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Matt Taibbi Hyperbole vs. Goldman Sachs Reality
- Asset-Backed Securities
- Bear Stearns
- Bond
- CDO
- Collateralized Debt Obligations
- Comptroller of the Currency
- Countrywide
- CRAP
- Federal Deposit Insurance Corporation
- goldman sachs
- Goldman Sachs
- Housing Market
- Lehman
- Lehman Brothers
- Matt Taibbi
- Meltdown
- Mortgage Backed Securities
- Office of the Comptroller of the Currency
- Rating Agencies
- Real estate
- Reality
- Washington Mutual
This is from Stone Street Advisors
Matt Taibbi's latest Rolling Stone article “The People vs. Goldman Sachs”
claims, in clever and entertaining prose, that Goldman execs should go
to jail because they: 1) participated in “the most destructive crime
spree in our history…”, 2) sold crappy CDOs to unwary clients, and 3)
lied to congress. I'd like to take this opportunity to add a little bit of what I like to call "reason" to the disucssion.
claims, in clever and entertaining prose, that Goldman execs should go
to jail because they: 1) participated in “the most destructive crime
spree in our history…”, 2) sold crappy CDOs to unwary clients, and 3)
lied to congress. I'd like to take this opportunity to add a little bit of what I like to call "reason" to the disucssion.
Lying to Congress
Let’s
start with simplest charge: Of course Goldman execs lied to Congress.
Everyone lies to Congress. Congress lies to Congress. Who outside of
Charlie Sheen wants to air dirty laundry in front of the whole world?
Yes I believe Goldman lied but not in they way RS thinks they did. Yes,
GS knew these bonds were crappy. Yes, they could have done a better job
disclosing all the risks. But as a former CDO manager and investor, I
know to review, research, and analyze CDOs independently of Rating
Agencies.
Selling Crappy CDOs to Unwary clients
Goldman
sold CDOs they knew to be crappy to investors who took the opposite
side of the bet. Rating Agencies blessed these structures with AAAs. And
why is this a crime? Isn’t the motto on the street “Buyer Beware”? The
deals would perform or underperform based on the underlying bonds making
up the CDOs. Is anyone claiming GS hid which bonds were included? No.
Despite RS’s assertion GS knew these bonds were crap, this does not
constitute a crime or a failure of disclosure. These bonds were not sold
with a guarantee nor did Goldman ever say these bonds had no risk.
Heck, even the rating agencies blessed these structures by allowing 75%
of the cash flow to be rated AAA.
To further the car analogy
favored by RS, imagine you want to buy a fleet of 100 cars from GS
Rental Company. You also have at your disposal the repair (i.e
performance) history of each and every car from a variety of third party
vendors named Intex, Core Logic and Lewtan. However, you rely on
Moody's Auto Rating service to tell you that only 15 cars are likely to
go bad in the worst case scenario. You decided to buy 75 cars with GS
Rental company keeping the first two cars that go bad. Crime or
out-and-out stupidity?
Further, doesn’t anyone remember all the
other products investment banks have sold which blew up shortly after
origination? I do. Ask me someday about 125% Mortgages, Manufactured
Housing, Airplane Lease ABS, Tech Stocks, and so on. Investment banks
only sell what investors are willing to buy. Same with the CDOs. Good
salesmen know how to sell. GS has very, very good salesmen. Frankly, any
investor who trusts a Wall Street salesman and doesn’t ask the tough
questions should go work for a feel-good non-profit. Buying investment
products you don’t understand should be a crime.
Crime Spree and Key Stone Cop Regulators
Lastly,
cutting through RS’s massive hyperbole, I’m trying to figure out what
constituted the biggest crime spree of all time. Fraudulent subprime
mortgage backed securities issuers? CDO managers? Fraudulent mortgage
originators? Fraudulent borrowers? Fraudulent Rating Agencies?
Incompetent and toothless regulators? Lazy investors?
Every part
of the business created the housing meltdown. Borrowers who over levered
or lied to get access to housing they couldn't afford. Real estate
agents over sold housing to drive up commissions. Home appraisers
inflated valuations at the behest of mortgage brokers. Mortgage
brokers, paid on commission, forged or instructed borrowers to lie to
get access to as much money as possible. Loan officers, paid based on
production, ignored problems in loan origination files. MBS issuers
ignored prudent underwriting standards and due diligence with no
regulatory oversight. Regulators didn't have the authority to stop this
train wreck nor the poltical backbone to do so. Rating Agencies relied
on outdated models and Wall Street pressure. Investors didn't do the
work necessary to understand the risks.
This "crime spree" wasn't a drive by a Moriarty-esque criminal mastermind but a Confederacy of Dunces.
RS
says the "banks were closely monitored by a host of federal regulators,
including the Office of the Comptroller of the Currency, the FDIC, and
the Office of Thrift Supervision." I call bullshit. The OTS actively
sought more regulatees by stating to them "we are the kinder gentler
regulator". The biggest blow-ups were OTS governed (Washington Mutual,
Bear Stearns, Lehman Brothers, Indy Mac, and Countrywide). The OCC
wasn't much better and the FDIC was busy laying off personnel because
the world was going well. The Fed's chief drug lord (Greenspan) was
pushing housing as the great engine of the US economy.
Lastly....
I'm
sick of Rolling Stone's hyperbole. If GS had a $6B bet on the housing
market then they were a little more than 1/2 a percent of the total
investors in the market. They were small potatoes, and because they were
small they survived the meltdown like cockroaches in a nuclear winter.
- advertisements -
I tried reading this article and ended up just skipping around... turns out there is no way to pick up this turd from a clean end.
In summary: 1) Everyone lies to congress. 2) The stupid buyers of the "shit" GS was selling are... well... stupid and buying "shit" you don't understand should be a crime. 3) Everyone was doing it and 4) Goldman Sachs is "small potatoes" which provides the WTF moment of the day. Stoned Street Advisers indeed.
This fellow claims that all the problems of the housing bubble (and by extension, the CDO fiascos) can be attributed to the actions of a "Confederacy of Dunces". Ok, let's accept that premise and follow it to it's conclusion:
1) GS didn't know it was lining CDO investors up for destruction because both GS and the investors are part of a "Confederacy of Dunces".
2) This means either GS is not qualified to intelligently contruct a viable investment vehicle, in which case they should be barred from doing so in the future OR they are qualified and on this particular topic CDOs, they blundered badly (like a dunce) and therefore any gains they made, fees they made or losses they avoded in the CDOs were all just sh*t luck - so they should have no problems with a special "Dunce Tax" levy being applied to them to claw-back any and all money which was in any way connected to the construction, sale and trading of CDOs and related risk-offsets since, let's say 2005.
For round numbers, let's just surcharge them $20 billion and call it even.
Matt is naive to suggest that anyone but the bankster elite gets to define what is a crime or a right in financial matters.
Stoned Street Advisors - Matt is allowed to be hyperbolic. Traders and regulators are not.
Ahhh, Stoned Street Investors.
I missed that d at the end.
Me thinks even Cheech & Chong, fully baked, would call this article epic bullshit.
Stoned Street Advisors - Making madhedgefund look good
Speaking of the devil, he is speaking in SF. See his new posting.
Given these people (Goldman et al) are the wealthiest on the planet and they steal to get more, the only conclusion is they are the embodiment of evil. Add the "we're doing GD's work" and the picture is complete. Wall St. is Satan's realm where bad is good and humanity is a joke. "Let's repo the Parthenon!"
the author sure has a problem with folks who differ with his opinion re being sick of rolling stones' hyperbole. but don't dare disagree with him. last time i disagreed with some points in one of his articles he told me not to post on his articles. the word "punk" comes to mind.
You're attention to detail is impressive. There are a handful of us with Stone Street Advisors, not just one person...
--The Analyst
so nice of you to inform me that stone street is more than one person.
while discussing the topic of attention to detail the "you're" in your reply ought to be "your."
--The Lieutenant
No! This artcle is GREAT.
It shows what's wrong with Wall St. This guys admits they lie through their teeth about what they're selling, and is totally clueless that there's anything wrong with that. He just doesn't get it.
Or maybe he does: "So we lie then cheat. Fuck you. Grow some balls and get over it".
Wall St. needs a serious wake up call. Normally, all banking and business transactions depend on trust. If you are doing business with GS, trust is just not part of the equation. If you a pension fund manager and GS says these things are great, and pays Moody's under the table to rate them AAA, are you and idiot for believing them? No. They are criminal for lying about it. Its called fraud, which unfortunately seems to be business as usual.
If you buy a fleet of cars and they come without engines because you didn't specify that they should, what do you do? You sue the shit out of the moron, and you'll get triple damages at minimum. WTF does this guy understand?
Personally, I don't have a problem with Wall St. treating itself like this; they all know the rules. But this behavior is not acceptable above 14th street. Pension fund managers have billions to invest, and don't have time to look up every CUSIP behind a CDO. If they did that, they wouldn't need GS in the first place.
Hey, we can trust GS. They're the best right? Yeah! at stealing your money.
Besides this game rigged far beyond what he's describing here. For one thing they take the other side of the trade 5 minutes after selling it to you. That's illegal.
This just shows these people cannot be trusted to operate as banks. They can be investment banks that can do business with truly sophisticated investors (not pension fund managers), but to operate like this in a retail space should be, and probably is, illegal. This is the best advertisement for financial reform I've ever seen.
Self-immolation would serve as a good wake-up call
I agree-- this article is awesome. It draws attention to the following important facts:
-- Wall Street is a gigantic confidence scheme
-- Wall Street is completely unregulatable. Even if you assume that regulators are 100% conscientious and 100% ethical and honest, thanks to the gigantic information assymetries between regulators and traders that will ALWAYS exist in the marketplace, regulation is a hopeless prospect.
-- It is critical to understand that these people are snakes who's only goal in life is to separate you from your money. Because they are confidence men, they will lie to you continuously. Because they control the game, the odds of beating them are low. It's like a casino, but worse-- at least in a casino, they are upfront about the fact that the games are all tilted in the house's favor.
Anybody who invests in public markets needs to understand that it is a losing game, and will always be a losing game, no matter what anyone tells you, or no matter how it is regulated (or not regulated). It is a hopeless and pointless activity. The best you can do is win in the short term; but like a casino, if you hang around long enough, it is inevitable that you will lose all your money.
What a load of s***.
would you buy a CDO from this man?
http://4.bp.blogspot.com/_sW65ilskOC8/TUauC6EAEwI/AAAAAAAAi54/Ke2MzHdcQM...
Some points here.
Lying to Congress. Disagree. Goldman didn't need to lie and what they said can be spun any which way. Congress was too stupid to know the meaning of the words they used.. except "shitty deal" of course. Congress lives this word every day.
Who's worse... the sharks that moved risk off, or the idiots that bought their risk with client money and then try to blame Goldman? Pathetic all around but I'll take the sharks over the those that shit the bed and want others to clean it up.
Regulators are the most corruptable jokes in the world. Those who can do, those who can't "regulate". Market discipline is the only answer. This goes to the heart of the bailout issue that pisses me and others off.
"They are all cockroaches in a nuclear winter." Finance is a tough and ugly business. Investors pressure hard for benchmark beating returns and pull their money out when there is poor performance, but then balk at how they got the returns.
However, there's something just not right about this article, though. Like it's celebrating depravity... maybe you can clarify this if I am reading it wrong.
I don't think it's necessarily an ethical issue as it is an oversimplification of what actually happened. It's a synthetic CDO. Someone wanted to be long, and that meant someone had to be short.
Everyone also knew that the gov't would swoop in and bail everyone out, so they were more than willing to take on that risk and it quickly became a game of how to position yourself for the biggest payout. However, the notion that the taxpayer was some unwitting dupe in this event is complete horseshit. Taxpayers knowingly backstopped these loans and were more than happy to assume the risk of catastrophic failure in order to get access to the kinds of capital and at attractive enough rates needed to keep the party going. That was the deal.
Not coming to GS's defense. As a general rule, I maintain that people are fucks and these guys are no exception. I'm sure these guys were guilty of a lot of things, but I think we have to keep in mind the rules of engagement here. Do the same set of standards apply to buying medicine from a pharmacy as they do eating sushi in a restaurant? No. Do the same set of standards buying retail investments anyone can buy on an exchange apply to bespoke derivative contracts with notional amounts in the 10's of billions traded OTC? No. To assume would be an insult and an obvious use of populist rhetoric.
As a taxpayer, I can say without qualification that I would not aware that I was backstopping these loans. That came as a surprise to me, and I would consider myself to be pretty aware of these kind of things, for a taxpayer.
You're assuming they actually lied. I'm not done reading the Levin report, but Taibbi does not in any way prove Perjury. Will write an update when I get further into it. Not saying it didn't happen, just that Taibbi does not provide evidence that it did.
--The Analyst
Worst article I have ever read on ZeroHedge. So I banged your Mom? Everyone bangs your Mom.
Thanks, Turk, for the laugh.
That was the Best response to this piece of shit.
The problem that the author is blind to see is that there is too much vested interests in GS actions, their actions directly swindle the public to give bonuses to GS.
They got the financial system deregulated to create financial WMD aka derivatives and then they sold it to investors and to top it all -- their sales performance wasn't even risk adjusted.
http://www.kansascityfed.org/publicat/sympos/2005/pdf/rajan2005.pdf - Raghuram Rajan does a brilliant job to show how GS and other powerful banks got the entire financial system on its knees.
As someone mentions above, this article should be flagged as junk.
at least i read the entire article
of course the take away is, dont trust or invest in wall street because we are all liars and crooks
only thing missing from this is the admonission that you shoulda known better than to trust a mafia casino and just shoved your money in the mattress rather than hope for return on investment
Taibbi will get Kahnd
Well, I don't much care about the lying to Congang bit, as that power of Congang was to be used to drag Executive branch officials before it to testify about Executive branch failures to follow laws passed by Congang and not to drag private citizens before it for a show trial and demonization.
That said, and I'll not go into the OTS failure mentioned, it does appear that the author assumes that so long as everyone else is doing it, and further, that the unethical, if not illegal, acts are less than some arbitrary percentage of market activity, then the unethical/illegal acts are acceptible. Surely, the author has managed to get out of numerous speeding tickets with such a defense...
What's worse, is that I am neither shocked nor outraged by this sophmoric, adolescent defense. The rank corruption and lawlessness of the FIRE ebubblemy has numbed me. That is truly the most troubling thing I learned reading this bilge.
total douche
Guess the authors will be ceasing operations soon. When you get orders to write this kind of a dribble, you must be very close to the perps. Maybe GS gave them instructions? Again?
More liek "Bone Meat Advisiors". Amirite?
/seriously f this guy
Kudos to Zero Hedge for allowing this idiot to publish the same rant every booking officer has to listen to every Saturday night when the usual crowd of sociopathic punks who can't handle their alcohol gets rolled into the county jail. If you've never had the pleasure of spending an evening observing that, this moronic rant is a good sample.
What about the fact that many of the structures were empty? i.e. they apparently did not have mortgages as the underlying? Or they had duplicate mortgages with some id numbers changed?
GS had access to the RMBS data as everyone else (including those who took the opposite side of trades), so while mortgage documentation failures are a major concern, generally speaking, its not like GS had much if any better insight into the issues (and solutions thereof) than anyone else.
This son-of-a-bitch should be in jail with Hank Paulson, Timmy Geithner, Blankfein, etc.
Why? Care to spell out the case, counsellor?
--The Analyst
No need for a case or a trial, Anal cyst. You and your gang of cronies have already bought off the judges and regulators, so we no longer need to pretend that we're a nation of laws. Let's just proceed directly to the necktie party, where there's one last loophole for you and your lawyers to find.
First, I disagree with you, but my disagreeing with you doesn't mean you should go to jail. Some posters are letting there emotions inform their statements. Second, even if Taibbi gets most things wrong and you get most things right, but Taibbi is right about a few things, then there are sufficient reasons for many Wall Street executives (and many, many people lower down in finance including the managers that hired the robo-signers). Based on his series of articles, Taibbi actually agrees with you on this: "I’m trying to figure out what constituted the biggest crime spree of all time. Fraudulent subprime mortgage backed securities issuers? CDO managers? Fraudulent mortgage originators? Fraudulent borrowers? Fraudulent Rating Agencies? Incompetent and toothless regulators? Lazy investors?" Most of that constituted the biggest crime spree ever. Anyone who committed fraud, which is probably tens or even hundreds of thousands should go to jail. A hundred high profile fraudsters would be a start. Third, thanks for replying to some of our comments. Would you mind replying to Cognitive Dissonance's reply to you?
"buyer beware" is when you buy "herbs" from a totally unknown dealer on the dark corner in a "shady" neighborhood.
GS has FIDUCIARY DUTY to their clients if GS recommends somethign to them
If someone here thinks otherwise - take StoneStreet's investment advise.... straight to the poor house!
The author of this disaster apparently is okay with:
1) Goldman and Paulson getting together, in pre-meditated fashion, to design investment products that will undoubtedly fail (picking out the worst assets of an epicly bad asset class to stuff into those investment products);
2) Buying off Fitch to fraudulently re-brand what were toxic assets as investment grade, and even prime;
3) Promoting such investment products as "stellar" to their "valued clients; and
4) Shorting said assets even while they were marketing them as "stellar" and selling them to their "valued clients," making money on the sale, and then profiting immensely when the investment products failed, which was a failure Goldman helped to accelerate and achieve (via its short positions).
You know the settlement with the SEC wasn't really about failure to disclose Paulson's role in reference portfolio selection in ABACUS, right?
Don't believe everything you read in the media...
--The Analyst
The previous commenter didn't say anything about the settlement with the SEC. You just made that part up. The SEC is about as toothless an old watchdog as there is, outside of the OTS. The idea that anyone in the SEC is going to bring any serious charges against anyone at Goldman is laughable. That might endanger their future position as legislative consultants of Goldman Sachs.
The funny thing about this to me is that in my opinion no real capitalist (or Scotsman) should be defending Goldman Sachs. At this point they are a socialist organization. Geitner is in the corner fanning them while Bernanke feeds them peeled grapes.
Casting Goldman Sachs as some kind of Ayn Randian hero is farcical. They win because they are connected at every level of government.
"Of course Goldman execs lied to Congress. Everyone lies to Congress."
Riiight. So "everybody" lies, UNDER OATH, to Congress. So perjury is no longer a crime, not even really an offence, more of a lapse in good taste, like wearing white shoes after Labor day. Got it.
And now, just for grins, I'm going to imagine a scenario where I've lied to Congress, under oath, and got caught. I'm sure it would just be a big ol' slap-and-tickle love fest. Oh yes, we'd all get together and have a good laugh, "ho ho, you sure got one over on us, you old rascal you." Then maybe they'd give me a noogie and I'd be on my way. Good times for all.
Somehow that seems rather unlikely. Oh, but I'm not a billionaire member of Goldman-Sachs. Yes, consequences for us little people are a mite more severe. We all know how that goes. Same old, same old.
"Isn’t the motto on the street “Buyer Beware”?" -
Not when you overtly misrepresent what you're selling, and pretend that a credit agency makes it legitimate.
If this is how you think, you should seriously be shot. A lot of people in The United States are suffering, arguably, by no fault of their own. Maybe it's just a game to people like you, for most of us though, it's not. Some of us have had enough of being lied too by Congress and then literally have our money stolen from us, burdening our children further.
Whether it be a Wall Street pillager, or one an industry lobby, or a politician in Washington, this kind of mindset must come to an end. If it be by people like you hanging from lampposts, so be it.
Agreed.
On lying to Congress ... that everyone does it does not make it right. If everyone committed murder, would that make it right? Geez.
GS shopped around and paid rating agencies to get their CDOs good ratings that GS knew were false. Then they sold the CDOs knowingly misrepresenting them. That is fraud, a crime. They should go to jail.
Stone Street needs to seriously look at its moral base.
Its profoundly clear that neither of you understand how securities are priced and valued. You see, Goldman did not KNOW in any way, shape, or form that the securities would (substantially) decrease in value; their analysis and outlook was that they would, but they very-well could have been wrong. Those who bought the securities knew what they were, and had a different (opposite) outlook.
Why is this so hard to understand?
--The Analyst
Say I am a homebuilder who was able to cheaply buy some questionable lumber, but it was graded Doug Fir #1 through the help of a "friend" at the mill who wanted to unload some of his inferior inventory quickly. I build the houses thinking to myself, "the engineers probably over-engineered on their calculations" so this inferior material will probably be okay. When I sell the houses to the unsuspecting buyers I'm able to sleep at night, because I've convinced myself that I'm basically a good guy and as long as nothing bad ever happens then everything will be fine..
A week after the homes all close there is a windstorm that knocks down 60% of the structures killing a dozen people.
I'm called into court where I lie my ass off. It's okay because I know that there have been many people sitting in that very same chair who have lied theirs off as well. I say the lumber had the correct stamps on it (even though my framers told me during construction that the lumber was crap and would splinter while they were trying to install it). I look directly into the cameras after the proceedings and tell everyone that if they want to blame anybody then blame God because He's the one who sent the big gust of wind. The whole thing is declared an "Act of God" and soon I'm skipping down the street ready to build a whole new set of homes for those who don't read the newspaper.
After reading this article I thought to myself, "I really hope at some point in time I get a chance to build a home for the author of this thought-provoking piece - he truly deserves it."
JTS
"Fraud is generally defined in the law as an intentional misrepresentation of material existing fact made by one person to another with knowledge of its falsity and for the purpose of inducing the other person to act, and upon which the other person relies with resulting injury or damage. Fraud may also be made by an omission or purposeful failure to state material facts, which nondisclosure makes other statements misleading." GS made representations that they knew to be false. Fraud. Why is this so hard to understand?
"Goldman did not KNOW" -
What part of this do you not understand?:
"'You shouldn't be selling junk. You shouldn't be selling crap. You shouldn't be betting against your own customer at the same time you're selling to them,' said Senator Carl Levin." -
'We didn't have a massive short against the housing market and we certainly did not bet against our clients,' Mr Blankfein said.
'Rather, we believe that we managed our risk as our shareholders and our regulators would expect.'
He said customers buying securities from the investment house came looking for risk and that's what they got.
'We did not cause the financial crisis... I do not think that we did anything wrong,' Goldman's managing director of structured products, Michael Swenson said.
Fuck them, and fuck you too.
Let's see. So, GS did not need the AIG bailout after all or commercial bank status. Give back time. Oh, and I'm sick of you and all the Wall Street leeches masquerading as useful financial experts.
Masquerading? Who's pretending? None of us.
--The Analyst