Goldman Sachs: Bullies on the Block - Janet Tavakoli
The Huffington Post
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Taxpayers Bailout Goldman Sachs
Goldman Sachs is by no means the only offender, but it epitomizes the problem. Goldman enjoys many benefits and subsidies as a result of Congress's massive bailout of Wall Street. [See "Goldman Sachs: Spinning Gold," Huffington Post, April 7, 2010.]
In August 2007, I publicly challenged AIG's accounting for its "protection" (credit default swaps) on value destroying CDOs (collateralized debt obligations backed by mortgages and various other assets including credit derivatives). AIG said it had zero accounting losses; but its losses were material, and AIG had a serious problem. The potential for actual losses was so enormous that I called Warren Buffett and met with Jamie Dimon, CEO of JPMorgan Chase. Unbeknownst to me at the time, Goldman was already pressuring AIG for more than a billion dollars in collateral.
In the fall of 2009, I uncovered the fact that Goldman Sachs had a much larger role in the mortgage bets that nearly toppled AIG than the Treasury, the Fed, or Goldman itself publicly disclosed in September 2008, when AIG was first bailed out. Then Treasury Secretary Henry Paulson was Goldman's CEO at the time the deals were done with AIG. He was also CEO when Goldman underwrote other value destroying CDOs against which foreign banks bought protection. Stephen Friedman, a former Chairman of Goldman Sachs and then Chairman of the New York Fed, concurrently sat on Goldman's board. These men had serious conflicts of interest, and events played out very much to Goldman's benefit at the expense of taxpayers.By September 2008, AIG was drained of cash and close to imploding. At the time Fed Chairman Ben Bernanke testified AIG had to be saved lest AIG's failure trigger a Great Depression. (In March 2010, Treasury Secretary (and ex-President of the NY Fed) Timothy Geithner and ex-Goldman CEO and ex-Treasury Secretary Hank Paulson also testified to this.) Instead of allowing AIG to fail with minimal intervention, Washington protected culpable bankers.
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Dodd-Frank Reform Failure: "Customer Transactions" Were Behind the Meltdown
Goldman was responsible for huge systemic risk, even though it characterized its AIG trades as "customer transactions." It's one thing to provide emergency relief for "troubled assets," and its quite another for Congress to delay so long in asking how these assets came to be so troubled in the first place. Congress has neither uncovered the truth nor mitigated the risk of even greater future devastation. The Dodd-Frank Bill does not provide necessary financial reform, because Wall Street lobbyists successfully tailored the language to suit bankers.
Senator Carl Levin (D. Mich.), Chairman of a senate investigative panel, issued a memo stating that Goldman "magnified the impact of toxic mortgages." In other words, it kept repackaging, reselling or protecting (buying credit default protection on) losers. It took the wrong kind of nerve for Goldman's CEO to say he was doing "God's work,"* when the reality includes this brand of malicious mischief.In one case, a $38 million subprime-mortgage bond created in June 2006 ended up in more than 30 debt pools and ultimately caused roughly $280 million in losses to investors by the time the bond's principal was wiped out in 2008, according to date reviewed by The Wall Street Journal.
"Senate's Goldman Probe Shows Toxic Magnification," by Carrick Mollenkamp and Serena Ng, Wall Street Journal, May 2, 2010.
All of the large Wall Street banks generate huge risk in foreign exchange, commodities trading, interest rate derivatives, credit derivatives and more. The Dodd-Frank Bill's so-called financial reform leaves the entire financial system at great risk from "customer transactions."
In Third World America, Arianna Huffington explains how Wall Street bought off Congress. America's middle class is caught in the middle of a bi-partisan betrayal. Righting these wrongs will not be easy. Among other things, it may require an amendment to our Constitution to prevent money cartels from buying off our elected officials.. . . .
Read the full article here which includes a video