GoldmanSachs666 Message Board

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

Sunday, October 24, 2010

Goldman Sachs: If We Did It!

John Kenneth Galbraith wrote about the role of investment trusts (and Goldman Sachs) in The Great Crash of 1929.

ProPublica has written an investigative report called “Banks' Self-Dealing Super-Charged Financial Crisis” by Jake Bernstein and Jesse Eisinger. In it they describe how the largest banks in the US (including Goldman Sachs) created CDOs that helped propel the present financial crisis.

Together, these two events produce a kind of deja vu especially in the way that financial products were created, i.e., investment trusts before The Great Crash and CDOs in The Great Recession, as follows:

The introduction to Galbraith's work talks about “...investment trusts would sponsor investment trusts that would, in turn sponsor investment trusts.”

Whereas, ProPublica states “...a CDO would buy a piece of another CDO which returned the favor....So the banks CDOs. Those new CDOs bought hard-to-sell pieces of orginal CDOs. The result was a daisy chain that solved one problem but created another: Each new CDO had its risky pieces. Banks created yet other CDOs to buy those.”

How very familiar, and similar, these two events appear!

Here are excerpts from “Bank' Self-Dealing Super-Charged Financial Crisis” by Jake Bernstein and Jesse Eisinger - ProPublica, Aug. 26, 2010

The portion of CDOs owned by other CDOs grew right alongside the market. What had been 5 percent of CDOs (remember the "bucket") now came to constitute as much as 30 or 40 percent of new CDOs. (Wall Street also rolled out CDOs that were almost entirely made up of CDOs, called CDO squareds [12].)

The ever-expanding bucket provided new opportunities for incestuous trades.

It worked like this: A CDO would buy a piece of another CDO, which then returned the favor. The transactions moved both CDOs closer to completion, when bankers and managers would receive their fees.

ProPublica's analysis shows that in the final two years of the business, CDOs with cross-ownership amounted to about one-fifth of the market, about $107 billion.

Here's an example from early May 2007:

  • A CDO called Jupiter VI bought a piece of a CDO called Tazlina II.

  • Tazlina II bought a piece of Jupiter VI.

Both Jupiter VI and Tazlina II were created by Merrill and were completed within a week of each other. . . .

Citigroup did its own version of the shuffle, as these three CDOs demonstrate:

  • A CDO called Octonion bought some of Adams Square Funding II.

  • Adams Square II bought a piece of Octonion.

  • A third CDO, Class V Funding III, also bought some of Octonion.

  • Octonion, in turn, bought a piece of Class V Funding III.

All of these Citi deals were completed within days of each other. . . .

ProPublica also tabled a circle graph of “CDOs created by one bank [that]commonly purchased slices of other CDOs created by the same bank.” Shown in the third tier are the number of deals in which Goldman Sachs's “CDOs held a significant portion of their own prior CDOs. “

The table can be seen here

Read the full article here

Below is an excerpt from the Introduction to“In Goldman, Sachs We Trust” by John Kenneth Galbraith (1908–2006)
John Kenneth Galbraith: The Affluent Society and Other Writings 1952–1967 - in The Library of America – The Story of the Week

. . . .

One method of increasing the number of stocks, relatively new in the U.S., was the creation of the investment trust. Such companies did not really produce anything or foster new enterprises; instead, they “merely arranged that people could own stock in old companies through the medium of new ones”; that is, the trust’s sole purpose was to invest its funds in the stocks of other companies. The problem, however, was that there was often no relation to the amount of money invested in the trust to the amount of money the trust invested, in turn, in stocks. “The difference,” Galbraith writes, “went into the call market, real estate, or the pockets of the promoters.”

The investment trusts succeeded largely because the “product” they sold to the average trader was expertise: “One might make money investing directly in Radio, J. I. Case, or Montgomery Ward, but how much safer and wiser to let it be accomplished by the men of peculiar knowledge, and wisdom.” And the trusts were not really new companies; instead, most of them were sponsored by existing companies—for example, J.P. Morgan was behind the investment trust United Corporation. Furthermore, it almost goes without saying, investment trusts would sponsor investment trusts that would, in turn sponsor investment trusts; each of these companies issuing stocks that they would often sell to each other or to other investment trusts. Many of these companies learned quickly that through the “the miracle of leverage” (the degree to which borrowed money is used), they could “swing a second and larger [trust] which enhanced the gains and made possible a third and still bigger trust.”
. . . .

Please read the full essay, In Goldman, Sachs We Trust, by Galbraith here

This week (October 24–29) marks the anniversary of the Great Crash- The Story of the Week


Anonymous said...

No matter how much Obama talks about his “tough” new financial regulatory reforms or offers rote condemnations of Wall Street greed, few believe there’s been real change. That’s not just because so many have lost their jobs, their savings and their homes. It’s also because so many know that the loftiest perpetrators of this national devastation got get-out-of-jail-free cards, that too-big-to-fail banks have grown bigger and that the rich are still the only Americans getting richer.

The much acclaimed new documentary about the global economic meltdown, “Inside Job,” has it right. As its narrator, Matt Damon, intones, our country has been robbed by insiders who “destroyed their own companies and plunged the world into crisis” — and then “walked away from the wreckage with their fortunes intact.” These insiders include Dick Fuld and four other executives at Lehman Brothers who “got to keep all the money” (more than $1 billion) after Lehman went bankrupt. And of course Robert Rubin, who encouraged Citigroup to step up its investment in high-risk bets like Countrywide’s mortgage-backed securities. Rubin, now back as a rainmaker on Wall Street, collected more than $115million in compensation during roughly the same period Mozilo “earned” his half a billion. Citi, which required a $45 billion taxpayers’ bailout, recently secured its own slap-on-the-wrist S.E.C. settlement — at $75 million, less than Rubin’s earnings and less than its 2003 penalty ($101 million) for its role in hiding Enron profits.

Anonymous said...

Most of all, Obama has been a tool of the banks and financiers. Early in his term, Obama invited the leading zombie bankers to the White House and told them he was the only thing standing between them and the populist pitchforks of angry Americans. That is how Obama sees himself: the protector of Wall Street against mass protest. Obama has confirmed Helicopter Ben Bernanke at the Federal Reserve despite his colossal responsibility for the world derivatives panic of September 2008. Obama has given more power to the Federal Reserve, and fended off attempts to nationalize the Fed. Obama has supported, continued, and expanded the criminal

Bush-Paulsen Wall Street bailouts to the tune of $24 trillion.

Obama first delayed financial regulation, and then protected derivatives, foreclosures, adjustable rate mortgages, payday loans, car title loans, too big to fail, and all the other practices that should have been outlawed with bright line prohibitions. Right now there is a big demand in the Democratic Party to stop foreclosures — fraudclosures. But even on the verge of electoral defeat,

Obama puts subservience to Wall Street first,

and is actively sabotaging any attempt to protect the right of Americans to stay in their homes.

JR said...

And remember that Goldman Sachs obtained $12.9 billion from the bailout of AIG. They should pay back every cent of that money to the American taxpayer. If fraud occurs in one company, like Enron, the full weight of the justice system is brought down upon the perpetrators; when fraud occurs systematically all over the financial system including all the big banks, then the justice system seems anemic and incapable of making anyone pay for their crimes.

Post a Comment