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Fraud*
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, July 10, 2011

How Goldman Sachs Worked Its Magic

Another aspect of Goldman Sachs's business dealings lies in its efforts to manipulate prices of derivatives in May 2007. Trader Michael J. Swenson sought to lower derivative prices artificially so that they would gain in value as mortgage securities fell. Even though that idea was abandoned, it shows how Goldman Sachs worked its magic as shown in documents accompanying the report of the Permanent Subcommittee on Investigations.

Goldman Traders Tried to Manipulate Derivatives Market in '07, Report Says
By Christine Harper and Joshua Gallu - Bloomberg

Goldman Sachs Group Inc. (GS) mortgage traders tried to manipulate prices of derivatives linked to subprime home loans in May 2007 for their own benefit, according to a U.S. Senate report.

Company documents show traders led by Michael J. Swenson sought to encourage a “short squeeze” by putting artificially low prices on derivatives that would gain in value as mortgage securities fell, according to the report yesterday by the Permanent Subcommittee on Investigations. The idea, abandoned after market conditions worsened, was to drive holders of such credit-default swaps to sell and help Goldman Sachs traders buy at reduced prices, according to the report.

“We began to encourage this squeeze, with plans of getting very short again,” Deeb Salem, a trader in the structured product group, said in a 2007 self-evaluation excerpted in the report. Swenson, Salem’s supervisor, sent e-mails in May 2007 urging traders to offer prices that will “cause maximum pain” and “have people totally demoralized.” In interviews with the committee, Salem and Swenson denied attempting a short squeeze, the report said.

Salem “claimed that he had wrongly worded his self- evaluation,” the report said. “He said that reading his self- evaluation as a description of an intended short squeeze put too much emphasis on ‘words.’”

The subcommittee cited the episode as an example of how Goldman Sachs traders placed the firm’s interests ahead of its clients’ as the value of mortgage-linked investments tumbled in 2007. The subcommittee, led by Senator Carl M. Levin, a Michigan Democrat and Tom Coburn, Republican of Oklahoma, has called on regulators to craft strict bans on proprietary trading and conflicts of interest to keep the problems from recurring.

‘Poor Quality Investments’

“Conflicts of interests related to proprietary investments led Goldman to conceal its adverse financial interests from potential investors, sell investors poor quality investments, and place its financial interests before those of its clients,” according to the subcommittee.

Goldman Sachs traders abandoned the short-squeeze attempt after discovering on June 7, 2007, that two Bear Stearns Cos. hedge funds that specialized in subprime-mortgage investments were collapsing. Salem e-mailed Swenson and another colleague to suggest trying to buy short positions, known as “protection,” on collateralized debt obligations, or CDOs, from hedge fund Magnetar Capital LLC, according to the subcommittee’s report.

“We need to go to magnetar and see if we can buy a bunch of cdo protection… Can tell them we have a protection buyer, who is looking to get into this trade now that spreads have tightened back in.”

‘Great Idea’

Swenson expressed “no concerns about the proposed deception” and responded to Salem that it was a “great idea,” according to the report.

The report comes almost a year after the committee spent more than 10 hours grilling Lloyd C. Blankfein, Goldman Sachs’s chairman and chief executive officer, and six current and former employees in one of the most hostile political showdowns in the aftermath of the financial crisis.

That hearing happened 12 days after the Securities and Exchange Commission sued New York-based Goldman Sachs for fraud in a case that the firm settled for $550 million in July.

In an effort to address questions raised by the SEC lawsuit and the subcommittee, Blankfein convened a committee of Goldman Sachs executives to review the firm’s practices. In January, the firm published 39 recommendations aimed at better managing conflicts and client relationships, as well as governance and employee training.

Read the entire article here

18 COMMENTS:

Anonymous said...

Geithner says hard times to continue for many

Geithner tells NBC's "Meet the Press" that it's a very tough economy. He says that for a lot of people "it's going to feel very hard, harder than anything they've experienced in their lifetime now, for a long time to come."

http://news.yahoo.com/geithner-says-hard-times-continue-many-150523958.html


EVERYONE EXCEPT THOSE HE AND HIS PREDECESSOR SAVED IE TBTF AND THEIR CRONIES

Anonymous said...

“The Partnership”

Charles D. Ellis wrote “The Partnership” about Goldman Sachs and
admitted that its trading expertise came from J. Aron Co. so those who
rush to always defend Goldman and are given “awards” for other
writings and are sent out to defend them, should read his book. This
trading expertise acquired from the commodity world made Goldman a
lean-mean-trading-machine. But there was always the risk of government
intervention and after the Salomon incident, Goldman turned to
organize a takeover of government. In just four years, there was the
Mexican bailout of 1995. Goldman planted Robert Rubin now as Secretary
of the Treasury. Rubin drew serious criticism from Congress for using
a Treasury Department account under his personal control to distribute
$20 billion to bail out Mexican bonds, of which Goldman was a key
holder. This was Goldman’s first guaranteed trade using government as
the bailout. On November 22, 1994, the Mexican Bolsa stock market
admitted Goldman Sachs and another firm to operate on that market. The
1994 economic crisis in Mexico threatened to wipe out the value of
Mexico's bonds held by Goldman Sachs ending the firm right then and
there. Rubin saved the day.

Anonymous said...

Where's the cftc?..we have to go to china to get real markets?..what a shame

Andrew Maguire

http://kingworldnews.com/kingworldnews/Broadcast/Entries/2011/7/11_Andrew_Maguire.html

Anonymous said...

Pinch-Hitting for Peterson. Part 1: How Progressives Helped Put Social Security on the Chopping Block
By L. Randall Wray

It’s official. Obama has decided to become a one term president. He caved in to the Republicans, agreeing to gut Social Security in order to get them to agree to raise the debt limit. This was never a real trade-off, as it made sense only within the Washington beltway. Obama has adopted the Jimmy Carter approach: promising pain and more pain, presenting a dreary (and false) message of no hope, just mindless human sacrifice to please the gods on Wall Street.


http://neweconomicperspectives.blogspot.com/2011/07/pinch-hitting-for-peterson-part-1-how.html

Anonymous said...

Interesting...


And although the Comex seems to be the focal point of all this discussion, there are some things that suggest that scandals may rock the London and even the Canadian exchanges and their banking systems, reaching perhaps to the higher levels of government. There seems to be a new Triangle Trade in fraudulently misrepresented financial instruments going across the Atlantic, which includes the Caribbean and some of the other tax havens.


http://jessescrossroadscafe.blogspot.com/2011/07/andrew-maguires-long-awaited-interview.html

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Anonymous said...

“The Partnership”

Charles D. Ellis wrote “The Partnership” about Goldman Sachs and
admitted that its trading expertise came from J. Aron Co. so those who
rush to always defend Goldman and are given “awards” for other
writings and are sent out to defend them, should read his book. This
trading expertise acquired from the commodity world made Goldman a
lean-mean-trading-machine. But there was always the risk of government
intervention and after the Salomon incident, Goldman turned to
organize a takeover of government. In just four years, there was the
Mexican bailout of 1995. Goldman planted Robert Rubin now as Secretary
of the Treasury. Rubin drew serious criticism from Congress for using
a Treasury Department account under his personal control to distribute
$20 billion to bail out Mexican bonds, of which Goldman was a key
holder. This was Goldman’s first guaranteed trade using government as
the bailout. On November 22, 1994, the Mexican Bolsa stock market
admitted Goldman Sachs and another firm to operate on that market. The
1994 economic crisis in Mexico threatened to wipe out the value of
Mexico's bonds held by Goldman Sachs ending the firm right then and
there. Rubin saved the day.

Anonymous said...

Interesting...


And although the Comex seems to be the focal point of all this discussion, there are some things that suggest that scandals may rock the London and even the Canadian exchanges and their banking systems, reaching perhaps to the higher levels of government. There seems to be a new Triangle Trade in fraudulently misrepresented financial instruments going across the Atlantic, which includes the Caribbean and some of the other tax havens.


http://jessescrossroadscafe.blogspot.com/2011/07/andrew-maguires-long-awaited-interview.html

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