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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, February 25, 2011

Goldman Sachs Mucked About in Wisconsin Too!

Did you even suspect that Goldman Sachs would have had a role to play in the financial crisis taking place now in the state of Wisconsin? Here again, Goldman Sachs sold municipal bonds and makes millions in fees; then advised its clients to bet that Wisconsin and other states would go broke and GS earns millions more in fees. Goldman Sachs knows all the maneuvers to make itself money. Is this socially responsible? No! Is it ethical? No! Is it moral? No! And yet these actions are considered legal. Something is really rotten here.

How was Goldman Sachs chastised? They paid a small fine from petty cash and bought back some securities. How many times does Goldman Sachs get away with practices that transfer large sums of money from municipal pension funds into Goldman Sachs's coffers?

How Wall Street and Wisconsin Officials Blew Up the State's Pension Fund
by Alain Sherter - bnet (CBS) commentary

Wisconsin state employees fighting for their jobs should ask Goldman Sachs (GS) CEO Lloyd Blankfein for their money back.

What’s the connection? During the dog days of the financial crisis in 2008, the investment bank advised clients to bet that Wisconsin and 10 other U.S. states would go broke by purchasing credit default swaps against their debt. For Goldman and other Wall Street firms that used this ploy, the beauty part was that they had also previously earned millions in fees by helping most of those states sell municipal bonds.

In other words, these banks made money by finding investors to buy state debt, then made more money by selling derivatives to other investors who wanted to short that debt. As Bloomberg reported at the time:

As part of a September presentation to institutional investors on “Best Long and Short Risk Strategies,” Goldman recommended buying credit-default swaps on “a basket of liquid State General Obligation credits with current and worsening fiscal outlooks,” including California, Florida, Nevada, Ohio, Wisconsin and Michigan.

The firm also recommended the derivatives on states with “significant unfunded pension” and other retiree obligations, including Illinois, Connecticut, Hawaii, New Jersey, Massachusetts and Nevada.

2008: A very bad year for Wisconsin

For states, growing concerns about their credit raised their borrowing costs. Estimates suggest that a one percent interest rate hike on a $1 billion bond issue would cost taxpayers roughly $10 million a year. In 2008, rates in Wisconsin more than tripled, reaching 15 percent.

Wisconsin, other states, and scores of town and cities around the country also lost big after going to Wall Street to buy variable-rate auction securities and other types of structured financial products. The market for auction-rate securities collapsed in early 2008, leaving states and municipalities holding the bag. Goldman and other Wall Street banks agreed that year to pay a total of $160 million in fines over and repurchase $15 billion worth these securities to settle several state probes into the transactions.

In another case of speculation gone awry, some Wisconsin school districts lost millions after purchasing so-called synthetic collateralized debt obligations. Wall Street banks sold CDOs to bet on the value of housing in the years leading up the financial crisis.

How the housing bubble killed pensions

Ancient history, you say? Not at all. Because whatever Wisconsin Governor Scott Walker says about the state’s pension problems — which, incidentally, are far less severe than he claims — they’re not the result of employees contributing too little to their retirement. Rather, Wisconsin’s shortfall stems largely from the state getting killed in the stock market during the financial crisis.

As the housing bubble was inflating in 2003, for instance, Wisconsin issued $950 million in auction-rate bonds to fund its pension plan. The bonds did well until mid-2007, when souring subprime loans began rippling into the auction-rate and other bond markets. That turned into a full-blown crisis early the following year, when Goldman, Citigroup (C) and other large Wall Street firms stopped supporting auctions.

The bottom fell out. As the state’s auditor told lawmakers last fall in explaining the long-term impact of Wisconsin pension funds losing nearly $24 billion in 2008:

[T]he value of Wisconsin Retirement System assets has fluctuated significantly over the past ten years as financial markets have experienced their worst decline since the 1930s. For example, losses in 2008 totaled $23.6 billion. While these losses were partially offset by gains of $13.5 billion in 2009, the combined value of the two retirement funds on December 31, 2009, was 17.1 percent below its peak in 2007. The losses of 2008 will significantly affect Retirement System participants and employers for the next several years.

Read the full article here
and check out the chart that shows what would have happened if the pensions had been invested in Treasury bonds.


Anonymous said...

After Exposé, Filmmaker Sees Little Change on Wall Street

“Inside Job,” the Oscar-nominated documentary directed by Charles Ferguson, takes a piercing look at the financial crisis. Told through the lens of economists like Nouriel Roubini and investors like George Soros, the film lays much of the blame on Wall Street and a revolving door of regulators, many of whom came straight from the big banks.

Anonymous said...

Everyone has been fleeced....we just don't know the half of it!

Comments of Thomas Peterffy
Chairman and C.E.O., Interactive Brokers Group
11 October, 2010

The first great online trading revolution involved the telegraph and telephone lines, and with them more and more people were able to trade securities in smaller lots. As the number of trades increased, the relationship between brokers and clients became more impersonal and distant. Even so, as long as all the transactions had to take place on centralized exchanges with basic rules rules of fair trade, our markets had order and transparency.
Customers could be reasonably sure that there was a limit to the amount for which their brokers could fleece them. Fast forward to today and we cannot make the same claim. In the last 20 years came computers, electronic communications, electronic exchanges, dark
pools, flash orders, multiple exchanges, alternative trading venues, direct access
brokers, OTC derivatives, High Frequency Traders, MiFID in Europe, Reg. NMS
in the U.S. --- and what we have today is a complete mess.
How do we know that the profits are huge? Just look at the banks’
quarterly financial reports on derivatives dealings. Even the more modest
estimates exceed $100 billion per year, worldwide. Customers are on the other
side of those trades. Customer losses are on the other side of those
bank profits. The amazing thing is that those banks are able to convince their
customers that this is good for them and moving these contracts on to the
exchanges would harm the customers.

Anonymous said...

Important part...left out from above...thanks unions financed your own destruction..between crap in portfolios and $ given to did nice job on selves...

"And of course, the fact that most OTC derivatives "customers" are not
playing with their own money. The customers are finance or investment staff
that work for large corporations, state or municipal governments, pension funds
and insurance companies. These end-user employees get to drink the fine
wines, but it is the shareholders or taxpayers that pay for the overpriced

Joyce said...

Thank you, Anonymous, for that link. It makes absolute sense to have transparent exchanges. I hope you succeed in getting the point across to such people as Gensler at CFTC.

Anonymous said...

Gensler too slippery...but you could try writing..
different issue but might help others get involved and be heard...

Speak Up and Be Heard

Anonymous said...

Citizens - in 10 Minutes

Anonymous said...

Listen to this carefully...send to friends

Geithner And AIG: Will The Truth Come Out?

webster tarpley 2 minutes into...

Joyce said...

The video on Citizens - In 10 Minutes is really important to listen to. The question is How will the citizens do it and when?

Joyce said...

Geithner and AIG is also important information to know.

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