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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

Sunday, August 7, 2011

Goldman Sachs's Paulson Squirming in Discomfort: That's the Only Satisfaction We Get?

The Daily Bail reported on the AIG bailout money which Goldman Sachs collected on a speculative trade for its own account. No one seems to have taken to task this little bit of trickery that gave Goldman Sachs $2.9 billion because of Henry Paulson's deal to bail out banks who had committed so much stupidity that it led to the financial meltdown of 2008.

Goldman Got Billions From AIG For Its Own Account
By Shahien Nasiripour - The Daily Bail

Goldman Got Billions From AIG For It's Own Account

Goldman Sachs collected $2.9 billion from the American International Group as payout on a speculative trade it placed for the benefit of its own account, receiving the bulk of those funds after AIG received an enormous taxpayer rescue, according to the final report of an investigative panel appointed by Congress.

The fact that a significant slice of the proceeds secured by Goldman through the AIG bailout landed in its own account--as opposed to those of its clients or business partners-- has not been previously disclosed. These details about the workings of the controversial AIG bailout, which eventually swelled to $182 billion, are among the more eye-catching revelations in the report to be released Thursday by the bipartisan Financial Crisis Inquiry Commission.

The details underscore the degree to which Goldman--the most profitable securities firm in Wall Street history--benefited directly from the massive emergency bailout of the nation's financial system, a deal crafted on the watch of then-Treasury Secretary Henry Paulson, who had previously headed the bank.

  • "If these allegations are correct, it appears to have been a direct transfer of wealth from the Treasury to Goldman's shareholders," said Joshua Rosner, a bond analyst and managing director at independent research consultancy Graham Fisher & Co., after he was read the relevant section of the report. "The AIG counterparty bailout, which was spun as necessary to protect the public, seems to have protected the institution at the expense of the public."

When news first broke in 2009 that Goldman had been an indirect beneficiary of the AIG bailout, collecting the full value of some $14 billion in outstanding insurance polices it held with the firm, the officials who brokered the deal justified these terms as a necessary stabilizer for the broader financial system. As the world's largest insurance company, AIG's inability to cover its outstanding obligations could have threatened the solvency of the institutions holding its policies, asserted the Federal Reserve Bank of New York, which oversaw the deal.

  • Goldman fended off claims that the arrangement amounted to a backdoor bailout by asserting that none of the money from the AIG rescue landed in its own coffers. Rather, those funds went to compensate clients or institutions on the other side of its trades, Goldman said.

But the report from the financial crisis commission, obtained by The Huffington Post in advance of its release, appears to challenge that assertion: The report reveals another pot of money conveyed to Goldman--the $2.9 billion to cover trades the Wall Street investment house made for itself. That money went straight to the bank's bottom line, according to the report.

Over the last two years, Goldman has reported nearly $22 billion in profits, according to its official earnings statements. During those years, it has paid out $31.6 billion in compensation to its employees.

  • According to the report, the financial crisis commission first learned that the $2.9 billion in AIG funds landed in Goldman's account through an e-mail the bank sent to the panel on July 15, 2010 in response to questions.

Previously, Goldman executives had testified that the AIG bailout funds the bank collected went to compensate its clients and institutions that held the other side of its trades.

  • At a hearing on July 1, 2010--two weeks before Goldman sent the e-mail acknowledging how $2.9 billion in AIG funds wound up in its own account--the crisis panel questioned Goldman's chief financial officer, David A. Viniar and managing director David Lehman. Both said they knew nothing about AIG funds landing in the bank's private coffers, according to a transcript of the hearing.

The report concludes that Goldman collected the $2.9 billion as payment for so-called proprietary trades made for its own account--essentially successful bets on large pools of financial instruments.

  • "The total was for proprietary trades," the report asserts. "Unlike the $14 billion received from AIG on trades in which Goldman owed the money to its own counterparties, this $2.9 billion was retained by Goldman."

"At the time, the idea was the sucker could go down because there wasn't enough liquidity in the system, money wasn't moving, and you could see a domino effect," said Ann Rutledge, a principal at R&R Consulting in New York, which specializes in structured finance.

  • In reality, she contends, those fears were overblown: There was ample money in the financial system. Rather, individual institutions did not have enough cash on hand to survive their losses, she asserts. But the fear of a broader liquidity crisis was used as justification for what now appears to have been a backdoor means of bailing out Goldman, said Rutledge.
Read the whole article here

. . . . . . . . . . . . . . . . .

About the only satisfaction we may ever get (as no one seems to be going to jail for committing criminal acts of fraud) is to watch this video as Paulson squirms uncomfortably:

View the video here


Anonymous said...

Fraudulent Windfalls versus real hardships come to a head..

Fears of more violence after worst London riots in years

LONDON (Reuters) - London braced on Sunday for more violence after some of the worst riots seen in the British capital for years which politicians and police blamed on criminal thugs but residents attributed to local tensions and anger over hardship.

Anonymous said...

07 August 2011
It's the Unfunded Wars and the Financial Fraud, and the Unwillingness to Reform

So what changed?

The repeal of Glass-Steagall and the growth of unregulated financial products, the co-opting of the regulatory agencies, the growth of corporate influence in Washington, and two unfunded and very costly wars of long duration, based largely on lies and distortions based on a terror attack by a small group of people, coupled with tax cuts for the wealthy.

There is relatively little discussion, much less investigation, indictments and convictions, from one of the largest financial frauds in history.

And within twelve months of the crisis breaking, Wall Street bonuses were back to record levels, even as the rest of the country began its long downward spiral into debt, downgrade, and despair.

That is the long and short of it. And it bodes ill that these issues are so infrequently mentioned in the political and economic discussions circling Washington and New York today.

Anonymous said...

Sunday, August 7, 2011
James Galbraith on How Fraud and Bad Economic Thinking Got Us in This Mess

Yves here. Our resident mortgage maven Tom Adams pointed me to a speech by James Galbraith via selise at FireDogLake, which discusses, among other things, how certain key lines of thinking are effectively absent from economics, as well as a lengthy discussion of the failure to consider the role of fraud. Galbraith is not exaggerating. The landmark 1994 paper on looting, or bankruptcy for profit, by George Akerlof and Paul Romer, was completely ignored from a policy standpoint even though it explained why the US had a savings and loan crisis.

Similarly, Galbraith refers to an incident at the most recent Institute for New Economic Thinking conference, in which he stood up and said, more or less, that he couldn’t believe he has just heard a panel discussion on the financial crisis and no one mentioned fraud.

Anonymous said...

April 28, 2010
Confessions Of A Wall St. Nihilist: Forget About Goldman Sachs, Our Entire Economy Is Built On Fraud

Because in the 21st century, fraud is as American as baseball, apple pie and Chevrolet Volts—fraud’s all we got left, Doc. Scare off the fraud with Obama’s “scrutiny,” and the entire pyramid scheme collapses in a heap of smoldering savings accounts.

That’s how an acquaintance of mine, a partner in a private equity firm, put it: “Whoever pops this fraud bubble is going to have to escape on the next flight out, faster than the Bin Laden Bunch fled Kentucky in their chartered jets after 9/11.”

And that’s why this SEC suit accusing Goldman Sachs of fraud is really just a negotiating bluff to give Obama’s people some leverage—or it’s supposed to be, anyway—according to the PE guy. He dismissed all the speculation that the fraud investigations would turn on other obvious villains like Deutsche, Merrill, Paulson & Co., the Rahm Emmanuel-linked Magnetar and so on.

Everybody has known the score for a long time...

Joyce said...

Thank you all for these wonderful links. If you read nothing but these articles, you would be well informed about the ongoing financial fraud in the US (and elsewhere).

I especially recommend the Galbraith speech which talks about fraud as few in government do. There is a large reality divide between what should be done and what is being done to mitigate the fraudulent behavior of Wall Street.

Anonymous said...

"Two years ago the Seattle Times ran a series of articles documenting how Kerry Killinger and his henchman ran a profitable bank, WAMU, into bankruptcy by utterly reckless if not criminal behaviour. On Friday, Obama’s DOJ announced that all criminal investigations of WAMU executives’ conduct leading up to its collapse would be terminated, since “… the evidence does not meet the exacting standards for criminal charges in connection with the bank’s failure…”. Which elegantly sums up the entire failure of the so-called “justice” system to bring malefactors to the dock: financial crimes simply don’t exist on a systemic level. Sure, bring the hammer down on “Fabulous” Fabrice Tourre, and let the rest of the predatory and felonious Goldman crowd off scot-free. Such is how “the system” operates today, and good luck in changing this culture."

Anonymous said...

Sunday night and cnbs and guess who rolls out?? same ole same ole during a crisis...amazing..credibility to the dogs..

In the wake of the financial crisis, which has been partly blamed on
the excesses of Wall Street banks such as Goldman, Gregg was an
outspoken critic of the Obama administration's effort to tighten
oversight of the financial industry. He was also a defender of Goldman
during the heated congressional debate over the $700 billion bank

Early last year, Gregg said that Democrats were overreacting to civil
charges filed against Goldman for securities fraud by using the
indictment to push regulatory reform. He noted at the time that the
allegations had not yet been proven in court.

"It's really disingenuous for some people to pursue regulatory reform
based off this one instance," the retired senator said on MSNBC. "This
is a single event, we don't even know what the outcome will be."

Anonymous said...

Cohan: Ending the Moral Rot on Wall Street, Part 1

What will it take for Americans to finally get the message that much of Wall Street, in its current form, is a corrupt enterprise in need of a top-to-bottom overhaul, a task that the year-old Dodd-Frank law, for all its verbosity, barely attempts?

There is ample evidence in the detritus left behind by the ebb tide of the worst financial crisis since the Great Depression. There are the thorough -- and thoroughly damning -- reports (along with thousands of pages of accompanying internal Wall Street documents) produced by the Financial Crisis Inquiry Commission and the Senate’s Permanent Subcommittee on Investigations. More was exposed by Anton Valukas, the chairman of the Chicago law firm Jenner & Block LLP, in his investigation of the accounting shenanigans engaged in by a handful of Lehman Brothers Holdings Inc. (LEHMQ)’s executives in the months leading up to that firm’s spectacular bankruptcy in September 2008.

Anonymous said...

Nicholas Shaxson takes a critical look at offshore tax havens which cost the U.S. $100 Billion in lost tax revenue each year. From the Open Society Foundations in Washington, DC.

Anonymous said...

Another ex goldman guy helping the people..

Date: January 10, 2011; Source: Jim Cramer; Title: "10 Reasons To Buy Bank Of America"

Everyone who may have just heard the unprecedented rant by Jim Cramer bashing Bank of America, now that it is at its multi-year lows, may be a little confused. After all it was just on January 6, 2011, when Bank of America was at its multi year highs, that he released the following "report" titled "10 Reasons to Buy Bank of America." We all enjoy the laugh, but we ask Comcast? Is this is the comedian that CNBC wishes to destroy any remaining viewership it has and commit ratings suicide?

And since we frankly couldn't care less about CNBC's evaporating vierwship, here is Cramer's full take from January, which has cost those who listened to it, a nearly 50% loss in about 8 months.

Anonymous said...

do a search on this site...remember this guy?

Tepper Dumps Financials, BAC Collapses


CNBC is reporting that Tepper's Appaloosa fund (remember, that Tepper, who said that "no matter what happens the market will go up because either the economy will get better or The Fed will make it go up"? Yeah, him) has apparently dumped all of his financials.

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