This page has been archived and commenting is disabled.
The Goldman Thing
From The Daily Capitalist
Since most of our legislators, bureaucrats, and White House residents have no idea what caused the Great Recession, they are itching to blame it on someone, and that "someone" is Goldman Sachs, the arch-capitalist of our time. As if fraud was the cause of all of our problems. It's like blaming greed.
Let me first get it on the table: I am not defending Goldman Sachs. The point of this article is to defend free market capitalism which has been incorrectly branded as the villain in our economic crisis. If Goldman defrauded their clients, they should pay the price.
The information on this case is too new to evaluate, and without further analysis of the complaint and the facts, I will withhold judgment. I would like to review the Abacus 2007-AC1 prospectus or PPM and the allegations of misrepresentation and fraud before I condemn Goldman. I have analyzed similar deals in the past and I would like to compare this one to what I believe was the norm for disclosure.
It sounds bad for Goldman now, and while it may very well be all true, the government loves to trot out the juicy bits for press conferences which the press loves, such as Mr. Tourre's email. As you all know, (i) you can't always trust what prosecutors say and (ii) there's always more to the story.
I also have a healthy suspicion of "economic crimes." These are crimes not based on ethics, traditional crimes, or a violation of someones rights by the perpetrator, but are crimes "against the people" as defined by legislators or some economic czar. Not to stir up a debate here, but insider trading is one example of the government trying to create a "level playing field." The distinguished economist Henry Manne has spent a lifetime showing why that is incorrect and irrelevant.
Yet today many pro-capitalism economic writers were quick to criticize Goldman. Mish Shedlock came out with an article today that blasted Wall Street ethics:
Sadly, this business screws the client for a fee time and time again because there is no ethics, no sense of fiduciary responsibility, and no walls on separation of duty to prevent fraud. ...
You might wish to read his piece since it's very critical.
I don't mean to be blasé about this or be overly critical of Mish because I think he's one of the best economics writers, but anyone who has ever worked on Wall Street knows that the first thing anyone thinks about is how much money they can make off of deals. That's the goal, the motive, the driving force. And it's not new. Of course that doesn't excuse civil or criminal wrongs. But what it does mean is that you've got to look out for your own position and your due dil better be more than good. Caveat emptor. That's just the way it is and everyone knows it. I am sure you are all shocked by this revelation.
Yes, there are many fine people in the business who do put their clients' interests before their own. But so what. Do I wish that ethics were better? Of course. But don't be surprised when in a world where people lie awake at night thinking about how to make more money, some very big players lose money in a deal.
Here is the gist of the complaint as reported in the SEC press release:
According to the SEC’s complaint, filed in U.S. District Court for the Southern District of New York, the marketing materials for the CDO known as ABACUS 2007-AC1 (ABACUS) all represented that the RMBS portfolio underlying the CDO was selected by ACA Management LLC (ACA), a third party with expertise in analyzing credit risk in RMBS. The SEC alleges that undisclosed in the marketing materials and unbeknownst to investors, the Paulson & Co. hedge fund, which was poised to benefit if the RMBS defaulted, played a significant role in selecting which RMBS should make up the portfolio.
The SEC’s complaint alleges that after participating in the portfolio selection, Paulson & Co. effectively shorted the RMBS portfolio it helped select by entering into credit default swaps (CDS) with Goldman Sachs to buy protection on specific layers of the ABACUS capital structure. Given that financial short interest, Paulson & Co. had an economic incentive to select RMBS that it expected to experience credit events in the near future. Goldman Sachs did not disclose Paulson & Co.’s short position or its role in the collateral selection process in the term sheet, flip book, offering memorandum, or other marketing materials provided to investors.
The SEC alleges that Goldman Sachs Vice President Fabrice Tourre was principally responsible for ABACUS 2007-AC1. Tourre structured the transaction, prepared the marketing materials, and communicated directly with investors. Tourre allegedly knew of Paulson & Co.’s undisclosed short interest and role in the collateral selection process. In addition, he misled ACA into believing that Paulson & Co. invested approximately $200 million in the equity of ABACUS, indicating that Paulson & Co.’s interests in the collateral selection process were closely aligned with ACA’s interests. In reality, however, their interests were sharply conflicting.
According to the SEC’s complaint, the deal closed on April 26, 2007, and Paulson & Co. paid Goldman Sachs approximately $15 million for structuring and marketing ABACUS. By Oct. 24, 2007, 83 percent of the RMBS in the ABACUS portfolio had been downgraded and 17 percent were on negative watch. By Jan. 29, 2008, 99 percent of the portfolio had been downgraded.
Investors in the liabilities of ABACUS are alleged to have lost more than $1 billion.
Today Goldman sent this email out to their clients explaining their version of the case:
NEW YORK, April 16, 2010 -- The Goldman Sachs Group, Inc. (NYSE: GS) said today:
We are disappointed that the SEC would bring this action related to a single transaction in the face of an extensive record which establishes that the accusations are unfounded in law and fact.
We want to emphasize the following four critical points which were missing from the SEC’s complaint.
- Goldman Sachs Lost Money On The Transaction. Goldman Sachs, itself, lost more than $90 million. Our fee was $15 million. We were subject to losses and we did not structure a portfolio that was designed to lose money.
- Extensive Disclosure Was Provided. IKB, a large German Bank and sophisticated CDO market participant and ACA Capital Management, the two investors, were provided extensive information about the underlying mortgage securities. The risk associated with the securities was known to these investors, who were among the most sophisticated mortgage investors in the world. These investors also understood that a synthetic CDO transaction necessarily included both a long and short side.
- ACA, the Largest Investor, Selected The Portfolio. The portfolio of mortgage backed securities in this investment was selected by an independent and experienced portfolio selection agent after a series of discussions, including with Paulson & Co., which were entirely typical of these types of transactions. ACA had the largest exposure to the transaction, investing $951 million. It had an obligation and every incentive to select appropriate securities.
- Goldman Sachs Never Represented to ACA That Paulson Was Going To Be A Long Investor. The SEC’s complaint accuses the firm of fraud because it didn’t disclose to one party of the transaction who was on the other side of that transaction. As normal business practice, market makers do not disclose the identities of a buyer to a seller and vice versa. Goldman Sachs never represented to ACA that Paulson was going to be a long investor.
Background
In 2006, Paulson & Co. indicated its interest in positioning itself for a decline in housing prices. The firm structured a synthetic CDO through which Paulson benefited from a decline in the value of the underlying securities. Those on the other side of the transaction, IKB and ACA Capital Management, the portfolio selection agent, would benefit from an increase in the value of the securities. ACA had a long established track record as a CDO manager, having 26 separate transactions before the transaction. Goldman Sachs retained a significant residual long risk position in the transaction.
IKB, ACA and Paulson all provided their input regarding the composition of the underlying securities. ACA ultimately and independently approved the selection of 90 Residential Mortgage Backed Securities, which it stood behind as the portfolio selection agent and the largest investor in the transaction.
The offering documents for the transaction included every underlying mortgage security. The offering documents for each of these RMBS in turn disclosed the various categories of information required by the SEC, including detailed information concerning the mortgages held by the trust that issued the RMBS.
Any investor losses result from the overall negative performance of the entire sector, not because of which particular securities ended in the reference portfolio or how they were selected.
The transaction was not created as a way for Goldman Sachs to short the subprime market. To the contrary, Goldman Sachs’s substantial long position in the transaction lost money for the firm.
Goldman isn't going to role over on this one so the SEC has a huge fight on its hands.
»
- advertisements -
The unusual thing would be if GS fights it.
My guess is that they'll settle for a paltry fine with no admittance of wrongdoing and everyone will retire behind a self-congratulatory cloud of squid ink declaring that fraud and corruption on Wall Street have been solved, while of course, nothing will have changed.
This "robust defence" is nothing but the initial positioning for the settlement.
There's no way that GS can let this go to trial which would mean discovery and teams of lawyers digging through records and finding all the other fraud.
And what they especially can't have is proof of fraud in a court as that opens the executives up to criminal charges. Better to have the shareholders pay a fine rather than have an executive have to give back a bonus
Handle:
You are correct in that they will make some calculation as to whether to fight it or settle; but they have a reputation for contesting such things as opposed to say Merrill Lynch who would tend to settle.
Goldman isn't capitalistic.
First the list, then onto the fraud. I like Damage's list, to refresh:
"I think fraud did play a large part in the financial crisis. I'm not sure how you can say that it didn't. Unless I am misunderstanding you? I think it was: #1 Low Interest Rates, #2 Fraud, #3 Community Reinvestment Act, and #4 Repeal of Glass-Steagall (keep in mind I'd have no problem with the repeal of this law if it wasn't for the fact we have a stupid federally subsidized deposit insurance, but since we do this is a prudent measure to prevent the socialization of losses) (in order of importance)"
I am on board with the first three and acknowledge they are not necessarily independent, while with #4 I just can't quite agree with. For example, I just don't think the Giant Vampire Squid, Bear, Lehman, etc. would have not participated in fraud during the period because they couldn't own or be a banking business(es) per se. Alright, so let's say fraud was a big piece of the cause of the problems past and present; then it is a big deal to prosecute it (i.e., assuming it is not just a one off scapegoat type situation).
For me, it isn't so much whether I think Goldman, BofA, Citi, etc. did or did not commit fraud. They did (also, the Fed and Treasury, etc. did). I wonder why the SEC has decided on this particular lawsuit at this particular time against this particular firm? As one or more pointed out, Goldman wouldn't likely be around without the bailouts (particularly the AIG backdoor bailout), and now a government agency is trying to get Goldman on fraud for a deal they did with a high profile hedge fund? It is odd, and I always caution on not overthinking these kinds of things, but why,why, why?
Regarding the firm what we know:
1) They are currently probably the most reviled of the three surviving 'Wall Street' firms (JP Morgan/Chase and Morgan Stanley being the other two; Merrill, Lehman, and Bear are now gone and/or absorbed by a TBTF). OK, that makes sense on that score.
2) They were one of the biggest, if not biggest, contributors, as an organization, to Barry Soetoro's campaign. So maybe the SEC didn't get the memo, or Barry is now ready to throw someone under the bus.
3) They are probably no worse, but generally better connected, than the other three 'Wall Street' firms. I know, I know, they are all now "banks" technically, but that switcheroo itself was a kind of fraud (i.e., in Goldman's case, given their real leverage alone).
So I ask myself, if the target is 'Wall Street' greed and corruption, why Goldman?
Regarding the timing, why now? Is it just simply that political pressure is now so big, and the November elections are in spitting distance? That is likely, but then why Goldman and why this lawsuit?
Regarding the lawsuit, why this particular lawsuit. I largely agree with the Daily Capitalist, it isn't so clear that this one will succeed. Fraud is generally defined as a misrepresentation of facts. If they did what they are alleged to have done, of course it's fraud, but that's the rub isn't it? For me, I have been sitting back and wondering when the federal authorities, if ever, would push fraud, and fraudulent conveyance in particular (a transfer of property with the intent to swindle, steal, etc.). As an example of basic fraud and/or fraudulent conveyance is the TARP (first it's for one thing, then used for something else, then the money is gone and no recourse or desire to get it back), or the Freddie Mac (GSE, then part of the government but its debts are not counted as being owed by the entity that now legally gaurantees them). Anyway, fraud is all around and there would appear to me to be a plethora of potentil cases of fraud, so why sue Goldmman now, over a deal that Goldman is likely to contest as not being fraudulent? The only thing that makes sense is that Goldman is either being sacrificed or this is just for show, the latter being the most likley. Thus, if Goldman wins the SEC can say they tried, and if they lose then they can disgorge a sum that will not bankrupt them and most (i.e., the government and Goldman) can be happy that a pound of flesh was had, but not too big a weight.
What surprises me most, is that, succeed or fail, this could open a pandora's box of fraud and fraudulent conveyance lawsuits, many of which should succeed and have the net effect of bringing down large pieces of the system (e.g., most mortgages after say 2004 and continuing until now in some form should be classified as fraudulent as at least one participant knows that the information provided is a lie - e.g., remember the NINJA loans, or the current loan modifications that result in most cases of just extending the loan and pretending it will be paid back?). My somewhat educated guess is that is intended to show that the SEC is doing something with the November elections coming soon, but the SEC doesn't understand what they might have inadvertently unleashed. That is, the logical question should really be, what other frauds should the authorities and those that were screwed try to file lawsuits for?
I am not holding my breath, but I hope that payback combined with unintended consequences could be a bitch.
The timing could have something to do with the pending financial reform act.
While I dislike GS as a firm I am of the opinion that there is no fraud involved here. Where is there lack of disclosure? GS sneaks around like they did in AIG. They are blood suckers. They tell you that if you eat cake you wount get fat, but unless your are in idiot you know cake will make you gain weight.
Lets face it, this is the way America operates. We snake around with the lawyers leading the way.
We will blow our system up at this rate led by GS. Watch
1. What you see operating today is not free market capitalism.
2. This industry is one of the most heavily regulated in the U.S.
3. Who set the rules for subprime mortgages? Hint: Fannie and Freddie.
4. Who set the rule for bank capital ratios and fractional reserve banking? Hint: Fed, Treasury.
5. Why is TBTF even significant? Hint: FDIC bailout of depositors that encourage banks and depositors to ignore safe banking practices.
6. Why do people assume that markets are fair, as someone above pointed out so well? Someone always has better information.
7. The Fed causes business cycles. They just don't spring up spontaneously because of greed, fraud, or whatever else human emotion you think causes it. Keynes believed it was "animal spirits." Junk economics.
8. The Washington-Wall St. Economic Complex is the main problem here when you have a revolving door between Wall Street, Washington, and academia. That's not a fantasy.
9. GS will have its day in court. If the government thought they had a great case they would have filed a criminal action against them.
Goldman was an investment banking house until it needed to feed directly off of the FED. To not be "experimenting" with the limits of their newest money maker, structured finance, would not be competitive. So you are going to push your deals until the SEC acts. They are just finding the edges of the box. Testing the waters runs the risks of "fees". Business as usual.
I am not sure hey had to force customers to buy them. Much of the attraction was in the complexity of the instrument. This means that the holders would potentially have huge tax advantages off balance sheet or multi-national. But, here lies the risk with derivatives. It is a two edged sword, there was a potential upside, even though with the bubble it was unlikely.
Mark Beck
"I am not sure hey had to force customers to buy them"
Neither did Madoff-- he is in jail
I would not be surprised if Markopolus is in the wood work
This article begins with a total bullshit lie.
Goldamn Sacks is not the Arch-Capitalist you make it out to be.
If it were, it would be in the same boat as Lehman Brothers, dead, dead, dead with the key partners living off the trillions that should have been accrued liabilities.
As soon as they received one cent from AIG they ceased being a capitalist organization and became instead a government agency.
That they have you convinced that this is a capitalist maneuver is testament to either your total ignorance as to what capitalism is, or your own propaganda piece to tarnish the noble capitalist model which if allowed to work properly will provide the greatest good for the greatest number, for some other nefarious reason.
Privatizing profits and socializing losses is the antithesis of capitalism.
Yes ---- GS the facist pig banker
Good Slogan
Need a poster
A fat pig with a top hat
treading on the don't tread on me snake
+100. I wasn't being literal. They are a symbol in Washington's eyes.
+10 bazillion
Goldman's retort: the first, who knows? The rest, lies. Read the complaint eleswhere here on ZH. It's not hard to understand, not alot of lawyerly fancy footwork or stretched prosecutorial theories. A child would get it. It was stealing. A-moral, you bet. Civil liability of GS to the buyer of Abacus, to the tune of $1B? Thanks to a little rule called 10b-5, absolutely.
The real issue to me is the threats that were put on Congress to give an ex-Goldman CEO a blank check or there would be Martial Law. To me, that is extortion. No one will ever prosecute these players because they own the system. It is no different than someone threatening bodily harm if there debts aren't paid.
If they were and are still TBTF, that is the reason we have Anti-Trust Laws. , When a player in an industry can bring down the system, how is that competitive? The laws already on the books cover these crooks. This SEC charge is a political bone thrown to the masses to lay the groundwork for the upcoming election in November. It is to appeases the Tea Party crowd, the outcry against unconstitutional mandated private insurance enforced by the IRS, etc.
The banks own the politicians, but they cannot be too obvious about it. This is news from 2 years ago, why bring it now?
Well
The Founding Fathers brought down the system,
And hey it worked for them --- and US
http://en.wikiquote.org/wiki/Benjamin_Franklin
They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety.
They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety.
Those Who Sacrifice Liberty For Security Deserve Neither.
He who would trade liberty for some temporary security, deserves neither liberty nor security.
He who sacrifices freedom for security deserves neither.
People willing to trade their freedom for temporary security deserve neither and will lose both.
If we restrict liberty to attain security we will lose them both.
Any society that would give up a little liberty to gain a little security will deserve neither and lose both.
He who gives up freedom for safety deserves neither.
Those who would trade in their freedom for their protection deserve neither.
Those who give up their liberty for more security neither deserve liberty nor security
Short memories, diversion from current scams and shunt public anger. Deja vu - glitch in the Martix. And there is that tiniest of chances this all might gain traction.
The way I understand it, ACA selected the 90 individual RMBS issues and then Paulson & Co looked at the choices and said, we will take the other side on those ones (the ones they felt were worse quality) and then Goldman bought the actual notes for the others. The fact that JP was on the other side on some of the pieces therefore had no impact on the riskiness of the CDO.
The failure of the ratings agencies, ACA and IKB etc to know their ass from their elbow meant they were the suckers at the table. That investor appetite was so large that it was possible to sell more risk on mortgages than mortgages available tells you all you need to know about the insanity of the market at that time.
As I understand it, there were several people at Goldman who wanted to jump into this business in a big way around this time (which would have meant more equity tranche expiosure), but it was a few older and wiser heads in their credit department who vetoed this and instructed the business to hedge more of the risk, which is why GS was positioned to benefit when the market started to fall.
So, was this bad business? Yes
Did individuals at GS know the market was totally mispricing risk? Yes
Is it fraud?
Not sure, as I see it, the involvement of JP does not materially change the risk of the deal. Even if they prove that JP was the one who chose the RMBS and then ACA & IKB agreed, the buyers of the notes had all the necessary information to make the investment decision. It's like if I go long gold and the person on the other side is George Soros who is selling them a synthetic hedge, can I sue if I lose money on the trade?
However, the SEC has now gone in all guns blazing and if they don't reach some agreement with GS, it will be humiliating for them.
+1000
I believe it was the other way around. Paulson selected the mortgages--handpicked from Florida, Arizona, Nevada, California with low FICO's, etc.
Never underestimate the Law of Unintended Consequences.
The SEC action yesterday may have been motivated by Treasury, seeking to deflate equities in favor of Treasuries, or Obama et al, seeking for weaken finance in order to pass regulation (which I doubt, since Obama's been quite friendly to finance), or perhaps even SEC trying to do its job for the first time in 3 decades. It does not matter. The amount of overt financial fraud since 1999 has been so vast and the number of powerful interests here and around the world so large, the aftershocks of the SEC's baby step yesterday may have - and I think will have - more far reaching scope than many people, even here, would actually like.
For one thing, if you can't trust a government you've bought and paid for; lock, stock and barrel, who can you trust? A government you've stuffed full of your minions over two decades? Seriously.
The arrogance of those who "buy" governments is always their undoing, since they forget a basic premise - government only cares about its own survival and power and there are always others who'd step up to pay for protection from it.
This entire fiasco has been brought to the world by a bunch of underprivileged stuffed suits of my age - in their mid 50's - the "tag end" of the baby boomers, who think the life of royal luxury they've inherited and lived is somehow a work of their own doing. In fact, our generation's greatest achievement was being conceived, born and growing up in the most lead saturated environment in history. (Remember tetra-ethyl leaded gasoline? You might not, if you were born after about 1974.)
The 50-somethings who fancy themselves as those who are "running the world" are perhaps the dumbest SOBs since Rome's experiment with Pb; we had the world handed to us on a platter and all we've managed to do with the feast we were given is gorge ourselves and then puke on our plates.
The Squid paid millions in tribute to avoid getting screwed out of D.C. But unfortunately, with all the public heat surrounding Tim and Ben and the Critters, the arrows needed to be deflected away from the Beltway syndicate and their own suspicious operations.
Dem incumbents can now crow that they are clamping down on the Wild West renegades of Wall Street.
In the meantime, the Squid will devote millions for an army of lawyers to defend and appeal for years. They'll run out the SEC's skimpy budget and then concede to a hand slap fine and an obscure promise not to do it again.
Unless the CT and NY AGs can find a bunch of inside snitches and other malcontents, a criminal case is a longshot. That's why Goldman pays people so well. Loyalty is a tradeable commodity.
And that, ladies and gentlemen, will more than likely, be the final word on this matter. Of that, I have no doubt.
Dear Econophile,
"What did Goldman know and when did they know it" is a timing issue that configures your article as an apoligist piece for GSA. This Vanity Fair article shows that GSA was setting up the Greenspan Put well before any accidental losses were incurred with the creation of the Paulson & Co 2007 Abbacus CDO
http://www.vanityfair.com/business/features/2010/04/wall-street-excerpt-201004
I spoke to Robert Lenzner , former risk arbitrageur from GSA and now Editor in Chief "Forbes" magazine in the fall of 2008. At that time Lenzner informed me GSA had a $6 billion short RMB MARKIT index position in place to accentuate their play on the realestate collapse that they, GSA created in colusion with Paulson & Co and others including Financial Engineer & Chief, Alan Greenspan who also was in position to receive a massive windfall from Abacus 7 ,2001 and many others. Lets get it right , America is over because it was intentionaly looted commencing with NAFTA in 1993. Wall Street just sucked the last of the juice out of the egg before the shell collapsed with CDO's & CDS.
P.S. GSA laid off the CDS risk on AIG
http://www.reuters.com/article/idUSWNAS648820080115
They pay themselves massive massive bonuses, I gather that is for superior, ultra-superior ability and for taking ultra-extra-responsibility.
When you claim that sort of money you cannot make any claim of ignorance or of being uniformed. The buck stops with you.
Your clients come to you because the belief of AAA service and abilities, that your risk will be reduced because of using such an organisation. People go to GS because they are the 'best'. Caveat Emptor shouldn't apply, as you are paying them to deal with the issue of caveat emptor.
If you go to a loan shark, then OK you have to count your fingers.
GS had a high duty of responsibility and care to all its clients, that is the service they are providing.
If I make a bet that the shit will hit the fan and start throwing shit at the fan, I too could be the best. Doesn't take ultra-superior ability to do that. If GS wasn't the one throwing shit at the fan and cashing in on the bet, they would have ended up like Lehman and BSC. They produce absolutely nothing but lies and deception!!! They're nothing more than front runners to their clients.
What a tragedy GS is to this nation. There is enough public anger to expose these thieves, and I hope they fry all the a-holes at GS !!!!!
Here's a sample of Goldman's high duty of responsibility to it's clients:
Fabrice Tourre, the Goldman executive who helped set up Abacus, emailed a friend in January 2007:
“More and more leverage in the system, The whole building is about to collapse anytime now…Only potential survivor, the fabulous Fab…standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities!!!”
Link for the full story here:
http://www.huffingtonpost.com/2010/04/16/goldman-sachs-fraud-expla_n_540938.html#slide_image
Econophile,
The same as yourself, i also can not judge GS based on currently available public information, and would need to at least read the offering prospectus and compare it to other similar deals before making any conclusion.
I am also for free markets and also strong believer in due diligence. Yet, let us try to draw some division between something which is appropriate under free markets and which is not.
I should assume, everybody would agree that street robbery is non acceptable transaction even in completely free market environment, as one of the participants - "client" is not participating voluntary... So, lets move to the next closest example - ponzi scheme. Are you for or against this market transaction? As an extreme free-marketist, I'd say i would be for it, but with one caveat - the intentions, principles, and details of the scheme must be disclosed to the clients in the prospectus by the originator.
This is my personal division. What would be yours?
Regarding GS in this context - again, in my personal opinion, if they disclosed, they are fine. If they did not - the government and clients should rip them apart with civil and criminal actions.
Econophile,
The same as yourself, i also can not judge GS based on currently available public information, and would need to at least read the offering prospectus and compare it to other similar deals before making any conclusion.
I am also for free markets and also strong believer in due diligence. Yet, let us try to draw some division between something which is appropriate under free markets and which is not.
I should assume, everybody would agree that street robbery is non acceptable transaction even in completely free market environment, as one of the participants - "client" is not participating voluntary... So, lets move to the next closest example - ponzi scheme. Are you for or against this market transaction? As an extreme free-marketist, I'd say i would be for it, but with one caveat - the intentions, principles, and details of the scheme must be disclosed to the clients in the prospectus by the originator.
This is my personal division. What would be yours?
Regarding GS in this context - again, in my personal opinion, if they disclosed, they are fine. If they did not - the government and clients should rip them apart with civil and criminal actions.
the turning point is right here.
http://www.huffingtonpost.com/2010/04/16/goldman-sachs-fraud-expla_n_540...
Blankfein and Paulson know the mortgages are shit at this point.
Do they inform the leaders in government?
"Caveat emptor. That's just the way it is and everyone knows it. I am sure you are all shocked by this revelation."
I think this statement is a symptom of the ethical dry rot that has spread thoughout Wall Street. Somewhere along the way (probably around Screw.com) Wall Street forgot that it has a diligence responsibility to the purchasers of the crap it purveys. This wild west atmosphere of rapid product innovation, digitally enabled modeling and the "trader ethic" (everyman for himself) set the stage for the kind of jungle free for all that culminated on Sepember 2008.
There is a good reason why traders and investment bankers should be sitting under separate rooves. What trader has any concept of underwriter dligence and full and fair disclosure. Why should he if the law of the jungle is all that matters.
Here is a good summation of this sorry state of affairs that I read today:
"Described another way, Paulson handpicked sick, diseased pigs to be made into sausage, then bet millions that the resulting sausage would make people sick. Goldman, for its part, made the poisoned sausage (and got paid), sold that sausage to its own unwitting customers (and got paid again), and. like Paulson, bet millions that those customers would get sick (and got paid yet again)."
History has repeated itself folks. Time to reinstate the rule of law.
LOL! Caveat Emptor. It cracks me up when people use this phrase. It simply means that you better have a bottle of vasoline with you anytime you enter into a financial transaction--you will probably need to use it LOL! And NO! They're probably not gonna give you a reach around! If you people are ok with that--then keep on keepin' on!
Banzai, this was not the Wild West where there were no laws. This was the first decade of the 21st century. We have laws against fraud. We have government agencies charged with enforcing those laws. The problem is not a lack of laws or lack of law officers. The problem is an unwillingness to enforce to law.
We have a political system that is of the bankers, by the bankers and for the bankers. They bought the politicians, they paid off the enforcement officers and they own the media.
If this truly WAS the Wild West, a number of banksters would be swinging from trees right now.
We live in the era of hedge funds which drive the profits of the Wall Street firms. Everything else pales in comparison, and I have been told that hedge funds make up 80% of the trading revenues for the equity desks of Wall Street firms. That might be low.
For Goldman to say they lost $90 to make $15 million, is looking at a small piece of the relationship between it and Paulson. The SEC needs to look at all trades Paulson did from 2005 to the present.
Goldman Sachs does not exist without the bailout and ZIRP. We can debate free markets day and night, we don't exist in one.
look everyone; it is simple. free markets is, of course, needed for a viable long term economy. its not just whether we chose between free markets that can run wild or out right socialism/communism, its about any company becoming too big to damage millioins of lives. do you really portend that we have to let banks become so big and reckless in the name of free markets that they can destroy millions of jobs and lives? Is that ethical and moral? Does that really make sense to some people? The repeal of Glass Steagall was the most stupid thing we ever did. Allowing congress to keep extending the debt ceiling at will was the second. We the people allowing both political parties to have a monopoly on power is the third. We only think we are a free society. We are simply economic slaves paying for things that have inflated values while paychecks continue to get squeezed. All the while, we sit back and keep supporting free and reckless markets and free and reckless trade with communist china. For what? whose is this benefiting? And don't say we have it so much better without those factory jobs! We have failed to revolt against the status quo political elitist establishment and now we are slaves. So who is with me in starting an non violent political revolution against hegemony and for real democracy?
Zeroman,
I like your post. We are slaves, and the U.S. is just one massive plantation now. We are not a free society, no matter how hard we all try to pretend we are. We celebrate a holiday in July once a year, and of late, this "celebration" turns my stomach. It's a lie.
Just a few questions; you say you want to get to (or back to?) "real" democracy. Isn't this real democracy, this "status quo" that you have recognized? Representative or true, it doesn't really matter in the end- this is democracy. Isn't democracy just another "ism" of collectivist method? Doesn't it still lead to the same place as any other "ism", only slower?
I am a little confused about your treatment of "free markets"; you say they are "of course" needed, but then continue on that they are "too" free, and "reckless"...?
I think you are correct that both factions of the one party system have been allowed to monopolize power; what would your solution be, another or different party?
How about the insane idea that there be no party, and no monopoly on force or power? Well, it's just a crazy idea...
For a new system:
1)No lobbyists--ZIP!
2)No corporate contributions to campaigns and no personal contributions over $100
3)Congressmen get paid $50K a year--consider it a public service
4)No corporate influence in any possible way at any level of government. The people who work for corporations get to vote just like everyone else--at the polls.
5) Public vote for Supreme Court Justices and impose term limits on them (8 years max)
6) Bring back Glass-Steagal
7) Reimpose all mortgage lending standards to those of the 80's and let securitization of plain vanilla get back to business as usual
8) Get FHA out of the lending business except to veterans & the disabled.
9)Totally overhaul the tax system and close all loopholes for multinational corporations that pay no taxes at all.
10) Break up all TBTF's immediately
That's a start.
Oh and I forgot--Audit the Fed or End it.
1)No lobbyists--ZIP!
Then how do people group together to petition the government to do something which is needed? The problem isn't lobbyists so much as it is us continuing to elect officials who can be corrupted. Term limits are a much better idea than just making lobbying illegal, I think you do not understand how government works...
2)No corporate contributions to campaigns and no personal contributions over $100
Then how do people who are relatively unknown come about to challenge the all powerful incumbents? The incumbents are already well known and could easily collect funds, but someone new would be PARALYZED by this rule and it would totally stack the deck in favor of incumbents. Also, since whatever administration is currently in place is in control of any regulatory body which would be supposedly regulating this stuff, it seems like a huge conflict of interest. Also, how does any of this keep incumbents from taking bribes underneath the table? Isn't the problem that we keep electing corrupt politicians, rather than people exercising their right to free association and free speech?
You are completely trashing our rights. You may know your finance shit better than I, but trust me you do not comprehend the government or the legal system. If you want to do the above you better be willing to pass a constitutional amendment buddy, and I will fight it tooth and nail. Stop trying to give away my rights to give as much to a politician as I want to fight for what I believe in.
5) Public vote for Supreme Court Justices and impose term limits on them (8 years max)
This is a bad idea exactly for the above reason that the public is so brainwashed by the media that they actually believed the recent decision by SCOTUS re: McCain-Feingold was bad. The supreme court should be there to protect the minority of us who understand the government from government ignoramouses like you who would just throw away our rights for a feeling of false safety, while actually destroying the ability for any real political opposition to fund itself and challenge those currently in power.
Thanks for the input. If you followed my post it was that this would not be possible until 2013 when the revolution was over and there were no incumbents. All in good fantasy.
Come on Howard, everyone lobbies! The most aggressive lobbyists are the government's own. They just don't call them lobbyists, they call them Assistant Secretaries. Geithner was working the Hill all day yesterday with two Treasury "lobbyists" in tow. As someone who has been through the legis process I can tell you the Hill knows they get played by the Admin. and the private sector.
Can't imagine what would happen if we paid less money to Members and Senators. We have this big country and its not easy up-rooting a life and shuttling back to the State/District and deal with family issues.
No way we should select Supreme Court Justices through an election...that's crazy talk.
I agree with you on tax policy, but that is a separate complex issue requiring extensive research and analysis
OK, I'll concede the Supreme Court Justices.
13. All elected officials, federal, state, & local, must buy their own legal insurance policy. I'll be damned if the taxpayers must pay for their lawyers when we prosecute them for corruption.
Hey Sloth,
Its law now. We pay for theirs...and then we also pay for ours too. I cannot figure out why people are not mad as hell and not going to take it anymore yet!!!
+1000 (again)
btw...you're 14, not 13.
+1000
11. One term max. for Senate, three terms (6 years) max for House.
12. No Pension for elected officials (SS like the rest of the sheeple).
+1000
13. Anyone who recieves more in tax benefits than they pay in taxes, doesn't vote! (unless retirement or disability safty nets are in play)
Now thats change I can believe in, but where can I vote for it?
I believe it is a matter of when, not where. We'll talk in 2013.
It's kinda ironic, that CNBC was running their 'American Greed' series Thursday night on none other than Enron. Look how far we've come, or not.
Just thinking: Jamie Dimon must've enjoyed a nice bottle of wine with dinner. I might be mistaken, as JPM had / does issue debt securities (MBS, ABS). But among their noted brethren, JPM was decidedly meek on the structure/issuance of CDOs backed by mortgage-related bonds.
Goldman is guilty in the court of public opinion, and that's a stain doesn't easily get removed.
JPM was too busy ripping off county nest eggs and manipulating silver.. they dont compete with GS