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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

Wednesday, April 20, 2011

The Chimeric Nature of Goldman Sachs

The brilliance of Goldman Sachs lies in its chimeric ability to appear modest when it asserts that it lost money during the financial crisis; stupid when it knew nothing about the sub-prime mortgage debacle; and smart when it placed its bets against the mortgage market and made ginormous amounts of money.

Here's how Charles Gasparino views Goldman Sachs:

Goldman Sachs, the Tallest Midget in the Room
By Charles Gasparino - Huffpost Business

What passes for top-notch financial journalism these days is an in depth report in the New York Times about why Goldman Sachs, the most successful of all Wall Street firms, is so modest. Amid billions of dollars in profits, a rising share price, the big Wall Street firm doesn't like to take full credit for its success.

The Times seems to think the Goldman brass, led by CEO Lloyd Blankfein, is being too modest mainly because the firm is afraid to flaunt its brilliance at making money during a time of economic hardship. The writer implores Blankfein & Co. to remember that making money is good for shareholders and taxpayers, and thus they should "take a bow. Don't hide behind the curtain" and starting telling the world how great they really are.

Far be it for me to give my "friends" at Goldman advice (we're so friendly that Blankfein once described me as a "thug"). but the last thing Goldman should be doing right now is taking a bow and telling the world it's a great firm, because when it comes down to it, Goldman isn't really a great firm.

What is it then? Well, in the words of a drinking buddy who is a frequent consumer of financial news, "Goldman is like the tallest midget in the room."

For the record, I'm not and never have been in the Goldman is the root-of-all-evil-camp, though I've gone my rounds with some of the senior people there, including its top flack, Lucas van Praag, who recently tried to deny my story on the Fox Business Network several weeks ago that the last two years of regulatory and media scrutiny into how the firm has made money, often by screwing its clients, has left Blankfein so tired and exhausted that friends say he now appears ready to leave at the end of the year.

It baffles me as to how van Praag can deny someone's impression from a private conversation (his denial in the Times follow-up story was less forceful, it should be noted). But Goldman has done dumber things, including telling the world that the firm didn't need a bailout during the dark days of the financial crisis in late 2008, all of which gets me back to the reason the firm should remain as modest as possible: Its status as a midget, albeit the largest one on Wall Street.

Read the full article here


Anonymous said...

Short on honest behavior....

Senate Investigations Subcommittee Releases Levin-Coburn Report On the Financial Crisis

Investment Banks and Structured Finance. Investment banks reviewed by the Subcommittee assembled and sold billions of dollars in mortgage-related investments that flooded financial markets with high-risk assets. They charged $1 to $8 million in fees to construct, underwrite, and market a mortgage-backed security, and $5 to $10 million per CDO. New documents detail how Deutsche Bank helped assembled a $1.1 billion CDO known as Gemstone 7, stood by as it was filled it with low-quality assets that its top CDO trader referred to as “crap” and “pigs,” and rushed to sell it “before the market falls off a cliff.” Deutsche Bank lost $4.5 billion when the mortgage market collapsed, but would have lost even more if it had not cut its losses by selling CDOs like Gemstone. When Goldman Sachs realized the mortgage market was in decline, it took actions to profit from that decline at the expense of its clients. New documents detail how, in 2007, Goldman’s Structured Products Group twice amassed and profited from large net short positions in mortgage related securities. At the same time the firm was betting against the mortgage market as a whole, Goldman assembled and aggressively marketed to its clients poor quality CDOs that it actively bet against by taking large short positions in those transactions. New documents and information detail how Goldman recommended four CDOs, Hudson, Anderson, Timberwolf, and Abacus, to its clients without fully disclosing key information about those products, Goldman’s own market views, or its adverse economic interests. For example, in Hudson, Goldman told investors that its interests were “aligned” with theirs when, in fact, Goldman held 100% of the short side of the CDO and had adverse interests to the investors, and described Hudson’s assets were “sourced from the Street,” when in fact, Goldman had selected and priced the assets without any third party involvement. New documents also reveal that, at one point in May 2007, Goldman Sachs unsuccessfully tried to execute a “short squeeze” in the mortgage market so that Goldman could scoop up short positions at artificially depressed prices and profit as the mortgage market declined.

Anonymous said...

Government’s Place in the Market
A Q&A with Eliot Spitzer

DJ: In the book you claim that only government can ensure the integrity, transparency, and fair dealing of markets. But you also offer many examples of how government has failed to ensure these things in recent years. A libertarian might conclude from your examples that government can’t ensure these things. How would you respond to this reading of the evidence?

ES: I explain that government has an obligation to ensure integrity, transparency, and fair dealing. That does not mean it will do so at all times. Indeed, the record of the past several years indicates that when enforcement agencies lose their spine or purpose, or are taken captive by the industry they regulate, bad things happen. We have seen all of this with great frequency in the past cycle of abuses. But surely, nobody in the private sector has stepped in to fill the void left by the need for integrity in the market, and my effort is designed to explain how important it is that we not lose sight of the critical role that government can play in this space.

DJ: How do you galvanize public support for your proposals when the recent results have been so demoralizing?

ES: Probably the movie Inside Job will do more to galvanize public support for a more vigorous effort than anything I can do. Maybe if a few people look at the historical record and realize that prosecutions followed by a coherent regime of rules brought us 50 years of relative banking tranquility—after the Great Depression—the public will support some form of redefinition of the banking structure.

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