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So, How Many Banks and Analysts Were Bearish On Goldman Before Today?
- AIG
- American International Group
- Asset-Backed Securities
- CDO
- Collateralized Debt Obligations
- Commercial Real Estate
- CRE
- CRE
- Credit-Default Swaps
- Darrell Issa
- Deutsche Bank
- Goldman Sachs
- goldman sachs
- Kaufman
- Main Street
- Monkey Business
- Mortgage Backed Securities
- notional value
- Real estate
- Reality
- Reggie Middleton
- Risk Management
- Stress Test
- Unemployment
I know I'll raise my hand to the aforementioned question. The issue is,
as I huffed and puffed about how overvalued GS is, particularly
considering the amount of risk that it faced, I got a lot of blow back.
The same blow back I got in early 2008 when I shorted GS from $180 to
$75 (see Reggie
Middleton on Risk, Reward and Reputations on the Street: the Goldman
Sachs Forensic Analysis). Well, I
guess we can all see the risk that I was referring to, right???
When
the Patina Fades... The Rise and Fall of Goldman Sachs??? Tuesday,
16 March 2010
I have warned my readers about following myths and legends versus
reality and facts several times in the past, particularly as it applies
to Goldman Sachs and what I have coined "Name Brand Investing". Very
recent developments from Senator Kaufman of Delaware will be putting the
spit-shined patina of Wall Street's most powerful bank to the test.
Here is a link
to the speech that the esteemed Senator from Delaware (yes, the
most corporate friendly state in this country). A few excerpts to liven
up your morning...
Reggie
Middleton vs Goldman Sachs, Round 1Tuesday,
08 December 2009 and Reggie
Middleton vs Goldman Sachs, Round 2 Sunday, 31 January 2010
On
December 8th of last year, I penned "Reggie
Middleton vs Goldman Sachs, Round 1" wherein I challenged all to
take a critical look at exactly how much money was lost by Goldman
Sachs' clients. Well, here comes round 2, which is directed at Goldman
(over)valuation.
For
Those Who Chose Not To Heed My Warning About Buying Products From Name
Brand Wall Street Banks, Wednesday, 24 February 2010 -Those CDO
buyers shoudl really heed this article. Not only did the GSAMP investors
lose over 80%, but the real estate investors lost 98%
(see Wall Street Real Estate Funds Lose
Between 61% to 98% for Their Investors as They Rake in Fees!).
First a little background info. Goldman is supremely overvalued
in my opinion. It is even more so considering much of its profit is
generated solely from the raping of its clients. I say this holding
absolutely no ill will towards Goldman. This is strictly factual. Let's
walk through the evidence, of profit potential, valuation, and the stuff
behind some of the value drivers in their business model, like
brokerage and investment banking...
But wait! There's more, and it get's quite interesting...
Reference "Blog
vs. Broker, whom do you trust!" and you will be able to track the
performance of all of the big banks and broker recommendations for much
of the year 2008 for the companies that I covered on my blog. Since the
concept of sell is rather remote to any big broker whose trading desk is
not net short a particular position, it would be safe to assume that if
the market turns the broker's recommendations will also turn in a
similarly abysmal year as well. Just to be clear, this is not about
ability, or who is the smartest. It is about marketing and conflicts of
interest. Brokers do not charge for their research. Thus it should be
obvious to anyone with even the slightest modicum of business savvy that
the sunk costs that is freely disseminated research is most likely a
loss leader (with the losses being born by the consumers of said
research) otherwise known as the marketing arm for underwriting, sales
and trading.The blind following of Wall Street marketing research, and the
abject worshipping of Goldman marketing,inventory dumping, sales research
allows them to rake billions of dollars off of their clients backs, yet
clients still come back for more pain. A fascinating, Pavlov's
dog's/Stockholm Syndrome style phenomena. Have you, as a Goldman client,
performed as well as their employees receiving $19 billion in bonuses?
Don't get me wrong. I'm not hating Goldman, but now they are actually raping raking
billions of dollars off of the tax payers backs as well. I do not do
business with them, hence I do not want get my back raked - but it
appears that as a US taxpayer I have no choice. A company that nearly
collapsed a year ago, receives mysteriously generous government
assistance (AIG full payout during its near collapse as an insolvent
company) with the help of highly ranked government officials (many of
which are ex-Goldman employees) and then pays out record bonuses on top
of so many tens of billions of dollars of taxpayer aid with taxpayers
facing high unemployment and sparse credit is not necessarily a company
that should be looked upon as a scion of Wall Street. There is no
operational excellence here. The only reason such an aura exists is
because main street and Wall Street clients have an amazingly short
memory, as I will demonstrate in the paragraphs below. This goes for the
big Wall Street banks in general, and Goldman in particular.As stated above, Goldman is now underwriting CMBS under a broad fund our $19
billion bonus pool "buy" recommendation in the CRE REIT space.
Let's take a look at another big bonus development exercise,
marketing push they made into MBS a few years ago...
In April of 2006, a Goldman Sachs forced "Goldman Sachs Alternative
Mortgage Products", an entity that pushed residential mortgage backed
securities to its victims clients through GSAMP Trust 2006-S3 in a
similar fashion to the sales and marketing of the CRE CMBS that is
being pushed to its victimsclients as described in the links above.
The residential real estate market faced very dire fundamental and macro
headwinds back then, just as the commercial real estate market does
now. I don't think that is the end of the similarities, either.Less then a year and a half after this particular issue was floated, a
sixth of the borrowers defaulted on the loans behind this product,
according to CNN/Fortune,
where the graphic to the right was sourced from. Here's an excerpt from
the article of October 2007 (less than a year after the issue was sold to Goldman
clients, clients who probably didn't know that Goldman was short RMBS
even as Goldman peddled this bonus bulging trash to them):By February
2007, Moody's and S&P began downgrading the issue. Both agencies
dropped the top-rated tranches all the way to BBB from their original
AAA, depressing the securities' market price substantially.In March,
less than a year after the issue was sold, GSAMP began defaulting on its
obligations. By the end of September, 18% of the loans had defaulted,
according to Deutsche Bank.As a
result, the X tranche, both B tranches, and the four bottom M tranches
have been wiped out, and M-3 is being chewed up like a frame house with
termites. At this point, there's no way to know whether any of the A
tranches will ultimately be impaired...,,, Goldman said
it made money in the third quarter by shorting an index of
mortgage-backed securities. That prompted Fortune to ask the firm to explain to
us how it had managed to come out ahead while so many of its
mortgage-backed customers were getting stomped.The party line answer to the bolded phrase above is "risk
management". Goldman is prone to say, "We were just hedging out client
positions". Well, I wonder, were they net short or net long RMBS. You
want to know what my guess is??? Looking back to there CMBS offerings of
late, clients and bonus pool enhancement customers should inquire, "Is
Goldman net short the trash, bonus pool enhancement CMBS products that
they are peddling to me???"Now, fast forwarding to the present day, we look into "GSAMP Trust
2006-S3" and we find (courtesy of a follow-up
CNN/Fortune article):...the
formulas used by Moody's and S&P allowed Goldman to market the top
three slices of the security -- cleverly called A-1, A-2 and A- 3 -- as
AAA rated. That meant they were supposedly as safe as U.S. Treasury
securities.But of
course they weren't. More than a third of the loans were on homes in
California, then a superhot market, now a frigid one. Defaults and
rating downgrades began almost immediately. In July 2008, the last piece
of the issue originally rated below AAA defaulted -- it stopped making
interest payments. Now every month's report by the issue's trustee,
Deutsche Bank, shows that the old AAAs -- now rated D by S&P and Ca
by Moody's -- continue to rot out.As of Oct.
26, date of the most recent available trustee's report, only $79.6
million of mortgages were left, supporting $159.9 million of bonds. In
other words, each dollar of bonds had a claim on less than 50¢ of
mortgages.All the
tranches of this issue, GSAMP-2006 S3, that were originally rated below
AAA have defaulted. Two of the three original AAA -rated tranches
(French for "slices") are facing losses of about 90%, and even the
"super senior," safer-than-mere-AAA slice is facing losses of 25%.As of Oct.
26, date of the most recent available trustee's report, only $79.6
million of mortgages were left, supporting $159.9 million of bonds. In
other words, each dollar of bonds had a claim on less than 50¢ of
mortgages.... ABSNet
valued the remaining mortgages in our issue at a tad above 20% their
face value. Now, watch this math. If the mortgages are worth 20% of
their face value and each dollar of mortgages supports more than $2 of
bonds, it means that the remaining bonds are worth maybe 10% of face
value....If all
the originally AAA -rated bonds were the same, they'd all be facing
losses of 90% or so in value. However, they weren't the same. The A-1
"super senior" tranche was entitled to get all the principal payments
from all the borrowers until it was paid off in full. Then A-2 and A-3
would share the repayments, then repayments would move down to the
lower-rated issues.But under
the security's rules, once the M-1 tranche -- the highest-rated piece of
the issue other than the A tranches -- defaulted in July 2008, all the
A's began sharing in the repayments. The result is that only about 28%
of the original A-1 "super seniors" are outstanding, compared with more
than 98% of A-2 and A-3. If you apply a 90% haircut, the losses work out
to about 25% for the "super seniors," and about 90% for A-2 and A-3.
So, after reminiscing about the GSAMP Slide, we get to a news story in
Bloomberg released just this morning...Secret AIG Document Shows Goldman Sachs Minted Most Toxic
CDOsFrom Bloomberg:
Feb. 23 (Bloomberg)
Representative Darrell
Issa, the ranking Republican on the House Committee on Oversight
and Government Reform, placed into the hearing record a five-page
document itemizing the mortgage securities on which banks such as Goldman Sachs
Group Inc. and Societe Generale SA had bought $62.1 billion in
credit-default swaps from AIG...The public can now see for the first time how poorly the securities
performed, with losses
exceeding 75 percent of their notional value in some cases. Compounding
this, the document and Bloomberg data demonstrate that the banks that bought the swaps from
AIG are mostly the same firms that underwrote the CDOs in the first
place.
The banks should
have to explain how they managed to buy protection from AIG primarily on
securities that fell so sharply in value, says Daniel
Calacci, a former swaps trader and marketer who’s now a
structured-finance consultant in Warren, New Jersey. In some cases,banks also owned
mortgage lenders, and they should be challenged to explain whether they
gained any insider knowledge about the quality of the loans bundled into
the CDOs, he says. [Let's not play games here. The banks
knew what trash was hidden where!]
More of Reggie on Goldman Sachs
Reggie
Middleton vs Goldman Sachs, Round 2
Reggie
Middleton Personally Contragulates Goldman, but Questions How Much More
Can Be Pulled Off
Get
Your Federally Insured Hedge Fund Here, Twice the Price Sale Going on
Now!
§ As
Reggie
Who
More
Reggie
Middleton on Goldman Sachs' fourth quarter, 2008 results
and Morgan losses in the news, about 11 months late
vs. Broker, whom do you trust!
business on Goldman Superheroes
Middleton asks, "Do you guys know who you're messin' with?"
Middleton on Risk, Reward and Reputations on the Street: the Goldman
Sachs Forensic Analysis
Middleton on Goldman Sachs Q3 2008
Reality hits, the Masters of the Universe are starting to look like
regular bank employees
Middleton's Goldman Sach's Stress Test: Breaking Ranks with the Crowd
Once Again!
is the Newest Riskiest Bank on the Street?
premium Stuff!
Goldman Sachs Report June 21, 2008 2008-10-20
16:48:01 361.18 Kb
Middleton on Goldman Sachs' fourth quarter, 2008 results
Goldman Sachs - Buffet's strategic investment and public
offering 2008-09-26 02:29:15 895.36 Kb GS ABS Inventory 2008-02-25
06:48:56 1.22 Mb
Goldman Sachs Valuation Model updated for PPIP - Retail 2009-04-04
19:50:51 388.04 Kb
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:)
Wow, I'm so glad that you posted your 2 cents about the goldman show.
In other posts you state that you do not trade, but here is another example: "I shorted GS from $180 to $75".
Maybe you and Ron Insana can open your own HF? You'll need a catchy name and lots of excuses. I'm sure you got it covered.
Reggie
As I read that , one thought kept going through my mind; once they have completely lost everyone's trust they are dead. Most are hoping they walk off in handcuffs. But I think a more likely scenario, as all the pieces are put together , is the firm implodes quickly, very quickly.
The stock will have it's ups and downs as it's PR team pumps it. But we better be in front of our tickers the day it drops 70%
Superior post from a superior ZH contributor. Excellent revelation of what lies beneath. Common sense tells you this was all fraudulent activity in the 10b-5 sense. Everyone should sue and get their money back, and I'm surprised these burnt tranche owners haven't done so.
Reggie,
I have watched your comments for several years now. On the small time site that I use as my homepage your comments have been linked there since you first made your splash on the net. I was always reticent on making the bets against the criminal class as we all know, timing is everything. My hesitancy cost me the dough that would have paid for my retirement from really making things of use.
What I find especially repulsive about the news of today is that the taxcows will have to fund enormous outlays in funds for court costs to carry on the charade that the goomint is actually going to do something about the fraud. We producers will have to pay for the Kabuki theater where the frausdters will be found not guilty of anything actionable. Then the civil fraud suits will get going at the costs of hundreds of millions for the taxcows that never had any say whatsoever in this racketeering. Lose/lose.
Just what is wrong with charging the sellers and buyers of financial instruments to fund their playpen in the courts? What's wrong with having a commission that will assess a transaction charge to financial deals that reflect the legal costs risk if the product went into litigation?
Of course there would be no transaction fee for those that foreswear any recourse to taxcow funded courts.
I talked you up to anyone that cared at all back in 2007/08, or whenever you first made your research widely available.
You are on my good guy list, and thanks again.
My attorney once told me, "Pay your taxes, since that's a suit you've already lost."
The moral, as applied to today's events: Even if you think you own the government - you don't.
When it is time to get a few thousand billion into the Treasury's bond auctions and the spreads are getting wider, sack the equities markets that you've been propping up to herd the sheep back home to T bills. After all, the cash out point was probably long ago determined to be DOW 11,000 - everybody that was still in at this point deserves the poke with a sharp stick as they run into Treasuries next week, keeping the rates nice and low.
Today's drop is just peanut. Fricking peanut!
Headlines in all major newspapers should be reading..
'Goldman Sachs Rapes clients, and USA.'
If the SEC couldn't pick up a Mardof you know there was a direction to find out nothing about anybody, under the earlier administration.
SEC previously = Monkey see no evil, hear no evil, speak no evil.
We can hope for a SEC with a normal standard of vigalence, but that might put most bankers in prison. (and shut down the plunge protection team)
+plenty on your proposed headline.
How much you wanna bet that Madoffs billions he laundered and stole (which we don't know where it went but many who have researched do know but it's politically not right to say) was helped by Goldman Sachs.
Tick tock tick tock.
Bounce. Bounce. Stick!
put a big gold star on the forehead ... every one and the dog knew about these guys with half a brain, and understood the nature of the revolving door ,
jesse"Goldman Sachs Are Scum:" Max Keiser on Goldman Sachs From July 2009
also as an aside Martin Armstrong some time go called April 16th as a significant turn date.... three gold stars here.