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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, June 17, 2011

How Much Proof Is Needed to Show Goldman Sachs's Culpability?

The journalists at ProPublica have been looking for a long time into Goldman Sachs's CDOs and CDSs that helped bring down the financial system. See here, here and here. In the following piece by Jesse Eisinger, he explains in detail just where Goldman Sachs is culpable, in all senses of that word.

Barry Ritholz comments on Eisinger's article here.

Misdirection in Goldman Sachs's Housing Short
By Jesse Eisinger - Propublic, Co-published with New York Times' DealBook

Goldman Sachs appears to be trying to clear its name.

The compelling Permanent Subcommittee on Investigations report on the financial crisis is wrong, the bank says. Goldman Sachs didn’t have a Big Short against the housing market.

But the size of Goldman’s short is irrelevant.

No one disputes that, by 2007, the firm had pivoted to reduce its exposure from mortgages and mortgage securities and had begun shorting the market on some scale. There’s nothing wrong with that. Don’t we want banks to reduce their risk when they see trouble ahead, as Goldman did in the mortgage markets?

Nor should shorting itself be seen as a bad thing. Putting money behind a bet that a stock (or bond or commodity or derivative) is overpriced is necessary for the efficient functioning of capital markets. Short-sellers can keep prices from getting out of whack and help deflate bubbles.

The problem isn’t that Goldman went short and reduced risk — it’s how.

To establish many of its short positions, the Senate report says, Goldman created new securities, backed them with its good name, and then strung together misleading statements to its customers about what it was actually doing. By shorting the way it did, the bank perverted the market instead of correcting it.

Take Hudson Mezzanine, a $2 billion collateralized debt obligation created by Goldman in 2006. In marketing material, the firm wrote that “Goldman Sachs has aligned incentives with the Hudson program.”

I suppose that was technically true: Goldman had made a small investment in the C.D.O. and therefore had an aligned incentive with the other investors. But the material failed to mention the firm’s much larger bet against the C.D.O. — a huge adverse incentive to its customers’ interests.

Goldman told investors that the Hudson assets had been “sourced from the Street,” which most investors would understand to mean that Goldman had purchased the assets from other broker-dealers. In fact, all the assets had come from Goldman’s own balance sheet, the Senate report found.

In his April 2010 testimony to the Senate, Goldman’s chief executive, Lloyd C. Blankfein, argued that Goldman was merely making a market in these securities and derivatives, matching willing and sophisticated buyers and sellers. But Goldman was acting like an underwriter, not a market maker.

As the underwriter, Goldman threw its marketing muscle behind Hudson Mezzanine and other C.D.O.’s. When the bank’s salespeople ran into trouble selling the securities, they begged for help from the executives who created them. One requested material to give to clients about “how great” the sector was. One needed the aid to get a client to invest, to be “THERE AND IN SIZE,” according to e-mails cited in the report.

Sometimes, Goldman took advantage of the opaque markets. According to the Senate report, Goldman executives had extensive concerns about the prices of its 2007 Timberwolf C.D.O. Goldman sold the C.D.O. securities anyway, often at higher prices than it had them recorded on its books. In summer 2007, Goldman marked some Timberwolf assets at 55 cents on the dollar, but sold similar securities to an Israeli bank at 78.25 cents at the same time, according to the report. Oh, well, tough luck!

For decades, Goldman’s famous mantra was to be “long-term greedy” and a central element of that was putting customers first. In these C.D.O.’s, the bank’s customers were “only first in the same way that on Thanksgiving, the turkey is first,” a former C.D.O. professional told me.

Goldman declined to address these specific disclosures from the report. A spokesman maintained the firm fulfilled its obligations to buyers of these kinds of C.D.O.’s, which were made up of derivatives. The customers were large and sophisticated investors who knew that one side had to be long while the other was short. And they knew, or should have known, that Goldman might be on the other side.

Read the entire article here


RobertM said...

Good article/video on the economy here:

RobertM said...

And another one on the absurdity of forcing the middle class into poverty while the Goldmans of the World gets away with trillions:

From Bill Black's site:

Anonymous said...

America for Sale…and Goldman Sachs is Buying

While there are no televised debates around this issue, there is no polling, and there are no elections, who wins it will determine the literal shape of modern America. The Dylan Ratigan show is teaming up with the Huffington Post to do a three part series called “America for Sale“, showing the pros and cons, and the politics and economics, of a new and far more privatized government.

On Wall Street, setting up and running “Infrastructure Funds” is big business, with over $140 billion run by such banks as Goldman Sachs, Morgan Stanley, and Australian infrastructure specialist Macquarie. Goldman’s 2010 SEC filing should give you some sense of the scope of the campaign. Goldman says it will be involved with “ownership and operation of public services, such as airports, toll roads and shipping ports, as well as power generation facilities, physical commodities and other commodities infrastructure components, both within and outside the United States.” While the bank sees increased opportunity in “distressed assets” (ie. Cities and states gone broke because of the financial crisis), the bank also recognizes “reputational concerns with the manner in which these assets are being operated or held.”

Anonymous said...

If you want to understand why their not accountable to anyone watch this video..

The ESF: Headquarters of gold rigging -- and all U.S. covert operations too?

Anonymous said...

Goldman Sachs Group Inc. and other owners of large metals warehouses are being scrutinized by the London Metal Exchange after being accused by users like Coca-Cola Co. of restricting the amount of metal they release to customers, inflating prices.

Anonymous said...

MEP Nigel Farage..good interview

Anonymous said...

Found this at another it

I believe the negative Tax Rates are a result of Politicians being so good at supporting America's One growth Industry - Tax Credits.

Did you know the US Treasury as an entire Department ( that assigns New Market Tax Credits. A department Dedicated to reducing Taxes for Financial Institutions if they make investments that dovetail with the Executive Branch's interests.
Yes, Tim Geithner over sees the passing out of Tax Credits to Financial Institutions and Non-Profits called CDEs or CDFIs.

The New Market Tax Credits are kind of the secret sauce of Washington DC and the Banking Industry. An entire Industry of Lawyers, special departments in Banks and Investment Houses, and non-profits that often funnel the Tax Credits to Banks.

Perhaps you've seen these urls at the end of commercials for Banks - these are advertisements for the New Market Tax Credit operations for Goldman and BofA on CNBC....

.....for readers with an interest in how we are all being stolen from!

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