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Goldman Pounding Continues As Cuomo Now Investigates Firm (And 7 Others) For Manipulating Ratings
There does not seem to pass a day anymore without Goldman having to do a daily trip to CVS to buy a barrel of KY. The NYT reports that today's criminal investigation comes courtesy of Ny AG Andrew Cuomo who is now investigating whether 8 banks provided misleading information to rating agencies in order to inflate grades of mortgage and other securities. The banks in question are Goldman Sachs, Morgan Stanley, UBS, Citigroup, Credit Suisse, Deutsche Bank, Crédit Agricole and Merrill Lynch. We are confident that unless "misleading information" is a euphemism for massive and totally unwarranted fees (and expenses), and oftentimes criminal leaks (Deep Shah comes to mind), Cuomo will find little to base an actual investigation on. Furthermore, as an escape mechanism, the rating agencies can always place the blame on Microsoft for creating a faulty Excel product which always #Ref'ed out whenever the agencies tried to put in anything less than infinite growth rates.
From the NYT:
The New York attorney general has started an investigation of eight banks to determine whether they provided misleading information to rating agencies in order to inflate the grades of certain mortgage securities, according to two people with knowledge of the investigation.
The investigation parallels federal inquiries into the business practices of a broad range of financial companies in the years before the collapse of the housing market.
Where those investigations have focused on interactions between the banks and their clients who bought mortgage securities, this one expands the scope of scrutiny to the interplay between banks and the agencies that rate their securities.
Contacted after subpoenas were issued by Mr. Cuomo’s office notifying the banks of his investigation, spokespeople for Morgan Stanley, Credit Suisse, UBS and Deutsche Bank declined to comment. Other banks did not immediately respond to requests for comment.
In response to questions for the Times article in April, a Goldman Sachs spokesman, Samuel Robinson, said: “Any suggestion that Goldman Sachs improperly influenced rating agencies is without foundation. We relied on the independence of the ratings agencies’ processes and the ratings they assigned.”
Goldman, which is already under investigation by federal prosecutors, has been defending itself against civil fraud accusations made in a complaint last month by the Securities and Exchange Commission. The deal at the heart of that complaint — called Abacus 2007-AC1 — was devised in part by a former Fitch Ratings employee named Shin Yukawa, whom Goldman recruited in 2005.
And while most of the above is a strawman, here is the part that could actually lead to something:
Mr. Cuomo was also concerned about the agencies’ fee arrangements,
which allowed banks to shop their deals among the agencies for the best
rating. To end that inquiry, the agencies agreed to change their models
so they would be paid for any work they did for banks, even if those
banks did not select them to rate a given deal.
Perhaps Mr. Cuomo will be surprised to learn that none other than the Federal Reserve has been recently shopping around for ratings when it comes to the ratings of toxic crap that the Fed backstops as part of its infinity +1 guarantee programs, in this particular case, focusing on the TALF, a topic Zero Hedge has discussed extensively in the past.
The NYT concludes:
A Senate subcommittee found last month that Wall Street workers had
been intimately involved in the rating process. In one series of e-mail
messages the committee released, for instance, a Goldman worker tried
to persuade Standard & Poor’s to allow Goldman to handle a deal in
a way that the analyst found questionable.The S.& P. employee, Chris Meyer, expressed his frustration in an
e-mail message to a colleague in which he wrote, “I can’t tell you how
upset I have been in reviewing these trades.”“They’ve done something like 15 of these trades, all without a hitch.
You can understand why they’d be upset,” Mr. Meyer added, “to have me
come along and say they will need to make fundamental adjustments to
the program.”At Goldman, there was even a phrase for the way bankers put together
mortgage securities. The practice was known as “ratings arbitrage,”
according to former workers. The idea was to find ways to put the very
worst bonds into a deal for a given rating. The cheaper the bonds, the
greater the profit to the bank.
At this point any investigation is likely far too late: it appears Moody's will soon be shuttering its business now that even kindly grandpa Buffett is abandoning the sinking ship, courtesy of his sale of MCO shares a few days after the company received a (then material and non-public) Wells notice from the SEC. As for the true cause of the market destabilization, which is nothing more than an enforced monopoly by the Fed on the top 4 banks, and especially Goldman Sachs, as seen by their perfect trading record in Q1, the DOJ anti-trust group will likely not focus on this until it is far too late. In the meantime, this is surely just another factor to precipitate today's upcoming laughable zero volume melt up.
h/t Shizzle
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Like the watered down Fed Audit bill, this is all political optics, a hollow and cynical attempt designed to deceive an angry population.
All these investigations Iam sure are a big inconvenience to the legal depts at these firms. Iam sure they are not happy about all the weekeng golf plans that they have had to cancel. Darn nuisance.
Leads, yeah, sure. I'll just check with the boys down at the crime lab, they've got four more detectives working on the case. They got us working in shifts!
At least you got your Creedence tape.
Until the top dogs go to jail, who gives a shit.
Despopium: a statement that is half hopium, half despair.
No one in power in the US EVER does anything wrong. Are they PERFECT? NO! And they often admit to not having properly communicated with the sheeple. If only the sheeple were made to understand then they would worship at their feet. So there is always more work to be done( For BIG bonuses ofcourse!).
Don't you read the news? GS, JPM, C, and BAC ARE perfect -- at least this quarter. Now, MS on the other hand, is only 93.65% perfect. Like me.
maybe the NY AG would also wish to dig deeper into the HUD scandals from the late 90s? oh right, the statue of limitations has expired already. bummer.
The Wolf watching the chickens!!! +100
It's called animal husbandry, sheparding. It's the "tradition" of how to be. Be nice to your cow. You're burger tastes better that way.
The first line of "A Tale of Two Cities" was never more relevant than today.
If I'm Ladbrokes in the UK laying odds, I would say the likelihood that we get through 2010 without at least one Goldman Sachs employee being gunned down is 20:1. The anger is there, the arrogance is there, the guilt is there. At least one of those 500 million guns in private ownership in the US will be used to settle a score, real or imagined. I am not calling for this; I am merely laying odds.
If I'm spending my days at 85 Broad or 200 West, I'd be dressing down and varying my time and route.
Oh, and make sure your affairs are in order.
Please don't fuel the fire. I keep running into GS employees - randomly, at Meetups, bars, shows. They are good kids sucked up into a company culture.
The sick thing is that - at least in one case - they are liberal subjectivists. That's... fucking bizarre, right? It's weird that they really truly think that they're doing the right thing, and that they feel no shame about what it's been allowed to become.
The company used to build real businesses. There are tons of boutiques that can pick up the slack... the world can survive their failure. It's OK, the guys working there will find new jobs, found new companies, and build anew.
Don't be brutish.
You see! It all points back to the 2 men behind the green curtain: Buffett and Gates. :-P
LOL. Buffet does kind of look like the Wizard of Oz.
It all makes sense now Yellow Brick Road (gold standard) to Emerald City (dollar)
Lion (government) has no courage, Tin man (industry) has no heart and the Scarecrow (has no brain) agriculture.
Looks like we are close to pulling back the curtain and seeing that the Wizard was a snake oil salesman, but not to the point of clicking our silver heels together.
EDIT: might make a good t shirt. Buffet as the wizard
Yes and Mr Cuomo will also be running to be the governor of NY.
Somehow I do not think he will be AG when the time comes to go to trial and the case will be settled quietly.
"In Bakersfield, California, a Mexican strawberry picker with an income of $14,000 and no English was lent every penny he needed to buy a house for $720,000"
how does one change this story in order to get a AAA rating?
Remember in 2007 there had never been a nationwide broad decline in property prices in any year since ww2. So forget the strawberry picker. Focus on the house. Worth 720,000 right. Unlikely to go down much if at all in value right?( remember we are in 2006-2007). OK what if I created 2 trances out of this mortgage - a 500,000 tranche that has first dibs on any and all cash flows coming from the house and first dibs on the proceeds of any foreclosure. So you would have to have the house value decline by 30% or more before you lose a penny. Seems pretty darn safe right? AAA.
The other piece - the 220K piece - we'll let the big boys deal with that. But the Senior Tranche is AAA - no risk of losing money unless you get an armegeddon/planet of the apes scenario where property prices decline 30%!!!
OK - now we are in a Planet Of The Apes scenario - but in 2006-2007 who knew?
Thats the logic anyway.
The senior tranche is super safe because it gets ALL the cash flows? And just what are those cash flows? Oh, yeah. Zero. Because he doesn't have any income. And lots of people involved in the process knew it. So, what you are really saying is that the "thinking at the time" was let's package up a bunch of fraudulent loans, have them blessed by the pope, and sell them and hope that when the stuff hits the fan, people will not hold us responsible.
Specifically, you throw a whole bunch of those loans into a pool and a whole bunch of those pools into a CDO. Then you divide the CDO into A,B,C & D tranches and sell them as securities. If those strawberry pickers start missing mortgage payments the revenue drop comes out of the hides of the owners of the D tranche first, then C....lastly the A - sort of like if a jetliner runs short on steak dinners they stop offering it to the cheap seats first while still offering it to first class. The D tranche therefore has the highest default risk but they get paid a higher coupon when things are working, the A tranche, vice-versa... and B & C are in between. With this structure the A tranche and only the A tranche can hope to get a triple-A rating based on the "safety" of continuing cash flows. Obviously, when enough mortgage payments stopped rolling in on deals like these it overwhelmed everything. Bad assumptions were made about ever-accelerating home prices and historical mortgage data did not really apply here given the ridiculously easy credit.
More generally, if anyone gives you a hard time about all this financial alchemy you point out that what you are doing is completely in sync with the federal government's mandates to extend home ownership and mortgage credit to traditionally "underrepresented" groups of people. You have the hard data and charts to prove your results in this area and if anyone so much as utters a "yeah, but..." you call them a fucking racist.
Ta daaaa...
A really good explanation of this rating agency alchemy can be found in the book "Econned" by Yves Smith. (By the way, she is doing a book signing today up near Columbia U--check out Nakedcapitalism.com.) The essential question is how can you take something that is rated BB and partition that into tranches of which a goodly proportion are rated AAA. It's absolute nonsense. The rating agencies are part and parcel of this fraud and should be investigated not just as recipients of bad information from banks, as the Cuomo investigation would have you believe, but as culpable malfactors in their own right. Their employees are people who couldn't make it in the more prestigious investment banks and were quite prepared to do whatever it takes to please the dominant predators on the food chain. There are plenty of sleazy types in these agencies that damn well knew that they were propagating fraud, and they should be held to account. The rating agencies do not deserve to get off scot free--they played a central role in the ongoing destruction of millions of innocent lives that will result from this, for all intents and purposes, engineered economic meltdown. The threat of lower ratings if they are investigated is no different from TPTB sinking markets to get their way. It's financial terrorism.
"how does one change this story in order to get a AAA rating?"
EASY
Shred all the loan documents on the way to the securitizer's office...
When you go to foreclose... tell the judge your dog ate the mortgage...
And hope two more banks don't show up to foreclose on the same primary mortgage on the same house in Florida and tell the court they lost the documents as well...
PETTICOAT INJUNCTION:
http://williambanzai7.blogspot.com/2010/05/uncle-warrens-kinda-moody-at....
"PETTICOAT INJUNCTION:"
For a minute I thought the SEC was making their own porn:
"Fun with Dick and (Mary) Jane" DVD 48 minutes.
Features: Oral sex, anal, doggy, gang bang.
"Thelma and (Shelia) Louise" DVD 98 minutes.
Features: Bobble Head blow jobs, lesbo, strap-on, anal, dp.
"Tranny Porn IV: Reservoir Dogs" DVD 60 minutes.
Features: Romer, Kagen, S&M, bondage of CNBC "anchorettes," Tranny Rape of "good CNBC girls" with large microphone like objects, fettish porn....
"Kudlow and Cramer Need Rain" DVD 22 minutes.
Features: CNBC "anchorettes," guests, SEC and FDIC staff giving Larry and Jimmy golden showers, fettish porn, disturbing porn.
Free SEC staff downloads. Ships next day, discrete "SEC Official Documents" pouch...
This will be a bullshit showing.......AG Cuomo will "investigate"...and find no wrong doings. Stop blaming the big banks...don;t you know it is truly God's work they do? Please leave the poor ratings agencies alone, for if we poke them enough they might cut the debt ratings of the US on spite. We know we don't deserve that....
I couldn't stop from laughing while I wrote this.....
Cuomo for President, Spitzer for Vice-President!
Mario?
Cuomo is an ass-clown and Spitzer is a thug. I'd rather live in Goldman's world (maybe I already am) than theirs.
ZZZZZZZZZZzzzzzzzzzzzzzzzzzzzzzzzz
Huh?
Oh, good morning.
Please wake me up when banksters are in handcuffs and going to jail. Until then, all else is jabber jawing or a way to Mafia companies and force them to payola out without ever admitting wrongdoing.
It is a dangerous world, when witch hunts themselves become cliche.
U.S.A.: http://williambanzai7.blogspot.com/2010/05/unidentified-securitised-asse...
Cuomo Needs Campaign Contributions
1. Cuomo talks tough.
2. Cuomo shows up at Wall Street with empty Campaign Bribe Sack.
(See the Shmucky Schumer Bernard Madoff Investments Campaign Bribe Affair: Shmucky licking loafers and giving an ass-kiss speech at the Lipstick Building offices of BMI to rousing cheers and stuffing of Schmucky's Campaign Bribe Sack...)
3. Cuomo gets Campaign Bribe Sack filled by Wall Street
4. Cuomo goes away.
5. Cuomo answers all further inquires: "What Wall Street?"
Nice work pointing out the Fed is doing what the banks did with ratings agencies.