Goldman Sachs

A story of how the "vampire squid" caved and offered to help North America's most powerful union...

"Now that the crisis is over, and given the special circumstances of the crisis, and Goldman’s contribution to value-destroying securitizations, it is in the public interest to claw back the money paid to Goldman Sachs. AIG did not need to settle for 100 cents on the dollar in November 2008, and in September 2008, a good negotiator would have refused to hand over more collateral, and should have clawed some back (or insisted it was a temporary loan). Money should be clawed back before Goldman pays out taxpayer subsidized bonuses." - Janet Tavakoli

A week ago we posed several questions to Goldman managing directors Lucas van Praag and David Viniar. Earlier today we received a broad response. We present it in its entirety for our readers. We will provide our counter-response shortly.

Just a quick perusal of news (and an analytical fact or two) in the CRE space that makes one wonder why Goldman Sachs thinks that anyone would believe them. Then again, looking at the ($19 billion) bonus pool, much of which was just nearly halved by the UK government, it appears as if enough people believe them. Let's see what we can to do alleviate that...

I don't want anyone to think this is a Goldman bashing exercise. I actually admire their prowess. Not for operational excellence (as many mistakenly consider them to have when not adjusting accounting returns for risk), but for the way they seem to get away with murder, time after time. You gotta give it to them. I want readers to take time to go through the anecdotal evidence here and decide if it is more profitable to invest with Goldman, or actually attempt to put your bid in to get a slice of that $19 billion, middle class taxpayer funded, regulator protected bonus pool.

To us, the confirmation hearings last week before the Senate Banking Committee only reaffirm in our minds that Benjamin Shalom Bernanke does not deserve a second term as Chairman of the Board of Governors of the Federal Reserve System.

Modest menu sampler

APERITIFS & HORS D'OEUVRES - Minted-Green Dacquiris Flowing From a Kozlowski-Inspired Ice Sculpture Fountain. (Holy Water or non-alcoholic beverages available on request)

FIRST COURSE - Shark-Fin Soup

MAIN COURSES - Roasted Market Goose Entier with "Couilles Brasse" With Scalped Pototoes

DESSERT - Gaffes with a Blanc-Fine Syrup

PETITS-FOURS - Bittersweet Karma Cookies

Goldman's latest bull market propaganda makes CNBC looks like champions, and provides data that contradicts that presented by none other than Goldman Sachs itself: GDP growth for 2010 is somehow going to be both 4.4% and 2.1%, claims Goldman. And idiots keep on buying stocks based on Goldman's "hedged" recommendations.

Update: it appears Mr. O'Neill is in fact referencing world GDP, whereby the divergence in GDPs of course makes sense. Nonetheless, we would still like a swig of his Kool Aid, and we still would expect him to present a counterpoint to the numerous bearish points highlighted by Mr. Hatzius previously. We believe it is only fair if one is presenting top picks in an overly optimistic environment, while Goldman's head economist has recently been refuting just these ebullient observations.

The list below highlights the firms that are on the hook to the FDIC in the form of implicit TLGP guarantees. The top five financial companies consist of CNBC's parent company (not for long) General Electric at $88 billion, Citi at $64.6 billion, Bank of America at $44.5 billion, JPM at $40 billion, and Morgan Stanley at $25 billion. Goldman is just out of the top five at the 6th position, with current outstanding TLGP borrowings at $21.3 billion - nearly a dollar for dollar match with what is expected to be the firm's end of year bonus accrual.

It is only fair to propose to Mr. Blankfein that instead of paying $20 billion in bonuses, the firm uses the bonus accrual to immediately repay every single last cent of its TLGP borrowings.

Did Goldman Sachs dissemble and equivocate in its responses to the New York Times? Based on these responses, the answer is yes. Treasury Secretary Geithner may wish to keep that in mind the next time he looks to Goldman Sachs for his answers. Mr. van Praag states “Starting in the mid-90s, we bought credit default swaps from AIG to protect our firm from the risk of a decline in the value of risk we had assumed on behalf some of our clients, (i.e. assets to which we had exposure).” Near the end of his email he again mentions “CDOs from our clients” (emphasis added). His email never once mentions that the problematic CDOs requiring collateral calls from A.I.G. that precipitated its liquidity problems, the one’s referenced in the report, seem to be chiefly 2004/5/6 vintage CDOs. Goldman underwrote the Abacus CDOs on its own list, and Goldman also underwrote CDOs that featured prominently and in large portion on the lists of French Banks SocGen and Calyon as well as Bank of Montreal and Wachovia that also hedged this risk using CDSs with AIG.

"In light of the SIGTARP report, I withdraw my earlier apology to Goldman. Public commitments to AIG are currently around $182 billion. If you wonder what Goldman CEO Lloyd Blankfein meant when he said: “[Goldman Sachs] participated in things that were clearly wrong and we have reason to regret and we apologize for them,” think of Goldman’s role in AIG’s crisis, Goldman’s bailout, and Goldman’s ongoing heavy taxpayer subsidies. That way, one of you will be genuinely sorry about it." - Janet Tavakoli

Goldman Sachs, which lately has been caught in a toxic spiral of potential misrepresentations (courtesy of the SIGTARP report which plainly refuted the firm's claims that it was not on the hook vis-a-vis AIG, and by the way, Ms. Tavakoli, we are waiting for you to retract your apology to the 85 Broad team) and horrendous PR (first Blankfein apologizing for something, then Gasparino telling Lloyd he should step down), may be the final straw that finally breaks open the Fed's "book of death" (for the middle class, f/k/a "book of life" for the banker cartel). Ahead of tomorrow's hearings on various Fed transparency initiatives, Rep. Elijah Cummings is calling for a complete tear down of the existing Fed structure, and demands an overhaul to the "minimal accountability" that the Fed issubject to courtesy of the current Wall Street perpetuated ( and lobbied) status quo.

We have gotten to a point where each country is trying to talk down its own economy in a pursuit of having the worst (DXY constituent) currency. Yesterday it was Bernanke warning about future growth prospects, last night it was Japan, and today it is Goldman Sachs, which is claiming that the economy is really worse than expected. What is the point of all this rhetoric: simple. In the current stock market bubble where the only driving force is the strength, or rather, weakness, of any given underlying currency (read- dollar), and where inflation and deflation pressures are inverted, such that a weak dollar would cause a market melt up, and thus, inflation spillover from overpriced stocks into commodities and other products, the only way to stimulate inflation is to posture having the weakest economy. Whether that is in fact "weakest" or merely most debt-laden, with worthless CRE, housing and other 'assets' serving as collateral on bank balance sheets, we leave to much smarter analysts such as Dick Bove and Meredith Whitney.