Goldman Sachs Information, Comments, Opinions and Facts

Another Lawsuit Against Goldman Sachs

noreply@blogger.com (Joyce) — Sat, 26 May 2012 16:41:00 +0000

Here's an instance of how Goldman Sachs makes money and pays the consequences (maybe!):

Hagens Berman Files Securities Class Action against Facebook, Zuckerberg and Underwriters: Continues Insider Trading Investigation Against Selling Shareholders
By Hagens Berman Sobol Shapiro LLP - The Sacramento Bee

The complaint, filed May 24, 2012, in the United States District Court for the Northern District of California, as Chang et al. v. Facebook, Inc. et al., case number 12-cv-2680, alleges that Facebook, Inc., Mark Zuckerberg, David A. Ebersman, David M.Spillane, Marc L. Andreesen, Erskine Bowles, James W. Breyer, Donald E Graham, Reed Hastings, Peter Thiel, Morgan Stanley & Co. LLC (NYSE: MS), J.P. Morgan Securities LLC (NYSE: JPM), Goldman, Sachs & Co. (NYSE: GS), Merrill Lynch (NYSE: BAC), Peirce, Fenner & Smith Incorporated and Barclays Capital Inc. (NYSE: BCS) violated Section 11, 12 and 15 of the Securities Act of 1933. The complaint can be accessed here.

Hagens Berman's investigation continues. "We anticipate the facts may warrant further claims also against several of these defendants, and additional selling shareholders for insider selling in violation of Section 20A of the Securities Exchange Act of 1934," said Hagens Berman partner Reed Kathrein. "While such claims are unusual, this is an extremely unusual situation to catch issuers and their bankers in what we have long suspected to be a hidden practice." The largest reported selling shareholders include Zuckerberg, Breyer, Accel Partners, DST Global Limited, Goldman Sachs, Tiger Global Management, Mail.ru Group Limited and Peter Thiel.

Read the entire article here

ore here: http://www.sacbee.com/2012/05/25/4516352/hagens-berman-files-securities.html#storylink=cpy

Goldman Sachs and Its Tainted Talent

noreply@blogger.com (Joyce) — Fri, 25 May 2012 17:00:00 +0000

Goldman Sachs finds it difficult to select board members who do not have a taint of scandal associated with their names. For example, James A. Johnson was a former chief executive of Fannie Mae during its "corporate governance debacle." He has been selected as director and compensation chairman. Mr. Johnson is a great believer in large pay packages for CEOs.

Then there is Lee Scott who was CEO of Wal-Mart in Mexico when claims of bribery by Wal-Mart arose. He served on the business standards committee on the board at Goldman but left soon after.

At the present time, Rajat Gupta, former Goldman board member, is being investigated for insider trading.

Goldman is having a hard time finding board members who do not exude a whiff of scandal. Soon there may be no other choices but the tainted ones.

Goldman's bad board seat
By Beth Kowitt - CNN Money

FORTUNE – In times like these, companies might need a scorecard to keep track of the alleged misdeeds and missteps of those at the top. Take, for example, an especially problematic seat on the Goldman Sachs (GS) board. On March 19, 2010, Goldman put out a press release announcing the nomination of a new board member -- former Wal-Mart CEO Lee Scott. Goldman was still feeling the heat in the aftermath of the financial crisis, and Scott had the right résumé and experience. After all, he had led Wal-Mart through its own public relations troubles.

Two months later Goldman CEO Lloyd Blankfein announced that he was launching a business standards committee; Scott would be one of four board members on it. But Scott stayed on the board for just a year. When he left, in 2011, he said it was because of time constraints.

Read the entire article here

Goldman Sachs and Dodona: "A Plague on Both Your Houses"

noreply@blogger.com (Joyce) — Thu, 24 May 2012 16:44:00 +0000

After having read the following article, one is tempted, as a distant observer, to say "A pox on both your houses." Someone should pay more than a fine (usually done without having to admit wrongdoing) and someone should be behind bars for bringing down the financial system with these illustrated displays of unethical and immoral behavior.

Fraud is fraud and should be prosecuted, Goldman most of all.

Goldman blames hedge fund victim in Hudson CDO fraud case
By Alison Frankel - On the Case (Thomson Reuters)

Remember the case over Goldman Sachs's Hudson CDOs, in which U.S. District Judge Victor Marrero wrote a scalding opinion in March? Marrero refused to dismiss fraud claims against the bank, in a ruling that detailed Goldman Sachs's alleged scheme to shed exposure to subprime mortgages by dumping toxic collateralized debt obligations on an unsuspecting public. This week Goldman had a little something to say about the case, and -- surprise! -- it's not an apology.

On Monday the bank's lawyers at Sullivan & Cromwell filed Goldman's answer and counterclaims to the securities fraud suit brought by the Dodona hedge fund. (Hat tip to Brune & Richard's new must-check website, S.D.N.Y. Blog.) The most interesting part of the filing comes 40 pages in, when the bank outlines why (in its view) Dodona -- and not Goldman -- is the real wrongdoer in the Hudson CDO scenario.

According to Goldman, the hedge fund and its founder, former Salomon Brothers asset-backed trader Alan Brody, knew exactly what they were getting when they bought Hudson CDOs. The fund explicitly marketed itself as an expert in the "structural complexity" of "mortgage-related CDO equity and structured credit products." Dodona told investors it was "uniquely qualified to make informed and sound investment and hedging decisions" about CDOs because Brody and company were savvy about evaluating underlying collateral.

Read the whole document here

Goldman Sachs: Is This the New PR You Were Touting?

noreply@blogger.com (Joyce) — Wed, 23 May 2012 16:28:00 +0000

So Goldman Sachs has already forgotten that in order to create a new public image GS will have to actually act as though it has changed its old fraudulent ways.

Kurt Nimmo of Infowars thinks that the Facebook IPO was designed to enrich its big clients such as Goldman Sachs and that the SEC should be investigating the IPO. Besides which Nimmo believes Facebook is a "data-mining" tool where users of FB readily reveal large amounts of information about themselves and others to be used by--whomever.

Henry Blogget of Business Insider has his own take on what happened to cause Facebook's value to tumble. He says "selective disclosure" unfairly guaranteed large clients had information that small investors did not.

In any case, Morgan Stanley, Goldman Sachs and JP Morgan are being sued by investors who claim "they were misled in the purchase of the social network firm's stock." What a lot of misleading we hear about when Fraud should be the word.

Goldman Sachs raised $1.09 billion selling stock in Facebook's IPO and, immediately after the IPO, it cashed out some of its holdings making $235 million.

So what happened to Goldman's attempt to improve its reputation? Nothing!

Facebook IPO: CIA and Goldman Sachs Take the Suckers for a Stroll
By Kurt Nimmo - Infowars.com

The fact Morgan Stanley was the lead banker on the Facebook IPO should have set off alarm bells for investors in the NASDAQ casino. The deal had SUCKER’S BET spray-painted all over it. But like the infamous dot-com bubble and any other number of pump and dump schemes rolled out by the banksters, the Facebook IPO was designed to enrich a small number of insiders like Goldman Sachs and take the clueless horde on the outside to the cleaners.

Even cynical observers are willing to give the trendy stock time to “perform” when it is obvious the Facebook “offering” is simply more toxic waste proffered by people who specialize in multi-billion dollar scams and snake oil tours.

“Maybe I am a grouch,” writes the New Yorker’s John Cassidy. “But it all sounds suspiciously like an inside job, in which the last ones in, the ordinary investors, are the saps. At the very least, this entire issue is something that the authorities – the S.E.C., but also the Nasdaq and other stock exchanges – should be looking at closely.”

Read the entire article here

The Parasitical Relationship of Goldman Sachs and AIG

noreply@blogger.com (Joyce) — Tue, 22 May 2012 16:32:00 +0000

So the Federal Reserve is having a (delayed) asset sale of the Maiden Lane III Portfolio acquired from AIG. Goldman Sachs is one of the dealers who has been invited to participate in the auction.

It is passing strange to have Goldman Sachs able (nay, invited) to buy AIG's once toxic assets especially when you consider Goldman's fraught relationship with AIG before the crisis. Goldman Sachs preyed upon AIG in very specific ways--by pushing AIG "to the brink of bankruptcy."

". . . Goldman in the two years preceding AIG's bailout, worked to undermine investor confidence in the insurer, then the biggest seller of credit default swap contracts, and drive down the market value of mortgage-backed securities." (By Barry Grey - WSWS)

Then, Goldman made a huge profit by betting against the mortgage market. It is an ugly but true fact that Goldman has always profited in its dealings no matter how fraudulent and unethical its behavior both before and after the GFC. Goldman should not now profit through buying AIG products. How twisted is injustice!

Goldman Sachs made billions by pushing AIG to bankruptcy
By Barry Grey - World Socialist Web Site

. . . .

By means of the unregulated multi-trillion-dollar credit default swap market, banks and corporations purchase insurance against the default of bonds issued by other banks, companies and governments. If a seller of swaps—AIG was by far the biggest—goes bankrupt, its counterparties stand to lose billions.

By the fall of 2008, AIG was vastly over-leveraged and hemorrhaging cash due to demands from its counterparties, including major banks and financial firms in the US and internationally, that it fulfill its guarantee to make good on mortgage-backed CDO losses. Its failure threatened to tip some of the biggest banks, including Goldman and Morgan Stanley in the US, into bankruptcy.

The Times article suggests that Goldman was using its close relationship with AIG to manipulate the housing market and encourage a panic selloff of mortgage-backed assets, in part by pressing the insurer to make billions of dollars in collateral payments based on Goldman’s “low-ball” estimates of the value of mortgage-backed CDOs it had insured with AIG.

The article notes that Elias Habayeb, an AIG accounting executive, testified before Congress in January that Goldman’s payment demands were a major factor in AIG’s downfall.

The implication is that the financial crash was not simply the result of disembodied “market forces.” Highly conscious profit-driven calculations by financial giants such as Goldman played a critical role.

Read the entire article here

Goldman Sachs Is Part of a Destructive System

noreply@blogger.com (Joyce) — Mon, 21 May 2012 15:23:00 +0000

Rob Urie of Counterpunch writes about the true costs of the recent financial crisis brought to us by the banks. The cost to Goldman Sachs, for example, was minuscule compared to the costs for the rest of the world. The economic system is environmentally unsustainable. The current financial system that supports predatory banking is unsustainable. The models that banks use to create profit are broken and therefore unreliable. The unequal distribution of wealth upwards continues apace.

The True Costs of Bank Crises
By Rob Urie - Counterpunch
. . . .

The challenge for reformers and re-regulators is that the system is the problem. Companies pollute because they individually prosper while we collectively pay the costs. Banks take risks that are internally rational while they are systemically catastrophic. Environmental and financial crises cannot be solved with capitalism intact. In fact, when global warming and bank crises are considered, there is little evidence that capitalism ever produced any profits net of externalized costs. And the consolidation of wealth that capitalism produces undermines all attempts at remediation. Capitalism itself is a suicide machine.

What made J.P. Morgan’s loss news is the recognition that the financial crisis hasn’t been resolved. And again, this crisis isn’t from without. It is endemic to the system we are being told we must save. As Mr. Haldane has it, even if the crisis had been resolved, we would still collectively be out more than $60 trillion anyway. And the only way toward those trillions is through increasing environmental catastrophe. By appearances, the current order is in the process of imploding of its own weight. And while dislocations create fear, they also create openings for other possible futures.

Read the entire essay here

Goldman Sachs and Facebook

noreply@blogger.com (Joyce) — Sun, 20 May 2012 14:17:00 +0000

Here's one person's take on all the Facebook IPO hoopla. (The greedy banks in paragraph three include Goldman Sachs):

Facebook Dashes Faith
By Al Lewis - The Wall Street Journal Blog

I overestimated the ordinarily reliable powers of greed and unbridled hyperbole.

When some people predicted Facebook stock would rocket up 50% on its initial public offering on Friday, I did not laugh. I had faith that the Facebook storyline would overcome:

A greedy move by investment bankers to jack up its offering price to $38 a share and expand the offering by 25%, just one day before the IPO, taking most of the juice out of the deal.

General Motors' announcement that it would no longer advertise on the social-networking site because its ads weren't effective.

Reports of all the billions Morgan Stanley and Goldman Sachs would make dumping their shares on the public.

Silicon Valley punks unloading their shares to become obnoxious million- and billionaires.
Co-founder Eduardo Saverin's decision to defriend America, renouncing his U.S. citizenship and moving to Singapore to cut his tax bill.

Chief Executive Mark Zuckerberg's refusal to ditch his hoodie.

A tough stock market that continues to suffer a stalling recovery in the U.S. and a slow-motion meltdown in Europe, not to mention J.P. Morgan Chase behaving like MF Global with billions in largely unexplained trading losses.

The Nasdaq stock market, which appears to have bungled Facebook's opening by mismanaging order flow. (Next time, try the NYSE.)

I thought Facebook's IPO would overcome this folly because I was betting on America's often unwarranted optimism. I saw the IPO as a Rorschach test that people would read into whatever they wanted.

"It is one of the most interesting companies that ever existed," Duke University's Dan Ariely told me. "So there's the freedom to create any story you want."

How's this for a story? Nearly one out of every seven people on the planet is hooked into the social network, so it can basically do anything: Facebook will end all wars once everyone on the planet becomes "friends;" Facebook will replace fossil fuels since we never have to meet anyone in person anymore.

Read the entire piece here

Goldman Sachs: A Bank Without Pity

noreply@blogger.com (Joyce) — Sat, 19 May 2012 14:58:00 +0000

Below is an excerpt from an article written in April 2011 which reprises some of the antics of Goldman Sachs prior to the financial crisis in 2008. As you can tell, Goldman is all about profit and certainly deserving of being described as a culprit in spite of the author's contention otherwise. It's important to put a laser beam on Goldman's actions rather than looking past them to other institutions that played their part in bringing the financial system down.

The crisis was not about being unable to control yourself or about just going wild.

Goldman has not curbed excessive pay which probably also has implications for how much curbing of risk Goldman has undertaken. Goldman exemplifies all that is wrong with global banking today.

Why Goldman Is Not a Simple Culprit in the Financial Crisis Report
By Steven M. Davidoff - DealBook

The Senate Permanent Investigation Subcommittee’s report on the financial crisis is an important document. It is an exhaustive look at certain main aspects of the financial crisis, a report which heavily criticizes Washington Mutual, the now-defunct Office of Thrift Supervision, the credit ratings agencies, Goldman Sachs and Deutsche Bank.

The focus in the media, as well as in Senator Carl Levin’s news conference on the report, has been the criticism shed on Goldman Sachs for betting against clients who bought collateralized debt obligations from it.

But the criticism of Goldman is overwrought. And the focus on Goldman obscures the other important points the report makes about the entire financial industry.

To understand why, you have to read up to page 392 of the report. It is here that you are rewarded with this gem:
Morgan Stanley’s representative reported to a colleague that when Goldman rejected the firm’s request to sell the poorly performing Hudson assets, “I broke my phone.” He also sent an e-mail to the head of Goldman’s C.D.O. desk saying: “One day I hope I get the real reason why you are doing this to me.”
The paragraph concerns the $2 billion synthetic C.D.O. Hudson Mezzanine-1. Goldman had created and began marketing the Hudson C.D.O. in October 2006. The firm took the entire $2 billion short position on this C.D.O., meaning that any losses on the residential mortgage-backed securities underlying the C.D.O. would mean a gain for Goldman.

Set against Goldman Sachs, Morgan Stanley took almost a $1 billion position on the long side, betting that housing prices would remain stable or go up.

The paragraph above details an exchange that occurred in 2008. By that time the Hudson C.D.O. had been downgraded and Morgan Stanley was trying to salvage its billion dollar bet.

Goldman, being Goldman, was serving multiple roles in the C.D.O. Goldman had a small $6 million long position and was also collateral agent. The Morgan Stanley banker here was begging Goldman to use its position as collateral agent to sell some of Hudson’s assets in order to stem Morgan’s losses, a request Goldman refused.

You can hear the pleading of the poor Morgan banker in this e-mail, and you almost feel sorry for him.

This sad tale exposes the real point of this report. Wall Street went wild in the years leading up to the financial crisis and in the aftermath, the penalties have been few. Morgan Stanley lost about $960 million on Hudson, a bet put on by Morgan Stanley’s proprietary trading desk.

As Michael Lewis detailed in “The Big Short,” the desk headed by Howard Hubler ended up losing roughly $9 billion. Morgan Stanley itself was almost brought down in the financial crisis in part because of these losses. Mr. Hubler, however, left Morgan Stanley with tens of millions of dollars in pay. He is yet another financial crisis executive who was rewarded for bad decisions.
The Permanent subcommittee uses Goldman’s negative bets on the Hudson C.D.O. as well as three others to complain again that Goldman was inherently conflicted, betting against its clients.
Goldman claims that it was not a fiduciary or investment adviser to these clients and instead a market maker, simply making a market where sophisticated clients could fend for themselves.

The fact that the most sophisticated of investors and brokers, Morgan Stanley, was on the other side supports Goldman’s view.

You can debate this point, and either way it appears that Goldman was too greedy and risked its reputation in making these trades.

But the Morgan Stanley episode shows that perhaps the Goldman tale is more complex while the story of the financial crisis is simpler.

Goldman was merely fulfilling what was expected by the market while happily profiting at the expense of the entire financial system. But Morgan Stanley was trying to do the same thing — and simply made a very, very bad trade. It is hard to think that Morgan Stanley here was “duped” by Goldman or could not have asked or demanded that Goldman disclose its positions if it wanted to.
The general conclusion, though, is that these banks could not control themselves.

This is not to say that bashing Goldman has not been useful. As William Cohan has written, this type of rhetoric and Goldman’s reputational missteps with the Abacus C.D.O. are likely what got us Dodd-Frank and financial reform.

And indeed this report is a validation that Dodd-Frank may have been worth the effort. This bipartisan Senate report contains 19 recommendations, many of them that are based on implementation of Dodd-Frank’s missives.

Read the whole article here

The Need for the Volcker Rule in Spite of What Goldman Sachs Says

noreply@blogger.com (Joyce) — Fri, 18 May 2012 16:06:00 +0000

Goldman Sachs does not like the Volcker rule. In a Bloomberg article written by Phil Mattingly, Silla Brush and Cheyenne Hopkins, Goldman is quoted as saying,

“Without substantial revisions, the proposed rule will define permitted market making-related, underwriting and hedging activities so narrowly that it will significantly limit our ability to help our clients,” John F.W. Rogers, Goldman Sach’s chief of staff, said in a comment letter.

“Although one of the key aims of Dodd-Frank was to promote greater stability in financial markets, we are concerned that the proposed rule could inadvertently increase systemic risk,” he added. If the rule makes hedging more expensive, “banking entities’ clients and customers will be forced to hold more risk on their own books.” (Bloomberg)

But as Abigail Caplovitz Field states in Reality Check, Paul Volcker himself fought for a return of Glass-Steagall which separated investment banking from commercial banking. Ever since the financial crisis, Goldman and other banks have lobbied against the Volcker Rule with all its various rules and regulations (and occasional loopholes).

Field makes a good argument for reinstatement of Glass-Steagall:

The Real Volcker Rule: No Gambling with the Public's Money
By Abigail Caplovitz Field - Reality Check

Former Fed Chair Paul Volcker fought incredibly hard for something much more powerful than even a strong version of the so-called Volcker rule. Volcker pushed for a return of Glass-Steagall, a law that until 1999 prevented the public financing of Wall Street gambling. Glass-Steagall/Volcker-for-real stands for the idea that when a company’s cash (deposits) is guaranteed by the government and the company has access to incredibly cheap government money, under no circumstances can the company be allowed to gamble with it.

Let’s be clear: Glass-Steagall wouldn’t prevent gambling addicts like Jamie Dimon from losing big bets. Crucially, however, Glass-Steagall would make the cost of placing those bets market rate, and make the gambler’s shareholders take the loss.

It’s a tremendously sad testament to the power of the banks that first they killed the return of Glass Steagall in favor of a ban on gambling for their own profit (a strong Volcker rule) and then used their lobbying prowess to eviscerate the rule.

FDIC Vice-Chairman Renews Glass-Steagall Push

Well, common sense is rising again. Shahien Nasiripour of the Financial Times interviewed Thomas Hoenig, Vice Chair/second in command at the FDIC recently, and Hoenig said

“that broker-dealer activities [that is, trading in the markets] should be cleaved off from banks, particularly large, systemic financial institutions.”

That is, Hoenig called for a return of Glass-Steagall. Why? Because

“’In a crisis, who will absorb the loss?’”

In case you’re not sure, the answer is you, me, and hundreds of millions of others. Not that we share in bankers’ profits, of course, just the losses.

Hoenig then pointed out the obvious, foreshadowing Jamie Dimon’s mea culpa:

“‘If management cannot adequately monitor and control their risk, it is unreasonable to expect supervisors to do so in their place,’”

Glass-Steagall is the key to preventing future bailouts because it makes the implicit government guaranty the big banks now have less credible. See, right now, between the FDIC and the discount window, there’s a mechanism in place to honor the implicit guaranty. Spin off the trading operations, and we’re back in overt bailout territory, a political minefield many won’t walk through again. As Hoenig explained the guaranty that is the only reason the bailed out banks’ trading operations haven’t yet bankrupted the banks:

“without government support, Mr Hoenig argued…investors and counterparties would then appropriately price for the risk that these institutions could fail, eventually leading to more disciplined trading and less risky activities.
“I’m not impressed by the markets’ smarts, but I’m very impressed by its harshness,” Mr Hoenig said.”

Read the entire article here

Goldman Sachs Should Be Embarrassed and Chastened

noreply@blogger.com (Joyce) — Thu, 17 May 2012 12:58:00 +0000

Goldman Sachs and Merrill Lynch were unsuccessfully sued by Overstock in a California court. Goldman sought to have the court documents sealed for various reasons. However, the lawyers for Goldman accidentally filed Overstock's motion while in the process of opposing the unsealing of the documents. Thus the public is able to see how Goldman Sachs was viewed in those documents.

We can see why Goldman would have preferred to keep its embarrassing and/or illegal activities out of the public eye. Below are some excerpts from the court document:

. . . .

"Likewise, Goldman Defendants seek to seal emails reflecting their firm-wide policy to fail short sales of their market maker clients by withholding inventory for settlement:
Ex.7 to Sommer DSJ Decl.: This email informs GSEC's largest client, Wolverine Trading, that "we will let you fail," in response to an inquiry by Wolverine as to whether there was some effort "at cleaning up" fails." (Page 16)
. . . .
"In spite of the lack of confidentiality designation, Goldman wants to keep Cohodes transcript nonpublic because of potential embarrassment, including testimony such as the following:

Q. Well, do you know how--do you have any view as to whether the securities lending market is actually efficient of inefficient?

A. I think the securities lending market is just like the mob. I think it's completely rigged. It's a completely manipulated black hole, non-transparent market.

Q. Now, when you say you think they're just like the mob, are you referring to Goldman Sachs?

A. Yes. I think Goldman Sachs is like the mob.

Q. And are you referring to them in particular or them and the rest of the market altogether?

A. I think Goldman Sachs is racketeering entity that does whatever they can to make a dime without conscience, thought, foresight or care about ramifications. I think they are cold-blooded and could care less about the law. That's my opinion. I think I can back it up." (Page 20-21)

. . . .
"Defendants should be embarrassed and want to hide details of setting up their systems to intentionally fail to deliver stocks, given that their central role in the integrity of the United States stock market is to ensure delivery of stock. Goldman Defendants should be embarrassed and want to hide details of their options market maker exemptions to meet their stock lending demands and perpetuate short selling in vulnerable stocks, thereby destroying companies in order to earn Goldman more profits. These facts are shameful. However, the fact that Defendant's actions are embarrassing and not the type of information they want known to the public does not qualify them for the narrow, limited sealing of public records available under California law." (Page 31)
. . . .

Matt Taibbi does a masterful job of delineating the contents of the court document and maps out the important parts:

Accidentally Released - and Incredibly Embarrassing - Documents Show How Goldman et al Engaged in 'Naked Short Selling'
By Matt Taibbi - RollingStone
. . . .

The lawsuit between Overstock and the banks concerned a phenomenon called naked short-selling, a kind of high-finance counterfeiting that, especially prior to the introduction of new regulations in 2008, short-sellers could use to artificially depress the value of the stocks they’ve bet against. The subject of naked short-selling is a) highly technical, and b) very controversial on Wall Street, with many pundits in the financial press for years treating the phenomenon as the stuff of myths and conspiracy theories.

Now, however, through the magic of this unredacted document, the public will be able to see for itself what the banks’ attitudes are not just toward the “mythical” practice of naked short selling (hint: they volubly confess to the activity, in writing), but toward regulations and laws in general.

“Fuck the compliance area – procedures, schmecedures,” chirps Peter Melz, former president of Merrill Lynch Professional Clearing Corp. (a.k.a. Merrill Pro), when a subordinate worries about the company failing to comply with the rules governing short sales.

We also find out here how Wall Street professionals manipulated public opinion by buying off and/or intimidating experts in their respective fields. In one email made public in this document, a lobbyist for SIFMA, the Securities Industry and Financial Markets Association, tells a Goldman executive how to engage an expert who otherwise would go work for “our more powerful enemies,” i.e. would work with Overstock on the company’s lawsuit.

“He should be someone we can work with, especially if he sees that cooperation results in resources, both data and funding,” the lobbyist writes, “while resistance results in isolation.”

There are even more troubling passages, some of which should raise a few eyebrows, in light of former Goldman executive Greg Smith's recent public resignation, in which he complained that the firm routinely screwed its own clients and denigrated them (by calling them "Muppets," among other things).

Here, the plaintiff’s motion refers to an “exhibit 96,” which refers to “an email from [Goldman executive] John Masterson that sends nonpublic data concerning customer short positions in Overstock and four other hard-to-borrow stocks to Maverick Capital, a large hedge fund that sells stocks short.”

Read the entire article here
See the court document here

Goldman Sachs's Naked Short Selling Revealed in Court Documents

noreply@blogger.com (Joyce) — Wed, 16 May 2012 15:45:00 +0000

Goldman Sachs does manipulate stock. Goldman Sachs e-mails "reflect business decisions to put profits and corporate ambition over compliance:"

Goldman, Merrill E-Mails Show Naked Shorting, Filing Says (Update 1)
By Karen Gullo - Bloomberg
Goldman Sachs Group Inc. (GS) and Merrill Lynch & Co. employees discussed helping naked short-sales by market-maker clients in e-mails the banks sought to keep secret, including one in which a Merrill official told another to ignore compliance rules, Overstock.com Inc. (OSTK) said in a court filing.

The online retailer accused Merrill, now part of Bank of America Corp., and Goldman Sachs of manipulating its stock from 2005 to 2007, causing its shares to fall. Clearing operations at the banks intentionally failed to locate and deliver borrowed shares for clients shorting stocks, including two traders who were fined and suspended from the industry, Overstock’s attorneys said in court filings earlier this year.

Lawyers for Overstock, whose California state court lawsuit in San Francisco was dismissed in January, asked a judge to make public e-mails sent in 2005 and 2006 that it said “reflect business decisions to put profits and corporate ambition over compliance” at Goldman Sachs and Merrill. The banks’ decisions to intentionally fail to deliver Overstock shares caused large- scale naked short selling of the company’s stock, according to the filing.

Read the rest of the article here
The court document is here

What Goldman Sachs Really Stands For

noreply@blogger.com (Joyce) — Tue, 15 May 2012 16:59:00 +0000

Periodically it is salutary to remember what Goldman Sachs really stands for by tracing how it contributed to the meltdown of the financial system. Goldman employees sought to "demoralize" people, to cause them "maximum pain" and to deceive them. They succeeded masterfully.

Just from this short reading, we get a good idea of what regulations are needed for TBTF Goldman Sachs.

Read about Goldman's past deeds below:

Goldman Traders Tried to Manipulate Derivatives Market in '07, Report Says
By Christine Harper and Joshua Gallu - Bloomberg (April 13, 2011)

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.

Read the article here

Occupy Wall Street Gets an Album and Everyone Is On It

noreply@blogger.com (Larry Rubinoff) — Tue, 15 May 2012 00:19:00 +0000

Music to Occupy with. From Time.com
"Occupy This"

Enjoy

'Occupy This Album' features 99 tracks of class-conscious message music. But which are hits and which should go back to the drum circle?

Read more: http://newsfeed.time.com/2012/05/14/listen-occupy-wall-street-gets-an-album-and-everyone-is-on-it/#ixzz1utQH2T00

Goldman Sachs and Insider Trading

noreply@blogger.com (Joyce) — Mon, 14 May 2012 16:37:00 +0000

Rajat Gupta once sat on Goldman's board and was also a director at Proctor & Gamble. He has been indicted for insider trading; specifically, he is accused of giving tips to Raj Rajaratnam, the manager of Galleon Group hedge fund who is serving 11 years for insider trading.

Gupta seeks calls thrown out of U.S. Insider Trial
By Grant McCool - Reuters

Gupta's trial starts on May 21 in U.S. District Court in Manhattan. A onetime head of McKinsey & Co, he is accused of giving Rajaratnam secrets of Goldman and Procter & Gamble board meetings in 2007 and 2008. In addition to sitting on the Goldman board, Gupta also was a director at P&G.

Gupta, 63, has denied the charges, which include five counts of securities fraud and one count of conspiracy. He says he lost money investing with Rajaratnam and that as many as four other Goldman personnel could have tipped off Galleon. Gupta could face up to 25 years in prison if convicted of securities fraud.

Rajaratnam is serving an 11-year prison term, the longest sentence handed down for insider trading in the United States, after being convicted in the same court a year ago. Much of the evidence against him was gathered in FBI wiretaps, revealing a network of contacts providing inside information.

Read the full story here

Goldman Sachs: Equity Versus Leverage

noreply@blogger.com (Joyce) — Sun, 13 May 2012 15:46:00 +0000

Researchers are looking into ways that banks can be regulated in a more positive and socially beneficial manner. The article below states that equity requirements can keep the financial system healthy. If equity is used with flexibility it can become a tool to avoid financial crises. Regulators can ban dividends for equity holders during a crisis; when banks are able to pay dividends then they should be able to lend.

Control of payouts and equity issued mandates can maintain stability and health in the financial system. The more leverage in a bank the worse the risk. Leverage should not be subsidized but equity should be encouraged. The topic discussed below is equity versus debt in regulating the financial system.

Why Bank Equity Is Not Expensive
By Bill Snyder - Stanford

(This paper has sparked discussion. View other material related to this topic)

Since the 2008 market crash, banking interests and economists have clashed over how much of their operations banks should fund with equity as opposed to debt. Bankers and others often say that, "equity is expensive." By contrast, a recent paper, coauthored by three faculty of the Stanford Graduate School of Business, argues that this conventional wisdom is incorrect, and that, "Quite simply, bank equity is not expensive from a social perspective, and high leverage is not required in order for banks to perform all their socially valuable functions."

STANFORD GRADUATE SCHOOL OF BUSINESS—When the financial markets crashed two years ago, Americans discovered that all too many banks and financial institutions became distressed because of their high degree of leverage. Since then, regulators, economists, and the banking industry have jousted over the question of how much equity capital banks should hold.

The prevailing argument by the industry and its allies is that raising equity requirements will weaken banks and raise the cost of borrowing for everyone because "equity is expensive." But is that really the case?

In a new, and likely to be controversial, research paper, Anat Admati, of the Stanford Graduate School of Business, and her colleagues argue that this is not the case. "Quite simply, bank equity is not expensive from a social perspective, and high leverage is not required in order for banks to perform all their socially valuable functions, including lending, taking deposits, and issuing money-like securities," they wrote.

What's more, the researchers argue, raising capital requirements would produce widespread social benefits as well: "Our analysis leads us to conclude that, starting from current capital requirements, the social benefits associated with significantly increased equity requirements are large, while the social costs, if any, are small."

Read the entire piece here
See the videos with Anat Admati here

Goldman Sachs: Nonpareil Lobbyist

noreply@blogger.com (Joyce) — Sat, 12 May 2012 14:54:00 +0000

Matt Taibbi of RollingStone has looked at the process of creating the rules and regulations that will accomplish the reform of the financial system, reform made necessary by the financial meltdown of 2008. He describes the attempts to defeat meaningful reform under five steps.

The steps that Matt described are listed below and followed with one observation by us:

"Step 1: Strangle It in the Womb"
Obama never intended to pursue prosecutions of those who the committed fraud and helped bring down the financial system.

"Step 2: Sue, Sue, Sue"
When regulators seemed poised to pursue and prosecute the fraudulent activities of the banks, they were sometimes sued for such things as "cost-benefit analysis" before implementing the new rules.

"Step 3: If You Can't Win, Stall"
The rules for regulating the financial system are often delayed; for example, the CFTC was supposed to implement rules on position limits by January17, 2011. A new date was set for September 2011, but in 2012, the CFTC was in court facing a lawsuit designed to kill the bill. (Gary Gensler is a former Goldman Sachs guy.)

"Step 4: Bully the Regulators"
Through control of funding from Congress, the regulators have to work with threats to their budget where cuts would make their work more difficult to carry out.

"Step 5: Pass a Gazillion Loopholes"
Republicans have passed numerous individual laws that are designed to undercut the regulations of the CFTC and the SEC. It is as though the lobbyists are making the new rules to suit their own specifications.

The pursuit of a completely unregulated market system continues to evolve with the complicity of the White House and the Congress to the detriment of the community of citizens.

How Wall Street Killed Financial Reform
It's bad enough that the banks strangled the Dodd-Frank law. Even worse is the way they did it--with a big assist from Congress and the White House
By Matt Taibbi - RollingStone
. . . .

STEP 3: IF YOU CAN'T WIN, STALL

You might think otherwise, but it doesn't naturally follow that because a law has been passed by Congress and signed by the president, said law actually has to be implemented. With Dodd-Frank, the SEC took a brilliant approach to submarining one of its own regulations. The agency was supposed to begin enforcing the new proxy access rule by late 2010. Instead, in October 2010, it granted speculators a last-minute stay – essentially giving the Chamber of Commerce time to prepare its lawsuit to permanently kill the rule.

Position limits are another example. Dodd-Frank ordered the CFTC to begin enforcing the new rule no later than January 17th, 2011. But January 17th came and went, and – no position limits! Gary Gensler, the head of the CFTC and a former executive of Goldman Sachs, then announced that he hoped to implement the rule by September 2011. But September came and went, and soon it was 2012, and before you knew it, the CFTC, like the SEC, was in court, facing a lawsuit that would permanently kill the rule.

Even the president got into the stalling game. . . .

Read the whole article here

Goldman Sachs as the Object of Veneration on Wall Street

noreply@blogger.com (Joyce) — Fri, 11 May 2012 14:37:00 +0000

It is always instructive to read about Goldman Sachs's regulatory filings. In spite of Goldman's constant lobbying against new rules and regulations, it always seems to be "complying:" It sells its investments in hedge funds; it claims to be reining in risk under the Volcker Rule; it sets aside money for lawsuits ("the cost of doing business" rather than doing business ethically); it discloses arbitration claims from its underwriting (which is not always topnotch); and it even predicts what will happen if its credit rating fell.

Yet, Goldman is what other banks aspire to as their ultimate object of veneration. What a bank!

Goldman Moves to Comply With Volcker Rule
By Susanne Craig - DealBook

Goldman Sachs, moving to comply with a new rule aimed at reducing the riskiness of the country’s big banks, recently sold some of its investments in hedge funds.

The Wall Street firm disclosed in a regulatory filing on Thursday that it had sold $250 million worth of investments it had in hedge funds. Typically, Goldman will invest in hedge funds alongside its clients, but new regulations require the bank to reduce those holdings.

Banks have roughly two years to bring their businesses into line with the so-called Volcker Rule, which aims to rein in risk-taking on Wall Street by barring banks from placing bets with their own money. It will also will reduce the amount of capital they can investment in sometimes risky vehicles like hedge funds. Going forward, banks will be able to invest only about 3 percent of their capital in hedge funds.

“The firm currently plans to comply with the Volcker Rule by redeeming certain of its interests in hedge funds,” Goldman Sachs wrote in filing, which outlines its business activities for the three months that ended March 31.

The disclosure was part of a grab bag of information about the firm that included new disclosures about some of its legal battles as well as the number of trading days Goldman lost money on in the first quarter.

The bank said its “reasonably possible” losses from lawsuits in the quarter rose to $2.7 billion, up from $2.4 billion at the end of 2011. There was at least one new item of note in the disclosure.

Goldman disclosed that in February it was named as a respondent in three separate arbitration claims filed by the cities of Houston and Reno, Nev., and a California school district. Goldman said the claims were based on its role as underwriter and broker-dealer of the claimants’ issuances of roughly $1.7 billion of auction rate securities from 2004 to 2007.

The three entities say Goldman failed to disclose crucial information about their investments. The auction rate security market ran into trouble during the financial crisis, causing some investors to lose money. A number of people and institutions have filed claims against Wall Street firms over this issue. The cities and the California school district are seeking to recover damages.

Read the whole piece here

Oh, Goldman Sachs, How Totally Disengaged You Are!

noreply@blogger.com (Joyce) — Thu, 10 May 2012 13:37:00 +0000

Two articles show how disengaged from reality the bank of Goldman Sachs has become. First, there is the information on James A Johnson who serves as director and compensation chairman for Goldman.

Mr. Johnson is accused of obtaining preferential rates for three home mortgages. He is a man who believes that executives should have very good compensation packages and serves on several boards (besides Goldman's) that grant lavish pay packages to its executives.

Even when Goldman's profit dropped 47%, the compensation for Blankfein went up. Blankfein will get $12.4 million for 2011, thanks to Johnson.

On the other hand, the city of Oakland which has already paid off a bond of $187 million has been trying to reach a negotiated deal with Goldman to achieve some relief from paying $4 million annually because of the persistent low interest rates.

Goldman does not seem to be interested in alleviating some one else's pain even though Goldman managed to get a government bailout when it was in trouble after helping to bring down the whole financial system.

You can see how unyielding and unfair Goldman is:

Councilmembers discuss ways to get out of bond debt deal with Goldman Sachs
By Ryan Phillips - Oakland North

The City of Oakland should find a way to get out of its interest rate swap agreement with Goldman Sachs, a deal that costs the city $4 million annually, according to a city staff report. The problem before the city council now is figuring out the best way to do that without costing the city more money.

The Oakland City Council’s Finance and Management Committee received a report from the city administrator’s office on Tuesday afternoon detailing options for the city’s bond debt deal with the investment bank, and recommending that the city enter into negotiations to terminate the deal “at a below market cost” by the end of the next fiscal year. Under the current terms, ending the deal would cost the city about $15.5 million, the current negative market value of the swap.

The city and Goldman Sachs agreed to a rate-swap deal in 1997 relating to $187 million in city debt. The deal allowed the city to convert floating interest rates on municipal bonds into a fixed rate of 5.6 percent. But when the financial markets crashed in 2008, the city was left on the short end of the deal. The city has already paid out $26 million more than it owed; the underlying bond was paid off by the city in 2008.

The deal, which runs until 2021, has angered community members and city officials because big banks like Goldman Sachs were bailed out with billions in taxpayer money in 2008, yet even with Oakland struggling financially, the bank had been unwilling to renegotiate the deal to give the city some relief.

Last June, Oakland city councilmember Rebecca Kaplan (At-large) wrote a letter to Goldman Sachs CEO Lloyd Blankfein asking to renegotiate the deal because companies like Goldman Sachs have a responsibility to “operate in a manner that would be beneficial to the public” after using “taxpayer dollars in order to salvage private, for-profit corporations.” The union that represents city workers, SEIU 1021, began researching the deal around the same time, and by October a coalition of community groups, now called the “Oakland Coalition to Stop Goldman Sachs” had formed to discuss how the city may get out of the deal.

The discussion finally made it to City Hall on Tuesday, and the Sgt. Mark Dunakin Room on the first floor of the building was packed with members of the Coalition to Stop Goldman Sachs. During the meeting, many in the crowd held up bright signs that read, “Stop the swap, invest in the poor not the rich.” A long line of speakers approached the podium to reject the staff recommendation if it meant paying Goldman more money, and urged that the deal be ended immediately, at no further cost to the city. Many asked councilmembers to examine what other cities with similar agreements have done; for example, in Los Angeles the city government refused to negotiate any new deals with Goldman Sachs if the investment bank didn’t waive a cancellation fee.

Read the whole article here

Bribery, Lobbying, Fraud and Goldman Sachs

noreply@blogger.com (Joyce) — Wed, 09 May 2012 23:20:00 +0000

Fraud comes in many guises, such as bribery and lobbying. In a Washington Post article by Tom Hamburger and Brady Dennis, we read the following:

The list of those facing federal bribery inquiries stretches well beyond 100 and includes prominent names such as Pfizer, 3M, Goldman Sachs and Alcoa. Even icons of corporate responsibility such as General Electric and IBM have paid hefty sums to settle allegations, part of a broader effort that has netted the government billions in fines in recent years and landed some executives in prison. (Tom Hamburger and Brady Dennis - Washington Post)

Lobbying is a Goldman Sachs forté. Three letters in USA Today mull over the differences between bribery and lobbying here.

Goldman Sachs Has No Clothes

noreply@blogger.com (Joyce) — Wed, 09 May 2012 00:41:00 +0000

David Stockman, former Republican US Congressman, is interviewed by The Gold Report and examines the role of the Federal Reserve in promoting the stock market. Markets are not working and savers are being penalized. Stockman traces the various scenarios that may result from the actions of the Federal Reserve's pumping money into the markets.

Goldman Sachs is one of the cronies in the crony capitalism that runs the financial system. Here is how it works:

The Emperor is Naked: David Stockman
By David Stockman - FedUpUSA
. . . .

DS: There are two kinds of front-running. First is market-based front-running. You try to figure out what the Fed is doing by reading its smoke signals and looking at how it slices and dices its meeting statements. People invest or speculate against the Fed’s next incremental move.

Second, there is illicit front-running, where you have a friend who works for the Federal Reserve Board who tells you what happened in its meetings. This is obviously illegal.

But frankly, there is also just plain crony capitalism that is not that different in character and it’s what Wall Street does every day. Bill Dudley, who runs the New York Fed, was formerly chief economist for Goldman Sachs and he pretends to solicit an opinion about financial conditions from the current Goldman economist, who then pretends to opine as to what the economy and Fed might do next for the benefit of Goldman’s traders, and possibly its clients. So then it links in the ECB, Bank of Canada, etc. Is there any monetary post in the world not run by Goldman Sachs?

The point is, this is not the free market at work. This is central bank money printers and their Wall Street cronies perverting what used to be a capitalist market.

TGR: Does this unwinding of the Fed and the bond markets put the banking system back in peril, like in 2008?

DS: Not necessarily. That is one of the great myths that I address in my book. The banking system, especially the mainstream banking system, was not in peril at all. The toxic securitized mortgage assets were not in the Main Street banks and savings and loans; these institutions owned mostly prime quality whole loans and could have bled down the modest bad debt they did have over time from enhanced loan loss reserves. So the run on money was not at the retail teller window; it was in the canyons of Wall Street. The run was on wholesale money—that is, on repo and on unsecured commercial paper that had been issued in the hundreds of billions by financial institutions loaded down with securitized toxic garbage, including a lot of in-process inventory, on the asset side of their balance sheets.

The run was on investment banks that were really hedge funds in financial drag. The Goldmans and Morgan Stanleys did not really need trillion-dollar balance sheets to do mergers and acquisitions. Mergers and acquisitions do not require capital; they require a good Rolodex. They also did not need all that capital for the other part of investment banking—the underwriting business. Regulated stocks and bonds get underwritten through rigged cartels—they almost never under-price and really don’t need much capital. Their trillion dollar balance sheets, therefore, were just massive trading operations—whether they called it customer accommodation or proprietary is a distinction without a difference—which were funded on 30 to 1 leverage. Much of the debt was unstable hot money from the wholesale and repo market and that was the rub—the source of the panic.

Read the whole article here

Goldman Sachs and Trust

noreply@blogger.com (Joyce) — Tue, 08 May 2012 00:41:00 +0000

The actions of Goldman Sachs have left people trusting less in the ethical and moral standards of banks. The alumni of Goldman Sachs have filled many government positions and have looked after the interests of banks rather than the needs of the community. Hank Paulson and Robert Rubin come to mind.

The individual actions of members of institutions have led to much distrust and a battered economy.

One subheading from washingtonsblog in an article entitled Lack of Trust--Caused by Institutional Corruption--Is Killing the Economy expresses an idea that makes sense; that is, Prosecuting the Criminals Is Necessary to Restore Trust. An excerpt follows:

Lack of Trust--Caused by Institutional Corruption--Is Killing the Economy
By washingtonsblog
. . . .
Prosecuting the Criminals Is Necessary to Restore Trust
Nobel prize winning economist Joseph Stiglitz says that we have to prosecute fraud or else the economy won’t recover:
The legal system is supposed to be the codification of our norms and beliefs, things that we need to make our system work. If the legal system is seen as exploitative, then confidence in our whole system starts eroding. And that’s really the problem that’s going on.
***

I think we ought to go do what we did in the S&L [crisis] and actually put many of these guys in prison. Absolutely. These are not just white-collar crimes or little accidents. There were victims. That’s the point. There were victims all over the world.
***
Economists focus on the whole notion of incentives. People have an incentive sometimes to behave badly, because they can make more money if they can cheat. If our economic system is going to work then we have to make sure that what they gain when they cheat is offset by a system of penalties.
Robert Shiller said recently that failing to address the legal issues will cause Americans to lose faith in business and the government:
Shiller said the danger of foreclosuregate — the scandal in which it has come to light that the biggest banks have routinely mishandled homeownership documents, putting the legality of foreclosures and related sales in doubt — is a replay of the 1930s, when Americans lost faith that institutions such as business and government were dealing fairly.
Economists such as William Black and James Galbraith agree. Galbraith says:
There will have to be full-scale investigation and cleaning up of the residue of that, before you can have, I think, a return of confidence in the financial sector. And that’s a process which needs to get underway.
Galbraith also says that economists should move into the background, and “criminologists to the forefront”.

Government regulators know this – or at least pay lip service to it – as well. For example, as the Director of the Securities and Exchange Commission’s enforcement division told Congress:

Recovery from the fallout of the financial crisis requires important efforts on various fronts, and vigorous enforcement is an essential component, as aggressive and even-handed enforcement will meet the public’s fair expectation that those whose violations of the law caused severe loss and hardship will be held accountable. And vigorous law enforcement efforts will help vindicate the principles that are fundamental to the fair and proper functioning of our markets: that no one should have an unjust advantage in our markets; that investors have a right to disclosure that complies with the federal securities laws; and that there is a level playing field for all investors.

Read the whole article here

Goldman Sachs Successfully Eludes "Fraud" Label

noreply@blogger.com (Joyce) — Sun, 06 May 2012 14:11:00 +0000

It is interesting to see how the government and the judicial system manage to keep from using the word "fraud" in relationship to the causes of the financial crisis. While it is certain that fraud was at the heart of the reasons for The Great Recession, no one can seems able to pin it on a person who should pay the consequences. There have been, and will be in the future, many more instances of avoiding the words that need to be said: the banks committed fraud at the expense of the people.

Goldman Sachs Wins Dismissal of Some Claims in CIFG Suit
By Chris Dolmetsch - Bloomberg Businessweek

Goldman Sachs asked the court in October to dismiss six of the eight claims in the suit, arguing that CIFG was informed of the risks associated with the investments, failed to conduct due diligence on its own, and hasn’t sought contractual remedies that would allow it to seek the repurchase of certain loans.
New York State Supreme Justice O. Peter Sherwood, in an order filed today, granted Goldman Sachs’s motion to dismiss three counts, including one for fraudulent inducement, while denying the New York-based investment bank’s motion to dismiss three other claims for breach of contract.
. . . .

“Obviously, we’re disappointed that the court dismissed the fraud charge, but we’ll consider our options going forward,” David Berger, a lawyer for CIFG, said in a phone interview. The insurer’s lawyers were still reviewing the ruling and hadn’t decided whether to appeal, he said.

Michael DuVally, a spokesman for Goldman Sachs, declined to comment on the ruling in an e-mail.

Read the whole piece here

Comments that Apply to Goldman Sachs

noreply@blogger.com (Joyce) — Sat, 05 May 2012 15:01:00 +0000

Barry Ritholtz has definite views about what caused The Great Recession and about the players that indulged themselves in order to bring it to the rest of us.

The excerpts below are pertinent to bankers like Goldman Sachs in regard to HFT, Rogue Bankers, Robert Rubin, Financialization of the US Economy, Lobbying and Bankers and Risks:

Ritholtz Interviews With Jonathan Miller: An Uncompromised View of Contemporary American Politics and Economics
From Capitalism Without Failure

On High-Frequency trading: It's a zero sum game. They are skimming. Mom and pop's pension fund is being ripped off a little bit on every trade. Only shameless whores, that are the publicly traded exchanges, would steal from the public. If the exchanges were not-for-profits no one would ever think of doing this. It is this kind of behavior that makes the public wary of investing in stock markets.

On Rogue Bankers: There is no such thing as rogue traders. There are only rogue banks. If you are that grossly negligent that you have to be rescued by the government, then I guarantee you they are doing lots of other things wrong. If you have an entity that messed up so badly that it can't survive... how are you going to go out and run a marathon? Jamie Dimon is the next CEO who needs a humbling.

On Robert Rubin: Another giant asshole - he gave us Geithner and Summers. You don't send the same surgeon in after a botched surgery because the first surgeon is more interested in covering up his work.

On the Financialization of the US Economy: From a macro perspective, the US economy has been financialized. Wall Street is supposed to bring capital to companies working on new products. And, in theory, they also manage retirement accounts and assets - but they don't do a good job of that. Everything else - moving paper around, structuring finance, all that other bullshit - is just a waste of energy. It doesn't do anything for society. And, even worse, it pulls people - mathematicians, engineers, etc. - into the industry who would otherwise have gone into the Googles, the Apples, etc.

On Lobbying: I have libertarian friends who are always bitching about government. I always say to them, when a dog bites you in the ass... that's what dogs do - don't blame the dog. Look up the leash and see who is holding the handle. When you look at Congress - Congress is the snapping dog. But they are somebody's bitch. You have to see who is holding the leash. Very often it is banks and Wall Street and the financial sector having Congress do its bidding. Most of the things that got us into trouble have been done at the bequest of the banks. For example, the 2004 change in leverage ratios... ironically known as the Bear Stearns Act - as in banks larger than Bear Stearns had lower ratio requirements. First of all, why do you change a law for just 5 banks and not for all of them? That shows you how corrupt the system is.

On Bankers and Risk: I look at bankers like 5 year olds - if you give a 5 year old a bowl of chocolate bars and say they can have one... As soon as you leave the room they will eat until they are sick. Bankers are no different. As soon as you say, "You're a big boy... we trust you not to blow up the economy and send the world to the precipice..." They are so short-term focused, they will do whatever is necessary to get that bonus, and then will let the world go to hell and let it be someone else's problem. The whole run-up from 2003-2007 was make-believe, based on risk not mattering. If risk doesn't matter, you mash your foot to the carpet and let the speedometer go up to 250. When the driver hits the wall he kills himself. The difference is the driver kills himself, but the bankers take everyone with them.

Read the article and listen to the podcast here

Goldman Sachs and Oil Speculation

noreply@blogger.com (Joyce) — Fri, 04 May 2012 16:51:00 +0000

Here is another article about how Goldman Sachs and other speculators make gas prices higher:

Les Leopold: How Wall Street Drives Up Gas Prices
By Les Leopold - Naked Capitalism

The oil markets have become just another profitable Wall Street casino. Why? Because, as the infamous outlaw Willie Sutton said, “That’s where the money is.” Oil markets as well as other commodity markets require a certain number of speculators. Oil producers and end users go to these markets in order to lock in prices for the products they use or sell. From refiners to shippers to airlines, oil markets provide a way to obtain price certainty for a specified period of time. To make these markets function, speculators are needed to take the other side of those trades. For more than a century about 30 percent of these commodity markets involved speculators and 70 percent of the participants in terms of volume were real producers, distributors and users. That’s what a healthy commodities market looks like.

But once financialization metastasized, the proportions flipped. Now 70 percent of the action comes from speculators, while only 30 percent comes from those who really produce, distribute and use the actual commodities. The casino has taken over.

This speculative invasion is why gasoline prices are climbing rapidly. The only question remaining is how much of the price rise is due to excess speculation. Here’s what the experts say:
The St. Louis Federal Reserve (not exactly a Marxist institution) claims that 15 percent of the rise in gasoline prices is due to Wall Street speculation (PDF).

A report from the House Committee on Government Oversight claims that up to 30 percent of the rise may be due to speculators.

Even experts at Goldman Sachs, of all places, say that “excessive speculation is causing oil prices to spike by up to 40%.”

And Saudi Arabia, ”the largest exporter of oil in the world, told the Bush administration back in 2008, during the last major spike in oil prices, that speculation was responsible for about $40 of a barrel of oil.”

This flip in the balance of real economic activity and speculation is precisely what John Maynard Keynes warned us about more than 75 years ago:

"Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. The measure of success attained by Wall Street, regarded as an institution of which the proper social purpose is to direct new investment into the most profitable channels in terms of future yield, cannot be claimed as one of the outstanding triumphs of laissez-faire capitalism…."

Who are the speculators?
Senator Bernie Sanders released classified documents revealing the names of the largest speculators in the oil markets as of 2008.

A look at the top 20 speculators reveals that only five are actually involved in producing, shipping, refining and consuming oil (Vitol, CMA, ENA, Semgroup and Emirates Oil). The other 15 are banks and investment houses – a virtual who’s who of Wall Street firms that puffed up the housing bubble and took down the economy. Goldman Sachs, Morgan Stanley, JP Morgan Chase, Merrill Lynch, Citigroup — they all make the list.

Read the entire piece here

Goldman Sachs Does Not Like Some Rules

noreply@blogger.com (Joyce) — Thu, 03 May 2012 16:51:00 +0000

In an effort to prevent another financial crisis, the Federal Reserve would like to implement a rule seeking to limit links between banks. See the article here. Goldman Sachs does not like the rule and is predicting all kinds of drastic scenarios about lost economic growth and increased unemployment. Banks like to think they are indispensable but in their present TBTF form they are more a danger than a benefit to the economy.

It is the vast linkages between banks that help define the financialization of the GDP. At present, the big banks are not interested in promoting industry and agriculture where products and services to the public reside. Generating interest and fees and making capital gains are where their actions reside. Loans are diverted from goods and services to generating wealth for the banks themselves. The result is the transfer of wealth upwards to the very rich. Profit-making through financialization does not provide capital formation or raise living standards of workers.

Banks like Goldman Sachs have managed to take control of the economic, cultural and political processes of the national economy. As financialization proceeds, banks become arbiters of policies of government, decision-makers in government departments including the Treasury and deregulators of laws that interfere with making huge profits.

Whenever Goldman Sachs gets incensed about certain rules or regulations, you can be sure they have very good reasons for doing so. They want no limits put on their present activities which are so profitable for them and so disastrous for the rest of the population.

If one could make a law which stated that all banks must make loans available for commerce only (i.e., goods and services) and no loans for further financialization (including OTC derivatives), the world would be a better place.

Goldman Sachs is only interested in itself: its profits and its welfare. Below is a reminder of how Goldman Sachs contributed to The Great Recession of 2008. That report shows why the loopholes that Goldman Sachs suggests should never be considered and why some bank executives should have been indicted (under Sarbanes-Oxley) for contributing to the financial crisis.

Wall Street and The Financial Crisis
Anatomy of a Financial Collapse
By Carl Levin and Tom Coburn - US Senate Permanent Subcommittee on Investigations

Two case studies, involving Goldman Sachs and Deutsche Bank, illustrate a variety of troubling practices that raise conflicts of interest and other concerns involving RMBS, CDO, CDS, and ABX related financial instruments that contributed to the financial crisis.

The Goldman Sachs case study focuses on how it used net short positions to benefit from the downturn in the mortgage market, and designed, marketed, and sold CDOs in ways that created conflicts of interest with the firm’s clients and at times led to the bank=s profiting from the same products that caused substantial losses for its clients.

From 2004 to 2008, Goldman was a major player in the U.S. mortgage market. In 2006 and 2007 alone, it designed and underwrote 93 RMBS and 27 mortgage related CDO securitizations totaling about $100 billion, bought and sold RMBS and CDO securities on behalf of its clients, and amassed its own multi-billion-dollar proprietary mortgage related holdings. In December 2006, however, when it saw evidence that the high risk mortgages underlying many RMBS and CDO securities were incurring accelerated rates of delinquency and default, Goldman quietly and abruptly reversed course.

Over the next two months, it rapidly sold off or wrote down the bulk of its existing subprime RMBS and CDO inventory, and began building a short position that would allow it to profit from the decline of the mortgage market. Throughout 2007, Goldman twice built up and cashed in sizeable mortgage related short positions. At its peak, Goldman’s net short position totaled $13.9 billion. Overall in 2007, its net short position produced record profits totaling $3.7 billion for Goldman’s Structured Products Group, which when combined with other mortgage losses, produced record net revenues of $1.2 billion for the Mortgage Department as a whole.

Throughout 2007, Goldman sold RMBS and CDO securities to its clients without disclosing its own net short position against the subprime market or its purchase of CDS contracts to gain from the loss in value of some of the very securities it was selling to its clients. The case study examines in detail four CDOs that Goldman constructed and sold called Hudson 1, Anderson, Timberwolf, and Abacus 2007-AC1. In some cases, Goldman transferred risky assets from its own inventory into these CDOs; in others, it included poor quality assets that were likely to lose value or not perform. In three of the CDOs, Hudson, Anderson and Timberwolf, Goldman took a substantial portion of the short side of the CDO, essentially betting that the assets within the CDO would fall in value or not perform. Goldman’s short position was in direct opposition to the clients to whom it was selling the CDO securities, yet it failed to disclose the size and nature of its short position while marketing the securities. While Goldman sometimes included obscure language in its marketing materials about the possibility of its taking a short position on the CDO securities it was selling, Goldman did not disclose to potential investors when it had already determined to take or had already taken short investments that would pay off if the particular security it was selling, or RMBS and CDO securities in general, performed poorly. In the case of Hudson 1, for example, Goldman took 100% of the short side of the $2 billion CDO, betting against the assets referenced in the CDO, and sold the Hudson securities to investors without disclosing its short position. When the securities lost value, Goldman made a $1.7 billion gain at the direct expense of the clients to whom it had sold the securities.

In the case of Anderson, Goldman selected a large number of poorly performing assets for the CDO, took 40% of the short position, and then marketed Anderson securities to its clients. When a client asked how Goldman “got comfortable” with the New Century loans in the CDO, Goldman personnel tried to dispel concerns about the loans, and did not disclose the firm’s own negative view of them or its short position in the CDO.

In the case of Timberwolf, Goldman sold the securities to its clients even as it knew the securities were falling in value. In some cases, Goldman knowingly sold Timberwolf securities to clients at prices above its own book values and, within days or weeks of the sale, marked down the value of the sold securities, causing its clients to incur quick losses and requiring some to post higher margin or cash collateral. Timberwolf securities lost 80% of their value within five months of being issued and today are worthless. Goldman took 36% of the short position in the CDO and made money from that investment, but ultimately lost money when it could not sell all of the Timberwolf securities.

In the case of Abacus, Goldman did not take the short position, but allowed a hedge fund, Paulson & Co. Inc., that planned on shorting the CDO to play a major but hidden role in selecting its assets. Goldman marketed Abacus securities to its clients, knowing the CDO was designed to lose value and without disclosing the hedge fund’s asset selection role or investment objective to potential investors. Three long investors together lost about $1 billion from their Abacus investments, while the Paulson hedge fund profited by about the same amount. Today, the Abacus securities are worthless.

In the Hudson and Timberwolf CDOs, Goldman also used its role as the collateral put provider or liquidation agent to advance its financial interest to the detriment of the clients to whom it sold the CDO securities.

You can find the report here