http://www.zerohedge.com/fullrss2.xml/%2A%7CARCHIVE%7C%2A/588691 en Full Preview Of Tomorrow's "Historic" FOMC Meeting http://www.zerohedge.com/news/2017-09-19/full-preview-tomorrows-historic-fomc-meeting <p>It is virtually guaranteed that tomorrow the FOMC will make history by officially announcing the Fed's plan to begin shrinking its balance sheet through the gradual phasing out of bond reinvestments, which however in a world in which <strong>other </strong>central banks continue to pump $125 billion per month, will hardly by noticed by markets at least in the beginning.</p> <p>&nbsp;</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/09/05/balance%20sheet%20reduction.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/09/05/balance%20sheet%20reduction_0.jpg" width="500" height="332" /></a></p> <p>So aside from the start of balance sheet renormalization what else should traders expect tomorrow? Earlier today, <a href="http://www.zerohedge.com/news/2017-09-19/ahead-tomorrows-historic-fed-meeting-here-definitive-fomc-cheat-sheet">we showed a cheat sheet from ING</a> that broke down the various USD bullish and bearish permutations of how Yellen could still surprise the market, including the Fed's signalling on policy rates, economic projections, a shift in the "dots", comments on asset prices and, last but not least, whether Yellen will stay or leave when her term expires in Feb 2018. </p> <p>&nbsp;</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/09/05/cheat%20sheet%20fomc.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/09/05/cheat%20sheet%20fomc_0.jpg" width="500" height="346" /></a></p> <p>* * * </p> <p>For those seeking a more in-depth preview, <a href="http://www.ransquawk.com">here courtesy of RanSquawk</a>, is the full "historic" September 20 FOMC Preview.</p> <ul> <li><strong>FOMC likely to maintain rates between 1.00-1.25%; there will be focus on whether it flattens the rate hike trajectory</strong></li> <li><strong>The formal announcement of balance sheet reduction is expected; it’s unclear what size the Fed wants to return it to</strong></li> <li><strong>Growth and unemployment projections unlikely to see major changes; inflation may be trimmed again</strong></li> </ul> <p><strong>RATES</strong></p> <ul> <li>Money markets price a very slim chance that the FOMC will hike rates this week, with an overwhelming 98.6% implied probability that the Federal Funds Rate target will remain between 1.00% to 1.25%. Looking ahead, markets now assign a 58% chance that rates will be lifted again in 2017.</li> <li>Federal Funds futures currently price in just two more hikes over the Fed’s current forecast horizon; the FOMC’s June forecasts pencilled in seven rate rises over that timeframe. Note, this week’s forecast will extend the horizon out to 2020.</li> <li>Given the cautious tone of comments from FOMC participants in recent weeks, it will be interesting to see whether the central bank lowers its trajectory for the rate path down, in line with the market’s view. However, analysts at Barclays do not expect a major revision to the median view of the rate profile, but sees the average falling: “We expect the median policy path to remain unchanged, but the average policy path should decline. We believe the average funds rate will decline by 15-25bp across the forecast horizon, and we believe as many as seven participants may signal that they prefer no further rate hikes this year (against nine participants who view one or more as appropriate).”</li> </ul> <p><strong>BALANCE SHEET</strong></p> <ul> <li>It is an almost a forgone conclusion that the FOMC will formally announce the start of its balance sheet programme; indeed, ‘several’ were ready to make the announcement in July. The Fed has also been given some leeway not that the debt ceiling has been extended until December.</li> <li>In June, the FOMC suggested a plan where it will allow $6bln of maturing Treasuries and $4bln of maturing MBS to roll-off per month for a three-month period; that amount would then be raised to $12bln for Treasuries and $8bln for MBS for another three months, and after a year, redemptions would be capped at $30bln for Treasuries and $20bln for MBS per month.</li> <li>The plan ensures the Fed wouldn’t have to outright sell any of its holdings immediately, which would cause a market reaction. In fact, Fed commentary suggests that the central bank wants to avoid any “shock and awe”; Loretta Mester (non-voter) said the intention is to set the policy, then “forget it”, suggesting that balance sheet would not be an active policy tool.</li> <li>Some questions remain unanswered; for instance, what size the FOMC is ultimately seeking to cut the balance sheet to. It is currently around $4.5trln; pre-crisis, it was around $800mln, but it is unlikely that the Fed intends to bring it down to that size. It seems as though the FOMC is still undecided: William Dudley (NY Fed, permanent voter) sees the balance sheet falling to between $2.4trln and $3.5trln – a wide range, but there doesn’t seem to be any firm consensus as yet.</li> </ul> <p><strong>STAFF ECONOMIC PROJECTIONS</strong></p> <ul> <li>The Fed meets amid an improving tone in US economic data: The labour market has been ticking along nicely for some time, with the rate of joblessness beneath the Fed’s estimate of NAIRU. The second estimate of growth in Q2 was revised higher to 3.0%, well above the Fed’s longer-term view between 1.8% and 2.0%. Inflation has been the Achilles heel, but there are some signs of improvement here too. Recent CPI data showed upside surprises to headline and core rates; but the Fed’s preferred measure – core personal consumption expenditures – lingers at the lowest since Q4 2015 at (1.4% vs Fed’s June forecast of 1.7% in 2017); additionally, wage growth continues to disappoint, which may give the Fed ammunition to remain dovish.</li> <li>Analysts at Oxford Economics say “a key focus will be on the FOMC’s view of recent inflation readings and its degree of conviction about whether inflation will hit the 2% target over the medium-term,” adding “this in turn will underpin the committee’s decision about raising rates further this year and the pace of rate increases next year.” FOMC Chair Janet Yellen has previously attributed the weak inflation to temporary factors and called for patience. Many will look out for commentary on whether the Committee has reached a consensus on the extent to which low inflation is transitory, and how much patience should be extended. The likes of Neel Kashkari (voter, dovish) expressed outright concerns on inflation, whereas centrists like William Dudley see a return to target in the medium-term; others, like Robert Kaplan (voter) want to see more evidence before committing to a tighter monetary policy path.</li> <li>It is worth noting that the Fed’s forecast horizon will be extended out to 2020, and the FOMC’s June forecasts and the current market view are generally in line, with the exception of inflation, suggesting growth and unemployment forecasts will be little changed, though its short-term inflation views may be cut.</li> </ul> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/09/05/fomc%20pre%20sept.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/09/05/fomc%20pre%20sept_0.jpg" width="500" height="346" /></a></p> <p><strong>PRESS CONFERENCE WITH CHAIR YELLEN</strong></p> <ul> <li>Chair Janet Yellen will likely adopt her usual balanced approach in her press conference, according to SGH Macro Advisors, to ensure that the FOMC still has the option of a rate hike in 2017. “She will certainly give voice to dovish concerns over the persistence in low inflation and the possibility of a new inflation dynamic emerging,” SGH says, “but on balance, we still expect her to modestly tilt her remarks to a base rate path that would warrant a possible third-rate hike in December.”</li> <li>In addition to inflation, the Fed’s forecasts, and the immediacy of near-term rates hikes, Yellen may also be quizzed on FOMC personnel following the early resignation of Stanley Fischer. Tradition dictates that outgoing Governors do not usually attend the last meeting of their term; however, the Fed has confirmed that Fischer will be in attendance, though it is unclear whether he will be submitting economic forecasts.</li> <li>The upshot of Fischer’s resignation means that there would be four vacancies on the Fed’s Board of Governors; but additionally, there remains doubt around Chair Yellen’s own position when her term expires next year, and on top of that, the position of President of the Richmond Fed (which will have a vote in 2018) remains unfilled.</li> </ul> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/09/05/fomc%20nest%20sept.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/09/05/fomc%20nest%20sept_0.jpg" width="500" height="250" /></a></p> <p>* * * </p> <p>Finally, here are select sellside research takes on what to expect tomorrow:</p> <ul> <li><strong>Barclays</strong>: We believe the Fed will begin balance sheet normalization as described in the June 2017 Addendum to the Committee's Policy Normalization Principles and Plans. Beyond this, the committee will likely engage in extensive discussions about how much the underlying trend rate of inflation has slowed. We do not believe the committee will reach consensus on the extent to which slower inflation is transitory and, in turn, how much “patience” is needed before proceeding with further policy rate normalization or whether it is worth the risk to financial stability to run the domestic economy hotter. Yet, we believe some members will reflect their view that some of the slowing in inflation will be persistent and mark down modestly their inflation forecast for 2018. Although we do not expect the median policy rate path to change, we do expect the average federal funds rate projection to decline.</li> <li><strong>Credit Suisse: </strong>We expect the Fed to keep the fed funds rate unchanged and to begin reducing the size of their balance sheet. We expect an announcement in line with their June policy normalization plan which stated that reinvestments are ended up to a gradually-increasing cap. The caps are likely to begin at a modest $10bn per month, but are scheduled to rise every quarter before levelling off at $50bn. Aside from the balance sheet reduction, we expect a dovish tone from the September meeting.</li> <li><strong>Goldman Sachs: </strong>We expect the FOMC to officially announce next week that balance sheet runoff will begin in October. As the Fed has already communicated extensively about its plan for a gradual and predictable runoff, we expect markets to focus instead on the outlook for the federal funds rate. The key question is whether the committee’s expectations for the federal funds rate have declined in light of the surprising deceleration in the inflation data since the start of the year. Several Fed officials have expressed reduced confidence in the view that the recent decline is a blip and that inflation will reaccelerate. Despite this week’s stronger-than-expected CPI report, Fed officials will still be looking at year-over-year core PCE and CPI inflation rates that are three tenths and five tenths lower, respectively, than in March. We therefore look for lower core inflation in the Summary of Economic Projections (SEP) and expect the “dot plot” to show a decline in the average projected funds rate path. While risks are tilted to the downside, we still expect the median projection to continue to show a third rate hike this year, 3 hikes in 2018 and a longer-run funds rate at 3%. Ultimately, there are three reasons why we expect only minor dovish changes. First, several influential FOMC members have highlighted that there is not yet enough data in hand to abandon the view that the economy is close to full employment and that diminishing spare capacity will gradually push inflation back up to the target. Second, growth momentum has remained very firm and while hurricanes will make the activity data noisier in the near term, they are unlikely to derail firm underlying trend growth. Third, financial conditions have continued to ease even as the FOMC moved to a path of quarterly tightening last December.</li> <li><strong>ING</strong>: We think this may be one of the more difficult meetings and press conferences for Chair Yellen to navigate, not least because of the growing dichotomy within the FOMC over the appropriate near-term policy approach. Our base case is for the doves to prevail, with a lower conviction over the pace and extent of future policy tightening visible in the Fed's dot plot. While the median 2017 dot is still set to tentatively pencil in a Dec rate hike, we expect to see more members calling for a pause for the remainder of the year; anything more than five would suggest that hopes of a Dec hike stand on a fragile footing. More telling of a dovish shift would be if the 2018 dot also moves lower; here we require five or more members to downgrade their views over future policy hikes, a scenario that cannot be ruled out given the softer US inflation dynamics. What is highly likely is that we'll see the 2019 and longer-run dots moving lower – with Fed officials acknowledging that a 2% handle for the terminal Fed funds rate is more realistic in the prevailing US economic environment.</li> <li><strong>Morgan Stanley: </strong>Our US economists expect the Fed to announce balance sheet normalization at its September meeting. They also expect the median dots to remain as they were in June, with the Fed adding a final rate hike in 2020 (see FOMC Preview: Auto Pilot). In our view, the risks to this outcome are that the 2018 median dot falls to 1.875% from 2.125% and the longer-run median dot falls to 2.75% from 3.00%. To assess the risks, we constructed the September 2017 dot-plot scenario in Exhibit 4. First, we attempted to match up dots in 2017 with dots in 2018. This allows us to create the following scenarios we felt were reasonable. We assume: 2 more FOMC participants pencil in no further hikes in 2017 and decrease the # of subsequent hikes in 2018 to 2from 3; 2 participants keep the third hike in 2017, but decrease the # of subsequent hikes in 2018 to 2 from 3;and 2 participants decrease the # of hikes in 2017 to 3 from 4, but keep 4 hikes in 2018. Given we assumed only 2 more participants join the "no more hikes in 2017" camp, the 2017 median dot remains at 1.375%. However, given our other assumptions, half of the Committee ends up with a 2018 dot below 2.00% and half ends up with a dot above 2.00% – leaving the median between 1.875 and 2.125% versus its 2.125% position in June. It is possible that Randal Quarles is confirmed by the Senate and sworn in before the meeting, thereby allowing a 17th dot to be added. But, at this point, the Senate has not scheduled his confirmation hearing. As a result of our scenario analysis, we think there is a reasonable risk that the 2018 median dot falls by 25bp,even though it's not our base case.</li> </ul> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="780" height="439" alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/yellen%20thinking%202_7.jpg?1505872050" /> </div> </div> </div> http://www.zerohedge.com/news/2017-09-19/full-preview-tomorrows-historic-fomc-meeting#comments Banking Barclays Bond Business Central bank Central Banks CPI Credit Suisse Debt Ceiling Economy fed Federal funds rate Federal Open Market Committee Federal Reserve Bank of New York Federal Reserve System Fed’s Board of Governors Financial services FOMC goldman sachs Goldman Sachs Janet Yellen Janet Yellen Monetary Policy Monetary policy Money Morgan Stanley Neel Kashkari NY Fed Open market operation Personal Consumption RANSquawk Richmond Fed Senate Unemployment William Dudley Wed, 20 Sep 2017 01:53:23 +0000 Tyler Durden 603814 at http://www.zerohedge.com "This Is Where The Next Financial Crisis Will Come From" http://www.zerohedge.com/news/2017-09-19/where-next-financial-crisis-will-come <p>In an extensive, must-read report published on Monday by Deutsche Bank's Jim Reid, the credit strategist unveiled an extensive analysis of the "<strong>Next Financial Crisis", </strong>and specifically what may cause it, when it may happen, and how the world could respond assuming it still has means to counteract the next economic and financial crash. In our first <a href="http://www.zerohedge.com/news/2017-09-18/deutsche-bank-global-asset-prices-are-most-elevated-history">take on the report yesterday</a>, we showed one key aspect of the "crash" calculus: between bonds and stocks, <strong>global asset prices are the most elevated they have ever been.</strong></p> <p><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/09/05/fig%2057_0.jpg" width="500" height="313" /></p> <p>With that baseline in mind, what happens next should be obvious: unless one assumes that the laws of economics and finance are irreparably broken, a deep recession and a market crash are inevitable, especially after the <a href="https://www.bloomberg.com/news/articles/2017-09-13/s-p-500-s-bull-market-gets-a-new-title-third-strongest-ever">third biggest </a>and <a href="http://money.cnn.com/2016/04/29/investing/stocks-2nd-longest-bull-market-ever/index.html">second longest </a>central bank-sponsored bull market in history. </p> <p>But what will cause it, and when will it happen? </p> <p>Needless to say, these are the questions that everyone in capital markets today wants answered. And while nobody can claim to know the right answer, here are some excerpts from what DB's Jim Reid, one of the best strategists on Wall Street, thinks will take place.</p> <p><em>Below we present the key excerpts from his must read report;</em></p> <p>* * * </p> <p>We think that the post Bretton Woods (1971-) global financial system remains vulnerable to financial crises.<strong> A simple internet search of financial crises through history (Figure 1, LHS chart) confirms that the frequency has increased over this period</strong>. Examples include the UK secondary banking crisis (1975), the two Oil shocks (1970s), numerous EM defaults (mid-1980s), US Savings and Loans mass failures (late 80s/early 90s), various Nordic financial crises (late 80s), Japanese stock bubble bursting (1990-), various ERM shocks/devaluations (1992), the Mexican Tequila crisis (1994), the Asian crisis (1997), the Russian &amp; LTCM crisis (1998), the Dot.com crash (2000), the various accounting scandals (02/03), the GFC (08/09) and the Euro Sovereign crisis (10-12).</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/09/05/jr%201.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/09/05/jr%201_0.jpg" width="500" height="215" /></a></p> <p>A more quantitative search backs this up (Figure 1, RH chart). We show the number of DM countries (%) in our sample back to 1800 experiencing one of the following on a YoY basis; -15% Equities, -10% FX, -10% Bond move, a sovereign default, or +10% inflation. <strong>This is our crisis/shock indicator. 0% equals no country with one of these conditions met, 100% equals all in our sample with one being met.</strong></p> <p><strong>It would therefore take a huge leap of faith to say that crises won’t continue to be a regular feature of the current financial system that has been in place since the early 1970s. </strong>The near exponential growth of finance and its liberalisation since this point has encouraged this trend.</p> <p>Indeed as we’ll show in this report there are a number of areas of the global financial system that look at extreme levels. This includes valuations in many asset classes, the incredibly unique size of central bank balance sheets, debt levels, multi-century all-time lows in interest rates and even the level of potentially game changing populist political support around the globe.<strong> If there is a crisis relatively soon (within the next 2-3 years), it would be hard to look at these variables and say that there was no way of spotting them.</strong></p> <p>Having said that, crises tend to have a large element of unpredictability. If they didn’t then surely more would predict their imminent arrival. So while we highlight a lot of the main global vulnerabilities in this report, <strong>history would tell us that there is still a chance that when the next crisis comes its origin will take us by surprise to a certain degree</strong>. <strong>As will its timing</strong>. In the remainder of this executive summary we highlight the conditions that have encouraged crises through history and the main areas of worry as to why we may be vulnerable for another financial crisis relatively soon.</p> <p>Periods with a higher number of crises/shocks coincide with higher levels of debt….</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/09/05/jr%202.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/09/05/jr%202_0.jpg" width="500" height="211" /></a></p> <p>…and with it higher budget deficits. G7 Government Debt was only previously higher with impact of WWII and before the early 1970s, persistent budget deficits only really existed in war time. Now a permanent feature.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/09/05/jr%203.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/09/05/jr%203_0.jpg" width="500" height="211" /></a></p> <p><span style="text-decoration: underline;"><strong>We think the final break with precious metal currency systems from the early 1970s (after centuries of adhering to such regimes) and to a fiat currency world has encouraged budget deficits, rising debts, huge credit creation, ultra loose monetary policy, global build-up of imbalances, financial deregulation and more unstable markets</strong>.</span></p> <p>The various breaks with gold based currencies over the last century or so has correlated well with our financial shocks/crises indicator. It shows that you are more likely to see crises/shocks when we break from hard currency systems. <strong>Some of the devaluation to Gold has been mindboggling over the last 100 years</strong>.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/09/05/jr%204.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/09/05/jr%204_0.jpg" width="500" height="303" /></a></p> <p>Perversely, the current post Bretton Woods system also allows for huge operations/stimulus to overcome any crisis/shock. We also shouldn’t underestimate the positive impact that this can have on nominal asset prices. <strong>Cash is arguably a far more dangerous asset in a fiat currency but unstable regime than it is in a more stable less crisis prone one. </strong>However, by continually using stimulus to deal with crises and not letting creative destruction take over, you make a subsequent crisis more likely by passing the problem along to some other part of the global financial system, and usually in bigger size. In a fiat currency world, intervention and money creation is the path of least resistance. In a Gold standard world, mining new gold was the only stable way of increasing the money supply.</p> <p>We think this leaves the current global economy particularly prone to a cycle of booms, busts, heavy intervention, recovery and the cycle starting again. There is no natural point where a purge of the excesses is forced by a restriction on credit creation.</p> <p>So we’re quite confident that there will likely be another financial crisis/shock pretty soon with their frequency continuing to be high until we create a more stable global financial framework.</p> <p>* * * </p> <p><strong><span style="text-decoration: underline;">So where will the next crisis come from</span>?</strong></p> <p><strong>An obvious issue is how we resolve the combination of the unwinding of unparalleled central bank balance sheet sizes at a time of record peacetime government debt and multi-century record low yields </strong>(Figure 5).</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/09/05/jr%205.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/09/05/jr%205_0.jpg" width="500" height="214" /></a></p> <p><strong>We also still have extreme levels of global imbalances </strong>(Figure 6) which pose a risk as international capital flows are necessary to support the status quo. These are harder to control by authorities or predict.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/09/05/jr%206.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/09/05/jr%206_0.jpg" width="500" height="254" /></a></p> <p>All this is occurring at a time of extremely high global asset prices and still low economic growth relative to the past. <strong>Could we be vulnerable to a major asset price correction that creates the conditions for a crisis?</strong></p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/09/05/jr%207.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/09/05/jr%207_0.jpg" width="500" height="199" /></a></p> <p><strong>Global central banks have facilitated these elevated asset prices. </strong>A long series of global financial problems have now been passed through all parts of the financial system with most of these problems stacked up and now resting with central banks and Governments. <strong>The buildup of debt that this has created has forced central banks to keep yields at ultra-low levels, thus raising the prices of a variety of other global assets.</strong></p> <p>Italy and Japan have seemingly unsustainable debt burdens and are likely vulnerable to a crisis outcome. However both have had this for some time which mitigates short-term risks. Italy is perhaps more vulnerable because of precarious and fragile politics, elevated levels of populism and a central bank that is regional and not domestically controlled. Japan shows how long a crisis can be avoided but that doesn’t automatically mean we should be complacent, especially as the BoJ now owns over 40% of the JGB market (from under 10% in 2012).</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/09/05/jr%208.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/09/05/jr%208_0.jpg" width="500" height="284" /></a></p> <p><strong>On populism, our index (Figure 9) tracking its rise across key DM countries shows that we are close to the 1930s highs. Is this a precursor to a big crisis?</strong> Does it make for more unpredictable politics, economics and markets?</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/09/05/JR%20populism.png"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/09/05/JR%20populism_0.png" width="500" height="307" /></a></p> <p><strong>We see China’s credit growth post GFC as also an area of great concern.</strong> As an example, in a recent IMF report they analysed 43 global cases of credit booms in which the credit to GDP ratio increased by more than 30 percentage points over a 5-year period. <strong>Only 5 cases ended without a major growth slowdown or financial crisis immediately afterwards</strong>.</p> <p> The IMF also caveated that these 5 cases, considering country specific factors, provided little comfort. If that wasn’t enough, the fund also points out that<strong> all credit booms that began when the ratios were above 100% ended badly.</strong></p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/09/05/jr%209.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/09/05/jr%209_0.jpg" width="500" height="310" /></a></p> <p><strong>These are perhaps the main observable risks out there but we go through a list of other potential catalysts in the piece</strong>. As we discuss at the top, by their very nature, financial crises or shocks are generally unpredictable.</p> <p>While we can’t be confident of where and when the next crisis will occur <strong>we can be pretty confident that the conditions remain in place for a world of frequent crises</strong>.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="573" height="353" alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/crisis%20teaser.jpg?1505826947" /> </div> </div> </div> http://www.zerohedge.com/news/2017-09-19/where-next-financial-crisis-will-come#comments Asian financial crisis Bank of Japan Bond Bretton Woods system Business Capital Markets Central Banks default Economic bubbles Economy Financial crises Financial crisis G7 Global Economy Global financial system International finance International Monetary Fund Italy Japan Jim Reid Market Crash Monetary Policy Money Money Supply Recession recovery Sovereign Default Sovereign default Stock market crashes Systemic risk Wed, 20 Sep 2017 01:49:22 +0000 Tyler Durden 603767 at http://www.zerohedge.com Happy Birthday CIA: 7 Truly Terrible Things The Agency Has Done In 70 Years http://www.zerohedge.com/news/2017-09-19/happy-birthday-cia-7-truly-terrible-things-agency-has-done-70-years <p><a href="http://theantimedia.org/happy-birthday-cia/"><em>Authored by Carey Wedler via TheAntiMedia.org,</em></a></p> <p><strong>On Monday, President Trump&nbsp;<a href="https://twitter.com/realDonaldTrump/status/909768037787717633">tweeted</a>&nbsp;birthday wishes to the Air Force and the CIA. </strong>Both became&nbsp;<a href="https://www.cia.gov/news-information/blog/2014/histint-the-national-security-act-of-1947.html">official</a>&nbsp;organizations 70 years ago on September 18, 1947, with the implementation of the National Security Act of 1947.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/09/18/20170919_cia.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/09/18/20170919_cia_0.jpg" style="width: 600px; height: 312px;" /></a></p> <p>After spending years as a wartime intelligence agency called the Office of Strategic Services, the agency was solidified as a key player in the federal government&rsquo;s operations with then-President Harry Truman&rsquo;s authorization.</p> <p>In the seventy years since, <strong>the CIA has committed a wide variety of misdeeds, crimes, coups, and violence</strong>. Here are seven of the worst programs they&rsquo;ve carried out (that are known to the public):</p> <h3><u><strong>1.Toppling governments around the world</strong></u></h3> <p>The CIA is best known for its first coup, Operation Ajax, in 1953, in which it ousted the democratically elected leader of Iran, Mohammed Mossadegh, reinstating the autocratic Shah, who favored western oil interests. That operation, which the CIA now&nbsp;<a href="https://www.theguardian.com/world/2013/aug/19/cia-admits-role-1953-iranian-coup">admits</a>&nbsp;to waging with British intelligence, ultimately resulted in the&nbsp;<a href="http://www.businessinsider.com/cia-releases-details-of-iranian-coup-2017-6">1979 revolution</a>&nbsp;and subsequent U.S. hostage crisis. Relations between the U.S. and Iran remain strained to this day, aptly described by the CIA-coined term &ldquo;<a href="http://www.independent.co.uk/news/terror-blowback-burns-cia-1182087.html">blowback</a>.&rdquo;</p> <p>But the CIA has had a hand in&nbsp;<a href="http://foreignpolicy.com/2013/08/20/mapped-the-7-governments-the-u-s-has-overthrown/">toppling</a>&nbsp;a number of other democratically elected governments, from Guatemala (1954) and the Congo (1960) to the Dominican Republic (1961), South Vietnam (1963), Brazil (1964), and Chile (1973). The CIA has aimed to install leaders who appease American interests, often&nbsp;<a href="https://books.google.com/books?id=vf9ZJx8WkjQC&amp;q=led+by+george#v=snippet&amp;q=led%20by%20george&amp;f=false">empowering</a>&nbsp;oppressive,&nbsp;<a href="http://paleofuture.gizmodo.com/cia-releases-files-that-describe-ruthless-chilean-dicta-1787899872">violent dictators</a>. This is only a partial list of countries where the CIA covertly attempted to exploit and manipulate sovereign nations&rsquo; governments.</p> <h3><u><strong>2. Operation Paperclip</strong></u></h3> <p>In one of the more bizarre CIA plots, the agency and other government departments employed Nazi scientists both within and outside the&nbsp;United States to gain an advantage over the Soviets. As&nbsp;<a href="http://www.npr.org/2014/02/15/275877755/the-secret-operation-to-bring-nazi-scientists-to-america">summarized</a>&nbsp;by&nbsp;<em>NPR</em>:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&ldquo;<em>The aim [of Operation Paperclip] was to find and preserve German weapons, including biological and chemical agents, but American scientific intelligence officers quickly realized the weapons themselves were not enough.</em></p> <p>&nbsp;</p> <p>&ldquo;<em>They decided the United States needed to bring the Nazi scientists themselves to the U.S. Thus began a mission to recruit top Nazi doctors, physicists and chemists &mdash; including Wernher von Braun, who went on to design the rockets that took man to the moon.</em>&rdquo;</p> </blockquote> <p>They kept this plot secret, though they&nbsp;<a href="https://www.cia.gov/library/center-for-the-study-of-intelligence/csi-publications/csi-studies/studies/vol-58-no-3/operation-paperclip-the-secret-intelligence-program-to-bring-nazi-scientists-to-america.html">admitted</a>&nbsp;to it upon the release of&nbsp;<a href="https://www.amazon.com/Operation-Paperclip-Intelligence-Program-Scientists/dp/0316221031"><em>Operation Paperclip: The Secret Intelligence Program That Brought Nazi Scientists To America</em></a>&nbsp;by Annie Jacobsen. In a book review, the CIA wrote that &ldquo;<em>Henry Wallace, former vice president and secretary of commerce, believed the scientists&rsquo; ideas could launch new civilian industries and produce jobs.&rdquo;&nbsp;</em></p> <p>They praised the book&rsquo;s historical accuracy, noting &ldquo;<em>that the Launch Operations Center at Cape Canaveral, Florida, was headed by Kurt Debus, an ardent Nazi</em>.&rdquo; They acknowledged that &ldquo;<em>General Reinhard Gehlen, former head of Nazi intelligence operations against the Soviets, was hired by the US Army and later by the CIA to operate 600 ex-Nazi agents in the Soviet zone of occupied Germany</em>.&rdquo;</p> <p>Remarkably, they noted that Jacobsen &ldquo;<em>understandably questions the morality of the decision to hire Nazi SS scientists,</em>&rdquo; but praise her for pointing out that it was done to fight Soviets. They also made sure to add that the Soviets hired Nazis, too, apparently justifying their own questionable actions by citing their most loathed enemy.</p> <h3><u><strong>3. Operation CHAOS</strong></u></h3> <p>The FBI is widely known for its&nbsp;<a href="https://www.aclu.org/other/more-about-fbi-spying">COINTELPRO</a>&nbsp;schemes to undermine&nbsp;<a href="http://www.thedailybeast.com/the-fbis-war-on-civil-rights-leaders">communist movements in the 1950s and anti-war, civil rights</a>, and&nbsp;<a href="http://www.huffingtonpost.com/g-flint-taylor/the-fbi-cointelpro-progra_b_4375527.html">black power</a>&nbsp;movements in the 1960s, but the CIA has not been implicated nearly as deeply because, technically, the CIA cannot legally engage in domestic spying. But that was of little concern to President Lyndon B. Johnson as opposition to the Vietnam war grew. According to former&nbsp;<em>New York Times</em>&nbsp;journalist and Pulitzer Prize-winner Tim Weiner, as documented in his extensive CIA&nbsp;<a href="https://books.google.com/books/about/Legacy_of_Ashes.html?id=vf9ZJx8WkjQC">history</a>,&nbsp;<em>Legacy of Ashes</em>, Johnson instructed then-CIA Director Richard Helms to break the law:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&ldquo;<em>In October 1967, a handful of CIA analysts joined in the first big Washington march against the war. The president regarded protesters as enemies of the state. He was convinced that the peace movement was controlled and financed by Moscow and Beijing. He wanted proof. He ordered Richard Helms to produce it.</em></p> <p>&nbsp;</p> <p>&ldquo;<em>Helms reminded the president that the CIA was barred from spying on Americans. He says Johnson told him: &lsquo;I&rsquo;m quite aware of that. What I want for you is to pursue this matter, and to do what is necessary to track down the foreign communists who are behind this intolerable interference in our domestic affairs&hellip;&rsquo;</em>&rdquo;</p> </blockquote> <p>Helms obeyed. Weiner wrote:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&ldquo;<em>In a blatant violation of his powers under the law, the director of central intelligence became a part-time secret police chief. The CIA undertook a domestic surveillance operation, code-named Chaos. It went on for almost seven years&hellip; Eleven CIA officers grew long hair, learned the jargon of the New Left, and went off to infiltrate peace groups in the United States and Europe</em>.&rdquo;</p> </blockquote> <p>According to Weiner, &ldquo;<em>the agency compiled a computer index of 300,000 names of American people and organizations, and extensive files on 7,200 citizens. It began working in secret with police departments all over America</em>.&rdquo; Because they could not draw a &ldquo;clear distinction&rdquo; between the new far left and mainstream opposition to the war, the CIA spied on every major peace organization in the country. President Johnson also wanted them to prove a connection between foreign communists and the black power movement. &ldquo;<em>The agency tried its best</em>,&rdquo; Weiner noted, ultimately noting that &ldquo;<em>the CIA never found a shred of evidence that linked the leaders of the American left or the black-power movement to foreign governments.</em>&rdquo;</p> <h3><u><strong>4. Infiltrating the media</strong></u></h3> <p>Over the years, the CIA has successfully gained influence in the news media, as well as popular media like film and television. Its influence over the news began almost immediately after the agency was formed. As Weiner explained, CIA Director Allen Dulles established firm ties with newspapers:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&ldquo;<em>Dulles kept in close touch with the men who ran the New York Times, The Washington Post, and the nation&rsquo;s leading weekly magazines. He could pick up the phone and edit a breaking story, make sure an irritating foreign correspondent was yanked from the field, or hire the services of men such as Time&rsquo;s Berlin bureau chief and Newsweek&rsquo;s man in Tokyo</em>.&rdquo;</p> </blockquote> <p>He continued:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&ldquo;<em>It was second nature for Dulles to plant stories in the press. American newsrooms were dominated by veterans of the government&rsquo;s wartime propaganda branch, the Office of War Information&hellip;The men who responded to the CIA&rsquo;s call included Henry Luce and his editors at Time, Life, and Fortune; popular magazines such as Parade, the Saturday Review, and Reader&rsquo;s Digest; and the most powerful executives at CBS News. Dulles built a public-relations and propaganda machine that came to include more than fifty news organizations, a dozen publishing houses, and personal pledges of support from men such as Axel Springer, West Germany&rsquo;s most powerful press baron</em>.&rdquo;</p> </blockquote> <p>The CIA&rsquo;s influence had not waned by 1977&nbsp;when journalist Carl Bernstein&nbsp;<a href="http://www.carlbernstein.com/magazine_cia_and_media.php">reported</a>&nbsp;on publications with CIA agents in their employ, as well as &ldquo;<em>more than 400 American journalists who in the past twenty?five years have secretly carried out assignments for the Central Intelligence Agency.&rdquo;</em></p> <p>The CIA has also successfully&nbsp;<a href="https://www.theguardian.com/film/2008/nov/14/thriller-ridley-scott">advised on and influenced</a>&nbsp;numerous television shows,&nbsp;<a href="https://play.google.com/books/reader?id=0RMtCwAAQBAJ&amp;printsec=frontcover&amp;pg=GBS.PT4.w.1.0.194">such as</a>&nbsp;<em>Homeland&nbsp;</em>and&nbsp;<em>24</em>&nbsp;and&nbsp;<a href="https://www.theatlantic.com/entertainment/archive/2016/07/operation-tinseltown-how-the-cia-manipulates-hollywood/491138/">films</a>&nbsp;like&nbsp;<em>Zero Dark Thirty&nbsp;</em>and&nbsp;<em>Argo</em>, which push narratives that ultimately favor the agency. According to Tricia Jenkins, author of&nbsp;<a href="https://play.google.com/books/reader?id=0RMtCwAAQBAJ&amp;printsec=frontcover&amp;pg=GBS.PT5"><em>The CIA in Hollywood: How the Agency Shapes Film &amp; Television</em></a><em>,&nbsp;</em>a concerted agency effort began in the 1990s to counteract negative public perceptions of the CIA, but their influence reaches back decades. In the 1950s, filmmakers produced films&nbsp;<a href="http://www.newsweek.com/how-cia-spooked-hollywood-movies-487064"><em>for</em>&nbsp;the CIA</a>, including the 1954 film adaptation of George Orwell&rsquo;s&nbsp;<em>Animal Farm</em>.</p> <p>Researchers Tom Secker and Matthew Alford, whose work has been&nbsp;<a href="http://onlinelibrary.wiley.com/doi/10.1111/ajes.12180/abstract">published</a>&nbsp;in the<em>&nbsp;American Journal of Economics and Sociology</em>, say their recent Freedom of Information Act requests have shown that the CIA &mdash; along with the military &mdash; have&nbsp;<a href="https://medium.com/insurge-intelligence/exclusive-documents-expose-direct-us-military-intelligence-influence-on-1-800-movies-and-tv-shows-36433107c307">influenced</a>&nbsp;over 1,800 films and television shows, many of which have nothing to do with CIA or military themes.</p> <h3><u><strong>5. Drug-induced Mind control</strong></u></h3> <p>In the 1950s, the CIA began experimenting with drugs to determine whether they might be useful in extracting information. As<em>&nbsp;Smithsonian Magazine</em>&nbsp;has&nbsp;<a href="http://www.smithsonianmag.com/smart-news/what-we-know-about-cias-midcentury-mind-control-project-180962836/">noted</a>&nbsp;of the MKUltra project:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><em>&ldquo;</em><em>The project, which continued for more than a decade, was originally intended to make sure the United States government kept up with presumed Soviet advances in mind-control technology. It ballooned in scope and its ultimate result, among other things, was illegal drug testing on thousands of Americans</em>.&rdquo;</p> </blockquote> <p>Further:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&ldquo;<em>The intent of the project was to study &lsquo;the use of biological and chemical materials in altering human behavior,&rsquo;&nbsp;</em><a href="https://archive.org/stream/finalreportofsel01unit/finalreportofsel01unit_djvu.txt"><em>according to</em></a><em>&nbsp;the official testimony of CIA director Stansfield Turner in 1977. The project was conducted in extreme secrecy, Turner said, because of ethical and legal questions surrounding the program and the negative public response that the CIA anticipated if MKUltra should become public.</em></p> <p>&nbsp;</p> <p>&ldquo;<em>Under MKUltra, the CIA gave itself the authority to research how drugs could:&rsquo; &lsquo;promote the intoxicating effects of alcohol;&rsquo; &lsquo;render the induction of hypnosis easier;&rsquo; &lsquo;enhance the ability of individuals to withstand privation, torture and coercion;&rsquo; produce amnesia, shock and confusion; and much more. Many of these questions were investigated using unwitting test subjects, like drug-addicted prisoners, marginalized sex workers and terminal cancer patients&ndash; &lsquo;people who could not fight back,&rsquo;&nbsp;</em><a href="https://docs.google.com/document/d/1j-bOBIlg-ZOuZBHyG0L9Q0yJOEV3XcMfu6qHFIrcKw4/edit"><em>in the words of</em></a><em>&nbsp;Sidney Gottlieb, the chemist who introduced LSD to the CIA.</em>&rdquo;</p> </blockquote> <p>Further, as Weiner noted:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&ldquo;<em>Under its auspices, seven prisoners at a federal penitentiary in Kentucky were kept high on LSD for seventy-seven consecutive days. When the CIA slipped the same drug to an army civilian employee, Frank Olson, he leaped out of the window of a New York Hotel.&rdquo;</em></p> </blockquote> <p>Weiner added that senior CIA officers destroyed &ldquo;almost all of the records&rdquo; of the programs, but that while the &ldquo;<em>evidence that remains is fragmentary&hellip;it strongly suggests that use of secret prisons for the forcible drug-induced questioning of suspect agents went on throughout the 1950s.</em>&rdquo;</p> <p>Years later, the CIA would be accused of distributing crack-cocaine into poor black communities, though this is currently less substantiated and&nbsp;<a href="http://www.huffingtonpost.com/2014/10/10/gary-webb-dark-alliance_n_5961748.html">supported</a>&nbsp;mostly by accounts of those who claim to have been involved.</p> <h3><u><strong>6. Brutal torture tactics</strong></u></h3> <p>More recently, the CIA was&nbsp;<a href="http://www.thedailybeast.com/the-most-gruesome-moments-in-the-cia-torture-report">exposed</a>&nbsp;for sponsoring abusive, disturbing terror tactics against detainees at prisons housing terror suspects. An extensive 2014 Senate report documented agents committing sexual abuse, forcing detainees to stand on broken legs, waterboarding them so severely it sometimes led to convulsions, and imposing forced rectal feeding, to name a few examples. Ultimately, the agency had very little actionable intelligence to show for their torture tactics but&nbsp;<a href="https://www.theguardian.com/us-news/2014/dec/09/cia-torture-report-released">lied</a>&nbsp;to suggest they did, according to the torture report. Their torture tactics&nbsp;<a href="https://www.theguardian.com/law/2016/nov/15/us-army-and-cia-may-be-guilty-of-war-crimes-afghanistan-says-icc">led</a>&nbsp;the International Criminal Court to suggest the CIA, along with the U.S. armed forces, could be guilty of war crimes for their abuses.</p> <h3><u><strong>7. Arming radicals</strong></u></h3> <p>The CIA has a long habit of arming radical, extremist groups that view the United States as enemies. In 1979, the CIA set out to support Afghan rebels in their bid to defeat the Soviet occupation of the Middle Eastern country. As Weiner wrote, in 1979, &ldquo;<em>Prompted by Zbigniew Brzezinski, President Carter signed a covert-action order for the CIA to provide the Afghan rebels with medical aid, money, and propaganda.</em>&rdquo;</p> <p>As Weiner detailed later in his book:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&ldquo;<em>The Pakistani intelligence chiefs who doled out the CIA&rsquo;s guns and money favored the Afghan factions who proved themselves most capable in battle. Those factions also happened to be the most committed Islamists. No one dreamed that the holy warriors could ever turn their jihad against the United States</em>.&rdquo;</p> </blockquote> <p>Though some speculate the CIA directly armed Osama bin Laden, that is yet to be fully proven or admitted. What is clear is that western media&nbsp;<a href="http://www.independent.co.uk/news/world/anti-soviet-warrior-puts-his-army-on-the-road-to-peace-the-saudi-businessman-who-recruited-mujahedin-1465715.html">revered</a>&nbsp;him as a valuable fighter against the Soviets, that he&nbsp;<a href="http://web.stanford.edu/group/mappingmilitants/cgi-bin/groups/view/21">arrived</a>&nbsp;to fight in Afghanistan in1980, and that al-Qaeda emerged from the mujahideen, who were beneficiaries of the CIA&rsquo;s program. Stanford University has&nbsp;<a href="http://web.stanford.edu/group/mappingmilitants/cgi-bin/groups/view/21">noted</a>&nbsp;that&nbsp;Bin Laden and Abdullah Azzam, a prominent Palestinian cleric, &ldquo;<em>established Al Qaeda from the fighters, financial resources, and training and recruiting structures left over from the anti-Soviet war</em>.&rdquo; Much of those &ldquo;structures&rdquo; were provided by the agency. Intentionally or not, the CIA helped fuel the rise of the terror group.</p> <p>Weiner noted that as the CIA failed in other countries like Libya, by the late 1980s &ldquo;<em>Only the mujahideen, the Afghan holy warriors, were drawing blood and scenting victory. The CIA&rsquo;s Afghan operation was now a $700-million-dollar-a-year-program</em>&rdquo; and represented 80% of the overseas budget of the clandestine services. &ldquo;<em>The CIA&rsquo;s briefing books never answered the question of what would happen when a militant Islamic army defeated the godless invaders of Afghanistan</em>,&rdquo; though Tom Twetten, &ldquo;<em>the number two man in the clandestine service in the summer of 1988</em>,&rdquo; was tasked with figuring out what would happen with the Afghan rebels. &ldquo;<em>We don&rsquo;t have any plan</em>,&rdquo; he concluded.</p> <p>Apparently failing to learn their lesson, the CIA adopted nearly the exact same policy in Syria decades later, arming what they called &ldquo;moderate rebels&rdquo; against the Assad regime. Those groups ultimately&nbsp;<a href="http://www.pbs.org/wgbh/frontline/film/syria-arming-the-rebels/transcript/">aligned</a>&nbsp;with al-Qaeda groups. One CIA-backed faction made headlines last year for&nbsp;<a href="http://www.thedailybeast.com/us-backed-moderate-rebels-behead-a-child-near-aleppo">beheading</a>&nbsp;a child (though President Trump cut off the CIA program in June, the military&nbsp;<a href="http://www.chicagotribune.com/news/nationworld/politics/ct-trump-cia-syria-20170719-story.html">continues</a>&nbsp;to align with &ldquo;moderate&rdquo; groups).</p> <p>*&nbsp; *&nbsp; *</p> <p><strong>Unsurprisingly, this list is far from complete.</strong> The CIA has engaged in a wide variety of&nbsp;<a href="https://www.newyorker.com/magazine/2007/08/13/the-black-sites">extrajudicial practice</a>, and there are likely countless transgressions we have yet to learn about.</p> <p><strong>As Donald Trump cheers the birthday of an agency he himself once&nbsp;<a href="https://www.bloomberg.com/news/articles/2017-01-19/trump-will-visit-headquarters-of-cia-he-criticized-over-leaks" rel="noopener">criticized</a>, it should be abundantly clear that the nation&rsquo;s covert spy agency deserves scrutiny and skepticism &mdash; not celebration.</strong></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="720" height="374" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20170919_cia.jpg?1505868671" /> </div> </div> </div> http://www.zerohedge.com/news/2017-09-19/happy-birthday-cia-7-truly-terrible-things-agency-has-done-70-years#comments Afghanistan Air Force al-Qaeda B+ Black site Brazil British intelligence Central Intelligence Agency Central Intelligence Agency Code names Director of Central Intelligence Donald Trump FBI Federal Bureau of Investigation federal government Florida Freedom of Information Act George Orwell Germany Government headlines Human rights abuses International Criminal Court Iran Islamic army Launch Operations Center McLean, Virginia mind-control technology national security New York Times office of Strategic Services office of War Information Pakistani intelligence Politics Project MKUltra Richard Helms Senate Senate Intelligence Committee report on CIA torture Smithsonian South Vietnam SPY Stanford University Testimony Torture in the United States United States United States Army United States government Wed, 20 Sep 2017 01:30:00 +0000 Tyler Durden 603810 at http://www.zerohedge.com Illinois Unpaid Vendor Backlog Hits A New Record At Over $16 Billion http://www.zerohedge.com/news/2017-09-19/illinois-vendor-backlog-hits-new-record-over-16-billion <p><strong>Back in July, the state of Illinois narrowly avoided a junk bond rating with a last minute budget deal that included a 32% in hike in income taxes.</strong>&nbsp; Republican Governor Bruce Rauner vetoed the budget and called it a "disaster," but both houses of the state legislature voted to override his veto.&nbsp; Meanwhile, S&amp;P and Moody's were apparently both convinced that the budget deal was sufficient for the state to remain an investment grade credit and all lived happily ever after, if just for a few months.&nbsp; Per <a href="http://money.cnn.com/2017/07/12/investing/illinois-budget-crisis-downgrade-sp/index.html">CNN</a>:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Illinois narrowly avoided becoming the first U.S. state ever slapped with a "junk" credit rating from S&amp;P Global Ratings after it passed its first budget in more than two years.</p> <p>&nbsp;</p> <p>The ratings firm removed the threat of an imminent downgrade for the fifth most populous state in the country on Wednesday, ruling that the Illinois budget deal has lowered the risk of a "liquidity crisis." Now the state is rated one-notch above "junk" territory, and S&amp;P said the odds of a downgrade within the next year have "substantially diminished."</p> </blockquote> <p>Back in July, <strong>S&amp;P defended its IG rating</strong> by saying that the budget package brought the state's revenue and spending closer to parity and <strong>"reduced the near-term uncertainty that had come to characterize its financial operations."&nbsp; </strong></p> <p>Of course, if that's true, then someone is going to have to explain to us <strong>why the state's unpaid payables balance continues to balloon higher with each passing day and now <a href="http://ledger.illinoiscomptroller.gov/fiscal-condition/#general-funds">stands at a record $16,046,145,423.20</a></strong> according the comptroller's office...&nbsp; </p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/09/19/2017.09.19 - IL 2.JPG"><img src="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/09/19/2017.09.19%20-%20IL%202_0.JPG" style="width: 600px; height: 227px;" /></a></p> <p>&nbsp;</p> <p>...which is only a 3-fold increase over the past two years.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/09/19/2017.09.19 - IL 1.JPG"><img src="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/09/19/2017.09.19%20-%20IL%201_0.JPG" style="width: 600px; height: 435px;" /></a></p> <p>&nbsp;</p> <p>But, if you're a resident of Illinois, or worse yet a pensioner in one of the state's <a href="http://www.zerohedge.com/news/2016-11-16/illinois-pension-funding-sinks-376-unfunded-liability-surges-130bn">massively underfunded pension plans</a>, Democratic Comptroller Susana Mendoza would like for you to know that there is no reason for concern as she has the perfect solution to the state's debt problem: <strong>$6 billion in more debt.</strong>&nbsp; Per <a href="https://www.reuters.com/article/us-illinois-budget/illinois-unpaid-bill-backlog-hits-a-record-16-billion-idUSKCN1BU242">Reuters</a>:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>The bill backlog is growing despite the enactment of a fiscal 2018 spending plan and income tax increase in July that ended a budget impasse between Illinois’ Republican governor and Democrats who control the legislature.</p> <p>&nbsp;</p> <p><strong>“What is going to take this backlog down is the borrowing,”</strong> said Abdon Pallasch, spokesman for Democratic state Comptroller Susana Mendoza.</p> <p>&nbsp;</p> <p>A provision in the budget enacted by lawmakers over the vetoes of Governor Bruce Rauner authorized the sale of up to <strong>$6 billion of general obligation bonds to pay bills from vendors and service providers</strong> that are accruing late payment penalties of as much as 12 percent.</p> </blockquote> <p>That said, Republican Governor Bruce Rauner points out that there is a <strong><em>small</em></strong> problem with Mendoza's magical $6 billion debt cure-all, namely that <strong>there is no funding available to pay 12 years worth of interest payments.</strong></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>But on Monday, the governor told reporters that the bonds do not solve any problem because lawmakers failed to set aside money to make principal and interest payments over the 12 years the debt would be outstanding.</p> <p>&nbsp;</p> <p><strong>“We need to come up with roughly half a billion (dollars) of cuts just to be able to service a bond offering,”</strong> he said, adding that he planned to meet with legislative leaders for discussion.</p> </blockquote> <p>That said, we're almost certain that if bondholders didn't care about that near-bankruptcy experience back in July, they're also not going to have any problem underwriting another $6 billion worth of debt that has no shot of ever being repaid.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/09/19/2017.09.19 - IL Bond 2.jpg"><img src="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/09/19/2017.09.19%20-%20IL%20Bond%202_0.jpg" style="width: 600px; height: 334px;" /></a></p> <p>&nbsp;</p> <p>And we're pretty sure these guys won't care either...</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/09/19/2017.09.19 - IL Ratings.JPG"><img src="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/09/19/2017.09.19%20-%20IL%20Ratings_0.JPG" style="width: 600px; height: 182px;" /></a></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="772" height="477" alt="" src="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/Illinois.JPG?1505854599" /> </div> </div> </div> http://www.zerohedge.com/news/2017-09-19/illinois-vendor-backlog-hits-new-record-over-16-billion#comments American people of German descent Bond Bruce Rauner Business Economy Finance High-yield debt Illinois Illinois Budget Impasse Investment Grade Leslie Munger Money Politics ratings Reuters Social Issues state legislature Wed, 20 Sep 2017 01:05:00 +0000 Tyler Durden 603806 at http://www.zerohedge.com Government By Goldman http://www.zerohedge.com/news/2017-09-19/government-goldman <p><em>Authored by <a href="https://theintercept.com/2017/09/17/goldman-sachs-gary-cohn-donald-trump-administration/">Gary Rivlin and Michael Hudson via The Intercept</a>, in<a href="http://www.theinvestigativefund.org/"> partnership with The Investigative Fund</a>,</em></p> <p><strong><span class="no-underline" style="text-decoration: underline;">Steve Bannon</span> was in the room the day Donald Trump first fell for Gary Cohn. So were Reince Priebus, Jared Kushner, and Trump&rsquo;s pick for secretary of Treasury,&nbsp;Steve Mnuchin.</strong> It was the end of November, three weeks after Trump&rsquo;s improbable victory, and Cohn, then still the president of Goldman Sachs, was at Trump Tower presumably at the invitation of Kushner, with whom he was friendly. Cohn was there to offer his views about jobs and the economy. <strong>But, like the man he was there to meet, he was at heart a salesman.</strong></p> <p>On the campaign trail, Trump had spoken often about the importance of investing in infrastructure. Yet the president-elect had apparently failed to appreciate that the government would need to come up with hundreds of billions of dollars to fund his plans. Cohn, brash and bold, wired to attack any moneymaking opportunity, pitched a fix that would put Wall Street firms at the center: Private-industry partners could help infrastructure get fixed, saving the federal government from going deeper into debt. The way the moment was captured by the <a href="https://www.nytimes.com/2017/02/11/business/dealbook/trump-economic-cabinet-gary-cohn.html?_r=0&amp;module=ArrowsNav&amp;contentCollection=DealBook&amp;action=keypress&amp;region=FixedLeft&amp;pgtype=article">New York Times</a>, among other <a href="https://qz.com/861774/how-goldman-sach%20s-gary-cohn-became-donald-trumps-top-economic-adviser/">publications</a>, Trump was dumbfounded. &ldquo;Is this true?&rdquo; he asked. Was a trillion-dollar infrastructure plan likely to increase the deficit by a trillion dollars? Confronted by nodding heads, an unhappy president-elect said, &ldquo;Why did I have to wait to have this guy tell me?&rdquo;</p> <p><strong>Within two weeks, the transition team announced that Cohn would take over as director of the president&rsquo;s National Economic Council.</strong></p> <div class="img-wrap align-bleed width-auto"><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/09/18/20170919_gs1.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/09/18/20170919_gs1.jpg" style="width: 600px; height: 353px;" /></a><br /> <p class="caption overlayed"><em>Goldman Sachs President Gary Cohn arrives for a meeting with President-elect Donald Trump at Trump Tower in New York, &nbsp;Nov. 29, 2016.</em></p> <p class="caption source"><em>Photo: Bryan R. Smith/AFP/Getty Images</em></p> </div> <h3 class="chapter money"><u><span class="chapter-number money">1. </span><span class="chapter-title money">GOLDMAN ALWAYS WINS</span></u></h3> <p><strong><span class="no-underline" style="text-decoration: underline;">Goldman Sachs</span> had been a favorite cudgel for candidate Trump - the <a href="http://talkingpointsmemo.com/edblog/trump-rolls-out-anti-semitic-closing-ad">symbol</a> of a government that favors Wall Street over its citizenry.</strong> Trump proclaimed that Hillary Clinton was in the firm&rsquo;s pockets, as was Ted Cruz. It was Goldman Sachs that Trump singled out when he railed against a system rigged in favor of the global elite &mdash; one that &ldquo;robbed our working class, stripped our country of wealth, and put money into the pockets of a handful of large corporations and political entities.&rdquo; Cohn, as president and chief operating officer of Goldman Sachs, had been at the heart of it all. Aggressive and relentless, a former aluminum siding salesman and commodities broker with a nose for making money, Cohn had turned Goldman&rsquo;s sleepy home loan unit into what a Senate staffer called &ldquo;one of the largest mortgage trading desks in the world.&rdquo; There, he aggressively pushed his sales team to sell mortgage-backed securities to unaware investors even as he watched over &ldquo;the big short,&rdquo; Goldman&rsquo;s decision to bet billions of dollars that the market would collapse.</p> <p><strong>Now Cohn would be coordinating economic policy for the populist president.</strong></p> <p>The conflicts between the two men were striking. Cohn ran a giant investment bank with offices in financial capitals around the globe, one deeply committed to a world with few economic borders.<strong> Trump&rsquo;s nationalist campaign contradicted everything Goldman Sachs and its top executives represented on the global stage.</strong></p> <p>Trump raged against &ldquo;offshoring&rdquo; by American companies during the 2016 campaign. He even threatened &ldquo;retribution,&rdquo;&shy; a 35 percent tariff on any goods imported into the United States by a company that had moved jobs overseas. But Cohn laid out Goldman&rsquo;s very different view of offshoring at an investor conference in Naples, Florida, in November. There, Cohn explained unapologetically that Goldman had <a href="https://qz.com/853075/goldman-sachs-and-other-wall-street-banks-moved-thousands-of-jobs-out-of-the-us-will-trump-go-after-them-too/">offshored</a> its back-office staff, including payroll and IT, to Bangalore, India, now home to the firm&rsquo;s largest office outside New York City: &ldquo;We hire people there because they work for cents on the dollar versus what people work for in the United States.&rdquo;</p> <p><strong>Candidate Trump promised to create millions of new jobs, <a href="http://www.latimes.com/nation/83795186-157.html">vowing</a> to be &ldquo;the greatest jobs president that God ever created.&rdquo; Cohn, as Goldman Sachs&rsquo;s president and COO, oversaw the firm&rsquo;s mergers and acquisitions business that had, over the previous three years, led to the loss of at least 22,000 U.S. jobs, </strong>according to a <a href="https://drive.google.com/file/d/0BzouW0SGr8rlcHRONzB1b2tZU00/view">study</a> by two advocacy groups. Early in his candidacy, Trump described as &ldquo;disgusting&rdquo; Pfizer&rsquo;s decision to buy a smaller Irish competitor in order to execute a &ldquo;corporate inversion,&rdquo; a maneuver in which a U.S. company moves its headquarters overseas to reduce its tax burden. The Pfizer deal ultimately fell through. But in 2016, in the heat of the campaign, Goldman advised on a megadeal that saw Johnson Controls, a Fortune 500 company based in Milwaukee, buy the Ireland-based Tyco International with the same goal. A few months later, with Goldman&rsquo;s help, Johnson Controls had executed its inversion.</p> <p>With Cohn&rsquo;s appointment, Trump now had three Goldman Sachs alums in top positions inside his administration: Steve Bannon, who was a vice president at Goldman when he left the firm in 1990, as chief strategist, and Steve Mnuchin, who had spent 17 years at Goldman, as Treasury secretary. And there were more to come. A few weeks later, another Goldman partner, Dina Powell, joined the White House as a senior counselor for economic initiatives. Goldman was a longtime client of Jay Clayton, Trump&rsquo;s choice to chair the Securities and Exchange Commission; Clayton had represented Goldman after the 2008 financial crisis, and his wife Gretchen worked there as a wealth management adviser. And there was the brief, colorful tenure of Anthony Scaramucci as White House communications director: Scaramucci had been a vice president at Goldman Sachs before leaving to co-found his own investment company.</p> <p><strong>Even before Scaramucci, Sen. Elizabeth Warren, D-Mass., had joked that enough Goldman alum were working for the Trump administration to open a branch office in the White House.</strong></p> <p>&ldquo;There was a devastating financial crisis just over eight years ago,&rdquo; Warren said. &ldquo;Goldman Sachs was at the heart of that crisis. The idea that the president is now going to turn over the country&rsquo;s economic policy to a senior Goldman executive turns my stomach.&rdquo; Prior administrations often had one or two people from Goldman serving in top positions. George W. Bush at one point had three. At its peak, the Trump administration effectively had six.</p> <p>Earlier this summer, Trump boasted about his team of economic advisers at a rally in Cedar Rapids, Iowa. <strong>&ldquo;This is the president of Goldman Sachs. Smart,&rdquo; Trump <a href="https://www.realclearpolitics.com/video/2017/06/21/watch_live_president_trump_speaks_at_event_highlighting_agricultural_innovation_in_iowa.html">said</a>. &ldquo;Having him represent us! He went from massive paydays to peanuts.&rdquo;</strong></p> <p>Trump waved off anyone who might question his decision to rely on the very people he had demonized.<strong><em> &ldquo;Somebody said, &lsquo;Why did you appoint a rich person to be in charge of the economy?&rsquo; &hellip; I said: &lsquo;Because that&rsquo;s the kind of thinking we want.&rsquo;&rdquo; </em></strong>He needed &ldquo;great, brilliant business minds &hellip; so the world doesn&rsquo;t take advantage of us.&rdquo; How else could he get the job done? &ldquo;I love all people, rich or poor, but in those particular positions, I just don&rsquo;t want a poor person.&rdquo;</p> <p>&ldquo;Does that make sense?&rdquo; Trump asked. The crowd cheered.</p> <div class="img-wrap align-bleed width-auto"><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/09/18/20170919_gs2.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/09/18/20170919_gs2.jpg" style="width: 600px; height: 328px;" /></a><br /> <p class="caption overlayed"><em>Director of the National Economic Council Gary Cohn (L) listens to President Donald Trump deliver opening remarks during a meeting with business leaders in the Roosevelt Room at the White House on Jan. 23, 2017 in Washington, D.C.</em></p> <p class="caption source"><em>Photo: Chip Somodevilla/Getty Images</em></p> </div> <p><strong>Years of financial disclosure forms confirm that Cohn is indeed very rich</strong>. At the end of 2016, he owned some 900,000 shares of Goldman Sachs stock, a stake worth around $220 million on the day Trump announced his appointment. Plus, he&rsquo;d sold a million more Goldman shares over the previous half-dozen years. In 2007 alone, the year of the big short, Goldman Sachs paid him nearly $73 million &mdash; more than the firm paid CEO Lloyd Blankfein. The disclosure forms Cohn filled out to join the administration indicate he owned assets valued at $252 million to $611 million. That may or may not include the $65 million parting gift Goldman&rsquo;s board of directors gave him for &ldquo;outstanding leadership&rdquo; just days before Trump was sworn in.</p> <p>Like anyone taking a top job in the Trump administration, Cohn was <a href="https://www.whitehouse.gov/the-press-office/2017/01/28/executive-order-ethics-commitments-executive-branch-appointees">required</a> to sign a pledge vowing not to participate for the next two years in any matter &ldquo;that is directly and substantially related to my former employer or former clients, including regulations and&nbsp;contracts.&rdquo; But presidents have sometimes issued waivers to these requirements, and it is unclear whether the Trump administration is making such waivers public.</p> <p>Sens. Warren and Tammy Baldwin, a Democrat from Wisconsin, sent Cohn a letter a few days later. They brought up the $65 million bonus and asked him to publicly recuse himself from any issue that could have a direct or &ldquo;significant indirect&rdquo; impact on his old firm. Cohn never responded to the letter, and if he has ever received a waiver, it has not been made available to the public or the Office of Government Ethics.</p> <p><strong>&ldquo;Consistent with the Trump administration&rsquo;s stringent ethics rules, Mr. Cohn will recuse himself from participating in any matter directly involving his former employer, Goldman Sachs,&rdquo; White House spokesperson Natalie Strom said. &ldquo;The White House will not comment further.&rdquo;</strong></p> <p>The White House declined requests to make Cohn available for an interview and declined to answer a detailed set of questions.</p> <p><strong><em>Cohn shared the podium with fellow Goldman alum Mnuchin (the two made partner there the same year) when the administration unveiled its new tax plan, one that, if the past is prelude, had the potential to save Goldman more than $1 billion a year in corporate taxes. The president had promised to &ldquo;do a number&rdquo; on financial reforms implemented after the 2008 subprime crisis, including one that threatened to cost Goldman several billion dollars a year in revenues. Under Cohn, the administration has introduced new rules easing initial public offerings &mdash; a Goldman Sachs specialty dating back to the start of the last century, when the firm handled the IPOs of Sears, Roebuck; F. W. Woolworth; and Studebaker. As Trump&rsquo;s top economic policy adviser, Cohn can exert influence over regulatory agencies that have shaken billions in penalties and settlements out of Goldman Sachs in recent years. And his former colleagues inside Goldman&rsquo;s Public Sector and Infrastructure group likely appreciate the Trump administration&rsquo;s infrastructure plan, which is more or less exactly as Cohn first pitched it inside Trump Tower in November.</em></strong></p> <p>&ldquo;It&rsquo;s hard to see how Gary Cohn recusing himself would solve a lot of these conflicts because nearly every major decision of his job would have a significant impact, likely billions of dollars, on Goldman Sachs and its executives,&rdquo; said Tyler Gellasch, an attorney and former Senate staffer who helped draft Dodd-Frank, the landmark financial reform law passed in the wake of the financial meltdown. &ldquo;Goldman touches nearly every aspect of the economy, from selling U.S. treasuries to helping companies go public, and the National Economic Council advises on all of that.&rdquo;</p> <p>In the wake of last month&rsquo;s white supremacist rally in Charlottesville, Virginia, Cohn confessed to the <a href="https://www.ft.com/content/b85beea2-8924-11e7-bf50-e1c239b45787">Financial Times</a> that he has &ldquo;come under enormous pressure both to resign and to remain.&rdquo; <strong>But the man who the Washington Post has dubbed Trump&rsquo;s &ldquo;moderate voice&rdquo; declared that neo-Nazis would not force &ldquo;this Jew&rdquo; to leave his job.</strong> &ldquo;As a patriotic American, I am reluctant to leave my post as director of the National Economic Council,&rdquo; Cohn told FT. &ldquo;I feel a duty to fulfill my commitment to work on behalf of the American people.&rdquo;</p> <p>Or at least a few of them. <strong>The Trump economic agenda, it turns out, is largely the Goldman agenda, one with the potential to deliver any number of gifts to the firm that made Cohn colossally rich.</strong> If Cohn stays, it will be to pursue an agenda of aggressive financial deregulation and massive corporate tax cuts &mdash; he seeks to slash rates by 57 percent &mdash; that would dramatically increase profits for large financial players like Goldman. It is an agenda as radical in its scope and impact as Bannon&rsquo;s was.</p> <div class="img-wrap align-bleed width-auto"><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/09/18/20170919_gs3.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/09/18/20170919_gs3.jpg" style="width: 600px; height: 387px;" /></a><br /> <p class="caption overlayed"><em>Republican presidential candidate Donald Trump holds up a copy of his book &ldquo;The Art of the Deal,&rdquo; given to him by a fan as he speaks during a campaign stop on Saturday, Nov. 21, 2015 in Birmingham, Ala.</em></p> <p class="caption source"><em>Photo: Eric Schultz/AP</em></p> </div> <h3 class="chapter money"><u><span class="chapter-number money">2. </span><span class="chapter-title money">ALPHA MALES</span></u></h3> <p><strong><span class="no-underline" style="text-decoration: underline;">Donald Trump,</span>&nbsp;the &ldquo;blue-collar billionaire,&rdquo; has taken great pains to write grit and toughness into his privileged biography. </strong>He talks of military schools and visits to construction sites with his father and wrote in &ldquo;The Art of the Deal&rdquo; that in the second grade, &ldquo;I actually gave a teacher a black eye. I punched my music teacher because I didn&rsquo;t think he knew anything about music and I almost got expelled.&rdquo; Yet when the authors of the book &ldquo;Trump Revealed: An American Journey of Ambition, Ego, Money, and Power&rdquo; spoke to several of his childhood friends, none of them recalled the incident. Trump himself crumpled when asked about the incident during the 2016 campaign: &ldquo;When I say &lsquo;punch,&rsquo; when you&rsquo;re that age, nobody punches very hard.&rdquo;</p> <p><strong>Gary Cohn, however, is the middle-class kid and self-made millionaire Trump imagines himself to be.</strong> It appears that Cohn actually did slug a grade-school teacher in the face. &ldquo;I was being abused,&rdquo; Cohn told author Malcolm Gladwell, who interviewed him for his book, &ldquo;David and Goliath: Underdogs, Misfits, and the Art of Battling Giants,&rdquo; back when Cohn was still president of Goldman Sachs. As a child, Cohn struggled with dyslexia, a reading disorder people didn&rsquo;t understand much about when Cohn attended school in the 1970s in a suburb outside Cleveland. &ldquo;You&rsquo;re a 6- or 7- or 8-year-old-kid, and you&rsquo;re in a public-school setting, and everyone thinks you&rsquo;re an idiot,&rdquo; Cohn confessed to Gladwell. &ldquo;You&rsquo;d try to get up every morning and say, today is going to be better, but after you do that a couple of years, you realize that today is going to be no different than yesterday.&rdquo; One time when he was in the fourth grade, a teacher put him under her desk, rolled her chair close, and started kicking him, Cohn said. &ldquo;I pushed the chair back, hit her in the face, and walked out.&rdquo;</p> <p><strong>While Trump&rsquo;s father was a wealthy real estate developer, Cohn&rsquo;s father was an electrician. </strong>When Trump sought to get into the casino business, his father loaned him $14 million. When Cohn couldn&rsquo;t find a job after graduating from college, all his father could do was find him one selling aluminum siding. While Trump has the instincts of a reality show producer and an eye for spectacle, Cohn prefers to operate in the shadows.</p> <p><strong>But they likely recognize much of themselves in the other. </strong>Both Cohn and Trump are alpha males &mdash; men of action unlikely to be found holed up in an office reading through stacks of policy reports. In fact, neither seems to be much of a reader. Cohn told Gladwell it would take him roughly six hours to read just 22 pages; he ended his time with the author by wishing him luck on &ldquo;your book I&rsquo;m not going to read.&rdquo; Both have a transactional view of politics. Trump switched his voter registration between Democratic, Republican, and independent seven times between 1999 and 2012. In the 2000s, his foundation gave $100,000 to the Clinton Foundation, and he contributed $4,700 to Hillary Clinton&rsquo;s senatorial campaigns. He even bought and refurbished a golf course in Westchester County a few miles from the Clinton home, in part, Trump once admitted, to ingratiate himself with the Clintons. Cohn is a registered Democrat who has given at least $275,000 to Democrats over the years, including to the campaigns of Hillary Clinton and Barack Obama, but also around $250,000 to Republicans, including Senate Majority Leader Mitch McConnell and Florida Sen. Marco Rubio.</p> <p>There are also striking similarities in their business histories. Both have a knack for weathering scandals and setbacks and coming out on top. Trump has filed for bankruptcy four times, started a long list of failed businesses (casinos, an airline, a football team, a steak company), but managed, through his best-selling books and highly rated reality TV show, to recast himself as the world&rsquo;s greatest businessman. During Cohn&rsquo;s tenure as president, Goldman Sachs faced lawsuits and federal investigations that resulted in $9 billion in <a href="http://violationtracker.goodjobsfirst.org/parent/goldman-sachs">fines</a> for misconduct in the run-up to the subprime meltdown. Goldman not only survived but thrived, posting record profits &mdash; and Cohn was rewarded with handsome bonuses and a position at the top of the new administration.</p> <p><strong>Cohn&rsquo;s path to the White House started with a tale of brass and bluster that would make Trump the salesman proud.</strong> Still in his 20s and stuck selling aluminum siding, Cohn made a play that would change his life. In the fall of 1982, while visiting the company&rsquo;s home office on Long Island, he stole a day from work and headed to the U.S. commodities exchange in Manhattan, hoping to talk himself into a job. He overheard an important-looking man say he was heading to LaGuardia Airport; Cohn blurted out that he was headed there, too. He jumped into a cab with the man and, Cohn told Gladwell, who devoted six pages of &ldquo;David and Goliath&rdquo; to Cohn&rsquo;s underdog rise, &ldquo;I lied all the way to the airport.&rdquo; The man confided to Cohn that his firm had just put him in charge of a market, options, that he knew little about. Cohn likely knew even less, but he assured his backseat companion that he could get him up to speed. Cohn then spent the weekend reading and re-reading a book called &ldquo;Options as a Strategic Investment.&rdquo; Within the week, he&rsquo;d been hired as the man&rsquo;s assistant.</p> <p><strong>Cohn soon learned enough to venture off on his own and established himself as an independent silver trader on the floor of the New York Commodities Exchange. In 1990, Goldman Sachs, arguably the most elite firm on Wall Street, offered him a job.</strong></p> <div class="img-wrap align-bleed width-auto"><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/09/18/20170919_gs4.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/09/18/20170919_gs4.jpg" style="width: 601px; height: 363px;" /></a><br /> <p class="caption overlayed"><em>The Goldman Sachs &amp; Co. logo at the company&rsquo;s booth on the floor of the New York Stock Exchange in New York City, on Friday, July 19, 2013.</em></p> <p class="caption source"><em>Photo: Scott Eells/Bloomberg/Getty Images</em></p> </div> <p><strong>Goldman Sachs was founded in the years just after the American Civil War.</strong> Marcus Goldman, a Jewish immigrant from Germany, leased a cellar office next to a coal chute in 1869. There, in an office one block from Wall Street, he bought the bad debt of local businesses that needed quick cash. His son-in-law, Samuel Sachs, joined the firm in 1882. A generation later, in 1906, the firm made its first mark, arranging for the public sale of shares in Sears, Roebuck. Goldman Sachs&rsquo;s influence over politics dates back at least to 1914. That year, Henry Goldman, the founder&rsquo;s son, was invited to advise Woodrow Wilson&rsquo;s administration about the creation of a central bank, mandated by the Federal Reserve Act, which had passed the previous year. Goldman Sachs men have played important roles in U.S. government ever since.</p> <p>There was the occasional scandal, such as Goldman Sachs&rsquo;s role in the 1970 collapse of Penn Central railroad, then the largest corporate bankruptcy in U.S. history. Still, the firm built a reputation as a sober, elite partnership that served its clients ably. In 1979, when John Whitehead, a senior partner and co-chairman, set to paper what he called Goldman&rsquo;s &ldquo;Business Principles,&rdquo; he began with the firm&rsquo;s most cherished belief: The client&rsquo;s interests come before all else.</p> <p><em><strong>Two years later, Goldman took a step that signaled the beginning of the end of that culture. In the fall of 1981, Goldman purchased J. Aron &amp; Co., a commodities trading firm. Some within the partnership were against the acquisition, worried over how profane, often crude, trading culture would mix with Goldman&rsquo;s restrained, well-mannered way of doing business. &ldquo;We were street fighters,&rdquo; one former J. Aron partner told Fortune magazine in 2008.</strong></em></p> <p>The J. Aron team moved into the Goldman Sachs offices in lower Manhattan, but didn&rsquo;t adopt its culture. Within a few years, it was producing well over $1 billion a year in profits. They were 300 employees inside a firm of 6,000, but were posting one-third of Goldman&rsquo;s total profits. The cultural shift, it turned out, was moving in the other direction. J. Aron, according to a book by Charles D. Ellis, a former Goldman consultant, brought to Goldman &ldquo;a trading culture that would become dominant in the firm.&rdquo;</p> <p>Lloyd Blankfein, who ascended to chairman and CEO in in 2006, started his Goldman career at J. Aron, a year after Goldman acquired the firm. &ldquo;We didn&rsquo;t have the word &lsquo;client&rsquo; or &lsquo;customer&rsquo; at the old J. Aron,&rdquo; Blankfein told <a href="http://fortune.com/2008/03/17/lloyd-blankfein-goldman-sachs/">Fortune</a> magazine two years after taking over as CEO. &ldquo;We had counter-parties.&rdquo; Cohn joined J. Aron eight years after Blankfein did, in 1990. Four years later, Blankfein was put in charge of the firm&rsquo;s Fixed Income, Currency, and Commodities division, which included J. Aron. Cohn, loyal and hard-working, with an instinct for connecting with people who can help him, became Blankfein&rsquo;s &ldquo;<a href="https://www.wsj.com/articles/SB10001424052748703374104575337180461840038">corporate problem solver</a>.&rdquo;</p> <p>The emergence of &ldquo;Bad Goldman&rdquo; &mdash; and Cohn&rsquo;s central role in that drama &mdash; is really the story of the rise of the traders inside the firm. &ldquo;As trading came to be a bigger part of Wall Street, I noticed that the vision changed,&rdquo; said Robert Kaplan, a former Goldman Sachs vice chairman, who left in 2006 after working at the firm for 23 years. &ldquo;The leaders were saying the same words, but they started to change incentives away from the value-added vision and tilt more to making money first. If making money is your vision, what lengths will you not go?&rdquo;</p> <p><strong>At the height of the dot-com years, a debate raged within the firm. </strong>The firm underwrote dozens of technology IPOs, including Microsoft and Yahoo, in the 1980s and 1990s, minting an untold number of multimillionaires and the occasional billionaire. Some of the companies they were bringing public generated no profits at all, while Goldman was generating up to $3 billion in profits a year. It seemed inevitable that some within Goldman Sachs began to dream of jettisoning the Goldman&rsquo;s century-old partnership structure and taking their firm public, too. <strong>Jon Corzine was running the firm then &mdash; he would later go into politics in the Goldman tradition, first as a U.S. senator and then as New Jersey governor &mdash; and was four-square in favor of going public. </strong>Corzine&rsquo;s second in command, Henry Paulson &mdash; who would go on to serve as Treasury secretary &mdash; was against the idea. But Corzine ordered up a study that supported his view that remaining private stifled Goldman&rsquo;s competitive opportunities and promoted Paulson to co-senior partner. Paulson soon got on board. In May 1999, Goldman sold $3.7 billion worth of shares in the company. <em><strong>At the end of the first day of trading, Corzine&rsquo;s and Paulson&rsquo;s stakes in the firm were each worth $205 million. Cohn&rsquo;s and Mnuchin&rsquo;s shares were each worth $112 million. And Blankfein ended up with $168 million in company stock.</strong></em></p> <p><strong>Like any publicly traded company, there would now be pressure on Goldman Sachs to make its quarterly numbers and &ldquo;maximize shareholder value.&rdquo;</strong> Discarding the partner model also meant the loss of a valuable restraint on risk-taking and bad behavior. Under the old system, any losses or fines came out of the partners&rsquo; pockets. In the early 1990s, for example, the firm was involved in transactions with Robert Maxwell, a London-based media mogul who was accused of&nbsp;stealing&nbsp;hundreds of millions of pounds from his companies&rsquo; pension funds. The $253 million that Goldman Sachs paid to settle lawsuits brought by pension funds over its involvement was split among the firm&rsquo;s 84 limited partners. Now any losses are paid by a publicly traded entity owned by shareholders, with no direct financial liability for the decision-makers themselves. In theory, Goldman could claw back bonuses in response to executives&rsquo; bad behavior. But in 2016, when Goldman paid over $5 billion to settle charges brought by the Justice Department that the firm misled customers in the sale of a subprime mortgage product during Cohn&rsquo;s time overseeing that unit, the Goldman board declined to dock Cohn&rsquo;s pay. Instead, the company <a href="http://www.goldmansachs.com/s/2017-proxy-statement/HTML1/goldman_sachs-proxy2017_0061.htm">awarded</a> him a $5.5 million cash bonus and another $12.6 million in company stock.</p> <div class="img-wrap align-bleed width-auto"><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/09/18/20170919_gs5.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/09/18/20170919_gs5.jpg" style="width: 601px; height: 331px;" /></a><br /> <p class="caption overlayed"><em>The Goldman Sachs Group Inc. executives, from right, Gary Cohn, president and co-chief operating officer, Lloyd Blankfein, chairman and chief executive officer, and Jon Winkelreid, president and co-chief operating officer, appear in a 2006 annual report arranged for a photograph in New York, on June 16, 2008.</em></p> <p class="caption source"><em>Photo: Daniel Acker/Bloomberg/Getty Images</em></p> </div> <p><strong>As Blankfein moved up the corporate hierarchy, Cohn rose along with him.</strong> When Blankfein was made vice chairman in charge of the firm&rsquo;s multibillion-dollar global commodities business and its equities division, Cohn took over as co-head of FICC, Blankfein&rsquo;s previous position. That meant Cohn was overseeing not just J. Aron and the firm&rsquo;s commodities business, but also its currency trades and bond sales. By the start of 2004, Blankfein was promoted to president and COO, and Cohn was named co-head of global securities. At that point, Cohn had authority over the mortgage-trading desk. Under Cohn, the firm aggressively moved into the subprime mortgage market, using Goldman&rsquo;s own money and that of its customers to help stoke the housing bubble.</p> <p><strong>Goldman was already enabling subprime predators,</strong> such as Ameriquest and New Century Financial, by providing them with the cash infusions they needed to scale up their lending to individual home buyers. Cohn would steer the firm deeper into the subprime frenzy by setting up Goldman as a patron of some of these same mortgage originators. During his tenure, Goldman snapped up loans from New Century, Countrywide, and other notorious mortgage originators and bundled them into deals with opaque names, such as ABACUS and GSAMP. Under Cohn&rsquo;s watchful eye, Goldman&rsquo;s brokers then funneled slices to customers they sold on the wisdom of holding mortgage-backed securities in their portfolios.</p> <p><strong>One such creation, GSAA Home Equity Trust 2006-2, illustrates Goldman&rsquo;s disregard for the quality of loans it was buying and packaging into security deals. </strong>Created in early 2006, the investment vehicle was made up of more than $1 billion in home loans Goldman had bought from Ameriquest, one of the nation&rsquo;s largest and most aggressive subprime lenders. By that point, the lender already had set aside <a href="http://www.nytimes.com/2006/01/21/business/ameriquest-to-pay-325-million-in-a-settlement-over-lending.html">$325 million</a> to settle a probe by attorneys general and banking regulators in 49 states, who accused Ameriquest of misleading thousands of borrowers about the costs of their loans and falsifying home appraisals and other key documents. Yet GSAA Home Equity Trust 2006-2 was filled with Ameriquest loans made to more than 3,000 homeowners in Arizona, Illinois, Florida, and elsewhere. By the end of 2008, 65 percent of the roughly 1,400 borrowers whose loans remained in the deal were in default, had filed for bankruptcy, or had been targeted for foreclosure.</p> <p><strong>In just three years, Goldman Sachs had increased its trading volume by a factor of 50, which the <a href="https://www.wsj.com/articles/SB10001424052748703374104575337180461840038">Wall Street Journal</a> attributed to &ldquo;Cohn&rsquo;s successful push to rev up risk-taking and use of Goldman&rsquo;s own capital to make a profit&rdquo;</strong> &mdash; what the industry calls proprietary trading, or prop trading. The 2010 Journal article quoted Justin Gmelich, then the firm&rsquo;s mortgage chief, who said of Cohn, &ldquo;He reshaped the culture of the mortgage department into more of a trading environment.&rdquo; In 2005, with Cohn overseeing the firm&rsquo;s home loan desk, Goldman underwrote $103 billion in mortgage-backed securities and other more esoteric products, such as collateralized debt obligations, which often were priced based on giant pools of home loans. The following year, the firm underwrote deals worth $131 billion.</p> <p>In 2006, CEO Henry Paulson left the firm to join George W. Bush&rsquo;s cabinet as Treasury secretary. Blankfein, Cohn&rsquo;s mentor and friend, took Paulson&rsquo;s place. By tradition, Blankfein, a trader, should have elevated someone from the investment banking side to serve as his No. 2, so both sides of the firm would be represented in the top leadership. Instead he named Cohn, his long-time loyalist, and Jon Winkelried, who also had history on the trading side, as co-presidents and co-COOs. Winkelried, who had started at Goldman eight years before Cohn, had probably earned the right to hold those titles by himself. But Cohn had the advantage of his relationship with the CEO. Blankfein and Cohn vacationed together in the Caribbean and Mexico, owned homes near each other in the Hamptons, and their children attended the same school. Winkelreid was out in two years. The bromance between his fellow No. 2 and the top boss may have proved too much.</p> <p><strong>With Blankfein and Cohn at the top, the transformation of Goldman Sachs was complete. By 2009, investment banking had <a href="https://www.wsj.com/articles/SB10001424052748703594404575192352257108006">shrunk</a> to barely 10 percent of the firm&rsquo;s revenues. </strong>Richard Marin, a former executive at Bear Stearns, a Goldman competitor that wouldn&rsquo;t survive the mortgage meltdown, saw Cohn as &ldquo;the root of the problem.&rdquo; Explained Marin, &ldquo;When you become arrogant in a trading sense, you begin to think that everybody&rsquo;s a counterparty, not a customer, not a client. And as a counterparty, you&rsquo;re allowed to rip their face off.&rdquo;</p> <div class="img-wrap align-bleed width-auto"><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/09/18/20170919_gs6.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/09/18/20170919_gs6.jpg" style="width: 600px; height: 375px;" /></a><br /> <p class="caption overlayed"><em>Weeds grow in the driveway of a foreclosed home May 7, 2009 in Antioch, Calif.</em></p> <p class="caption source"><em>Photo: Justin Sullivan/Getty Images</em></p> </div> <h3 class="chapter money"><u><span class="chapter-number money">3. </span><span class="chapter-title money">THE BIG SHORT</span></u></h3> <p><strong><span class="no-underline" style="text-decoration: underline;">People inside Goldman Sachs</span>&nbsp;were growing nervous.</strong> It was the fall of 2006 and, as Daniel Sparks, the Goldman partner overseeing the firm&rsquo;s 400-person mortgage trading department, wrote in an email to several colleagues,<strong><em> &ldquo;Subprime market getting hit hard.&rdquo;</em></strong> The firm had lent millions to New Century, a mortgage lender dealing in the higher-risk subprime market. And now New Century was late on payments. Sparks could see that the wobbly housing market was having an impact on his department. For 10 consecutive trading days, his people had lost money. The dollar amounts were small to a behemoth like Goldman: between $5 million and $30 million a day. But the trend made Sparks jittery enough to share his concerns with the Goldman&rsquo;s top executives: President Gary Cohn; David Viniar, the firm&rsquo;s chief financial officer; and CEO Lloyd Blankfein.</p> <p>Sparks, a Cohn protégé, was running the mortgage desk that his mentor, only a few years earlier, had built into a major profit center for the bank. In 2006 and 2007, a report by the Senate Permanent Subcommittee on Investigations found, the two &ldquo;maintained frequent, direct contact&rdquo; as Goldman worked to jettison the billions in subprime loans it had on its book. &ldquo;One of my jobs at the time was to make sure Gary and David and Lloyd knew what was going on,&rdquo; Sparks told William Cohan, author of the 2011 <a href="https://www.amazon.com/Money-Power-Goldman-Sachs-World/dp/038552384X/ref=tmm_hrd_swatch_0?_encoding=UTF8&amp;qid=&amp;sr=">book</a> &ldquo;Money and Power: How Goldman Sachs Came to Rule the World<em>.</em>&rdquo; &ldquo;They don&rsquo;t like surprises.&rdquo; Viniar <a href="http://www.nytimes.com/2007/11/19/business/19goldman.html">summoned</a> around 20 traders and managers to a 30th floor conference room inside Goldman headquarters in lower Manhattan. It was there, on an unseasonably warm Thursday in December 2006, that the firm decided to initiate what people inside Goldman would eventually dub &ldquo;the big short.&rdquo;</p> <p><strong>One name tossed around during the three-hour meeting was that of John Paulson. </strong>Paulson (no relation to Goldman&rsquo;s former CEO) would later attain infamy when it was revealed that his firm, Paulson &amp; Co., made roughly $15 billion betting against the mortgage market. (His <a href="https://www.wsj.com/articles/SB10001424052748703574604574499740849179448">personal take</a> was nearly $4 billion.) At that point, though, Paulson was a little-known hedge fund manager who crossed Goldman&rsquo;s radar when he asked the firm to create a product that would allow him to take a &ldquo;short position&rdquo; on the real estate market &mdash; laying down bets that a large number of mortgage investments were going to plummet in value. Goldman sold Paulson what&rsquo;s called a credit-default swap, essentially an insurance policy that would pay off if homeowners defaulted on their mortgages in large enough numbers. The firm would create several more swaps on his behalf in the intervening months. Eventually, as mortgage defaults began to mount, people inside Goldman Sachs came to see Paulson as more of a prophet than a patsy. Some sitting around the conference table that December day wanted to follow his lead.</p> <p><strong>&ldquo;There will be big opportunities the next several months,&rdquo; one Goldman manager at the meeting wrote enthusiastically in an email sent shortly after it ended. </strong>Sparks weighed in by email later that night. He wanted to make sure Goldman had enough &ldquo;dry powder&rdquo; &mdash; cash on hand &mdash; to be &ldquo;ready for the good opportunities that are coming.&rdquo; That Sunday, Sparks copied Cohn on an email reporting the firm&rsquo;s progress on laying down short positions against mortgage-backed securities it had put together. The trading desk had already made $1.5 billion in short bets, &ldquo;but still more work to do.&rdquo;</p> <p>Cohn was a member of Goldman&rsquo;s board of directors during this critical time and second in command of the bank. At that point, Cohn and Blankfein, along with the board and other top executives, had several options. They might have shared their concerns about the mortgage market in a filing with the SEC, which requires publicly traded companies to reveal &ldquo;triggering events that accelerate or increase a direct financial obligation&rdquo; or might cause &ldquo;impairments&rdquo; to the bottom line. They might have warned clients who had invested in mortgage-backed securities to consider extracting themselves before they suffered too much financial damage. At the very least, Goldman could have stopped peddling mortgage-backed securities that its own mortgage trading desk suspected might soon collapse in value.</p> <p><u><em><strong>Instead, Cohn and his colleagues decided to take care of Goldman Sachs.</strong></em></u></p> <p>Goldman would not have suffered the reputational damage that it did &mdash; or paid multiple billions in federal fines &mdash; if the firm, anticipating the impending crisis, had merely shorted the housing market in the hopes of making billions. That is what investment banks do: spot ways to make money that others don&rsquo;t see. The money managers and traders featured in the film &ldquo;The Big Short&rdquo; did the same &mdash; and they were cast as brave contrarians. Yet unlike the investors featured in the film, Goldman had itself helped inflate the housing bubble &mdash; buying tens of billions of dollars in subprime mortgages over the previous several years for bundling into bonds they sold to investors. And unlike these investors, Goldman&rsquo;s people were not warning anyone who would listen about the disaster about to hit. As federal investigations found, the firm, which still claims &ldquo;our clients&rsquo; interests always come first&rdquo; as a core principle, failed to disclose that its top people saw disaster in the very products its salespeople were continuing to hawk.</p> <p><strong>Goldman still held billions of mortgages on its books in December 2006 &mdash; mortgages that Cohn and other Goldman executives suspected would soon be worth much less than the firm had paid for them. So, while Cohn was overseeing one team inside Goldman Sachs preoccupied with implementing the big short, he was in regular contact with others scrambling to offload its subprime inventory.</strong> One Goldman trader described the mortgage-backed securities they were selling as &ldquo;shitty.&rdquo; Another complained in an email that they were being asked to &ldquo;distribute junk that nobody was dumb enough to take first time around.&rdquo; A December 28 email from Fabrice &ldquo;Fabulous Fab&rdquo; Tourre, a Goldman vice president later convicted of fraud, instructed traders to focus on less astute, &ldquo;buy and hold&rdquo; investors rather than &ldquo;sophisticated hedge funds&rdquo; that &ldquo;will be on the same side of the trade as we will.&rdquo;</p> <div class="img-wrap align-bleed width-auto"><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/09/18/20170919_gs7.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/09/18/20170919_gs7.jpg" style="width: 599px; height: 344px;" /></a><br /> <p class="caption overlayed"><em>Gary Cohn, president and chief operating officer of Goldman Sachs Group Inc.&nbsp;(R)&nbsp;and Craig Broderick, managing director and head of credit, market and operational risk with Goldman Sachs, during a Financial Crisis Inquiry Commission hearing on the role of derivatives in the financial crisis, on June 30, 2010.</em></p> <p class="caption source"><em>Photo: Andrew Harrer/Bloomberg/Getty Images</em></p> </div> <p>At Goldman Sachs, Cohn was known as a hands-on boss who made it his business to walk the floors, talking directly with traders and risk managers scattered throughout the firm. &ldquo;Blankfein&rsquo;s role has always been the salesperson and big-thinker conceptualizer,&rdquo; said Dick Bove, a veteran Wall Street analyst who has covered Goldman Sachs for decades. &ldquo;Gary was the guy dealing with the day-to-day operations. Gary was running the company.&rdquo; While making his rounds, Cohn would sometimes hike a leg up on a trader&rsquo;s desk, his crotch practically in the person&rsquo;s face.</p> <p><strong>At 6-foot- 2, bullet-headed and bald with a heavy jaw and a fighter&rsquo;s face, Cohn cut a large figure inside Goldman. Profiles over the years would describe him as aggressive, abrasive, gruff, domineering &mdash; the firm&rsquo;s &ldquo;attack dog.&rdquo; </strong>He was the missile Blankfein launched when he needed to deliver bad news or enforce discipline. Cohn embodied the new Goldman: the man who would run through a brick wall if it meant a big payoff for the bank.</p> <p>A Bloomberg profile described his typical day as 11 or 12 hours in the office, a bank-related dinner, then phone calls and emails until midnight.<strong> &ldquo;The old adage that hard work will get you what you want is 100 percent true,&rdquo; Cohn said in a 2009 commencement address at American University. &ldquo;Work hard, ask questions, and take risk.&rdquo;</strong></p> <p>There&rsquo;s no record of how often Cohn visited his stomping grounds after hours in the early months of 2007, but emails reveal an executive demanding &mdash; and getting &mdash; regular updates. On February 7, one of the largest originators of subprime loans, HSBC, reported a greater than anticipated rise in troubled loans in its portfolio, and another, New Century, restated its earnings for the previous three quarters to &ldquo;correct errors.&rdquo; Sparks wrote an <a href="https://www.hsgac.senate.gov/imo/media/doc/Financial_Crisis/042710Exhibits.pdf?attempt=2">email</a> to Cohn and others the next morning to reassure them that his team was closely monitoring the pricing of the company&rsquo;s &ldquo;scratch-and-dent book&rdquo; and already had a handle on which loans were defaults and which could still be securitized and offloaded onto customers. An impatient Cohn sent a two-word <a href="https://www.hsgac.senate.gov/imo/media/doc/Financial_Crisis/042710Exhibits.pdf?attempt=2">email</a> at 5 o&rsquo;clock that evening: &ldquo;Any update?&rdquo; The next day, an internal memo circulated that listed dozens of mortgage-backed securities with the exhortation, &ldquo;Let all of the respective desks know how we can be helpful in moving these bonds.&rdquo; A week later, Sparks updated Cohn on the billions in shorts his firm had bought but warned that it was hurting sales of its &ldquo;pipeline of CDOs,&rdquo; the collateralized debt obligations the firm had created in order to sell the mortgages still on its books.</p> <p>In early March, Cohn was among those who received an email spelling out the mortgage products the firm still held. The stockpile included $1.7 billion in mortgage-related securities, along with $1.3 billion in subprime home loans and $4.3 billion in &ldquo;Alt-A&rdquo; loans that fall between prime and subprime on the risk scale.<strong> Goldman was &ldquo;net short,&rdquo; according to that same email, with $13 billion in short positions, but its exposure to the mortgage market was still considerable. </strong>Sparks and others continued to update Cohn on their success offloading securities backed by subprime mortgages through the third quarter of 2007. One product Goldman priced at $94 a share on March 31, 2007 was worth just $15 five months later. Pension funds and insurance companies were among those losing billions of dollars on securities Goldman put together and endorsed as a safe, AAA-rated investments.</p> <div class="img-wrap align-bleed width-auto"><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/09/18/20170919_gs8.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/09/18/20170919_gs8.jpg" style="width: 600px; height: 349px;" /></a><br /> <p class="caption overlayed"><em>U.S. Treasury Secretary Henry M. Paulson steps off the stage Dec. 6, 2007 after a press conference on subprime mortgage loans at the Treasury Department in Washington, D.C.</em></p> <p class="caption source"><em>Photo: Mandel Ngan/AFP/Getty Images</em></p> </div> <p><strong>The third quarter of 2007 was ugly. </strong>A pair of Bear Stearns hedge funds failed. Merrill Lynch reported $2.2 billion in losses &mdash; its largest quarterly loss ever. Merrill&rsquo;s CEO warned that the bank faced another $8 billion in potential losses due to the firm&rsquo;s exposure to subprime mortgages and resigned several weeks later. The roiling credit crisis also took down the CEO of Citigroup, which reported $6.5 billion in losses and then weeks later, warned of $8 billion to $11 billion in additional subprime-related write-downs.</p> <p><strong>And then there was Goldman Sachs, which reported a $2.9 billion profit that quarter.</strong> For the moment, the financial press seemed in awe of Blankfein, Cohn, and the rest of the team running the firm. Fortune headlined an article &ldquo;How Goldman Sachs Defies Gravity&rdquo; that said Goldman&rsquo;s &ldquo;huge, shrewd bet&rdquo; against the mortgage market &ldquo;would seem to confirm the view Goldman is the nimblest, and perhaps the smartest, brokerage on Wall Street.&rdquo; A Goldman press release drily noted that &ldquo;significant losses&rdquo; in some areas &mdash; the subprime mortgages it hadn&rsquo;t managed to unload &mdash; had been &ldquo;more than offset by gains on short mortgage products.&rdquo; A Goldman trader who played a central role in the big short was not so demure when making the case for a big bonus that year. John Paulson was &ldquo;definitely the man in this space,&rdquo; he conceded, but he&rsquo;d helped make Goldman &ldquo;#1 on the street by a wide margin.&rdquo;</p> <p><strong>Disaster struck nine months into 2008 with the collapse of Lehman Brothers, in large part the result of its exposure to subprime losses. </strong>Hank Paulson, the Treasury secretary and former Goldman CEO, spent a weekend meeting with would-be suitors willing to take over a storied bank that on paper was now worth virtually nothing. He couldn&rsquo;t find a buyer. Nor could officials from the Federal Reserve, who were also working overtime to save the investment bank, founded in 1850, that was even older than Goldman Sachs. Shortly after midnight on Monday, September 15, 2008, Lehman announced that it would file for bankruptcy protection when the courts in New York opened that morning &mdash; the largest bankruptcy in U.S. history.</p> <p><strong>Goldman Sachs wasn&rsquo;t immune from the crisis. </strong>The week before Lehman&rsquo;s fall, Goldman&rsquo;s stock had topped $161 a share. By Wednesday, it dropped to below $100. It had avoided some big losses by betting against the mortgage market, but the wider financial crisis was wreaking havoc on its other investments. <strong>On paper, Cohn had personally lost tens of millions of dollars.</strong> He hunkered down in an office with a view of Goldman&rsquo;s trading floor and worked the phone, trying to change the minds of major investors who were pulling their money from Goldman, fearful of anything riskier than stashing their cash in a mattress.</p> <p>The next week, Goldman <a href="https://dealbook.nytimes.com/2008/09/21/goldman-morgan-to-become-bank-holding-companies/comment-page-11/">converted</a> from a free-standing investment bank to a bank holding company, which made it, in the eyes of regulators, no different from Wells Fargo, JPMorgan Chase, or any other retail bank. That gave the firm access to cheap capital through the Fed but would also bring increased scrutiny from regulators. The bank took a $10 billion bailout from the Troubled Asset Relief Program and another $5 billion from Warren Buffett, in return for an annual dividend of 10 percent and access to discounted company stock. The firm raised additional billions through a public stock offering.</p> <p><strong>The biggest threat to Goldman was the economic health of the American International Group.</strong> Among other products, AIG sold insurance to protect against defaults on mortgage assets, which had been central to Goldman&rsquo;s big short. Of the $80 billion in U.S. mortgage assets that AIG insured during the housing bubble, Goldman bought protection from AIG on roughly $33 billion, according to the Wall Street Journal. When Lehman went into bankruptcy, its creditors received 11 cents on the dollar. Executives at AIG, in a frantic effort to avoid bankruptcy, had floated the idea of pushing its creditors to accept 40 to 60 cents on the dollar; there was speculation creditors like Goldman would receive as little as 25 percent. Goldman and its clients were looking at multibillion-dollar hits to their bottom line &mdash; a potentially <a href="http://fcic-static.law.stanford.edu/cdn_media/fcic-reports/fcic_final_report_full.pdf">fatal</a> blow.</p> <p><u><em><strong>But as Goldman learned a century ago, it pays to have friends in high places. The day after Lehman went bankrupt, the Bush administration announced an $85 billion bailout of AIG in return for a majority stake in the company. </strong></em></u>The next day, Paulson obtained a waiver regarding interactions with his former firm because, the Treasury secretary said, &ldquo;It became clear that we had some very significant issues with Goldman Sachs.&rdquo; Paulson&rsquo;s calendar, the New York Times reported, showed that the week of the AIG bailout, he and Blankfein spoke two dozen times. While creditors around the globe were being forced to settle for much less than they were owed, AIG paid its counterparties 100 cents on the dollar. AIG ended up being the single largest private recipient of TARP funding. It received additional billions in rescue funds from the New York Federal Reserve Bank, whose board chair Stephen Friedman was a former Goldman executive who still sat on the firm&rsquo;s board. <strong>The U.S. Treasury ended up with greater than a 90 percent share of AIG, and the U.S. government, using taxpayer dollars, paid in full on the insurance policies financial institutions bought to protect themselves from steep declines in real estate prices &mdash; chief among them, Goldman Sachs.</strong> All told, Goldman received at least $22.9 billion in public bailouts, including $10 billion in TARP funds and $12.9 billion in taxpayer-funded payments from AIG.</p> <p><strong>Goldman, once again, had come out on top.</strong></p> <div class="img-wrap align-bleed width-auto"><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/09/18/20170919_gs9.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/09/18/20170919_gs9.jpg" style="width: 601px; height: 351px;" /></a><br /> <p class="caption overlayed"><em>Goldman Sachs Group Inc. headquarters stands in New York&nbsp;City, on Oct. 12, 2016.</em></p> <p class="caption source"><em>Photo: Mark Kauzlarich/Bloomberg/Getty Images</em></p> </div> <h3 class="chapter money"><u><span class="chapter-number money">4</span><span class="chapter-title money">. THE VAMPIRE SQUID</span></u></h3> <p><strong><span class="no-underline" style="text-decoration: underline;">Goldman Sachs repaid</span>&nbsp;repaid its $10 billion bailout partway through 2009, less than 12 months after the loan was made. </strong>Other banks in the U.S. and abroad were still struggling but not Goldman, which reported a record $19.8 billion in pre-tax profits that year, and $12.9 billion the next. <strong>Gary Cohn went without a bonus in 2008, left to scrape by on his $600,000 salary. Once free of government interference, the Goldman board (which included Cohn himself) <a href="http://www.goldmansachs.com/investor-relations/financials/archived/proxy-statements/docs/2011-proxy-statement.pdf">paid</a> him a $9 million bonus in 2009 and an $18 million bonus in 2010.</strong></p> <p>Yet the once venerated firm was now the subject of jokes on the late-night talk shows. David Letterman broadcast a &ldquo;Goldman Sachs Top 10 Excuses&rdquo; list (No. 9: &ldquo;You&rsquo;re saying &lsquo;fraud&rsquo; like it&rsquo;s a bad thing.&rdquo;). Rolling Stone&rsquo;s Matt Taibbi described the bank as &ldquo;a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money,&rdquo; a devastating moniker that followed Goldman into the business pages. After news leaked that the firm might pay its people a record $16.7 billion in bonuses in 2009, even President Barack Obama, for whom the firm had been a top campaign donor, began to turn against Goldman, telling &ldquo;<a href="https://www.wsj.com/articles/SB126073152465089651">60 Minutes</a>,&rdquo; &ldquo;I did not run for office to be helping out a bunch of fat-cat bankers on Wall Street.&rdquo;</p> <p><strong>&ldquo;They&rsquo;re still puzzled why is it that people are mad at the banks,&rdquo; Obama said. &ldquo;Well, let&rsquo;s see. You guys are drawing down $10, $20 million bonuses after America went through the worst economic year that it&rsquo;s gone through in decades, and you guys caused the problem.&rdquo;</strong></p> <p>Goldman was also facing an onslaught of investigations and lawsuits over behavior that had helped precipitate the financial crisis. Class actions and other lawsuits filed by pension funds and other investors accused Goldman of abusing their trust, making &ldquo;false and misleading statements,&rdquo; and failing to conduct basic due diligence on the loans underlying the products it peddled. At least 25 of these suits named Cohn as a defendant.</p> <p><strong>State and federal regulators joined the fray. The SEC accused Goldman of deception in its marketing of opaque investments called &ldquo;synthetic collateralized debt obligations,&rdquo; the values of which were tied to bundles of actual mortgages. </strong>These were the deals Goldman had arranged in 2006 on behalf of John Paulson so he could short the U.S. housing market. Goldman, it turned out, had allowed Paulson to cherry-pick poor-quality loans at the greatest risk of defaulting &mdash; a fact Goldman did not share with potential investors. &ldquo;Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio,&rdquo; the SEC&rsquo;s enforcement director at the time said, &ldquo;telling other investors that the securities were selected by an independent, objective third party.&rdquo;</p> <p><strong>Suddenly, Cohn and other Goldman officials were downplaying the big short. </strong>In June 2010, Cohn testified before the Financial Crisis Inquiry Commission, created by Congress to investigate the causes of the nation&rsquo;s worst economic collapse since the Great Depression. Cohn asked the commissioners how anyone could claim the firm had bet against its clients when &ldquo;during the two years of the financial crisis, Goldman Sachs lost $1.2 billion in its residential mortgage-related business&rdquo;? His statement was technically true, but Cohn failed to mention the billions of dollars the firm pocketed by betting the mortgage market would collapse. Senate investigators later calculated that, at its peak, Goldman had $13.9 billion in short positions that would only pay off in the event of a steep drop in the mortgage market, positions that produced a record $3.7 billion in profits.</p> <p><strong>Two weeks after Cohn&rsquo;s testimony, Goldman agreed to pay the SEC <a href="https://www.sec.gov/news/press/2010/2010-123.htm">$550 million</a> to settle charges of securities fraud &mdash; then the largest penalty assessed against a financial services firm in the agency&rsquo;s history. </strong>Goldman admitted no wrongdoing, acknowledging only that its marketing materials &ldquo;contained incomplete information.&rdquo; Goldman paid $60 million in fines and restitution to settle an investigation by the <a href="http://www.mass.gov/ago/news-and-updates/press-releases/2009/attorney-general-martha-coakley-and-goldman.html">Massachusetts</a> attorney general into the financial backing the firm had offered to predatory mortgage lenders. The bank set aside another <a href="https://www.federalreserve.gov/newsevents/pressreleases/bcreg20130116a.htm">$330 million</a> to assist people who lost their homes thanks to questionable foreclosure practices at a Goldman loan-servicing subsidiary. Goldman agreed to billions of dollars in additional settlements with state and federal agencies relating to its sale of dicey mortgage-backed securities. The firm finally <a href="https://www.justice.gov/opa/pr/goldman-sachs-agrees-pay-more-5-billion-connection-its-sale-residential-mortgage-backed">acknowledged</a> that it had failed to conduct basic due diligence on the loans its was selling customers and, once it became aware of the hazards, did not disclose them.</p> <p><strong>In the final report produced by the Senate&rsquo;s Permanent Subcommittee on Investigations, Goldman Sachs was mentioned an extraordinary 2,495 times, and Gary Cohn 89 times. A Goldman Sachs representative declined to respond to queries on the record.</strong></p> <div class="img-wrap align-bleed width-auto"><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/09/18/20170919_gs10.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/09/18/20170919_gs10.jpg" style="width: 600px; height: 303px;" /></a><br /> <p class="caption overlayed"><em>President Barack Obama with Sen. Christopher Dodd, D-Conn.,&nbsp;(C) and Rep. Barney Frank, D-Mass., (C-R)&nbsp;after signing the Dodd-Frank Act in Washington, July 21, 2010.</em></p> <p class="caption source"><em>Photo: Doug Mills/The New York Times/Redux</em></p> </div> <p><strong>The investigations and fines were a blow to Goldman&rsquo;s reputation and its bottom line, but the regulatory reforms being debated had the potential to threaten Goldman&rsquo;s entire business model.</strong> Even before the 2008 crash, the firm&rsquo;s lobbying <a href="https://www.opensecrets.org/lobby/clientsum.php?id=D000000085&amp;year=2017">spending</a> had grown under Lloyd Blankfein and Cohn. By 2010, the year financial reforms were being drafted, Goldman <a href="https://www.opensecrets.org/lobby/clientsum.php?id=D000000085&amp;year=2010">spent</a> $4.6 million for the services of 49 lobbyists. Their ranks included some of the most well-connected figures in Washington, including Democrat Richard Gephardt, a former House majority leader, and Republican Trent Lott, a former Senate majority leader, who had stepped down from the Senate two years earlier.</p> <p>Despite all those lobbyists on the payroll, Goldman made its case primarily through proxies during the debate over financial reform. <strong><em>&ldquo;The name Goldman Sachs was so radioactive it worked to their disadvantage to be tied to an issue,&rdquo;</em></strong> said Marcus Stanley, then a staffer for Democratic Sen. Barbara Boxer and now policy director of Americans for Financial Reform. Instead, Goldman lobbied through industry groups.</p> <p>Goldman&rsquo;s people likely knew that all of Wall Street&rsquo;s lobbying might could not stop the passage of the sprawling 2010 legislative package dubbed the Dodd-Frank Wall Street Reform and Consumer Protection Act. Obama was putting his muscle behind reform &mdash; &ldquo;We simply cannot accept a system in which hedge funds or private equity firms inside banks can place huge, risky bets that are subsidized by taxpayers,&rdquo; he said in one <a href="http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/7046668/Barack-Obamas-speech-on-banking-reform-in-full.html">speech</a> &mdash; and the Democrats enjoyed majorities in both houses of Congress. &ldquo;For Goldman Sachs, the battle was over the final language,&rdquo; said Dennis Kelleher of Better Markets, a Washington, D.C., lobby group that pushes for tighter financial reforms. &ldquo;That way they at least had a fighting chance in the next round, when everyone turned their attention to the regulators.&rdquo;</p> <p><strong>There was a lot for Goldman Sachs to dislike about Dodd-Frank.</strong> There were small annoyances, such as &ldquo;say on pay,&rdquo; which ordered companies to give shareholders input on executive compensation, a source of potential embarrassment to a company that gave out $73 million in compensation for a single year&rsquo;s work &mdash; as Goldman paid Cohn in 2007. There were large annoyances, such as the <a href="https://www.treasury.gov/initiatives/fsoc/designations/Pages/default.aspx#FMU">requirement</a> that financial institutions deemed too big to fail, like Goldman, create a wind-down plan in case of disaster. There were the measures that would interfere with Goldman&rsquo;s core businesses, such as a provision instructing the Commodity Futures Trading Commission to regulate the trading of derivatives. And yet nothing mattered to Goldman quite like the Volcker Rule, which would protect banks&rsquo; solvency by limiting their freedom to make speculative trades with their own money. Unless Goldman could initiate what Stanley called the &ldquo;complexity two-step&rdquo; &mdash; win a carve-out so a new rule wouldn&rsquo;t interfere with legitimate business and then use that carve-out to render a rule toothless &mdash; Volcker would slam the door shut on the entire direction in which Blankfein and Cohn had taken Goldman.</p> <p><strong>It was 5:30 a.m. on Friday, June 25, 2010, when a joint House-Senate conference committee <a href="https://www.congress.gov/congressional-report/111th-congress/house-report/517">approved</a> the final language of Dodd-Frank. By Sunday, an industry attorney named Annette Nazareth &mdash; a former top SEC official whose firm counts Goldman Sachs among its clients &mdash; had already sent off a heavily annotated copy of the 848-page bill to colleagues at her old agency. It was just the first salvo in a lobbying juggernaut.</strong></p> <p>Within a few months, Cohn himself was in Washington to <a href="https://www.federalreserve.gov/newsevents/rr-commpublic/Goldman_Sachs_meeting_20101004.pdf">meet</a> with a governor of the Federal Reserve, one of the key agencies charged with implementing Volcker. The visitors log at the CFTC, the agency Dodd-Frank put in charge of derivatives reform, shows that Cohn traveled to D.C. to personally meet with CFTC staffers at least six times between 2010 and 2016. Cohn also came to the capital for meetings at the SEC, another agency responsible for the Volcker Rule. There, he met with SEC chair Mary Jo White and other commissioners. &ldquo;I seem to be in Washington every week trying to explain to them the unintended consequences of overregulation,&rdquo; Cohn said in a talk he gave to business students at Sacred Heart University in 2015.</p> <p><em><strong>&ldquo;Gary was the tip of the spear for Goldman to beat back regulatory reform,&rdquo;</strong></em> said Kelleher, the financial reform lobbyist. <strong><em>&ldquo;I used to pass him going into different agencies. They brought him in when they wanted the big gun to finish off, to kill the wounded.&rdquo;</em></strong></p> <p>Democrats lost their majority in the House that November, and Goldman threw its weight behind the spate of Republican bills that followed, aimed at taking apart Dodd-Frank piece by piece. Goldman spent more than $4 million for the services of 45 lobbyists in 2011 and $3.5 million a year in 2012 and 2013. Its lobbying spending was nearly as high in the years after passage of Dodd-Frank as it was the year the bill was introduced.</p> <p><strong>Goldman lobbyists dug in on a range of issues that would become top priorities for Republicans in the wake of Donald Trump&rsquo;s electoral victory. </strong>Records from the Center for Responsive Politics show that Goldman lobbyists worked to promote corporate tax cuts, such as on the Tax Increase Prevention Act of 2014 and Senate legislation aimed at extending some $200 billion in tax cuts for individuals and businesses. Goldman lobbied for a bill to fund economically critical infrastructure projects, presumably on behalf of its Public Sector and Infrastructure group. Goldman had seven lobbyists working on the JOBS Act, which would make it easier for companies to go public, another bottom-line issue to a company that underwrote $27 billion in IPOs last year. In 2016, Goldman had eight lobbyists dedicated to the Financial CHOICE Act, which would have undone most of Dodd-Frank in one fell swoop &mdash; a bill the House revived in April.</p> <p><strong>Yet defanging the Volcker Rule remained the firm&rsquo;s top priority.</strong> Promoted by former Fed Chair Paul Volcker, the rule would prohibit banks from committing more than 3 percent of their core assets to in-house private equity and hedge funds in the business of buying up properties and businesses with the goal of selling them at a profit. One harbinger of the financial crisis had been the collapse in the summer of 2007 of a pair of Bear Stearns hedge funds that had invested heavily in subprime loans. That 3 percent cap would have had a big impact on Goldman, which maintained a separate private equity group and operated its own internal hedge funds. But it was the restrictions Volcker placed on proprietary trading that most threatened Goldman.</p> <p><u><strong>Prop trading was a profit center inside many large banks, but nowhere was it as critical as at Goldman.</strong></u> A 2011 report by one Wall Street analyst revealed that prop trading accounted for an 8 percent share of JPMorgan Chase&rsquo;s annual revenues, 9 percent of Bank of America&rsquo;s, and 27 percent of Morgan Stanley&rsquo;s. But prop trading made up 48 percent of Goldman&rsquo;s. By one <a href="http://www.reuters.com/article/us-goldman-volcker-idUSTRE7434PZ20110505">estimate</a>, the Volcker Rule could cost Goldman Sachs $3.7 billion in revenue a year.</p> <p>When regulators finalized a new Volcker Rule in 2013, Better Markets declared it a &ldquo;major defeat for Wall Street.&rdquo; Yet the victory for reformers was precarious. &ldquo;Just changing a few words could dramatically change the scope of the rule &mdash; to the tune of billions of dollars for some firms,&rdquo; said former Senate staffer Tyler Gellasch, who helped write the rule. Volcker gave banks until July 2015 &mdash; the five-year anniversary of Dodd-Frank &mdash; to bring themselves into compliance. Yet apparently the Volcker Rule had been written for other financial institutions, not elite firms like Goldman Sachs. &ldquo;Goldman Sachs has been on a shopping spree with its own money,&rdquo; began a New York Times article in January 2015. The bank used its own funds to buy a mall in Utah, apartments in Spain, and a European ink company. Paul Volcker expressed disappointment that banks were still making big proprietary bets, as did the two senators most responsible for writing the rule into law. That June, Cohn appeared to reassure investors that Goldman would find a workaround. Speaking at an investor conference, he said Goldman was &ldquo;transforming our equity investing activities to continue to meet client needs while complying with Volcker.&rdquo;</p> <p><strong>Goldman had five years to prepare for some version of a Volcker Rule. Yet a loophole granted banks sufficient time to dispose of &ldquo;illiquid assets&rdquo; without causing undue harm &mdash; a loophole that might even cover the assets Goldman had only recently purchased, despite the impending compliance deadline. </strong>The Fed nonetheless granted the firm additional time to sell illiquid investments worth billions of dollars. &ldquo;Goldman is brilliant at exercising access and influence without fingerprints,&rdquo; Kelleher said.</p> <p><strong>By mid-2016, Goldman, along with Morgan Stanley and JPMorgan Chase, was petitioning the Fed for an additional five years to comply with Volcker &mdash; which would take the banks well into a new administration. </strong>All Blankfein and Cohn had to do was wait for a new Congress and a new president who might back their efforts to flush all of Dodd-Frank. Then Goldman could continue the risky and lucrative habits it had adopted since traders like Cohn had taken over the firm &mdash; the financial crisis be damned &mdash; and continue raking in billions in profits each year.</p> <div class="img-wrap align-bleed width-auto"><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/09/18/20170919_gs11.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/09/18/20170919_gs11.jpg" style="width: 600px; height: 348px;" /></a><br /> <p class="caption overlayed"><em>Lloyd Blankfein, chair and&nbsp;CEO of Goldman Sachs, (L) stands on stage with former U.S. Secretary of State Hillary Clinton during the 2014 Clinton Global Initiative annual meeting in New York on Sept. 24, 2014.</em></p> <p class="caption source"><em>Photo: Stephen Chernin/AFP/Getty Images</em></p> </div> <p><strong>Goldman&rsquo;s political giving changed in the wake of Dodd-Frank.</strong> Dating back to at least 1990, according to the Center for Responsive Politics, people associated with the firm and its political action committees <a href="https://www.opensecrets.org/orgs/totals.php?id=d000000085&amp;cycle=2012">contributed</a> more to Democrats than Republicans. Yet in the years since financial reform, Goldman, once Obama&rsquo;s second-largest political donor, shifted its campaign contributions to Republicans. During the 2008 election cycle, for instance, Goldman&rsquo;s people and PACs contributed $4.8 million to Democrats and $1.7 million to Republicans. By the 2012 cycle, the opposite happened, with Goldman giving $5.6 million to Republicans and $1.8 million to Democrats. Cohn&rsquo;s personal giving followed the same path. Cohn gave $26,700 to the Democratic Senatorial Campaign Committee in 2006 and $55,500 during the 2008 election cycle, and none to its GOP equivalent. But Cohn donated $30,800 to the National Republican Senatorial Committee in 2012 and another $33,400 to the National Republican Congressional Committee in 2015, without contributing a dime to the DSCC. Cohn gave $5,000 to Massachusetts Republican Scott Brown weeks after news broke that Elizabeth Warren &mdash; an outspoken critic of Goldman and other Wall Street players &mdash; might try to capture his U.S. Senate seat, which she did in 2012.</p> <p><strong>Goldman Sachs, under Cohn and Blankfein, was hardly chastened, continuing to play fast and loose with existing rules even as it plunged millions of dollars into fending off new ones.</strong> In 2010, the SEC ran a sting operation looking for banks willing to trade favorable assessments by its stock analysts for a piece of a Toys R Us IPO if the company went public. Goldman took the bait, for which they would pay a $5 million fine. An employee working out of Goldman&rsquo;s Boston office drafted speeches, vetted a running mate, and negotiated campaign contracts for the state treasurer during his run for Massachusetts governor in 2010, despite a rule forbidding municipal bond dealers from making significant political contributions to officials who can award them business. According to the SEC, Goldman had underwritten $9 billion in bonds for Massachusetts in the previous two years, generating $7.5 million in fees. Goldman paid $12 million to settle the matter in 2012.</p> <p>Just two years later, Goldman officials were again summoned by the Senate Permanent Subcommittee on Investigations to address charges that <strong>the bank under Cohn and Blankfein had boosted its profits by building a &ldquo;virtual monopoly&rdquo; in order to inflate aluminum prices by as much as $3 billion.</strong></p> <p><strong>The last few years have brought more unwanted attention.</strong> In 2015, the U.S. Justice Department launched an investigation into Goldman&rsquo;s role in the alleged theft of billions of dollars from a development fund the firm had helped create for the government of Malaysia. Federal regulators in New York state fined Goldman $50 million because its leaders failed to effectively supervise a banker who leaked stolen confidential government information from the Fed, which <a href="https://www.federalreserve.gov/newsevents/pressreleases/enforcement20160803a.htm">hit the firm</a> with another $36.3 million in penalties. In December, the CFTC <a href="http://www.cftc.gov/PressRoom/PressReleases/pr7505-16">fined</a> Goldman $120 million for trying to rig interest rates to profit the firm.</p> <p><strong>Politically, 2016 would prove a strange year for Goldman.</strong> Bernie Sanders clobbered Hillary Clinton for pocketing hundreds of thousands of dollars in speaking fees from Goldman, while Trump attacked Ted Cruz for being &ldquo;in bed with&rdquo; Goldman Sachs. (Cruz&rsquo;s wife Heidi was a managing director in Goldman&rsquo;s Houston office until she took leave to work on her husband&rsquo;s presidential campaign.) Goldman would have &ldquo;total control&rdquo; over Clinton, Trump <a href="http://www.cnn.com/2016/02/19/politics/donald-trump-ted-cruz-goldman-sachs/">said</a> at a February 2016 rally, a point his campaign reinforced in a two-minute ad that ran the weekend before Election Day. An image of Blankfein flashed across the screen as Trump warned about the global forces that &ldquo;robbed our working class.&rdquo;</p> <p>Goldman&rsquo;s giving in the presidential race appears to reflect polls predicting a Clinton win and the firm&rsquo;s desire for a political restart on deregulation. People who identified themselves as Goldman Sachs employees <a href="https://www.opensecrets.org/news/2017/03/revolving-door-goldman-sachs/">gave less than $5,000</a> to the Trump campaign compared to the $341,000 that the firm&rsquo;s people and PACs <a href="https://www.opensecrets.org/politicians/contrib.php?cycle=Career&amp;cid=n00000019">contributed</a> to Clinton. Goldman Sachs is relatively small compared to retail banking giants.</p> <p><strong>Yet, according to the <a href="https://www.opensecrets.org/news/2017/03/revolving-door-goldman-sachs/">Center for Responsive Politics</a>, no bank outspent Goldman Sachs during the 2016 political cycle. Its PACs and people associated with the firm made $5.6 million in political contributions in 2015 and 2016. Even including all donations to Clinton, 62 percent of Goldman&rsquo;s giving ended up in the coffers of Republican candidates, parties, or conservative outside groups.</strong></p> <div class="img-wrap align-bleed width-auto"><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/09/18/20170919_gs12.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/09/18/20170919_gs12.jpg" style="width: 599px; height: 389px;" /></a><br /> <p class="caption overlayed"><em>President Donald Trump speaks to community bankers as Director of the National Economic Council Gary Cohn (2nd R) and White House Chief of Staff Reince Priebus (R) listen during&nbsp;an event at the Kennedy Garden of the White House on May 1, 2017 in Washington, D.C.</em></p> <p class="caption source"><em>Photo: Alex Wong/Getty Images</em></p> </div> <h3 class="chapter money"><span class="chapter-number money">5. </span><span class="chapter-title money">TROJAN HORSE</span></h3> <p><strong><span class="no-underline" style="text-decoration: underline;">There&rsquo;s ultimately</span>&nbsp;no great mystery why Donald Trump selected Gary Cohn for a top post in his administration, despite his angry rhetoric about Goldman Sachs. There&rsquo;s the high regard the president holds for anyone who is rich &mdash; and the instant legitimacy Cohn conferred upon the administration within business circles. </strong>Cohn&rsquo;s appointment reassured bond markets about the unpredictable new president and lent his administration credibility it lacked among Fortune 100 CEOs, none of whom had donated to his campaign. Ego may also have played a role. Goldman Sachs would never do business with Trump, the developer who resorted to foreign banks and second-tier lenders to bankroll his projects. Now Goldman&rsquo;s president would be among those serving in his royal court.</p> <p>Who can say precisely why Cohn, a Democrat, said yes when Trump asked him to be his top economic aide? No doubt Cohn has been asking himself that question in recent weeks. But he&rsquo;d hit a ceiling at Goldman Sachs. In September 2015, Goldman announced that Blankfein had lymphoma, ramping up speculation that Cohn would take over the firm. Yet four months later, after undergoing chemotherapy, Blankfein was back in his office and plainly not going anywhere. Cohn was 56 years old when he was invited to Trump Tower. An influential job inside the White House meant a face-saving exit &mdash; and one offering a huge financial advantage.</p> <p><strong>Trump spoke of the great financial price Cohn paid to join him in the White House during his speech in Cedar Rapids. But something like the opposite was true. A huge amount of Cohn&rsquo;s wealth was tied up in Goldman stock. By entering government, he could sell his stake in the firm to comply with federal ethics laws. That way he could diversify his holdings and avoid roughly $50 million in capital gains taxes &mdash; &nbsp;at least until he sold the replacement assets.</strong></p> <p>A job in the White House might also prove an outlet for his frustrations with politicians and regulators intent on reining in the worst impulses of Wall Street. Trump was Trump, but he had also vowed to dismantle financial reform. &ldquo;Dodd-Frank has made it impossible for bankers to function,&rdquo; Trump said during the campaign. The new president had the potential to serve as a vessel for Goldman&rsquo;s corporate interests.</p> <p><em><strong>&ldquo;Maybe the one thing that holds this administration together is a belief that markets know best, and the least regulation is the best regulation,&rdquo; said Dennis Kelleher of Better Markets. &ldquo;Goldman&rsquo;s interests fit with that very nicely.&rdquo;</strong></em></p> <div class="img-wrap align-bleed width-auto"><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/09/18/20170919_gs13.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/09/18/20170919_gs13.jpg" style="width: 577px; height: 352px;" /></a><br /> <p class="caption overlayed"><em>U.S. Treasury Secretary Steven Mnuchin testifies before the House Appropriations Committee&rsquo;s Financial Services and General Government Subcommittee in the Rayburn House Office Building on Capitol Hill on June 12, 2017 in Washington, D.C.</em></p> <p class="caption source"><em>Photo: Chip Somodevilla/Getty Images</em></p> </div> <p><strong>Trump had given Steve Mnuchin, his campaign finance chair, the grander title. But taking over as Treasury secretary meant being confirmed by the Senate. </strong>Mnuchin&rsquo;s confirmation vote was delayed after it was revealed that he&rsquo;d neglected to list $95 million in assets (including homes in New York, Los Angeles, and the Hamptons) on his Senate Finance Committee disclosure forms and failed to disclose his ties to an offshore hedge fund registered in the Cayman Islands. Mnuchin was not confirmed until mid-February. The president&rsquo;s pick for commerce secretary, Wilbur Ross, a financier who had bailed out several of Trump&rsquo;s casinos a few decades earlier, was not confirmed until the end of February.</p> <p><strong>As a presidential aide, Cohn did not need Senate approval. </strong>He was part of the skeletal crew that arrived at the White House on day one, giving him a critical head start on wielding his clout and cultivating his relationship with the new president. At that point, Trump was summoning Cohn to the Oval Office for impromptu meetings as many as <a href="https://www.nytimes.com/2017/02/11/business/dealbook/trump-economic-cabinet-gary-cohn.html?_r=0">five times a day</a>.</p> <p>In early February, Trump signed an executive order giving his Treasury secretary 120 days to give him a hit list of regulations the administration could eliminate. But with Mnuchin yet to be confirmed, the task appeared to land in Cohn&rsquo;s eager hands. He was standing at the president&rsquo;s shoulder when Trump said, &ldquo;We expect to be cutting a lot out of Dodd-Frank.&rdquo; Shares in Goldman Sachs, which had jumped by 28 percent after the election, rose another $6 a share that day. Soon Cohn was coordinating Trump&rsquo;s plans not only for rolling back regulations, but also for creating jobs and slashing taxes. He met with a health care specialist, along with House Speaker Paul Ryan and other Republican leaders, to discuss alternatives to the Affordable Care Act.</p> <p>Proximity is power inside any White House, especially in this one, where policy often seems shaped by Trump&rsquo;s last conversation. Treasury is several blocks away, while Cohn&rsquo;s office was in the West Wing, directly across the hall from Bannon&rsquo;s. Operating within a chaotic administration, Cohn was <a href="https://www.nytimes.com/2017/02/11/business/dealbook/trump-economic-cabinet-gary-cohn.html?_r=0">reportedly</a> energized and focused, working around the clock. Cohn is a tenacious practitioner who, after ascending to the heights of Goldman Sachs, could teach a master class on the art of seizing a leadership vacuum and building alliances. On day 39 of the new administration, the White House sent out a press release introducing the &ldquo;best-in-class team&rdquo; Cohn had assembled &ldquo;to drive President Trump&rsquo;s bold plan for job creation and economic growth.&rdquo; The 13 advisers included familiar figures who had worked for George W. Bush or his father, but they also included at least three former lobbyists so conflicted they would need an ethics waiver to work in the White House. For instance, <a href="https://www.nytimes.com/2017/04/15/us/politics/trump-appointees-potential-conflicts.html?mcubz=1&amp;_r=1">Michael Catanzaro</a>, the man Cohn chose to oversee energy policy, was until last year a lobbyist for such oil, gas, and coal companies as Devon Energy and Talen Energy. Shahira Knight had been a lobbyist for Fidelity, the mutual fund giant, before joining Cohn&rsquo;s team.</p> <p><strong>Cohn&rsquo;s strategy in those early months was to make himself indispensable to the new president. Cohn emerged as one of the few people around Trump comfortable interrupting him during a meeting or openly disagreeing on points of policy. The New York Times reported that Trump often turned to Cohn during a meeting and asked him directly, &ldquo;What do you want to do?&rdquo; Early on, Trump referred to Cohn as &ldquo;one of my geniuses&rdquo; &mdash; a quote Reuters attributed to a &ldquo;source close to Cohn.&rdquo;</strong></p> <p>Soon, major media were painting Cohn as a leading centrist inside the Trump White House because he had staked out positions on immigration, international alliances, and global warming at odds with Bannon&rsquo;s hard-right nationalism. Bannon and his allies only bolstered this narrative by characterizing &ldquo;Carbon Tax Cohn&rdquo; and his allies, Jared Kushner and Ivanka Trump, as interlopers &mdash; &ldquo;the Democrats,&rdquo; as some inside the White House called them. &ldquo;Within Trump&rsquo;s Inner Circle, a Moderate Voice Captures the President&rsquo;s Ear,&rdquo; read the headline of a Cohn profile in the Washington Post.</p> <p><em><strong>&ldquo;Led by Gary Cohn and Dina Powell &mdash; two former Goldman Sachs executives often aligned with Trump&rsquo;s elder daughter and his son-in-law &mdash; the group and its broad network of allies are the targets of suspicion, loathing and jealousy from their more ideological West Wing colleagues,&rdquo;</strong></em> the Washington Post reported. Fueling the rage of the ideologues, Cohn and his allies were largely winning. Trump dropped Bannon from the National Security Council and elevated Powell to deputy national security adviser. When, after Charlottesville, false reports leaked that Cohn was so disgusted with the president he was resigning, blue-chip stocks slid down. Instead, Bannon was out. Cohn, despite reports that he invoked Trump&rsquo;s wrath for critical remarks to the Financial Times, was still in and expected to deliver the president a win on corporate taxes.</p> <div class="img-wrap align-bleed width-auto"><em><a href="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/09/18/20170919_gs14.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/09/18/20170919_gs14.jpg" style="width: 586px; height: 349px;" /></a></em><br /> <p class="caption overlayed"><em>National Economic Council Director Gary Cohn arrives at a Wall Street heliport while traveling with President Donald Trump on May 4, 2017 in New York City.</em></p> <p class="caption source"><em>Photo: Brendan Smialowski/AFP/Getty Images</em></p> </div> <p><strong>On the day it was announced that he was joining the Trump administration, Cohn said on a goodbye podcast for Goldman Sachs, &ldquo;You look at the size of our capital. You look at the size of our balance sheet. You look at the size of our people &mdash; it&rsquo;s just enormous.&rdquo; </strong>More than $40 billion had flowed into the bank in 2016, bringing the bank&rsquo;s assets under management to a record $1.38 trillion. That meant pressure to find ways to put that money to work &mdash; an enormous challenge if regulators finally shut down Goldman&rsquo;s prop trading arm.</p> <p><strong><em>How exactly could Cohn recuse himself from matters involving Goldman when almost every aspect of his job has the potential to either grow Goldman&rsquo;s profits and inflate its stock price &mdash; or tank them both?</em></strong></p> <p>&ldquo;To the extent Goldman Sachs is a direct party in a matter, Gary will recuse himself,&rdquo; a source familiar with the situation said. But, the source added, &ldquo;As NEC director, Gary is going to touch on matters on the day-to-day economy as a whole and Goldman Sachs is a participant in the economy, thus Gary will indirectly touch on things that affect Goldman Sachs along with other banks and institutions.&rdquo;</p> <p>Yet rather than publicly recuse himself on attempts to undo Dodd-Frank, Cohn has led the charge from inside the White House.&nbsp;On that matter, Cohn is a walking, talking <a href="https://www.oge.gov/web/oge.nsf/Financial+Conflicts+of+Interest">conflict of interest</a>.</p> <p><strong>While at Goldman, Cohn had personally met with officials at the Commodity Futures Trading Commission to discuss the derivatives reform plank of Dodd-Frank, an arena in which Goldman is a dominant player. </strong>He had taken issue with rules imposed by Dodd-Frank that require banks to keep more capital on hand. Requiring banks to hold more money in reserve made them &ldquo;unequivocally&rdquo; safer than before 2008, he said in a 2015 interview while still Goldman&rsquo;s president, but he complained that Goldman was now able to lend less money, hurting profits. And then there&rsquo;s the Volcker Rule. Cohn, while still president of the firm, had traveled to D.C. at least twice to personally lobby regulators about its implementation.</p> <p><strong>These days, it can be hard to tell whether Cohn is speaking as a high-ranking White House official or a former Goldman Sachs executive.</strong></p> <p>In the wake of Trump&rsquo;s February call for a rollback in financial regulations, Cohn vowed in an interview with Bloomberg TV, &ldquo;We&rsquo;re going to attack <em>all</em> aspects of Dodd-Frank.&rdquo; The first example he gave: the Volcker Rule, which he cast as harmful to the country&rsquo;s competitive advantage. In an <a href="http://www.foxbusiness.com/politics/2017/02/03/dodd-frank-do-over-win-for-banks-trump-advisor-gary-cohn.html">interview</a> that same day with Fox Business, he homed in on another Goldman obsession: Dodd-Frank&rsquo;s capital requirements. &ldquo;Banks are forced to hoard money because they are forced to hoard capital, and they can&rsquo;t take any risks,&rdquo; he said. Mortgage, auto, credit card lending, and commercial lending are all up since 2010. Yet Cohn told Fox viewers, &ldquo;We need to get banks back in the lending business, that&rsquo;s our No. 1 objective.&rdquo;</p> <p>Roy Smith, a former Goldman partner now teaching at the NYU Stern School of Business, argues that Cohn should avoid the administration&rsquo;s effort to unwind Dodd-Frank altogether, but &ldquo;at a very minimum he has to excuse himself whenever the discussion turns to Volcker.&rdquo; But Smith said he has trouble imagining Cohn leaving the room when Volcker comes up. <em><strong>&ldquo;The hard part for someone like Cohn is that he knows where all the pain points are with Volcker and other parts of Dodd-Frank,&rdquo; Smith said. &ldquo;His every instinct would be to get involved.&rdquo;</strong></em></p> <p>Beyond deregulation, two other pillars of Trump&rsquo;s economic plan &mdash; cutting taxes and investing in infrastructure &mdash; would have dramatic impacts on Goldman&rsquo;s bottom line.</p> <p><strong>Thanks to loopholes, many Fortune 500 corporations pay <a href="https://americansfortaxfairness.org/tax-fairness-briefing-booklet/fact-sheet-corporate-tax-rates/">little or no</a> corporate income tax at all. By contrast, Goldman Sachs typically pays taxes near the official 35 percent federal tax rate.</strong> In 2014, for instance, Goldman paid $3.9 billion in taxes on profits of $12.4 billion, or 31 percent. Last year, the firm&rsquo;s tax bill was $2.7 billion on profits of $10.3 billion, or 28 percent. In that same Fox Business interview, Cohn said that &ldquo;lower corporate taxes&rdquo; was the White House&rsquo;s &ldquo;starting point&rdquo; on tax reform; cuts to personal income taxes were a secondary concern.</p> <p><strong>Under the plan Cohn and Mnuchin announced last spring, what Cohn called &ldquo;one of the biggest tax cuts in the American history,&rdquo; corporate taxes would be capped at 15 percent. If Cohn succeeds, Goldman will save massive sums: At that rate, Goldman would have paid $2 billion less in taxes in 2014, $1.4 billion less in 2015, and $1.4 billion less in 2016. </strong>The Koch brothers&rsquo; network of political groups has already spent millions of dollars to promote the proposal. Even Blankfein, who the Trump campaign singled out in the commercial it ran in the final days of the campaign, <a href="http://www.reuters.com/article/us-goldman-sachs-trump-idUSKBN1352KH">acknowledged</a> in a voicemail to employees that Trump&rsquo;s commitment to tax cuts, deregulation, and infrastructure &ldquo;will be good for our clients and our firm.&rdquo;</p> <p><strong>The details of the president&rsquo;s &ldquo;$1 trillion&rdquo; infrastructure plan are similarly favorable to Goldman.</strong> As laid out in the administration&rsquo;s 2018 budget, the government would spend only $200 billion on infrastructure over the coming decade. By structuring &ldquo;that funding to incentivize additional non-Federal funding&rdquo; &mdash; tax breaks and deals that privatize roads, bridges, and airports &mdash; the government could take credit for &ldquo;at least $1 trillion in total infrastructure spending,&rdquo; the budget reads.</p> <p>It was as if Cohn were still channeling his role as a leader of Goldman Sachs when, at the White House in May, he offered this advice to executives:<strong><em> &ldquo;We say, &lsquo;Hey, take a project you have right now, sell it off, privatize it, we know it will get maintained, and we&rsquo;ll reward you for privatizing it.&rsquo;&rdquo; &ldquo;The bigger the thing you privatize, the more money we&rsquo;ll give you,&rdquo;</em></strong> <a href="https://www.washingtonpost.com/local/trafficandcommuting/trump-advisers-call-for-selling-off-old-assets-to-build-new-infrastructure/2017/05/23/657aa2c6-2f53-11e7-9534-00e4656c22aa_story.html?utm_term=.973cbdc4eb53">continued</a> Cohn. By &ldquo;we,&rdquo; he clearly meant the federal government; by &ldquo;you,&rdquo; he appeared to be speaking, at least in part, about Goldman Sachs, whose Public Sector and Infrastructure group <a href="http://www.goldmansachs.com/what-we-do/investment-banking/industry-sectors/municipal-finance/">arranges</a> the financing on large-scale public sector deals. &ldquo;Goldman Sachs is one of the largest infrastructure fund managers globally,&rdquo; according to infrastructure advisory firm <a href="http://www.infrapppworld.com/company/goldman-sachs-infrastructure-partners-gsip">InfraPPP Partners</a>, &ldquo;having raised more than $10 billion of capital since the inception of the business in 2006.&rdquo; Lost in the infamous press conference the president gave in the lobby of Trump Tower a few days after Charlottesville, with Cohn and Mnuchin visibly uncomfortable at his right flank, were Trump&rsquo;s remarks on infrastructure, the ostensible purpose of the event. The thrust was that the president would grease the wheels for project approvals by signing an executive order rolling back environmental impact requirements and other elements of an &ldquo;overregulated permitting process.&rdquo;</p> <p><u><strong>In countless other ways, Cohn is positioned to help the firm that has been so good to him over the years. </strong></u>The country&rsquo;s National Economic Council adviser might caution a president against running too large a deficit, especially amid a healthy economy. But Goldman Sachs is in the business of finding investors to underwrite government debt. An economic adviser might caution a populist president that corporate inversions often cost jobs and tax revenue. Instead, Trump has ordered a review of policies Obama put in place to discourage them &mdash; good news for Cohn&rsquo;s former colleagues. Transparency has been a watchword of initial public offerings dating back at least to the Securities and Exchange Act of 1934, but easing those rules, a step Goldman has sought, could potentially generate hundreds of millions of dollars in fees for investment banks such as Goldman. The SEC announced in June that it would allow any company going public to withhold details of its finances and strategies, an exemption previously available only to firms with under $1 billion in revenue &mdash; more good tidings for Goldman. Just loosening the rules for IPOs, said Tyler Gellasch, the former Senate staffer, &ldquo;could mean hundreds of millions of dollars more to Goldman.&rdquo;</p> <p>In June, the Treasury Department released a statement of principles about the administration&rsquo;s approach to financial regulation focused on promoting &ldquo;liquid and vibrant markets.&rdquo; Not surprisingly, the report included a call to ease capital requirements and substantially amend the Volcker Rule.</p> <p>It&rsquo;s Cohn&rsquo;s influence over the country&rsquo;s regulators that worries Dennis Kelleher, the financial reform lobbyist. &ldquo;To him, what&rsquo;s good for Wall Street is good for the economy,&rdquo; Kelleher said of Cohn. &ldquo;Maybe that makes sense when a guy has spent 26 years at Goldman, a company who has repaid his loyalties and sweat with a net worth in the hundreds of millions.&rdquo; Kelleher recalls those who lost a home or a chunk of their retirement savings during a financial crisis that Cohn helped precipitate.<u><em><strong> &ldquo;They&rsquo;re still suffering,&rdquo; he said. &ldquo;Yet now Cohn&rsquo;s in charge of the economy and talking about eliminating financial reform and basically putting the country back to where it was in 2005, as if 2008 didn&rsquo;t happen. I&rsquo;ve started the countdown clock to the next financial crash, which will make the last one look mild.&rdquo;</strong></em></u></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="578" height="316" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20170919_gs2.jpg?1505855017" /> </div> </div> </div> http://www.zerohedge.com/news/2017-09-19/government-goldman#comments After Hours AIG Alt-A American International Group Bank of America Bank of America Barack Obama Barney Frank Bear Stearns Bernie Sanders Bond Bond Dealers Citigroup Collateralized Debt Obligations Commodity Futures Trading Commission Consumer protection Counterparties Countrywide Credit Crisis Creditors Crude David Viniar default Devon Energy Dick Bove Donald Trump Elizabeth Warren Fail Federal Reserve Federal Reserve Bank Federal Tax Financial Crisis Inquiry Commission Financial Regulation fixed Florida Fox Business Germany Global Warming goldman sachs Goldman Sachs Great Depression Hank Paulson Hank Paulson Henry Paulson Home Equity Housing Bubble Housing Market Illinois India Insurance Companies John Paulson JPMorgan Chase Lehman Lehman Brothers Lloyd Blankfein Matt Taibbi Meltdown Merrill Merrill Lynch Mexico Morgan Stanley Mortgage Loans national security Nationalism New Century New York City New York State New York Stock Exchange New York Times None NYU Stern Paul Volcker Personal Income Private Equity Prop Trading Real estate Reality Reuters Sears Securities and Exchange Commission Securities Fraud Subprime Mortgages TARP Tax Revenue Testimony Too Big To Fail Transparency Treasury Department Wall Street Journal Warren Buffett Washington D.C. Wells Fargo White House Wilbur Ross Wed, 20 Sep 2017 00:44:07 +0000 Tyler Durden 603804 at http://www.zerohedge.com Here Is The Retail "Chart Of Doom", Now With Toys "R" Us http://www.zerohedge.com/news/2017-09-19/here-retail-chart-doom-now-toys-r-us <p>After claiming its 27th victim of the year in the form of the <a href="http://www.zerohedge.com/news/2017-09-19/toys-r-us-files-chapter-11-second-largest-us-retail-bankruptcy-history">Toys 'R' Us bankruptcy</a> filed earlier this morning, <strong>the Amazon-induced retail bloodbath of 2017 has just turned full-on apocalyptic</strong>.&nbsp; According to data aggregated by <a href="https://twitter.com/ReorgFirstDay">Reorg First Day</a>, the Toys "R" Us filing brings the total amount of defaulted retail debt to over $14 billion so far in 2017.&nbsp; </p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/09/19/2017.09.19 - TOY.JPG"><img src="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/09/19/2017.09.19%20-%20TOY_0.JPG" style="width: 600px; height: 644px;" /></a></p> <p>&nbsp;</p> <p>All of which should be sufficient to drive U.S. equity markets to fresh new highs before the end of the day.</p> <p>Meanwhile, according to <a href="http://www.bankruptcydata.com/">Bankrupty Data</a>, Toys "R" Us marks the third largest U.S. retail bankruptcy in history, based on assets, exceeded only by Kmart and Federated Department Stores...</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/09/19/2017.09.19 - Retail Assets_1.JPG"><img src="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/09/19/2017.09.19%20-%20Retail%20Assets_1_0.JPG" style="width: 600px; height: 374px;" /></a></p> <p>&nbsp;</p> <p>...and here is how the 2017 retail bankruptcies have stacked up.</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/09/19/2017.09.19 - 2017 Retail.JPG"><img src="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/09/19/2017.09.19%20-%202017%20Retail_0.JPG" style="width: 500px; height: 502px;" /></a></p> <p>&nbsp;</p> <p>Of course, the real question is whether the 3rd largest retail bankruptcy in U.S. history is enough to once again push Amazon's Jeff Bezos to the top the world's list of <span style="text-decoration: line-through; color: #ff0000;">biggest douches</span> wealthiest men.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="756" height="418" alt="" src="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/ToysRUs.JPG?1505842654" /> </div> </div> </div> http://www.zerohedge.com/news/2017-09-19/here-retail-chart-doom-now-toys-r-us#comments Amazon.com Bankruptcy Business Business Economy Economy of the United States Equity Markets Jeff Bezos Kmart Macy's, Inc. Sears Holdings Toys "R" Us Wed, 20 Sep 2017 00:15:00 +0000 Tyler Durden 603793 at http://www.zerohedge.com Dramatic Footage Of Mexico Earthquake Shows Buildings Collapsing Into Rubble http://www.zerohedge.com/news/2017-09-19/dramatic-footage-mexico-earthquake-shows-buildings-collapsing-rubble <p>Mexico City Mayor Miguel Ángel Mancera Espinosa has said that 44 buildings in Mexico city have collapsed, and potentially hundreds more have been seriously damaged, by Tuesday&#39;s earthquake. The 7.1-magnitude quake shook Central Mexico. With 119 dead at last count, the quake is the deadliest to strike Mexico since the one that killed 5,000 people 32 years ago today...</p> <p>Over the last few hours, stunning video footage depicting buildings collapsing and smoking billowing from the rubble have appeared on Twitter. Here&#39;s a collection of some of the most dramatic videos.</p> <p>In one video, what looks like a warehouse suddenly collapses, sending a giant plume of smoke into the sky...</p> <blockquote class="twitter-tweet" data-lang="en"><p dir="ltr" lang="en">Devastating images from Mexico City. <a href="https://t.co/RpF7sUq31s">pic.twitter.com/RpF7sUq31s</a></p> <p>&mdash; Jorge Guajardo (@jorge_guajardo) <a href="https://twitter.com/jorge_guajardo/status/910222491246788608">September 19, 2017</a></p></blockquote> <script async src="//platform.twitter.com/widgets.js" charset="utf-8"></script><p>In another, what looks like a residential building crumbles as onlookers cry out &quot;oh my god, oh my god, oh my god...&quot;</p> <blockquote class="twitter-tweet" data-lang="en"><p dir="ltr" lang="en"><a href="https://twitter.com/hashtag/BREAKING?src=hash">#BREAKING</a>: Here is the moment when another building collapsed during the Mexico City earthquake. <a href="https://t.co/86SVGfBEFU">pic.twitter.com/86SVGfBEFU</a></p> <p>&mdash; Pat Campbell (@PC1170) <a href="https://twitter.com/PC1170/status/910232694549860352">September 19, 2017</a></p></blockquote> <script async src="//platform.twitter.com/widgets.js" charset="utf-8"></script><p>In another, passers by can be seen banding together to move debris as they try to free people trapped beneath...</p> <blockquote class="twitter-tweet" data-partner="tweetdeck"><p dir="ltr" lang="en">People Come Together To Help Move Debris In <a href="https://twitter.com/hashtag/Mexico?src=hash">#Mexico</a> City In Search Of <a href="https://twitter.com/hashtag/Earthquake?src=hash">#Earthquake</a> Survivors.<a href="https://t.co/iSD2LptL5o">pic.twitter.com/iSD2LptL5o</a></p> <p>&mdash; Kevin W. (@kwilli1046) <a href="https://twitter.com/kwilli1046/status/910288739037040640">September 19, 2017</a></p></blockquote> <script async src="//platform.twitter.com/widgets.js" charset="utf-8"></script><p>Here&#39;s more footage of the damage in Mexico City.</p> <blockquote class="twitter-tweet" data-partner="tweetdeck"><p dir="ltr" lang="en">More video footage of damage in <a href="https://twitter.com/hashtag/Mexico?src=hash">#Mexico</a> City following M7.1 <a href="https://twitter.com/hashtag/earthquake?src=hash">#earthquake</a>:<a href="https://t.co/WXBnLlHG0v">https://t.co/WXBnLlHG0v</a></p> <p>&mdash; Jason Rosenthal (@JasonCRosenthal) <a href="https://twitter.com/JasonCRosenthal/status/910288395502469120">September 19, 2017</a></p></blockquote> <script async src="//platform.twitter.com/widgets.js" charset="utf-8"></script><p>The quake was centered in Puebla, the state in which Mexico City is based. So far, the majority of casualties have been counted outside the city, but it&#39;s likely that hundreds - if not thousands - more bodies will be found in the coming days as the cleanup effort begins in earnest.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="733" height="418" alt="" src="http://www.zerohedge.com/sites/default/files/images/user245717/imageroot/2017.09.19mcaxiosthree.JPG?1505865097" /> </div> </div> </div> http://www.zerohedge.com/news/2017-09-19/dramatic-footage-mexico-earthquake-shows-buildings-collapsing-rubble#comments Central Mexico Disaster Environment Mexico Mexico City earthquake Miguel Ángel Mancera Natural disasters Quake Twitter Twitter Tue, 19 Sep 2017 23:55:01 +0000 Tyler Durden 603809 at http://www.zerohedge.com A Startling Anecdote About Online Ad Fraud From Uber http://www.zerohedge.com/news/2017-09-19/startling-anecdote-about-online-ad-fraud-uber <p>One week ago we said that Category 1 storm clouds are gathering over what has traditionally been one of the most lucrative, and perhaps only profitable, sectors to come out of Silicon Valley in decades: online advertising. We directed readers&#39; attention to the recent <a href="http://ir.restorationhardware.com/phoenix.zhtml?c=79100&amp;p=irol-EventDetails&amp;EventId=5262980">Global Retailing Conference organized by Goldman Sachs, in which </a>Restoration Hardware&#39;s delightfully colorful CEO, Gary Friedman, divulged the following striking anecdote about the company&#39;s online marketing strategy, and the state of online ad spending in general. What Friedman revealed - in brief - was the following:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&quot;<strong>we&#39;ve found out that 98% of our business was coming from 22 words. So, wait, we&#39;re buying 3,200 words and 98% of the business is coming from 22 words. What are the 22 words? And they said, well, it&#39;s the word Restoration Hardware and the 21 ways to spell it wrong, okay?</strong>&quot;</p> </blockquote> <p>There was much more in the <a href="http://www.zerohedge.com/news/2017-09-11/startling-anecdote-about-online-advertising-restoration-hardware">full transcript </a>which lamented just how seemingly useless and overrated <a href="http://www.zerohedge.com/news/2017-09-11/startling-anecdote-about-online-advertising-restoration-hardware">online advertising has become </a>(or perhaps always had been), a lament shared previously by consumer products giant P&amp;G which <a href="http://www.zerohedge.com/news/2017-07-29/pg-slashed-digital-ad-spending-what-happened-next">several months earlier </a>became the first to fire a shot across the &quot;adtech&quot; bow when not long after it announced it was slashing its digital ad spending because it thought it was not getting the kind of return on investment it desired, it made a striking discovery: &ldquo;<strong>We didn&rsquo;t see a reduction in the growth rate</strong>.&rdquo; CFO Jon Moeller said &ldquo;<strong>What that tells me is that that spending that we cut was largely ineffective</strong>.&rdquo; Previously, the P&amp;G&#39;s CFO had said that &ldquo;<strong>the reduction in marketing that occurred was almost all in the digital space. </strong>And what it reflected was a choice to cut spending from a digital standpoint <strong>where it was ineffective: </strong>where either we were serving bots as opposed to human beings, or where the placement of ads was not facilitating the equity of our brands.&quot;</p> <p>Moeller also touched on the two most common complaints about digital advertising scams: 1) advertisers are paying for ads that are viewed and clicked on by bots, not humans; and 2) ads are placed by thousands of automated &ldquo;ad exchanges&rdquo; that are out of control of the advertiser on sites and pages that don&rsquo;t match the advertiser&rsquo;s products.</p> <p>The problem, as we discussed last week, for providers of online advertising is that increasingly more are waking up to the pitfalls of &quot;adtech&quot;: the false promises, the opacity of digital advertising, the intractability of the Internet, the clicks and views by bots on which advertisers are wasting their money, and the billions of dollars that get blown down the drain without results.&nbsp; The larger issue is, of course, that retail spending has grown on average by a muted 2% per year in the US over the past five years, while over the same period, digital advertising has nearly doubled to $72.5 billion in 2016, which implies that even digital advertising &ndash; despite the lure of Facebook and the like &ndash; cannot induce consumers overall to spend more and increase the size of the overall pie for advertisers. It can only, at best, divide up the pie differently.</p> <p>* * *</p> <p>And while the Restoration Hardware anecdote may have been a <em>Category 1 </em>&quot;ad tech&quot; storm, on Monday a surprising development out of Uber pushed the maximum sustained windspeed for the online advertising industry to a solid Category 2.</p> <p>What happened is that Uber, long accustomed to being sued itself, for once was the source of a lawsuit, taking advertising agency Fetch Media to court for click fraud<strong> </strong>and alleging that the firm improperly billed Uber for &ldquo;fake&rdquo; online ads and took credit for app downloads it had nothing to do with. Fetch, incidentally, is owned by the world&rsquo;s fourth-largest advertising company, Japan&rsquo;s Dentsu.</p> <p>In the lawsuit filed on Monday in San Francisco, Uber said it discovered something was &quot;amiss&quot; when it canceled a campaign on Breitbart following the recent blowback against conservative media, where Fetch was placing Uber ads. After the company had asked Fetch not to post advertisements on Breitbart, it saw ads appearing there anyway. While Fetch allegedly pulled ads from all networks that had a relationship with Breitbart, the move had little effect on the number of people downloading the app, contrary to Fetch&rsquo;s claims, the complaint said.</p> <p>Uber traditionally had paid Fetch and other ad networks when a potential customer downloads its app after seeing an ad. Uber alleged that after further inspection, Fetch had a widespread practice of over-billing. Uber claims that Fetch had been attempting to claim credit for app downloads it didn&rsquo;t generate.</p> <p>Furthermore, Uber claims that after it suspended the ad campaign, <strong>it saw no material drop in total installations, as the decline in paid signups was offset byt a &quot;nearly equal amount&quot; by organic installations</strong>. To wit:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Just before Uber suspended the entire Fetch Campaign in March 2017, Fetch was spending millions of Uber&#39;s dollars per week on mobile inventory purportedly attributable to hundreds of thousands (even millions) of Uber App installs per week. <strong>Had the advertisements been legitimate, one would expect to see a substantial drop when mobile advertising was suspended. </strong>Instead, <strong>when Uber suspended the Fetch Campaign</strong>, <strong>there was no material drop in total installations. Rather, the number of installations supposedly attributable to mobile advertising (i.e., &quot;paid signups&quot;) decreased significantly, while the number of organic installations rose by a nearly equal amount</strong>.&nbsp;</p> <p>&nbsp;</p> <p><a href="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/09/05/uber%20fetch%202.jpg"><img alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2017/09/05/uber%20fetch%202_0.jpg" style="width: 500px; height: 347px;" /></a><strong> </strong></p> <p>&nbsp;</p> <p><strong>This indicated that a significant percentage of the installations believed to be attributable to advertising were in fact stolen organic installations. </strong>In other words, <strong>these installations would have occurred regardless of advertising</strong>. Instead networks or publishers in the Fetch Campaign fraudulently reported the last click attribution to claim attribution credit and were paid for the installation.</p> </blockquote> <p>The complaint then claims ad fraud was not isolated to one core vendor of ads to subcontractors, but that ad fraud was &quot;<strong>perpetuated and even encouraged&quot; </strong>between the ad agency and the networks and publishers:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Fetch&rsquo;s own actions perpetuated, and even encouraged, fraud by the networks and publishers from whom it purchased mobile inventory.</p> <p>&nbsp;</p> <p>When Fetch obtained makegoods on behalf of Uber, the credit would be in the form of additional mobile inventory with the same network or publisher. In other words, <strong>after a publisher was caught red-handed, for example click spamming, Fetch would reward the bad actor with additional volume and opportunities to report fake clicks.</strong><strong> </strong></p> <p>&nbsp;</p> <p>Upon information and belief, Fetch also misused its position as a marketplace leader, and as Uber&rsquo;s mobile media agency, to solicit improper &ldquo;rebate&rdquo; payments from networks and publishers in exchange for purchasing advertising inventories during the Fetch Campaign, and failed to pass such discounts back to Uber.</p> <p>&nbsp;</p> <p>Fetch also failed to enforce Uber&rsquo;s prohibition against rebrokering. &ldquo;Rebrokering&rdquo; is where networks or publishers take advertising offers and re-broker them to third parties to obtain a greater volume of clicks, and thus, hopefully, installations. Rebrokering is against the terms of the IOs approved by Uber for use in the Fetch Campaign and also leads to a loss of control by the mobile advertising agency over the quality of the advertising and the amount of fraud.</p> </blockquote> <p>According to the lawsuit, from 2015 to early 2017, Uber paid more than $82.5 million for advertisements overseen by Fetch, and said it refused to pay more than $7 million that Fetch has said it owes.</p> <p>Of course, should the court find that Uber&#39;s claim has merit, the implications for ad tech would be staggering: whereas last week&#39;s admission by Restoration Hardware suggests that online advertising is either being gamed by bots, or generally underperforming to the point where it is not worth the investment, the potential involvement of <strong>premeditated ad fraud among the key players in the industry </strong>- since Uber&#39;s ads were certainly not the only cockroach - would not only jeopardize the revenue streams of ad giants such as Facebook and Google, but could result in civil liabilities into the tens of billions in potential ad fraud.</p> <p>As expected, Fetch pleaded innocent, per <a href="https://www.bloomberg.com/news/articles/2017-09-18/uber-goes-on-rare-legal-offensive-suing-dentsu-unit-for-fraud">Bloomberg</a>:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&ldquo;We are shocked by Uber&rsquo;s allegations which are unsubstantiated, completely without merit, and purposefully inflammatory so as to draw attention away from Uber&rsquo;s unprofessional behavior and failure to pay suppliers,&rdquo; Fetch Chief Executive Officer James Connelly said in a statement Tuesday. &ldquo;We vigorously deny the allegations from Uber and will be responding robustly to ensure we set the record straight.&rdquo;</p> </blockquote> <p>Still, Fetch has acknowledged the challenge of online ad fraud publicly and said it was working with research firm Forensiq to &ldquo;fight against mobile ad fraud.&rdquo;</p> <p>&ldquo;One of the biggest challenges we face as digital marketers is to reduce mobile ad fraud,&rdquo; Fetch&rsquo;s Connelly said a year ago. The problem, of course, is when Fetch itself is the source of fraud.</p> <p>Around the same time, Fetch&rsquo;s global head of media, Steve Hobbs, told Adweek that a &ldquo;significant amount&rdquo; of downloads in Fetch&rsquo;s system are flagged as suspicious. &ldquo;Where there&rsquo;s money, there is fraud,&rdquo; he told the publication. &ldquo;Being 100 percent on top of it is an impossibility, but we think with Forensiq&rsquo;s help we can get it significantly lower.&rdquo;</p> <p>As part of the lawsuit, Uber plans to seek at least $40 million in damages according to Bloomberg. More notable is that Fetch&rsquo;s publicly traded parent company, ad giant Dentsu which has a $12 billion market capitalization, is <strong>not </strong>named in the lawsuit, at least not yet. The question is if and when it emerges that such ad fraud as that claimed by Uber is endemic across all online ad network and perpetrated by virtually all ad giants, not only Dentsu but also Google and Facebook, what happens then to the biggest growth stories in the tech world once customer faith in the online ad model <em>&quot;deus ex machina&quot; </em>finally evaporates?</p> <p><em>The full redacted Uber vs Fetch lawsuit is below</em></p> <p><iframe class="scribd_iframe_embed" data-aspect-ratio="0.7729220222793488" data-auto-height="false" frameborder="0" height="600" id="doc_13605" scrolling="no" src="https://www.scribd.com/embeds/359365703/content?start_page=1&amp;view_mode=scroll&amp;access_key=key-fmjztp6Uy0uulAIFvJOx&amp;show_recommendations=true" title="Uber Fetch Lawsuit" width="100%"></iframe></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="640" height="392" alt="" src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/online%20ad%20fraud.jpg?1505862256" /> </div> </div> </div> http://www.zerohedge.com/news/2017-09-19/startling-anecdote-about-online-ad-fraud-uber#comments Ad fraud Adtech Advertising Advertising network Business Click fraud Digital marketing goldman sachs Goldman Sachs Google Japan Marketing Online advertising Technology Uber Uber protests and legal actions UN Court World Wide Web Tue, 19 Sep 2017 23:25:21 +0000 Tyler Durden 603808 at http://www.zerohedge.com Manafort Calls On DOJ To Release His Intercepted Phone Calls; Demands Investigation Of Leaks http://www.zerohedge.com/news/2017-09-19/manafort-calls-doj-release-his-intercepted-phone-calls-demands-investigation-leaks <p>Less than 24 hours after CNN triggered the latest outbreak of 'Trump Derangement Syndrome' by relaying information from anonymous sources that Trump's former campaign manager Paul Manfort has been under surveillance by the FBI since 2014, <strong>Manafort has fired back by calling on the Department of Justice to release all transcripts of his tapped phone calls so that the American public "can come to the same conclusion as the DOJ — there is nothing there."</strong>&nbsp; Per the <a href="http://dailycaller.com/2017/09/19/manafort-calls-on-doj-to-release-his-intercepted-communications-with-foreigners/">Daily Caller</a>:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Former Trump campaign manager Paul Manafort is calling on the Justice Department to release transcripts of any intercepted communications he may have had with foreigners.</p> <p>&nbsp;</p> <p>Manafort, a longtime Republican political consultant, also called on the Justice Department’s inspector general to investigate the leak of details of secret surveillance warrants obtained by U.S. investigators.</p> <p>&nbsp;</p> <p><strong>“Mr. Manafort requests that the Department of Justice release any intercepts involving him and any non-Americans so interested parties can come to the same conclusion as the DOJ — there is nothing there,”</strong> Manafort spokesman Jason Maloni said in a statement.</p> </blockquote> <p>Manafort's spokesman goes on to demand that the DOJ launch an immediate investigation into who continues to commit federal felonies with reckless abandon by leaking details of confidential FISA warrants to the media.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Whether or not Manafort committed a crime — and he has not been charged with anything — the leak of information about FISA warrants is a federal crime, Maloni noted in his statement.</p> <p>&nbsp;</p> <p><strong>“If true, it is a felony to reveal the existence of a FISA warrant, regardless of the fact that no charges ever emerged,” </strong>Maloni said.</p> <p>&nbsp;</p> <p>Information about FISA warrants is classified and tightly held by government officials and the federal judges that approve them. Unauthorized disclosures of FISA information is also a felony.</p> <p>&nbsp;</p> <p>At a House Intelligence Committee hearing in March, then-FBI Director James Comey testified that the leak of FISA information is punishable by up to 10 years in prison.</p> <p>&nbsp;</p> <p>In his statement, <strong>Maloni called on the Justice Department’s watchdog to “immediately” open an investigation into the leak and to “examine the motivations behind the previous Administration’s effort to surveil a political opponent.”</strong></p> </blockquote> <p><img src="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/09/19/Manafort_0.JPG" alt="Manafort" width="600" height="305" /></p> <p>Of course, this was all triggered by <a href="http://www.cnn.com/2017/09/18/politics/paul-manafort-government-wiretapped-fisa-russians/index.html">CNN</a>'s 'bombshell' story last night which revealed that <strong>Manafort has been under an ongoing wiretap, approved by the FISA courts, going back to 2014 and tied to his consulting arrangements with Ukraine's former ruling party.</strong> </p> <p>That said, the interesting part of CNN's story came via the revelation that <strong>"surveillance [of Manafort] was discontinued at some point last year for lack of evidence"</strong> but was then <strong>restarted with a "new FISA warrant that extended at least into early this year"</strong>...<strong>all of which sounds an awful lot like the Obama administration using FISA courts to spy on a political opponent.&nbsp; </strong></p> <p>Here are the details as presented by <a href="http://www.cnn.com/2017/09/18/politics/paul-manafort-government-wiretapped-fisa-russians/index.html">CNN:</a></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>US investigators wiretapped former Trump campaign chairman Paul Manafort under secret court orders before and after the election,</strong> sources tell CNN, an extraordinary step involving a high-ranking campaign official now at the center of the Russia meddling probe.</p> <p>&nbsp;</p> <p>The government snooping continued into early this year, including a period when Manafort was known to talk to President Donald Trump.</p> <p>&nbsp;</p> <p>Some of the intelligence collected includes communications that sparked concerns among investigators that Manafort had encouraged the Russians to help with the campaign, according to three sources familiar with the investigation. Two of these sources, however, cautioned that the evidence is not conclusive.</p> <p>&nbsp;</p> <p>Special counsel Robert Mueller's team, which is leading the investigation into Russia's involvement in the election, has been provided details of these communications.</p> <p>&nbsp;</p> <p><strong>A secret order authorized by the court that handles the Foreign Intelligence Surveillance Act (FISA) began after Manafort became the subject of an FBI investigation that began in 2014. It centered on work done by a group of Washington consulting firms for Ukraine's former ruling party,</strong> the sources told CNN.</p> <p>&nbsp;</p> <p><strong>The surveillance was discontinued at some point last year for lack of evidence, </strong>according to one of the sources.</p> <p>&nbsp;</p> <p><strong>The FBI then restarted the surveillance after obtaining a new FISA warrant that extended at least into early this year.</strong></p> </blockquote> <p>All of which has led many people to question throughout the day whether the Obama administration, as <a href="http://www.zerohedge.com/news/2017-03-04/watergate-trump-accuses-obama-wiretapping-trump-tower">Trump suggested back in March</a>, did intentionally spy on his campaign using FISA warrants.</p> <p>Certainly these two tweets from CNN's Jake Tapper would seem to be somewhat contradictory:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>Tapper's initial reaction from March 2017 to Trump's claim that the Obama administration wiretapped his campaign:</strong></p> </blockquote> <blockquote class="twitter-tweet"><p dir="ltr" lang="en">POTUS makes wild accusation w/zero evidence<br />WH searches for evidence &amp; cant find any<br />WH tells Congress to find evidence/no further comment</p> <p>— Jake Tapper (@jaketapper) <a href="https://twitter.com/jaketapper/status/838411898358009856">March 5, 2017</a></p></blockquote> <script src="//platform.twitter.com/widgets.js"></script><p>&nbsp;</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>Tapper's follow-up tweet from last night:</strong></p> </blockquote> <blockquote class="twitter-tweet"><p dir="ltr" lang="en">US government wiretapped former Trump campaign chairman - CNNPolitics <a href="https://t.co/BY8MACKfV9">https://t.co/BY8MACKfV9</a></p> <p>— Jake Tapper (@jaketapper) <a href="https://twitter.com/jaketapper/status/909919235375288320">September 18, 2017</a></p></blockquote> <script src="//platform.twitter.com/widgets.js"></script><p>&nbsp;</p> <p>Oops.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="679" height="345" alt="" src="http://www.zerohedge.com/sites/default/files/images/user230519/imageroot/Manafort_1.JPG?1505861208" /> </div> </div> </div> http://www.zerohedge.com/news/2017-09-19/manafort-calls-doj-release-his-intercepted-phone-calls-demands-investigation-leaks#comments Congress Department of Justice Department of Justice Donald Trump Donald Trump Donald Trump presidential campaign FBI Federal Bureau of Investigation Foreign Intelligence Surveillance Act House Intelligence Committee James Comey Links between Trump associates and Russian officials Obama Administration Obama administration Paul Manafort Politics Politics Politics of the United States Privacy of telecommunications Russian interference in the 2016 United States elections SPY UN Court United States United States Foreign Intelligence Surveillance Court US government Tue, 19 Sep 2017 23:05:07 +0000 Tyler Durden 603807 at http://www.zerohedge.com US Sanctions Against Venezuela Will Hurt Americans http://www.zerohedge.com/news/2017-09-19/us-sanctions-against-venezuela-will-hurt-americans <p><a href="https://mises.org/blog/us-sanctions-against-venezuela-will-hurt-americans"><em>Authored by Ryan McMaken via The Mises Institute,</em></a></p> <div class="body-content body-content embedded-media clearfix"> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div> <p><strong>After fifty years of imposing embargoes and other sanctions,</strong> the United States never managed to topple Cuba&#39;s communist regime.</p> <p>&nbsp;</p> <p><strong>After forty years of the same in Iran, </strong>the US met with similar amounts of success.</p> <p>&nbsp;</p> <p>Ongoing sanctions against North Korea have not toppled to regime there.&nbsp;</p> </blockquote> <p><span style="text-decoration: underline;"><strong>But, some people in Washington won&#39;t let decades of failure dissuade them.&nbsp;</strong></span></p> <p>Last week, Congressman Mike Coffman (R-Colo.) introduced new legislation to <strong>bar Americans from importing oil products from Venezuela. </strong>The Washington Examiner&nbsp;<a href="http://www.washingtonexaminer.com/mike-coffman-targets-oil-imports-to-slow-maduro-regime-in-venezuela/article/2633691" target="_blank">reports</a>:&nbsp;</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>[T]he Protecting Against Tyranny and Responsible Imports Act, or the PATRIA Act ... would target Venezuelan President Nicolas Maduro after he stripped the country&#39;s democratically elected national assembly of its power and authority. According to the bill, the proposed ban on imports would last until the assembly&#39;s power is fully restored.</p> <p>&nbsp;</p> <p>&quot;The goal is to change the conduct, the character of the Venezuelan government under Maduro. I think the window is closing,&quot; Coffman told the&nbsp;<em>Washington Examiner</em>. &quot;They are dependent upon the export of oil really to fund their government, and without that, they can&#39;t pay their security forces.&quot;</p> </blockquote> <p><strong>Experience suggests there is little reason to believe that sanctions will cause the regime to give up in Venezuela.</strong> If the regime has less oil money with which to pay the military, the regime can always steal more from the average citizen to make up the difference. In other words, ordinary Venezuelans will suffer more in response to US sanctions.&nbsp;</p> <div class="ds-1col file file-image file-image-png view-mode-wide_player clearfix"> <div class="img img-responsive"><img alt="oilprice.png" height="451" src="https://mises.org/sites/default/files/styles/full_width/public/oilprice.png?itok=s9MkTh5B" width="600" /></div> </div> <p><em><a href="https://fred.stlouisfed.org/series/MCOILWTICO" target="_blank">Source.&nbsp;</a></em></p> <p>Moreover, aggressive moves such as these against the Venezuelan regime <strong>have tended to only solidify support for the regime among its supporters. </strong>Both the current president <span>Maduro, and his predecessor Hugo Chávez, were</span>&nbsp;both&nbsp;successful in building support for themselves on a platform of opposing US meddling in Venezuelan political and economic institutions.&nbsp;</p> <p><strong>When the US threatens to intervene in local politics, this only strengthens the resolve and support of the regime&#39;s supporters.&nbsp;</strong></p> <p>The US has already been acting in a reckless manner in this regard, as illustrated by President Donald Trump&#39;s recent speculations about invading Venezuela to effect regime change. As noted by Daniel Politi at <em>Slate</em>, American threats directed at the Venezuelan&nbsp;regime <a href="http://www.slate.com/blogs/the_slatest/2017/08/12/trump_s_threat_to_invade_venezuela_amounts_to_a_big_gift_for_embattled_leader.html" target="_blank">do nothing to help the opposition</a>:&nbsp;</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Throughout his power grab that has accompanied Venezuela&rsquo;s descent into chaos, Maduro has long warned the United States was planning to invade the country. Trump&rsquo;s words seemed to play straight into his narrative, recalling a time when Washington saw Latin America as its backyard where it could intimidate governments into doing its bidding.</p> <p>&nbsp;</p> <p><strong>&ldquo;Maduro must be thrilled right now,&rdquo;&nbsp;said Mark Feierstein, who was a senior aide on Venezuela to former president Barack Obama. &ldquo;It&#39;s hard to imagine a more damaging thing for Trump to say.&rdquo;</strong></p> </blockquote> <p>Similarly, threatening Venezuela with more sanctions &mdash; something that may make the regime even more violent and desperate &mdash; do nothing to help the Venezuelan people in general, and only energize the regime&#39;s base.&nbsp;</p> <p>Coffman claims the sanctions would be lifted if the Venezuelan regime were to restore the prerogatives and power of the national legislature, which has essentially been disbanded by Maduro.&nbsp;</p> <p>In recent months, the Venezuelan regime has rapidly become more dictatorial as forces loyal to Maduro have increasingly clamped down on opposition politicians and essentially ignored the results of recent elections that have brought many opposition leaders to power in the National Assembly.&nbsp; </p><p><strong>The working philosophy here, apparently, is that the imposition of sanctions will force the Venezuelan regime to democratize in response. One would be hard pressed to find examples of similar tactics actually working, however.</strong></p> <p>More astute observers might also ask why &mdash; if Coffman is so committed to democracy &mdash; he hasn&#39;t called for similar embargoes of Saudi Arabian oil. The Saudi regime, of course, has been a dictatorship ever since its founding,&nbsp;<a href="https://en.wikipedia.org/wiki/State-sponsored_terrorism#Saudi_Arabia" target="_blank">sponsors international terrorism</a>, and tolerates no religious freedom or freedom of speech. The Saudi regime, for instance, routinely&nbsp;<a href="http://www.dailymail.co.uk/wires/reuters/article-4896790/Saudi-Arabia-arrests-two-rights-campaigners-Amnesty-International.html" target="_blank">arrests critics&nbsp;of the regime</a>, and the regime&#39;s spokesman has<a href="https://www.youtube.com/watch?v=TiaYNd338W0" target="_blank">&nbsp;outright denied&nbsp;</a>that elections should be allowed in Saudi Arabia.&nbsp;</p> <p><strong>If human rights are of such pressing concern to the Congressman, its unclear why Venezuela is at the top of the sanctions list.&nbsp;</strong></p> <h4><u>As with all Trade Sanctions, Americans Suffer&nbsp;</u></h4> <p>As with any discussion of sanctions, of course, we need not even consider the strategic futility of sanctions, or the morality of foreign regimes.&nbsp;</p> <p><strong>Far from being a matter only of concern to foreigners, US sanctions are built on the <u><em>cornerstone of limiting the freedoms of Americans.</em></u></strong></p> <p>As I noted earlier <a href="https://mises.org/library/how-embargoes-destroy-freedom">in regards to the Cuban embargo</a>:&nbsp;</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>[S]upporting an embargo means supporting the government when it fines, prosecutes, and jails peaceful citizens who attempt to engage in truly free trade. Support for an embargo also requires support for a customs bureaucracy that spies on merchants and consumers, and the whole panoply of enforcement programs necessary to punish those who run afoul of the government&rsquo;s arbitrary pronouncements on what kind of trade is acceptable, and what kind is verboten. Naturally, this is all paid for by the taxpayers...</p> <p>&nbsp;</p> <p>At their heart, embargoes are nothing but a specific type of prohibition. Sometimes, the government imposes prohibitions on transactions involving certain goods, such as cannabis. Other times, the prohibition extends to all transactions with people in a certain place. The fundamentals are the same, however, in that they prohibit peaceful exchange, with heavy penalties for violators.</p> </blockquote> <p><strong>In the case of a new embargo against Venezuela, the effect would be to place&nbsp;prohibitions on American importers, and thus drive up prices for oil and energy for all Americans. </strong>Government bureaucrats would be dispatched to monitor&nbsp;private industry to make sure they don&#39;t violate the prohibitions. Government agents will impose fines, and make arrests if necessary. <strong>The American government will become more powerful at the expense of American consumers and American taxpayers.&nbsp;</strong></p> <p>Indeed, this has already been going on with smaller-scale sanctions<a href="http://oilprice.com/Latest-Energy-News/World-News/Sources-Say-Trumps-Citgo-Sanctions-Are-Working.html" target="_blank">&nbsp;imposed by the Trump administration against Citgo oil refineries</a>. Thanks to the sanctions, Citgo refineries in the US, which constitute four percent of American fuel capacity,&nbsp;and which employ American workers,&nbsp;are finding it more costly to obtain the oil they need for the refineries. Both domestic and foreign suppliers must scramble to work around the new regulations in order to avoid fines and lawsuits from government regulators who oversee trade.&nbsp;<strong>The effect of this will be to put pressure on more marginal employees and on more marginal operations,&nbsp;leading to layoffs and diminished refining capacity. Ultimately, it is Americans who will pay the price. </strong></p> </div> <p>&nbsp;</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="235" height="128" alt="" src="http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/20170919_citgo.jpg?1505841974" /> </div> </div> </div> http://www.zerohedge.com/news/2017-09-19/us-sanctions-against-venezuela-will-hurt-americans#comments American government Americas Barack Obama Cuba Donald Trump Economic sanctions International relations International sanctions International trade Iran Latin America McMaken Mises Institute Mises Institute National Assembly national legislature North Korea Politics Saudi Arabia Trump Administration Venezuelan government World Tue, 19 Sep 2017 22:55:00 +0000 Tyler Durden 603788 at http://www.zerohedge.com