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GS, the SEC and Timing
It is possible that the SEC investigation into the bad acts of Goldman
Sachs evolved over a period of time and the decision to announces formal
charges just happened to take place on Friday. I doubt that very much.
A few thoughts:
-This investigation has been ongoing for a long time. At some point we
will know when it was initiated and when Goldie became aware of it.
Reuters has a report quoting an unnamed source that the Wells Notice
relating to the SEC inquiry was delivered six months ago. My own
instincts on this are that is was even longer than that. This could
easily have been going on for a year.
-Mary Schapiro (head of SEC) does not go to the bathroom without first
checking with Rahm Emanuel. To say that this is a high profile case is a
silly understatement. This is THE case of the century. The decision to
go forward with a public complaint last Friday was done with the
President’s knowledge and approval.
-Everyone in D.C. has been pointing to the financial markets as a
measure of the “success” of their policies. They point to DOW 11,000,
they point to narrowing credit spreads, and they look at wealth creation
as the “report card” which validates their actions. I don’t believe
these folks are stupid at all. They knew full well that the initial
reaction of the markets would be very broadly negative. They must have
considered that the SEC action could have lasting consequences to the
capital markets. They knew that they had spent a kings ransom to bring
the banks back to life, they must also know that this step could have
the effect of undermining all of that.
Given the foregoing I have to assume that at some point the SEC sat down
with Blankfein and said, “Do you want to pay a big fine, not admit
any guilt and agree to be good boys in the future?” Again a guess:
If on Friday the announcement had been that GS had agreed to a $3b fine
and the case was closed GS’s stock would have risen and the broad market
would not be worrying about how sloppy things are going to be in the
next few weeks. I think Blankfein would have written a very big check to
avoid the headlines we are seeing today.
So for me a central question is, “Why last Friday?” Possibly we
will never know the answer to that. But I have my own suspicions. This
step was made at this time to influence the outcome of the financial
regulation that is now being discussed and drafted. What better reason
to implement big reforms than a big splashy case in the papers that all
but proves that our big banks are crooks and they need to be regulated
into oblivion.
So far this weekend I have received three mass email messages from the
President. None have connected the dots directly to the SEC case with
Goldman. But the hints are obvious:
bruce --
It has now been well over a year since the near collapse of our entire
financial system that cost the nation more than 8 million jobs. But the
flaws in our financial system that led to this crisis remain
unresolved.
Wall Street titans still recklessly speculate with borrowed money.We cannot delay action any longer. It is time to hold the big banks
accountable. Arm-twisting lobbyists are already storming Capitol Hill,
seeking to undermine the strong bipartisan foundation of reform with
loopholes and exemptions for the most egregious abusers of consumers.
It's a fight worth having, and it is a fight we can win -- if we
stand up and speak out together. So far, all 41 Republican senators have
signed a letter opposing reform -- but there is still time for
individual senators to do the right thing.Thank you,
President Barack Obama
Millions of these emails have gone out in the last 24 hours. I can
imagine that a lot of people who get this message are saying to
themselves this morning, “The President is right! The SOB’s at GS are
a bunch of crooks, we should shutter the bastards!”
At some point we will know what motivated the SEC to move last Friday.
Should it be determined that the timing was driven to influence the
outcome of pending legislation it will be a very sad day for America.
George Bush used fear to get us into a war. Obama seems to be
orchestrating “fear of financials” to achieve his objectives. Bush’s war
has proved to be a disaster; I doubt that the effort to rein in the
financials will have a better outcome.
»
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“Why last Friday?” Because the CDs specs started gunning the major countries of Europe (France, Port de Faul, Spain) and Japan, and Mexico. Thats what I think. Oh, and also because it was the day after taxes and they wanted to remind 'Merca who runs this bitch.
America, this is our town, and we out number them. Lets take our country back.
I've never felt wall street could "buy" politicians. Rent, maybe, but not buy. Besides, all those political contributions are meaningless if the incumbent gets voted out.
Although everything we have done is legal, we regret that the actions of a rogue trader (who is not Jewish) have brought such negetive attention to our firm and it's thousands of missionaries doing God work.
We are doubling our donations to the DNC and are hosting a parade for Sen Dodd and Pres Obama in Dallas later this year. Tea party patsies are welcome to attend. The view from the book depository and the grassy knoll are wonderful. We've scoped them out already...
This reminds me a little bit of the takedown of Microsoft in '99, where the Justice Department pitched an unpopular company with a tone-deaf CEO into a pool of piranha. Everyone who considered himself wronged could stand on Justice's legal work to make a grab for the brass ring. Microsoft is *still* screwing with the consquences of the European finding 10 years later.
I'm wondering if this wasn't a similar favor to the mass tort bar and the state AGs, who could milk this situation to close their budget gaps. Also, as we all well know, there's only ever a single cockroach.
I too have been reflecting on the timing of all this. If the SEC/GOV was pulling a sham then why go after the owner's of the Treasury Dept., namely GS ? No one's more connected.
No doubt, the Dems are in for mass slaughter at the booths if they don't regulate this mess. This investigation had to be ongoing for some time.
It's rumored that GS knew 9 months ago. They also know that another bubble popping may well bring all of them down. Fed Board presidents, influential economists and many others connected are openly calling for TBTF breakups. Once in a while, good men do "do something". I actually think that Lehman perps and a few others should be looking over their shoulders. Maybe JPM as well ? You might think Jamie Dimon is too connected to Obama but I thought GS was as well.
It reminds me of Lay and Skilling and that insufferable prick from Tyco holding the Caligula party's at his mansion. You can go "too far." Rip off the middle class to an extent but if it goes overboard and the unwashed get up in arms, you go down. We'll make you play tennis for 32-44 months at some Pennsylvania minimum security facility.
"I actually think that Lehman perps and a few others should be looking over their shoulders. Maybe JPM as well ? You might think Jamie Dimon is too connected to Obama but I thought GS was as well. "
For now, i think the best you can hope for is that if Obama begs the bankers to come visit him in Washington, that Blankfein and Mack will probably decide to show up instead of blaming weather delays. I don't think Dimon is ready to fly commercial yet, though...
It's a start, I guess.
BIGGEST QUESTIONS:
Of course, it's designed to influence the masses. Timing was spectacular, and there is zero chance timing was not approved by White House.
Blankfein and the GS PR department will soon deeply regret the "god's work" comment, and how it will play throughout the US (not just in red states).
If Germany and Britain make "federal cases" (pun intended), this story could have legs, and the effects on GS could be damaging indeed.
And re fore-knowledge, GS' last public filing reported the risk of regulators investigating behaviors. THe question is, how much of the run-up in financials was due to this, with GS quietly accumulating OTM puts? And how much higher might it have gotten in another four weeks?
New to ZH, but enjoy reading the posts and comments.
BP
"Given the foregoing I have to assume that at some point the SEC sat down with Blankfein and said, “Do you want to pay a big fine, not admit any guilt and agree to be good boys in the future?” Again a guess: If on Friday the announcement had been that GS had agreed to a $3b fine and the case was closed GS’s stock would have risen and the broad market would not be worrying about how sloppy things are going to be in the next few weeks. I think Blankfein would have written a very big check to avoid the headlines we are seeing today."
Bruce,
I agree that this musthave happened, but I guess it begs the question: Why didn't Goldman agree to this a long time ago? They wouldn't have even had to pay an overly large fine--$15mill of digorged profits and a very sheepish "what we did wasn't against the law, but we want to put this behind us" kind of reply.
Someone at Goldman didn't seem to understand the whole risk/reward scenario here...
The other question is why they haven't gone after Lehman or any of the other banks for repo-105 like transactions.
Remember this is the same SEC that purposely didn't prosecute Madoff and a number of others, and is bought and paid for by the banks. The financial reform legislation they pass is going to be like gold plated tungsten, looks like gold but on the inside its not. Look for nothing to change with the appearence of change.
Good post Bruce. I have been asking myself the same things.
So for me a central question is, “Why last Friday?”
Approval ratings are low. Must appear to be doing something. Demopublicans will talk about regulation...all toothless. Republicrats will talk about the "free market"...than isn't and never was. Both will continue to take contributions from those they purport to "regulate."
This step was made at this time to influence the outcome of the financial regulation that is now being discussed and drafted. What better reason to implement big reforms than a big splashy case in the papers that all but proves that our big banks are crooks and they need to be regulated into oblivion.
What better reason? See my comment above. This whole thing smells scripted to me. Politicians see that people are angry at "Wall Street." Lots of politicians will talk tough; new rules will be passed with loopholes the size of Uranus; GS may appear to get a slap on the wrist; nothing substantial will change. Folks, Groundhog Day just bit us on the collective ass for the 836th time in a row. But yeah, tomorrow will be different!
Why are the background colors the same as the American flag? Nice prediction Van Gogh.
some fun facts on the Scream from wiki:
- The original German title given to the work by Munch was Der Schrei der Natur (The Scream of Nature).
- One theory advanced to account for the reddish sky in the background is that Munch had observed a powerful volcanic eruption of Krakatoa in 1883: the ash that was ejected from the volcano left the sky tinted red in much of eastern United States and most of Europe and Asia from the end of November 1883 to mid February 1884.
- The environment of The Scream is often compared to that of which an individual suffering from Depersonalization disorder experiences, such a feeling of distortion of the environment and one's self.
sound familiar?
http://en.wikipedia.org/wiki/The_Scream
Perceptive... and, if true, testimony to how our central government has WAY too much arbitrary power.
"regulated into oblivion"
Oh, I see you're one of the "let the markets regulate themselves" crowd.
That worked well.
Well all I can say is, "Who cares?" Most of what Goldman and the remaining horsemen do (not all, just most) adds little or no value to the nation or the world. My gut tells me they probably subtract value from most of what they touch. If something has to be sacrificed to the god of politics I can't think of a more fitting role for GS.
Pandora's Box
Germany, Britain...and RBS.
Royal Bank of Scotland executives were on Friday night examining whether the bank had any grounds for legal action against Goldman Sachs, after it emerged that it lost more than $800m (£520m) as part of an allegedly fraudulent transaction.The O-Team is pulling an FDR.
Mr O has the lowest of approval ratings.
Main St is becoming enraged, vocal, and engaged (tea parties).
Main St anger targeted at oligarghs in DC and on Wall St and a government responsive not to the needs of Main St but to the banksters and MNC's. A recent Max Keiser rant captures this anger perfectly (GS are scum!)
Tea Party is non-aligned at present but Palin has been trying to co-opt it.
The O-Team launches an SEC attack on GS
- Puts Wall St on notice
- Takes attention away from Emmanuel/Magnetar
- Builds support for regulatory reform
- Kills the equity mkt and redirects capital toward bonds
- In the event of double-dip the banksters are set to take the fall
- Co-opts Main St anger in advance of November elections
"The O-Team is pulling an FDR."
i think we're about to find out why the GD1 took 10 years and a world war to run its course. the boys are too obsessed with blame game playing party power politics to take a look in the mirror.
"Don't think we're not keeping score brother."
I don't believe Obama is doing this for a small politcal victory. I believe he realizes he was "had" by the banksters and realizes that this is an opportunity to make history. I believe Goldman will be taken down. It won't be a quick process, but I believe it will happen.
I pray they take Volker out of the closet, dust him off and start using some of his ideas. Simon Johnson for Treasury Secretary!! (yes, I'm a dreamer..)
You wrote: "So far this weekend I have received three mass email messages from the President."
Can you provide a link or something to these messages?
Just would like to be informed of the content and tone in them.
http://my.barackobama.com/StandForWallStreetReform
BK
just sign up on Twitter...
also within a few moments of the GS news the first email hit even as Al Hunt was interviewing Summers for his weekly Bloomberg show...the 1600 Pa. boyz knew this was coming and they were ready.
Dr. O- I don't agree. Volcker may have the upper hand now. "Derivative MWDs", remember? Americans are pissed, & wait til GS earnings. Gasparino says Obama parting company with banksters, progressives know the incest now, and this is his chance to hold votes, many won't be turning out at all unless this is scrubbed clean.
I know. I know. These parallels may be excessive, but I remember reading that Hitler was supported by the biggies (Krupp, Thyssen, etc.) who were convinced they could control him until Hitler screwed them by gaining the support of the people and becoming the populist Fuhrer. Is it a stretch or a playbook.
Pardon my cynicism but to suggest that Obama will now offer his banker buddies as sacrificial lambs in order to get a few Democrats re-elected is beyond unbelievable. Obama is still ruled by the banksters. GS will likely agree to some smallish fine without having to admit to any wrongdoing. Obama can then continue to claim to be "the people's president" while remaining the lapdog of the banking lobby.
without a Main Street positive financial services reform bill Obama cannot claim he's cleaning up Wall Street. It will cost the Dems many seats. It is that simple and yes cynical. Listen to the rhetoric.
As was reported here, (by contributors,) during recess the WH convinced Blanche, (Chairman of the Senate Ag. Committee,) to completely re-define derivatives language in the Dodd/Frank bill. Blanche and Saxby Chambliss had worked out a deal. The WH decided to make financial services reform a key fall political issue and the derivatives language was the vehicle. The calculus was that the Reps had fragmented votes to stop the Dodd/Frank bill so the WH got greedy. Why do you think these guys know what they're doing...because they live in a big white house?
We have just endured trillions in losses that can be traced back to what the "smartest guys in the room" in both Washington and Wall Street, did NOT understand.
Agree with much of what you said, with a few caveats...
On the same day the SEC announced a landmark case against GS it released a SEC IG Report which said the SEC knew about Allen Stanford for years and that a senior Enforcement Staffer in the Texas office not only refused to move forward with an action against Stanford but when he left the SEC actually represented Stanford.
Just as the SEC controlled the day it announced its GS action, it also controlled the day it decided to release another in a string of reports that demonstrates the primary securities regulator is both incompetent and corrupt.
Yet we had to endure, if his lips are moving he's lying, Tim Geithner tell us that politics were not involved in the Admins efforts in the past week.
I'm also wondering about just how clumsily the WH played this. Carrying forward your analysis a bit...the WH/Treas. bail out the banks, then allow them to become "universal" which means they get to borrow at zero percent along with the rest of the deposit taking banks. What did the banks do?
They supported the Treasury market, which bolstered the Dollar and used some of this new-found capital to slowly and carefully move key equity indexes higher, regardless of economic realities. As ZH has commented in multiple posts, the action in the e-mini's and other obvious derivative products, someone has been moving the indexes higher on a systemic basis.
So a naive Admin., desperate to hold Democrat seats in the fall, attacks the leading Wall Street bank on a "single" offering (when other banks also had similar deals) on the same day its internal IG again says this gang can't shoot straight and is in bed with some of its worst offenders. But we are told that politics was not at play. I wonder what would happen if the Wall Street bankers withdrew their bids on the SPX and Dow? Or worse still shorted indexes that appear to at least be a bit over-extended?
Shameful and dangerous. The larger problem is The Street has been unable to make the case for what the broader investment community has done for capital creation and they'd better figure this out soon.
I loved Sid "the squid" Blumenthal bashing the SEC under Bush while on Dylan's show. Passed the buck to the "feds" to excuse his own inaction. Wonder how much money he's received from Wall Street for his Senate run. Of course, passing the buck means Obama's AWOL for the past year. Then we got the Magnetar story and their exclusive political contributions to Rahm Emmanuel. GS is a deversion from his own brewing problems.
Just another PR stunt to append some regulations to the current set of which none will be enforced by the SEC, the FBI, or the DOJ.
How much money did the squid give to Obama's campaign again?
Methinks they're trying to stay ahead of the blowback. Oh, I'm sorry, this last election cycle settled the matter of blowback; it doesn't exist. (The terrorists hate us for our freedom, not for skull fucking their region for several generations.) Grrrr....
(opensecrets) Goldman Sachs $994,795
(opensecrets) Goldman Sachs $994,795
(opensecrets) Goldman Sachs $994,795
I guess a million bucks just doesn't buy what it used to.
These Obamanauts are truly like children playing with fire and they don't even begin to understand, through the haze of their hubris, exactly what they are about to ignite. It is strictly amateur hour in Washington.
Sorry. Have to go back to building my bomb shelter and canning my vegetables.
It absolutely is amateur hour in DC. Well stated..
"pretending to fail"
Bush was better? Clinton was better?
Fuck the corrupted two party corporatized bought and sold duopoly.
I do agree with you though, FWIW.
You are correct. It's not a Democratic problem or a Republican problem; it's an incumbent problem.
Always remember P. J. O'Rourkes famous dictum: When buying and selling are controlled by legislation, the first things to be bought and sold are legislators.
I wonder what size of short position they had on themselves.
the 165 April puts
Credit should be given in part to Senator Kaufman.
“[T]his is not about retribution. This is about addressing the continuum of behavior that took place – some of it fraudulent and illegal – and in the process addressing what Wall Street and the legal and regulatory system underlying its behavior have become.”
Who is Senator Kaufman and what power does he have in this situation? He is not a member of the Senate Banking Committee – and if you think this is a regulatory issue, that reduces the weight of his voice.
But he is a member of the Senate Judiciary Committee and we are discussing here potential crimes – or what should be crimes if the legal system still functioned.
http://baselinescenario.com/2010/03/15/senator-kaufman-fraud-still-at-th...
I like your taste.
All I care about is if Paulson's implicated, will his hedgefund be having redemptions? I see BAC is his #2 holding after GLD, WFC is #4, only XTO in energy (like 2% is all) so I'm not worried about my holdings.
For what it's worth, various blogs had this item which could be related:
"Republicans say [Sen. Blanche] Lincoln [D., Ark.] and Chambliss were on the cusp of a deal when the White House pulled her back.
Chambliss said Lincoln has been very forthright with him throughout their talks. But he concurred with his colleagues that the White House forced her to back out."
I guess the implication being they need a big issue for for the fall elections...
The fact is that republicans don't want financial reform anymore than they wanted health reform or anything else. They aren't a party anymore, just a loosely-knit haze of opposition. They pretend to "compromise" but they make offers that no sane person could possibly agree to.
That being said, the financial reform bill currently proposed is an abysmal failure. It's a shame that we need a GS fraud charge to help get this weak mess through.
Yeah, because everything that Obambi and friends have proposed has been so worthy of support. The health care bill is an anti-liberty fiscal fucking monstrosity. Dodd's financial regulation bill hands things over to the Fed and some unelected FSOC committee and Treasury who don't even have to get Congressional approval to dole out the money to any company the FSOC deems to fall under its rubric. As usual, they can bypass the bankruptcy process and screw the secured debt holders in favor of the politically-connected unsecured holders.
I'm a registered independent, but I have NO problem with the GOP attempting to shut down this set of numbnuts running the show right now. There is nothing so fucked up that this Congress and president cannot make it worse. If it weren't for bad ideas they wouldn't have any ideas at all.
The "GOP" is the quintessential special interest corporate giveaway party. Banks, insurance comapanies, defense industry, pharma, energy, you name it and they have bent over backwards to help them hoard profits while bending the American people over to get raped.
Let's not swap out something bad for something downright malicious. I'm not voting democrat and I sure as hell am not voting for assured global destruction.