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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

Monday, January 31, 2011

Goldman Sachs's Lloyd Blankfein

Lloyd Blankfein has been CEO of Goldman Sachs since 2006. Wikipedia, excerpted below, describes his earnings and the role he played in the financial meltdown that culminated in 2008. His ethical guidelines and moral stance towards financial obligations are clearly stated by him (highlighted by me in red). Blankfein's personal take on the world of finance is full of contradictions and misrepresentations. He prides himself on knowing how to take risks and come out on top. Well, he also knows how to transfer that risk from GS to the investors via securitization.

Goldman CEO - Wikipedia

Blankfein earned a total of $54.4 million in 2006 as one of the highest paid executives on Wall Street. His bonus reflected the performance of Goldman Sachs, which reported record net earnings of $9.5 billion. The compensation included a cash bonus of $27.3 million, with the rest paid in stock and options. While CEO of Goldman Sachs Group in 2007, Blankfein earned a total compensation of $53,965,418, which included a base salary of $600,000, a cash bonus of $26,985,474, stocks granted of $15,542,756 and options granted of $10,453,031.[3]

Blankfein was named as one of "The Most Outrageous CEOs of 2009" by Forbes magazine.[4] Taking a different position, Financial Times, which named Blankfein as its "2009 Person of the Year," stated: "His bank has stuck to its strengths, unashamedly taken advantage of the low interest rates and diminished competition resulting from the crisis to make big trading profits."[5] Critics of Goldman Sachs and Wall Street have taken issue with those practices.[6]

On January 13, 2010, Blankfein testified before the Financial Crisis Inquiry Commission, that he considered Goldman Sachs's role as primarily a market maker, not a creator of the product (i.e., subprime mortgage-related securities).[7] Goldman Sachs was sued on April 16, 2010 by the SEC for the fraudulent selling of a collateralized debt obligation tied to subprime mortgages, a product which Goldman Sachs had created.[8]

With Blankfein at the helm Goldman has also been criticized "by lawmakers and pundits for issues from its pay practices to its role in helping Greece mask the size of its debts."[8] Blankfein testified before Congress in April 2010 at a hearing of the Senate Permanent Subcommittee on Investigations.[improper synthesis?] He said that Goldman Sachs had no moral or legal obligation to inform its clients it was betting against the products which they were buying from Goldman Sachs because it was not acting in a fiduciary role.[9]

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. . . .

On April 7, 2009, Blankfein recommended guidelines to overhaul executive compensation. According to The New York Times, he said that lessons from the global financial crisis included the need to "apply basic standards to how we compensate people in our industry."[12]

In November, 2009, he declared in an interview, as a banker: "I'm doing God's work." [13] Several days later he indicated that he regretted that remark and said he had intended it as a joke. He also apologized on behalf of Goldman Sachs to the public for unspecified "things that were clearly wrong and have reason to regret" and which contributed to the financial and economic crisis.

. . . .

Read the rest of the entry in Wikipedia here.

You can read "Remarks by Lloyd C. Blankfein to the Council of Institutional Investors" April 2009 here

An interview with Charles Ferguson in the Wall Street Journal called Cannes 2010: 'Inside Job' Director on How Wall Street Has Become a 'Criminal Industry' by Anthony Kaufman comments on Blankfein's testimony here. Here's a quote from that interview:

I think there’s a strong case to be made that if you put half of the top management of Goldman Sachs, Morgan Stanley, Lehman Bros, Merrill Lynch and Bear Sterns in prison, that you wouldn’t have to make much regulatory change, at all. (Charles Ferguson)

As far as Blankfein's "basic standards" of pay are concerned, the latest egregious basic pay raises for Blankfein can be found here and here. It seems that pay just keeps going up, and up, and up into the stratosphere.

Then Blankfein insisted that the money received from AIG went to GS's counterparties and now we find out that billions went into their own coffers. See here.

Finally, I would like to hear Blankfein's responses to William K. Black's remarks (called Black: the dominance of unethical banking posted by Jay Kernis - Senior Producer on parker/spitzer - CNN) about what Goldman Sachs should have done when underwriting the CDOs created with sub-prime mortgages:

Black says:

The investment banks couldn’t sell the financial derivatives loans to others if the investment bankers (whose supposed expertise was evaluating credit risk) were to actually look at credit quality of the underlying liar’s loans. If they looked, they’d document that the loans were overwhelmingly fraudulent. They’d then have three options.

A. They could sell the CDOs to others by calling them wonderful “AAA” investments – while having files proving that they knew this was a lie. This option is the prosecutor’s dream.
B. They could have sued the lenders that sold them the fraudulent liar’s loans. The investment banks typically had a clear contractual right to force the fraudulent loans to buy back the liar’s loans. But there were fatal problems with that option. The lenders that made liar’s loans typically had minimal capital (net worth). If the investment banks had demanded that they repurchase the loans they would have been unable to do so – and the demand would have exposed the investment banks’ bright shining lie that by pooling liar’s loans they could create “AAA” CDOs. Every CDO purchaser from the investment banks would then demand that the investment banks repurchased their CDOs – which would have caused virtually every large U.S. investment bank to fail.
C. They could have gone to the Justice Department and expose the massive fraud that was destroying the American economy and help the FBI investigate the lenders specializing in making liar’s loans, the corrupt appraisers, and the credit rating agencies. But that would have caused the CDO bubble to burst and the investment banks to fail.

That’s why the industry went with the fourth option – “don’t ask; don’t tell.” It’s like the famous fable of the emperor and the fraudulent designer. The designer tells everyone that he has created clothes for the emperor of such beauty that only the most sophisticated people can even see the clothes. The emperor and his cronies all agree that the clothes are glorious. The fraud only collapses when a boy blurts out: “the emperor is naked.” As long as no one engaged in the frauds pointed out that you can’t make a “AAA” rating out of a pool of massively overvalued fraudulent loans the housing bubble could hyper-inflate and the officers of the investment banks and credit rating agencies could become wealthy beyond their dreams.

Read the whole interview here


Anonymous said...

Gerald Celente: The Financial Crisis Inquiry Report is ‘Whitewash

Celente brings points out the close connections between Goldman Sachs, JP Morgan, and the government. He calls the financial crisis investigation report a “whitewash” and notes that the big banks just get a slap on the wrist, while “the only heads that are reserved to roll are we the people.”

Anonymous said...

Yes, it’s war. Wikileakers vs Wall Street’s mafia-like code of silence ... Wall Street’s obsessive secrecy ... Wall Street’s war against transparency … Wall Street’s relentless lobbying to defeat all government efforts to expose how much Wall Street is stealing from middle-class taxpayers, investors and retirees.
Bottom line: Wall Street hates the new wikinomics because the Wall Street engine of capitalism is dying, and wikinomics is already replacing it. What we’re witnessing is a natural evolution, a perfect example of Schumpeter’s “creative destruction” cycle where the emerging new “mass collaboration” of wikinomics replaces Wall Street dying capitalism.

“One Goldman Sachs executive said to us off the record: ‘We’re a very private company. The less people know about us and pay attention to us, the better.’ In commenting on the U.S. government fraud charges against Goldman, Roger Martin, dean of the Rotman School of Management at the University of Toronto says, ‘Sadly for Goldman, transparency is not an attractive option. The better Goldman does in explaining exactly what its business is, the more outraged regulators and the public will be’.”

Joyce said...

Thank you for the links above. I've posted the video of Celente.

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