Goldman Sachs Being Sued Again

Want to know how all those pension funds lost money? Well, Goldman Sachs contributed its bit by selling junk securities that were rated AAA to pension funds around the world. That's where the inequality of wealth originated. So when you read that Goldman executives "received another installment of stock awarded in previous years," you could say that that those monies were improperly and fraudulently obtained.

Goldman is being sued by a Dutch pension fund, Stichting Pensioenfonds ABP, and rightfully so:

Pension fund ABP to sue Goldman Sachs over junk mortgages
By DutchNews

Dutch civil service pension fund ABP is taking mechant bank Goldman Sachs to court for providing it with misleading information over the sale of junk mortgages, the Telegraaf reports on Saturday.

Before the economic crisis began, ABP invested in bonds which were coupled to American mortgages. But ABP claims it was wrongly informed about the credit-worthiness of the investment and the mortages were riskier than Goldman Sachs had said.

The pension fund, one of the biggest in the world, declined to say how much in damages it is seeking, the Telegraaf reported.

Read the article here

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You may want to read a short history of banking that helps explain how Goldman Sachs and other banks obtained the power and wealth that they presently enjoy. Read the article written by Michael Hudson: Banks Weren't Meant to Be Like This. In order to get the most benefit from reading the article (which is longish but worth the effort to read), you could substitue the word "Goldman Sachs" for every reference to banks.

You can see how difficult it will be to resolve the present banking crisis just from reading the short excerpt below:

Michael Hudson: Banks Weren't Meant to Be Like This
By Michael Hudson - Posted by Yves Smith in Naked Capitalism

Banking has moved so far away from funding industrial growth and economic development that it now benefits primarily at the economy’s expense in a predator and extractive way, not by making productive loans. This is now the great problem confronting our time. Banks now lend mainly to other financial institutions, hedge funds, corporate raiders, insurance companies and real estate, and engage in their own speculation in foreign currency, interest-rate arbitrage, and computer-driven trading programs. Industrial firms bypass the banking system by financing new capital investment out of their own retained earnings, and meet their liquidity needs by issuing their own commercial paper directly. Yet to keep the bank casino winning, global bankers now want governments not only to bail them out but to enable them to renew their failed business plan – and to keep the present debts in place so that creditors will not have to take a loss.

This wish means that society should lose, and even suffer depression. We are dealing here not only with greed, but with outright antisocial behavior and hostility.

Europe thus has reached a critical point in having to decide whose interest to put first: that of banks, or the “real” economy. History provides a wealth of examples illustrating the dangers of capitulating to bankers, and also for how to restructure banking along more productive lines. The underlying questions are clear enough:

* Have banks outlived their historical role, or can they be restructured to finance productive capital investment rather than simply inflate asset prices?
* Would a public option provide less costly and better directed credit?
* Why not promote economic recovery by writing down debts to reflect the ability to pay, rather than relinquishing more wealth to an increasingly aggressive creditor class?

Solving the Eurozone’s financial problem can be made much easier by the tax reforms that classical economists advocated to complement their financial reforms. To free consumers and employers from taxation, they proposed to levy the burden on the “unearned increment” of land and natural resource rent, monopoly rent and financial privilege. The guiding principle was that property rights in the earth, monopolies and other ownership privileges have no direct cost of production, and hence can be taxed without reducing their supply or raising their price, which is set in the market. Removing the tax deductibility for interest is the other key reform that is needed.

A rent tax holds down housing prices and those of basic infrastructure services, whose untaxed revenue tends to be capitalized into bank loans and paid out in the form of interest charges. Additionally, land and natural resource rents – along with interest – are the easiest to tax, because they are highly visible and their value is easy to assess.

Pressure to narrow existing budget deficits offers a timely opportunity to rationalize the tax systems of Greece and other PIIGS countries in which the wealthy avoid paying their fair share of taxes. The political problem blocking this classical fiscal policy is that it “interferes” with the rent-extracting free lunches that banks seek to lend against. So they act as lobbyists for untaxing real estate and monopolies (and themselves as well). Despite the financial sector’s desire to see governments remain sufficiently solvent to pay bondholders, it has subsidized an enormous public relations apparatus and academic junk economics to oppose the tax policies that can close the fiscal gap in the fairest way.

(I have inserted some paragraph breaks)

Read the entire essay here