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According to the Collins English Dictionary 10th Edition fraud can be defined as: "deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage".[1] In the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation. Defrauding people or entities of money or valuables is a common purpose of fraud, but there have also been fraudulent "discoveries", e.g. in science, to gain prestige rather than immediate monetary gain
*As defined in Wikipedia

Friday, January 8, 2010

Goldman Sachs' Ponzi Bonuses

Karl over at market-ticker rips Goldman Sachs a new one, this time about the stockholder lawsuit that claims the company spent more money on corporate bonuses than it earned in 2008.

Are we seeing once again the same game being played that WaMu played in the spring of 2007 - and which started me writing Tickers?

In his lawsuit (PDF), Brown states that Goldman Sachs gave out $4.82 billion in bonuses in 2008, despite earnings of only $2.32 billion that year. The lawsuit alleges that the company spent 259 percent of its income in the first quarter of 2009 on compensation.

Uh, that's kinda interesting. It is somewhat like WaMu, no?

If you remember back in 2007 I wrote one of my seminal Tickers - one of the first - that spoke to Washington Mutual paying out funds they didn't really have in cash in dividends. That is, they were booking "capitalized interest" (negative amortization on Option ARM loans) as "earnings" and then paying part of that - plus all of their cash earnings - out to shareholders in the form of a dividend.

The problem with such a game is that non-cash "earnings" aren't money and while they look good on the balance sheet if they don't materialize later on you're sunk! My call at the time was that they wouldn't materialize and WaMu would indeed be sunk, and it was.

This is a bit different, in that nobody is (yet) claiming that Goldman doesn't have the money. What's being alleged here is that they have effectively pilfered the public Treasury and then paid that out as bonuses, rather than doing with it as Treasury intended and their shareholders were entitled to, which is to use the capital to rebuild the firm's foundation and strengthen it against future potential losses.


Read the rest- Click here


Anonymous said...

January 8, 2010: Compliments of The Huffington Post...Timothy Geithner, I Call Your Bluff
by Janet Tavakoli, President, Tavakoli Structured Finance, Inc.

The Treasury responded to reports that the New York Fed asked AIG to suppress and delay facts about the bailout. Meg Reilly, a Treasury spokesperson claimed: "In the transaction at the heart of this dispute...the FRBNY [Federal Reserve Bank of New York] made a loan of $25 billion which is on track to be paid back in full with interest." She claims the loan is currently "above water."

In the first place, that loan is not the heart of the dispute. Nonetheless, the FRBNY should immediately release the details of all of the Maiden Lane III assets backing that loan and show the current prices BlackRock has placed on them. Based on the current market, it is extremely likely that the loan is underwater.

As for Goldman Sachs's approximately $8.2 billion in CDOs (including synthetic CDOs) that are still on AIG's books, they can be settled at ten cents on the dollar, and excess collateral currently held by Goldman can be returned. This is the value at which other bond insurers have settled similar deals. The return of payments to AIG can be used to pay down its public debt, before banks pay tax-payer subsidized bonuses to their employees.

Larry Rubinoff said...

Another good post, Robert.

This is a common theme called by many, "the fleecing of America".

Anonymous said...

This should mostly be given to stock holders as dividends instead since they took most of the risk that was caused by bankers and traders. However, the CEO's would still profit much since they may hold a lot of stock. The government has the power but not the will to tax these excessive bonuses at a high rate. One day such money may become valueless due to the destruction of our economic system by such abuses.

Anonymous said...

Hank Greenberg Tells WSJ Goldman Sachs Behind AIG’s Collapse

By Sylvia Wier and Vivek Shankar

Jan. 8 (Bloomberg) -- Hank Greenberg, former chief executive officer at American International Group Inc., said Goldman Sachs Group Inc. is responsible for the collapse of the insurer during the economic crisis, the Wall Street Journal reported.

“It certainly wouldn’t be difficult to come to that conclusion,” he is quoted as telling the newspaper.

Greenberg blamed new standards for credit-default swaps -- pushed by Goldman or Deutsche Bank AG, he said -- and subprime, housing-backed derivatives sold and then shorted by Goldman as contributing to AIG’s collapse, the newspaper reported.

The article contains no comment from Goldman Sachs. Lucas van Praag, a spokesman for Goldman, didn’t immediately respond to an e-mail by Bloomberg News seeking comment.
Last Updated: January 8, 2010 22:36 EST

Anonymous said...

Thanks to taxpayers like you who generously bailed banking from the financial shipwreck it created for itself and for us, by the end of 2009 the industry's compensation pool reached nearly $200 billion. And despite windfall profits, the banks will claim almost $80 billion in tax deductions. And nearly $20 billion of those deductions will go to just three institutions — Morgan Stanley, JP Morgan Chase, and Goldman Sachs.

Ah, yes — Goldman Sachs, that paragon of profit and probity — which bet big on the housing bubble and when it popped — presto! — converted itself from an investment firm into a bank so it could get your bailout money. Now consider this: in 2008, Goldman Sachs paid an effective tax rate of just one percent. I'm not making that up — one percent! — while their CEO Lloyd Blankfein pulled down over $40 million. That's God's work, if you can get it. And, believe me, Wall Street bankers know how to get it.

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