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Guest Post: Why Goldman Could Pull It Off
Why Goldman Could Pull It Off
Submitted by David Fiderer
The weaknesses in the S.E.C.’s case against Goldman were always obvious. At the end of the day, an investor who bought Abacus 2007 AC-1 was buying a static portfolio of risks. It didn’t matter who chose the underlying investments in the CDO, or whether John Paulson was destined to receive a windfall. If you were a sophisticated investor who had done his due diligence, you didn’t need to be told that the deal was designed to fail. You would have figured it out for yourself. If you actually reviewed the performance of mortgage backed securities held by the CDO, and understood how cash flow waterfalls and delinquency triggers worked, then you could see that subordinate tranches being insured for the benefit of Goldman were already worthless when the CDO closed. You could also figure out that the rating agencies had deliberately delayed announcing downgrades of the RMBS within the CDO, in order to keep the markets and the deal flow moving.
But the dirty little secret on Wall Street was that all too often, due diligence was a sham. People went through the motions without a thorough understanding of what they were doing, like kids who write a report by plagiarizing the encyclopedia. Investors saw triple-A ratings and stopped thinking. Goldman didn’t need to lie in order to sell “shitty deals.” It only needed to find a greater fool with an impressive resume at a multibillion-dollar institution who didn’t ask too many questions. And it was able to keep the scam going because all CDOs remain shrouded in secrecy to this day. The only people who can buy access to CDO performance data on ABSNet are actual investors, who are subject to nondisclosure agreements.
The risk to Goldman was that more of its dirty laundry would be exposed. As we learned David Viniar’s testimony before the Financial Crisis Inquiry Commission, the company remains in lockdown mode. And once again, the S.E.C. shows little appetite for digging deeper, especially since its new COO of the Enforcement Division is a 30-year-old kid from Goldman.
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anyone wonder why the SEC picked this "weak" case to publicly pursue?
over the years they could have brought many cases. this isnt about justice, this isnt about the SEC doing its job. this is all about political theatre.
obamas already planning campaign commercials about fighting the big evil banks. SEC could do the commercial for him
That is exactly correct. It is and was a political show trial. Those who should be on trial are the ones who were so desperate for yield to prop up the leveraged SIVs that they did not care about the due diligence.
I suspect there has been a great deal of political pressure, from particularly Germany, about the way the MBS business was run. On the one hand, the likes of IKB and the Landesbanks have lost a huge amount of money buying what they believed were highly rated assets. However, if this had gone to a full trial, it may have exposed just how dumb and badly regulated the German banks were and risked opening up a can of worms. So, pick a weak case against a higher profile name with the ability to easily pay (i.e. GS rather than one of the myriad of ML deals) so there is a lower certainty of success.
This outcome means this has been "dealt with", without anything being done to dig too deep in the toxic and corrupt relationship between the banks, the insurers, the ratings agencies and the accounting industry which enabled everyone to recognize phony profits. It also prevents too much attention focusing on the quality of the assets the Fed has purchased...
+ !! And I am really sick of political theater.
When will people and small to mid-sized businesses wake up and take all their deposits and investments out of the TBTF's????????
DB=fail.
Is it just me or do the wrinkles in blainfein's forehead show the vague outline of a target?
Come on dude, what you're suggesting is out of bounds
Botox?
Out of bounds since when? Last I checked this still happens daily on a federal level, approved, justified, and civilized. Hate the game not the players right? Naw scratch that, VI's response is better.
In that picture, he does have an outline of a target. I am thinking he will dress up as an SEC victim this Halloween with the area filled in with concentric circles.
Hey Chip, I agree!
Blankfein's a certified piece of shit who thinks scamming the public is God's work, maybe if some nutbar took a little target practice with his fivehead, it might change his attitude.
Are you for real?
If some overly militant nut job does target old Lloyd, could they then claim they were "efficiently allocating capital punishment?"
I think "effectively" is the word.
Please be advised that there is a working group at the NY regional office of the FBI that monitors on-line forums, e.g. ZH, specifically to identify threats of violence against employees of GS, SEC, JPM, Treasury, Fed, etc. Threats are followed up with identification of source IP addresses followed by background checks. I know this to be a fact.
When you post a threat of physical violence you are opening yourself up to some serious sh#t, never mind the moral repugnancy of the comment.
Not offering any threat of violence, but let me make something clear. Goldman and their advicaries have done nothing but bring our Financial markets to their knees. All because they could profit from the moves. They get fined a measly $550 million for this act. Tiger Woods brought a couple of ex-porn stars (some wanna be porn stars) to their knees and it costs him $750 million. This was total bullshit. At the least Goldman should have had the same fate as Arthur Anderson. At the most, and damn I wish it was the most, all upper management would have been fitted with orange jumpsuits and forced to share cells with some of the most violent criminals out there. I bet none of those hardened criminals helped in bankrupting nations.......
"At the least Goldman should have had the same fate as Arthur Anderson"
You are joking right? The audit function is considered a joke by modern day markets. The accounting profession has been completely marginalized to the point of "retard in the corner" status.
When a scapegoat is needed, they trot out the poor fuck who signed off on the audit. Why do you think there has been such a mass exodus of talent from publically traded CFO positions since SOX? Only to be replace by "What do you want the numbers to be" assholes who only care about the size of the bonus.
WAKE THE FUCK UP
See you in camp. We are busting out on the first new moon.
"moral repugnancy" is not an issue at this point. And you should know that.
The con of the century continues.
correction: The Con of Centuries continues...
Fiat currency is the con of the centuries.
"But the dirty little secret on Wall Street was that all too often, due diligence was a sham. People went through the motions without a thorough understanding of what they were doing, like kids who write a report by plagiarizing the encyclopedia. Investors saw triple-A ratings and stopped thinking. Goldman didn’t need to lie in order to sell “shitty deals.” It only needed to find a greater fool with an impressive resume at a multibillion-dollar institution who didn’t ask too many questions. And it was able to keep the scam going because all CDOs remain shrouded in secrecy to this day. The only people who can buy access to CDO performance data on ABSNet are actual investors, who are subject to nondisclosure agreements."
Exactly.
When in a snake pit expect to get bit.
Beat me to it.
"But the dirty little secret on Wall Street was that all too often, due diligence was a sham."
That sentence is SOP.
Nice guest post, gave it a five.
I didn't know about the 30 year old ex-GS COO Enforcement div.
Gave it a five as well.
Didn't know who Brian Sack was either...geesh, I'd pay for a subscription to ZH just for it's aggregating capabilities alone...down toward the end of Ty's intro comments...from here;
http://www.zerohedge.com/article/charles-nenner-long-term-investors-shou...
More on him (Sack) here...no Goldman connect though, but thoroughly schooled in the Keynesian philosophy of mind over matter...where apparently, gravity don't matter...LOL;
http://blogs.wsj.com/economics/2009/04/17/who-is-brian-sack/
Now back to staring at your avatar ;-)
If you were a sophisticated investor who had done his due diligence, you didn’t need to be told that the deal was designed to fail. You would have figured it out for yourself!
What BS!
O.K. Let's say that GM (GMAC and whatever other financing arm sold some ABS to the market with significant knowledge that the 15 - 30 % of the damn cars coming from certain plants and that were the security interest for future ABS paper had a freaking defect that caused the car to be destroyed. To be conservative, let's also say that no person was physically injured from the defect.
Now, what if GM hired "independent engineers" (Let's call them Moody's Or S&P engineer consulting for finacial products) attested to the veracity of the engineering of the cars and said that the probablity of defects was significanlty less to almost no risk that these cars had such a defect.
To keep it simple, let's say GM & GMAC create Ford Pinto LLC to sell the paper that is backed by these cars. And, a very good client of GM with a great financing arm (let's call them Paulsen Auto Engineers & Associates) is brought in to "help decide" which cars and which plants they come from would be the specific assets to back the different tranches and securities in the markets. Oh, and as you might guess, Ford Pinto LLC and Paulsen Auto Engineers are able to short sell the securities to the markets that they know are backed by the cars with the probable defects.
Amazingly, after 2 years, the cars that back the paper start breaking down. Suddenly, the ABS paper with this crap in it drops. Guess what? GM and GMAC and Paulsen make huge returns from shorting the crap.
What would happen to these folks? They would go to jail.
Caveat emptor - BS. There is a fraudulent element in GS, too.
Don't give me this shit that "If you were a sophisticated investor who had done his due diligence, you didn’t need to be told that the deal was designed to fail. You would have figured it out for yourself."
I guess I could have hired my own independent engineers in the GM scenario, too.
Are you really arguing that it is my affirmative duty to uncover fraud? How inefficient is that to the system.
Oh, that's right, I just forgot that we at GS own the system.
Don't get me wrong, these stupid pension funds and other institutional investors that are manipulated by GS and the likes need to feel some pain, BUT
This scandal is fraud. Nothing less.
cds has two sides of a trade ie long and short, no one is building exploding cell phones?
Who was on the wrong side of this contract? WHO took the trade? was it a pension fund, and was the person who agreed to the position using their own money, or someone else's? We tend to just look at the part we are presented but I smell a much bigger controversy other than just the original contract, that is being pushed back on Gs. I don't like Gs, but I don't know the plaintiff/looser nor the details. I am saying it almost sounds like some of the deals in Greece, Is there more to the story, possibly a political cover up? Can someone elaborate?
"Caveat emptor - BS. There is a fraudulent element in GS, too."
No one stuck a gun in their face and said give me your money or else.
+ Infinity
"I did pull it out." Said Gold Man's Sach. "No you didn't!" Screamed Mary Shapiro. "You came inside of me!" "Whatever, just abort the damn thing then." The Sach rolled over. "Get me some water and my cigarettes, Daddy is thirsty and tired."
And when I say make me a sandwich, you better come back with a goddamn sandwich.
The Sach tucked his Lloyd back into his boxers. "Oh, and make me a sandwhich!"
;)
Priceless commentary Mr Hendrix.......so fucking cruel. Love ZH.
Whatever
Readers of Andrew Napolotano, Bill Andersen, and Paul Craig Roberts know that Feral Persecutors can put an 70 year old grandmother in prison for life for jay walking, so, don't try this Goldman Sucks scam with your clients.
Those Nasdaq IPOs were much worse than this, sorry again.
Did anyone go to jail back then?
anyone catch the new mandated catch phrase on cnbc when speaking withWH rep or dems.
"we want to congratulate you on your legislative success." cabruso cant stop mentioning all the obama "successes" must be bonus $ for each mention.
maria s up on it too
When you reach GS level of fraud your TBTJ. You can bail em but can jail them or fail them.
+1000
road to the hamptons jammed tonight; clerks will handle expiration
When CNBC said that the SEC had a big anouncement at 4:45 today i thought that they were going to make a bid for playboy and make it a 3way between hef, that other sex company and the SEC.
I disagree that the case was weak - look at the statement Goldman issued and its admission. That admission probably represents "the case" or a subset thereof and it seems there is enough there for a successful prosecution.
http://www.zerohedge.com/article/goldman-statement-sec-settlement
They could, with political will, have been prosecuted for what they admitted.
If you look at the pattern of political donations and friendships, Goldman bought this break and paid well for it. As long ago as the 1990s when I worked on Wall St. (Water St. and later Broad St., actually), Goldman seemed to me intensely Democratic. Just the impression of a financial software outsider, but a striking one.
Given the amount of money poured into Democratic congressional races, GS earned a somewhat better break than they actually got in this settlement. On the other hand, they were lucky that in today's atmosphere of declining morality and opportunism, the Congressional Democrats remain honest politicians:
only "weak" comparatively speaking. if it went to trial, GS could have woven a convoluted and neutralizing defense as to what sophisicated involved parties knew or should have known.
http://www.martinarmstrong.org/files/Is-Goldman-Following-the-Model-6-18-10.pdf
Martin Armstrong piped in on this.....it is a great read
Also notice how this was done right before option expirations tomorrow.
GOOGLE CHROME SEES ZERO HEDGE AS A MALWARE INFECTED SITE. CHECK THE MESSAGE I'VE GOT FROM THEM: http://i746.photobucket.com/albums/xx103/rasbongo/warningmessageingooglechromeB4zeroh.jpg
compare investment bankers
http://news.yahoo.com/s/ap/20100715/ap_on_bi_ge/us_investment_banker_fraud_1
The real scam is going on in Washington by the civil servants who pretend to do good things for the citizens. This settlement of a fine that amounts to 4 days trading profits is a joke. The banksters are in control, more and more people are realizing this.
What about Deutsche Bank? I bet that corporation has lots of undisclosed special purpose entities and has made a lot of money with those vehicles outside the balance sheet. At the moment the bank still swaggers having been the only major bank in Germany that made it's way through the financial crisis without governmental help and is still pretending to have overcome all trying circumstances.
Deutsche Bank is the German Goldman Sachs.
I'm sure it actually is the German Goldman Sachs.
Employing...Virginians and Jews no doubt.
There everywhere!..LOL.
fin reg - a minority/union jobs bill
http://www.washingtontimes.com/news/2010/jul/14/finance-bill-favors-interests-of-unions-activists/
http://www.martinarmstrong.org/files/Is-Goldman-Following-the-Model-6-18-10.pdf
read it
These are the steps that are to be taken on the way toward a soft fascist state. Certain companies are designated as "favored", are given privileges and a guarantee of lax enforcement of encumbering laws. The ties between these corporates and government get cemented further and further. At first they're regarded as just a case of "the best and brightest" being given favoritism. As it evolves, however, a patten emerges of ever greater privileges at the expense of average citizens. Until at last the farce is dropped and the government just mandates citizens to work for the favored companies at pre-set wages without recourse or the right to collective bargaining. And mandated to buy the products at pre-set prices. Suppliers and contractors are coerced to fix prices.
Sound too spooky to happen? Well we're not as far off as you might think. But with AIG, GM and all TARP banks under government "stewardship" and the leniency shown toward such players as GS, MEE, BP (ok, not American) one can see the "Brown Shoots" of state fascism. Call it what you will.
Ha Ha Ha! Ha Ha Ha! Ha Ha Ha! Ha Ha Ha!Ha Ha Ha! Ha Ha Ha! Ha Ha Ha! Ha Ha Ha!Ha Ha Ha! Ha Ha Ha! Ha Ha Ha! Ha Ha Ha!Ha Ha Ha! Ha Ha Ha! Ha Ha Ha! Ha Ha Ha!Ha Ha Ha! Ha Ha Ha! Ha Ha Ha! Ha Ha Ha!Ha Ha Ha! Ha Ha Ha! Ha Ha Ha! Ha Ha Ha!Ha Ha Ha! Ha Ha Ha! Ha Ha Ha! Ha Ha Ha!Ha Ha Ha! Ha Ha Ha! Ha Ha Ha! Ha Ha Ha!Ha Ha Ha! Ha Ha Ha! Ha Ha Ha! Ha Ha Ha!Ha Ha Ha! Ha Ha Ha! Ha Ha Ha! Ha Ha Ha!Ha Ha Ha! Ha Ha Ha! Ha Ha Ha! Ha Ha Ha! -
Peons! Don't you get it. We got it stacked. Me go to jail?
Arthur Andersen and it's 35,000 employees were taken down for much less.
Ha Ha Ha. The Champagne is sweet tonight.
You and Nat Rothschilde stay in character! This could be one helluva masked ball after all!
Happy HallowedWean Blank-Shot!
It's very confusing - summary, please.
"GS pays fine for unethical parking in funeral zone."
Golden Slacks brutally punished with...
$five hundred and fifty million$ fine or
about 3 days of HFT.
http://www.youtube.com/watch?v=XK3rTUgoQD4&feature=player_embedded
Yale Grad Congresswoman Sheila Jackson Lee on North and South VietnamYea America is Screwed
Stupid hag bitch.
More SJL: When the Mars rover was driving around Mars, exploring, ole SJL was touring the Johnson Space Center. She asked to have the rover drive over to where the astronauts had planted the flag back in the 60s. True story.
Stupid hag bitch.
... when she could've walked!?
After reading it, I said that 2 months ago and everyone thought I was a lunatic, okay yes, but I am vindicated.
I hate gs and jpm, but dammit Im waiting for investors to be bailed out for being stupid, "go long and if it doesnt work out, you can deduct the full amount from the tax you owe forever, and if thats not enough, we will send you a check"
Why is gs still a bank?
I believe Bruce Kasting made the same point awhile back...these are the big boys...not your "average" schister swindeling granny into a shoddy black topping of her driveway.
I liken it to spoiled trust fund brats with sweaters tied around their necks betting amongst themselves. I don't give a damn how much money they pass back and forth between themselves...it's when they're actions crash into my life I have a problem.
Glass-Steagall should have never been repealed. Rubin, Gramm...all of them, can go straight to hell as far as I'm concerned.
If you were a sophisticated investor who had done his due diligence, you didn’t need to be told that the deal was designed to fail. You would have figured it out for yourself...
If you were a sophisticated investor who gave a damn about your aum you wouldn't do business with the squid.
So fraud is ok as long as no one knows they were defrauded. Gotcha. Good to know.
What does this settlement cost Goldman?
6 days of trading profits?
This is one of the weakest arguments I've ever seen expressed here. It's OK to defraud people if they are not on the ball enough to catch you doing it?
That's fucking moronic.
This case is a prime example of what is wrong with corporate America. Unfortunately, in the end the shareholders are the ones that pay for management's corrupt practices. Between the huge bonuses being paid out and the now half billion fine, plus all the other payout from litigation, my shareholder value was just eroded. When there is wrongdoing by the management of a corporation - make them pay the fines directly out of their pockets and put them in jail. Don't punish shareholders by assessing huge fines that we had no part in. The fiduciary principle must be revised and enforcement should be directly assessed against the ones that perpetrated the crime. A classic example is ENRON, if the management of the firm all went to prison and forfeited their wealth, the company could of carried on and shareholders would not have lost all their money.
Sad to see……maybe when the economy finally collapses it can be rejuvenated with better laws.
http://www.futureofcapitalism.com/2010/07/regulatory-revolving-door-1
Regulatory Revolving Door: The chief counsel in the division of enforcement at the Securities and Exchange Commission, Joan McKown, "will depart the agency to become a partner in the Washington office of the law firm Jones Day," an SEC press release announces. Jones Day clients, according to the firm Web site, include Citicorp, Deutsche Bank AG, Dresdner Kleinwort Limited, General Electric, The Goldman Sachs Group, L.P., Jefferies & Company, Inc., JPMorgan Chase Bank, Lehman Brothers Holdings Inc., and Pershing Square Capital Management, L.P. As we've said in the past, we don't think working for the government should require anyone to forswear a future career in the private sector, but there is nonetheless something disturbing about a regulatory regime so complex and arbitrary that it practically requires companies to hire former regulators to navigate it for them. Maybe I missed it, but I don't think there's anything in the 2,000+ pages of the Dodd-Frank financial "reform" bill that would address this issue; if anything, it will make it worse.
please watch... http://www.youtube.com/watch?v=1Sa3axgBzAU
Goldman Sachs has a team of paid spies on russian traders' web-forums, particularly on forum board of Metatrader software mql4.com/ru. The spy team has a strong math and programming background (they even read my old math articles in russian, not related to trading (!)). Their goal is to figure out new mathematical approaches for trading, AND to figure out the similarity between GS' and russians' math methods.
The GS' spy team was recently disclosured, because the forum community figured out that .... (in addition to numerous strange posts, unusual arrogance and strange behavior) ... they animalistically hate ZeroHedge (!). Ordinary, normal programmer or trader CAN NOT HATE ZeroHedge for no reason!
From the discussions there it was clear that:
(a) they BADLY need new mathematical approaches;
(b) they need assurance of correctness of their own math methods;
(c) they also must obfuscate the discussions if they see that the talks' direction is headed into new fresh promising math approaches, already known to (and probably already checked by) GS.
Every time I read about this I feel a little bit dirty.
I'm gonna go take a shower now.
Anybody have a rough calculation on how much money gs gleaned from this con vs. the fine?
WORLDS OF FRAUD
http://williambanzai7.blogspot.com/2010/07/wonders-of-world-of-fraud-mad...
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