal in the world.

If anything from a purely American nationalist standpoint, Goldman should receive a medal of honor. They were acting as a branch of the Pentagon in this case conducting financial warfare.

Look at the loosers! The US sold massive amounts of junk paper to trusting global investors. All paper was accredited by the zeal of approval from the rating cabal.

Now you tell me how that was bad for the US? Just because some Americans can't get 150% LTV on their McMansions to afford an RV, a boat and a couple ATVs with an average $50,000 p.a salary?

C'mon even you should understand the game had to stop.

Now the US banking and rating cabal are attacking Europe's weakest members which by the way were excellent clients of the cabal not long ago and now that it's time to short these puppies, the ratings go down.

Conspiracy? Only if you look the other way.

[Kayman]

Monsieur Walkure:

The obvious problem is both ethical, business acumen, and criminal.

1. G.S. is shorting with inside information gotten from their banking relationship with WaMu- presumably their customer to whom they at least should have a duty of loyalty if not a fiduciary duty.  Without their "banker" relationship with Wamu they would not have information which otherwise was not available to everyone else. Please do not insult me by throwing up the "Chinese Wall" defense. Even in the slums of China- the kids and neighbors know when Momma and Pappa are doing it, and in the hallways and rooms at GS please do not tell me that information is not shared amongst the rats.

2. Lacking a modest amount of business acumen, GS robs and plunders the very people they ought to be supporting for the long term.  Their short-sightedness would have lost them most of their business, except for their insider ( Hank Paulson) who saved their sorry asses, after killing off the competition- Bear and Lehman.  GS's near-monopoly (now) is how they are printing money (so-to-speak).

3. Finally, if the government really wants to look, fraud and larceny will not be hard to find. And it certainly will not be limited to this Abacus deal.  When sleazeballs get the big wheel turning, they get careless and believe they are immune from challenge of any kind.

The only thing that will save GS now will be to break them up, and some of the rats will find a home on the leftovers.