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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

Monday, January 9, 2012

Why Goldman Sachs Does Not Deserve ANY Bonuses

It is very hard to feel sorry for Goldman Sachs executives and employees who face smaller bonuses and salaries this year. That the Abacus transactions were not the worst CDOs created and sold is not a surprise. Too bad the DOJ wasn't more interested in investigating Goldman with a thought for future criminal prosecution for Goldman's contributions to the financial crisis of 2008.

So you will have to forgive us, dear Goldman Sachs, if we feel not one bit of pity for you as you bring in half the bonus money that you obtained fraudulently in 2007. Sigh!

Goldman's Infamous 'Sh*tty Deal' Turns Out Not to Have Been As Sh*tty As Others
By Ben Walsh - Business Insider.

The infamous Abacus transaction that cost Goldman Sachs $550 million might have been designed to fail, but it turns out that it actually performed better than its peers, according to a new study co-authored by BlackRock and Columbia Business School.

The Abacus CDOs' performance, "while undoubtedly bad, was actually better than average among all bonds that had been similarly packaged."

Beyond this interesting insight, the the study nonetheless supports the assertion that collateralized debt obligations (CDOs) created from asset backed securities (ABS) were designed to decline in value:

Using a unique database published by the investment firm Pershing Square Capital Management, Faltin-Traeger and Mayer identified the underlying bonds in some 528 ABS CDOs issued between 2005 and 2007, and compared their performance to similar bonds that weren't included in CDOs.

They found that the bonds in the CDOs performed a lot worse. Even if one holds observable characteristics such as initial ratings and yields constant, the bonds in the CDOs suffered ratings downgrades that were 50 percent to 90 percent more severe. As of June 2010, for example, bonds with initial triple-A ratings had been downgraded by an average 11.84 notches, compared to 5.99 for those not in CDOs. The bonds in the CDOs were also more likely to have been rated by all three major credit-rating firms.

Was the poor performance the result of intent on the part of the issuing banks? On this point, the authors note, "It would have been very hard to randomly choose securities with such poor ex-post performance."

This is, on its face, damning.

But is also points to the fact that the broader assumption behind the creation of ABS CDOs was deeply flawed: namely, that you could take marginally credit worthy assets and structure them in such a way that risk would be more effectively distributed.

Instead, this study shows CDOs did little to smooth risk and may have, in fact, been a dumping ground for assets the banks preferred not to hold onto.

Read the article here
See three charts on Goldman here


GS666 said...

To get a good, layman's understanding of the dominant role wall street played in the destruction of the world's economy, a fictional movie based on some reality is well worth watching.

The movie, Margin Call starring Kevin Spacey, depicts a Wall Street firm - some say is modeled after Lehman Bros but is not verified - whose primary product was buying and selling MBS's (Mortgage Backed Securities).  See how it developed and how it fell apart.

As I said from the very beginning (March, 2007), this was a man made disaster crashed by men whose greed got in the way of reality.  I knew it could not last, they must have known.

Get the movie.  I believe it is on Pay Per View and also available at RedBox and Blockbuster boxes.

Watch and let me know what you think.


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