Goldman Sachs and the Financial Meltdown

Two videos are on offer today: the first one features an interview with Barry Ritholtz about the mortgage settlement that gives the banks a pass on paying for their foreclosure crimes; the other, is a three-hour documentary video called "Meltdown" which shows the role that banks and others played in bringing down the world's financial system. Of course, we know that Goldman Sachs played a key role in helping to create the financial crisis and is mentioned in the documentary.

The first video shows how the government and the justice department have chosen not to pursue investigations or criminal prosecutions for the fraud committed by banks.

The second video reminds us of the terrible damage the financial crisis did to the citizens of the US and elsewhere, except for the banks, of course, that enjoyed fabulous bonuses and salaries earned by their nefarious activities that brought the system down.

Barry Ritholtz|Mortgage Settlement Makes "Felony Fraud a Business Expense" (Video)
Posted by 4closureFraud

Feb. 29 (Bloomberg Law) — Barry Ritholtz, CEO for Fusion IQ and founder of The Big Picture blog, talks with Bloomberg Law’s Lee Pacchia about the recently announced settlement between 49 state attorneys general and a number of banks regarding improper foreclosure practices. Ritholtz contends that this settlement represents a choice by the Department of Justice to ignore long-settled property laws.

You can view the video here

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

The Secret History of the Global Financial Collapse
Top Documentary Films

Doc Zone has traveled the world – from Wall Street to Dubai to China – to investigate The Secret History of the Global Financial Collapse. Meltdown is the story of the bankers who crashed the world, the leaders who struggled to save it and the ordinary families who got crushed.

September 2008 launched an extraordinary chain of events: General Motors, the world’s largest company, went bust. Washington Mutual became the world’s largest bank failure. Lehman Brothers became the world’s largest bankruptcy ever – The damage quickly spread around the world, shattering global confidence in the fundamental structures of the international economy.

Meltdown also tells the stories of desperate foreclosed homeowners in California, disillusioned autoworkers at the end of the line in Ontario and furious workers in France who shocked the world by kidnapping their own bosses.

1. The Men Who Crashed the World. Greed and recklessness by the titans of Wall Street triggers the largest financial crash since the Great Depression. It’s left to US Treasury Secretary Hank Paulson, himself a former Wall Street banker, to try and avert further disaster.

2. A Global Tsunami. The meltdown’s devastation ripples around the world from California to Iceland and China. Facing economic ruin, desperate world leaders are at each other’s throats.

3. Paying the Price. The victims of the meltdown fight back. In Iceland, protesters force a government to fall. In Canada, ripped off autoworkers occupy their plant. And in France, furious union members kidnap their bosses.

4. After the Fall. Investigators begin to sift through the meltdown’s rubble. Shaken world leaders question the very foundations of modern capitalism while asking: could it all happen again?

Watch the full documentary now (playlist – 3 hours)

You can see the documentary here

Goldman Sachs Receives a Wells Notice. So What?

Why the SEC is even bothering to file a civil charge against Goldman Sachs is a mystery. Goldman will pay a few million dollars as a penalty, will not have to admit any wrongdoing and will promise to be good in the future. What is the point?

"Goldman said its notice centered on an offering underwritten by the firm in late 2006 of about $1.3 billion in subprime residential mortgage-backed securities." (from USA Today article)

We already know that Obama and Holder have no intention of even investigating the criminality of the banks let alone prosecuting them. Yves Smith suggests that the Wells notice is a propaganda ploy for political purposes in an election year and, besides she notes, the statute of limitations is rapidly running out.

Meanwhile, a Market Watch article states that Goldman had also "received government and regulatory inquiries concerning certain transactions with MF Global Holdings Ltd."

Yves Smith of Naked Capitalism says,

Brace Yourself for Election-Driven Enforcement Theater: Token Roughing Up of Crisis Bad Banksters, While Corzine Gets a Free Pass
By Yves Smith - Naked Capitalism

But to add insult to injury, the chump public will be given bread and circuses enforcement theater to distract it from the fact that the banks are getting a sweetheart deal.

The show is already on the road. The Financial Times tells us that Wells Fargo and Goldman have reported that they have received so-called Wells notices, which is an advanced warning that the SEC staff plans to file civil charges. SEC is pursuing firms that it believes misrepresented the quality of loans that were bundled and sold as mortgage backed securities.

This all sounds great, right? Wrong. Take a look at your calendar.

The toxic phase of subprime issuance started in the late summer-early fall of 2005 and screeched to a halt in June 2007. But the statute of limitations for securities liability is five years. So the ONLY deals the SEC can pursue now are the last gasp transactions of March- June 2007, and on those, the clock is ticking. Those were particularly dreadful and no doubt would provide some colorful anecdotes, but who are we kidding? The SEC has sat on its hands until an election year need to Look Tough will lead to a filing of a few random lawsuits to rough up the usual suspects. But the reality is that the horses have left the barn and are now in the next county.

Contrast this with the flailing about on MF Global. From the New York Times, emphasis ours:

Federal authorities are struggling to find evidence to support a criminal case stemming from the collapse of MF Global, even after a federal grand jury in Chicago has issued subpoenas.

Investigators, unable to find a smoking gun amid thousands of e-mails and documents, increasingly suspect that chaos and poor risk control systems prompted the disappearance of more than $1 billion in customer money, according to several people involved in the case.

Have none of these people heard of Sarbanes Oxley? This sort of failure falls right in its crosshairs. As we wrote a year ago:

Contrary to prevailing propaganda, there is a fairly straightforward case that could be launched against the CEOs and CFOs of pretty much every US bank with major trading operations. I’ll call them “dealer banks” or “Wall Street firms” to distinguish them from very big but largely traditional commercial banks like US Bank.

Since Sarbanes Oxley became law in 2002, Sections 302, 404, and 906 of that act have required these executives to establish and maintain adequate systems of internal control within their companies. In addition, they must regularly test such controls to see that they are adequate and report their findings to shareholders (through SEC reports on Form 10-Q and 10-K) and their independent accountants. “Knowingly” making false section 906 certifications is subject to fines of up to $1 million and imprisonment of up to ten years; “willful” violators face fines of up to $5 million and jail time of up to 20 years.

The responsible officers must certify that, among other things, they:

(A) are responsible for establishing and maintaining internal controls;
(B) have designed such internal controls to ensure that material information relating to the issuer and its consolidated subsidiaries is made known to such officers by others within those entities, particularly during the period in which the periodic reports are being prepared;
(C) have evaluated the effectiveness of the issuer’s internal controls as of a date within 90 days prior to the report; and
(D) have presented in the report their conclusions about the effectiveness of their internal controls based on their evaluation as of that date;

These officers must also have disclosed to the issuer’s auditors and the audit committee of the board of directors (or persons fulfilling the equivalent function):

(A) all significant deficiencies in the design or operation of internal controls which could adversely affect the issuer’s ability to record, process, summarize, and report financial
data and have identified for the issuer’s auditors any material weaknesses in internal controls; and
(B) any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal controls

The premise of this requirement was to give assurance to investors as to (i) the integrity of the company’s financial reports and (ii) there were no big risks that the company was taking that it had not disclosed to investors.

This section puts those signing the certifications, which is at a minimum the CEO and the CFO, on the hook for both the adequacy of internal controls around financial reporting (to be precise) and the accuracy of reporting to public investors about them. Internal controls for a bank with major trading operations would include financial reporting and risk management.

It’s almost certain that you can’t have an adequate system of internal controls if you all of a sudden drop multi-billion dollar loss bombs on investors out of nowhere. Banks are not supposed to gamble with depositors’ and investors’ money like an out-of-luck punter at a racetrack. It’s pretty clear many of the banks who went to the wall or had to be bailed out because they were too big to fail, and I’ll toss AIG in here as well, had no idea they were betting the farm every day with the risks they were taking.

Read the rest of the article here

Two Things Anathema to Each Other: Goldman Sachs and Unions

When Goldman Sachs Japan began firing its employees for no good reason (except to maintain executive's high bonuses), the employees decided to fight for their rights by forming a union, probably Goldman's first employee union. The employees were reacting to the way Goldman treated its employees during and after their dismissals. You can read the details and find out about the "intensity and viciousness" with which Goldman treated its laid-off employees in The Japan Times. Goldman tries to buck any law it can including Japanese ones.

Unions are important.

Goldman Sachs Workers Unionize In Japan: Report
By Huffington Post

Wall Street workers and union hands may seem like total opposites, but employees at an iconic investment bank are countering those preconceived notions.

That's right, some Goldman Sachs workers in Japan are unionizing, according to the Japan Times (h/t Dealbook). The workers made the decision after the bank allegedly attempted to convince certain employees to voluntarily resign in order to get around Japanese labor laws that make laying off workers difficult.

Despite the laws, Goldman has managed to shed some jobs in Japan. The firm was among a group of banks that have slashed nearly 2,000 jobs in Japan since June 2010, largely as a result of the global financial crisis and the March earthquake and tsunami, according to Bloomberg.

This is surely not the first time workers in Japan have been upset at Goldman. Following the March earthquake and tsunami in Japan, the company reportedly asked its employees to stay in the country or risk being fired, even as concerns over radiation mounted, according to a March CNBC report.

And Goldman's union might have a difficult time making inroads going forward. Historically, Japanese unions have been firm-specific, meaning they lack the power of organizing workers in an entire industry, according to a 1993 paper from economists at Harvard. In addition, Japanese unions often accept the goals of their firms more readily than their U.S. counterparts.

Still, bank workers in the U.S. are unlikely to unionize any time soon. It's already been tried, anyway. In 2008, after taxpayers bailed out the banks to the tune of $700 billion, the Service Employees International Union sent an email aiming to organize bank workers, according to CNN. In addition, SEIU tried to get tellers at Bank of America and other big banks to unionize in 2009, according to CBS.

Though those previous attempts may not have been wildly successful, American bank workers might have more reason to consider unionizing than they have in the past. Bank profits rose to a five-year high in 2011, even as Wall Street workers were laid off and saw their bonuses and pay slashed.

Read the article here

Read the article in The Japan Times here

Only Goldman Sachs Could Devise a "Captive Strategic Investment Fund"

Goldman Sachs is not afraid to go where no one else has gone before (in order to make a buck). From sources that include WikiLeaks, we find out that Goldman attempted to set up a fund based on global intelligence gathered by Stratfor.

As Joseph Cannon says on his blog, Cannonfire, "Goldman Sachs: America's worst enemy--far worse than Al Qaeda. A company that must end." Agreed, or at least it should be chopped up into its component parts and regulated to death.

The WikiLeaks GiFiles: Stratfor Plotted with Goldman Sachs to Set Up Investment Fund
By Gianluca Mezzofiore - International Business Times

Stratfor, the intelligence firm at the centre of the latest WikiLeaks/Anonymous tie-up, attempted to set up an investment fund with a Goldman Sachs director to trade on the intelligence collected by Stratfor.

In 2009, the then managing director of the investment bank, Shea Morenz, planned to utilise the intelligence from the insider network "to start up a captive strategic investment fund".

"What StratCap will do is use our Stratfor's intelligence and analysis to trade in a range of geopolitical instruments, particularly government bonds, currencies and the like," reads an email by Stratfor's CEO George Friedman.

The emails show that Morenz in 2011 invested more than $4 million and joined Stratfor's board of directors.

During 2011, a formally independent offshore share structure was built up with the name of StratCap. But Friedman himself told his Stratfor staff that StratCap intelligence fund was secretly integrated to the intelligence firm.

"Do not think of StratCap as an outside organisation. It will be integral," he wrote. "It will be useful to you if, for the sake of convenience, you think of it as another aspect of Stratfor and Shea as another executive in Stratfor... we are already working on mock portfolios and trades"

The emails published by Wikileaks also reveal that Guardian journalist David Leigh allegedly teamed up with Israeli journalist Yossi Melman, dubbed as "an information mule", to move WikiLeaks US diplomatic cables to Israel "in violation of Wikileaks' contract with the Guardian".

Wikileaks started publishing on Monday more than five million emails hacked by Anonymous from the servers of Stratfor, a US intelligence gathering company.

Read the rest of the article here

Read Joseph Cannon's blog here

Why the Occupy Movement is More Important than Goldman Sachs

Here is what is commendable about the people who support and run the Occupy Movement: they try to inform themselves of important world events; they take a keen interest in collecting factual evidence; they teach others about what is going on the the world of politics and finance; and they have empathy for those who are suffering because of the financial crisis brought on by the banks.

Occupy has written intelligently about the Volcker Rule and the CFPB rules that are being written to correct the self-regulation enjoyed by banks like Goldman Sachs. The following article may have a few small errors in it but it is a fine example of the manner in which Occupy works.

Why Greece Matters to the Occupy movement and the Occupy SF Greece Rally
By Beth Seligman, J.D. - OccupySF.org

Summary: A small but informative OccupySF rally on February 17 was held in solidarity with the sovereignty of the people of Greece highlighting the importance of their economic situation to the Occupy community, the United States, and the world as a whole. SF Occupiers, with green signs dotting the sidewalk, called for the IMF to leave Greece, noting that the austerity measures were designed to benefit the banks but enslave the people, and pointing out that Greece should follow the example of Iceland, default on its debt, and arrest the bankers involved in the fraudulent derivative agreements that helped bring down the economy.

Former international bankers with ties to such private banks as Goldman Sachs have been bolstered to the helm of Greece and Italy, much like what’s happened in the United States when the Bush and Obama economic teams pushed through the massive bank bail-outs and began calling for “budget cuts”, aka: austerity. And many states and municipalities in the United States are burdened with debt to private bankers stemming from interest-rate swaps that private bankers pushed on them, much like the debt that Greece faces.

Greece has a choice: it can continue on this path of austerity agreements which will contract their economies even more, and lead to the sell-off of their state assets and resources to international banks and corporations, or it can follow the example of Iceland and default on its debt and use its tax revenues to invest in a green energy infrastructure, a localized productive economy, and its own people while setting an example for Italy, Spain, Ireland, and yes, the United States.

Please read the whole article to get the tenor of it here

Goldman Sachs Should Stand in the Jury Box

If Tourre has "violated a law designed to prevent fraudulent sales of securities," then shouldn't Goldman Sachs also be found guilty for allowing employees to commit such actions? Notice how convoluted the phrase is; rather than the judge saying he committed fraud he just "violated a law." Is that why so much of justice seems to be circumvented in these days after the financial crisis? I think Goldman Sachs should stand trial--with a jury of the 99%!

SEC Seeks Testimony of Ex-IKB Employee in Lawsuit Against Goldman's Tourre
By David Glovin - Bloomberg

The U.S. Securities and Exchange Commission wants to question a former employee of IKB Deutsche Industriebank AG (IKB) in its lawsuit against Goldman Sachs Group Inc. (GS) trader Fabrice Tourre, court records show.

The SEC today asked a federal judge in New York to issue a so-called letter of request that would allow the agency to take testimony from Jorg Zimmerman, a resident of Germany.

The agency sued Tourre in 2010, saying he defrauded investors by not disclosing that hedge fund Paulson & Co. helped pick the underlying securities for a collateralized debt obligation, known as Abacus, and planned to bet against them.

After reaching a $550 million settlement with New York- based Goldman Sachs, the SEC filed a new claim against Tourre, saying he gave the company “substantial assistance” as it misled investors. The SEC said IKB wouldn’t have invested if it had known of Paulson’s involvement in the portfolio selection.

“Tourre personally spoke with IKB employee Jorg Zimmerman to solicit interest in ABACUS 2007-ACI securities,” the SEC said in its filing.

The agency said its lawyers want to ask Zimmerman about IKB’s decision to invest, the representations that Tourre and Goldman Sachs made to the bank, “and the importance of the facts omitted by Tourre” and Goldman Sachs.

Jersey Firms

Zimmerman isn’t a defendant in the case. Tourre has denied wrongdoing in the lawsuit.

Pamela Rogers Chepiga, a lawyer for Tourre, said in an interview that today’s request is a corrected version of an SEC filing from several weeks ago, and that she has also asked the German court to order testimony.

Tourre has said in court that the $150 million investment was actually made by two Jersey-based firms in the Channel Islands, and not by Dusseldorf, Germany-based IKB.

“We have to finish up discovery in Germany,” Chepiga said. Discovery is the gathering and sharing of evidence before a trial.

U.S. District Judge Barbara Jones in Manhattan last year refused to dismiss the case while narrowing some of the claims against Tourre. She said the SEC had met its burden for pursuing a claim that Tourre violated a law designed to prevent fraudulent sales of securities and should stand trial.

The case is SEC v. Tourre, 10-cv-03229, U.S. District Court, Southern District of New York (Manhattan).

You can read the article here

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

± I.M.F. ± from PlusqueMinusque on Vimeo.

You can see the video here

Cash Incentives Continue at Goldman Sachs

Goldman Sachs is doing what Goldman Sachs does best--pay its executives huge bonuses. It does not really matter if the bank business declines because Goldman can "tweak" the results for more favorable returns for themselves.

Perverse cash incentives will make risk-taking more attractive and more risk-taking is not what the financial system needs.

Analysis: Goldman's top brass gun for cash bonuses
By Jed Horowitz - Chicago Tribune Business

(Reuters) - While Wall Street slashes pay and freezes cash awards, Goldman Sachs Group's top five executives may reap special bonuses of $10.5 million apiece if the firm hits historically easy profit targets over the next two years.

Many companies have long-term incentive plans, but Goldman's program is notable for dangling hefty cash payouts at a time when banks are tilting toward deferred-stock awards.

Post-bailout anger at Goldman was still strong when the cash bonus plan was introduced a year ago, but the Occupy Wall Street movement had not yet made income inequality a hot-button political issue.

The program is now also playing out against stark internal conditions. Wall Street firms -- including Goldman -- are laying off thousands of employees, capping cash portions of bonuses and requiring repayment of past bonuses if profits prove to be fleeting, illegal or the result of excessive risk-taking.

. . . .

In its proxy statement last April, Goldman couched the new cash-bonus plan as, in part, a peace offering for executives. They received little or no bonuses in 2008, 2009 and 2010, the compensation committee wrote, despite "outperforming" core competitors such as Bank of America, Citigroup, JPMorgan Chase and Morgan Stanley.

The plan provides Blankfein, President Gary Cohn, Chief Financial Officer David Viniar and vice chairmen Michael Evans and John Weinberg an initial $7 million each. They'll collect if Goldman's return on equity averages 10 percent in 2011, 2012 and 2013 and its book value per share rises an average of 7 percent. The grant is adjusted at the end of every year, based on an adjusted ROE, with bonuses awarded in January 2014.

At a maximum, they can pocket 150 percent of the grant --$10.5 million if it stays at $7 million -- if ROE averages 15 percent or more and book value jumps at least 12 percent. On the low end, they'll collect half the grant as long as ROE hits 5 percent and book value rises 2 percent over the three years. Each metric comprises half of the award, but anything under the bottom targets yields no bonus.

The quintet participating in the plan at its initiation do not have to be employed at Goldman to collect, according to the company's 2011 proxy. That clause could create shareholder questions given rumors that Blankfein, 57, may be considering an early retirement.

EASY TARGETS

By historical standards, critics say, the compensation committee set marshmallow targets. Goldman's ROE averaged 19.3 percent from its initial public offering in 1999 through 2010, and its book value compounded annually at 18 percent.

"The disclosed metrics appear designed to drive substantial rewards for historically average performance," ISS Proxy Advisory Services wrote in an April report that counseled shareholders to vote against ratifying the compensation of Goldman's executives. About 27 percent of shares were voted against the plan, more than any other proposal supported by the company.

Goldman's 2011 proxy statement insists that executives won't collect "if our firm generates low or negative returns." That appears to bode ill given that last year the bank had a dismal ROE of 3.7 percent -- the lowest since its 1999 initial public offering -- and book value per share that inched up only 1 percent.

The compensation committee, however, gave itself wide discretion to make adjustments. For example, it deducted $5.7 billion paid last year to redeem preferred stock held by Warren Buffett's Berkshire Hathaway from the ROE calculation. That lifts ROE to 5.9 percent, sufficient to qualify over three years for a payout.

Read the whole article here

When You See Goldman Sachs Coming, Run the Other Way!

Why would anyone make a deal with Goldman Sachs? Goldman exists to maximize its profits and they do not give a phennig for the public good. There is a reason that electricity is a public utility because it serves the public's needs and when a private for-profit-only company wants to jigger with the gears, then watch out. The bank will win; the public will lose.

Deregulation for the purposes of promoting competition and choice for the users can be too easily subverted.

Consumer Rates Climb After Deregulation Goldman Sachs Funded
By Darrell Preston - Bloomberg News

Houston (10750MF) consumers were supposed to get lower electricity rates from deregulation. Instead, they pay some of the nation’s highest prices, partly because of bonds Goldman Sachs Group Inc. (GS) recently sold for a local utility.

The Wall Street bank marketed $1.7 billion of securities for Houston-based CenterPoint Energy Inc. (CNP) last month at higher yields than most of the company’s similar long-term debt, according to data compiled by Bloomberg. That raised costs borne by 2.2 million Houston-area consumers by about $47 million.

The sale shows how deregulation in Texas backfired, driving up costs for those promised savings. Texans paid some of the lowest rates in the country before the changes, according to the U.S. Energy Information Administration. Now they pay the fifth- highest electricity prices. The policy shift toward competition has also misfired in other states including California.

“This whole thing has been tragic for ratepayers,” said Thomas Brocato, a lawyer in Austin for the Gulf Coast Coalition of Cities, a group of 34 municipalities served by CenterPoint, whose share price beat the Standard & Poor’s utilities index by about 2-to-1 in the past year. The bond issue’s cost “makes it still worse,” he said.

Read the entire article here

Goldman Sachs and Interest Rate Swaps in Oakland

The Occupy Oakland protesters had good reason to protest against Wall Street and Goldman Sachs. However, why a municipality would "bet" its money with an interest rate swap is a puzzle.

In any case, if you want to know how those TBTF banks do business, without any regard for the welfare of the community and with their goal to accumulate as much wealth as they can, then the following excerpt will give you pause:

Oakland's Toxic Deal with Wall Street
The city has already paid $26 million to Goldman Sachs, and local activists say the deal is unfair gift of public funds and should be terminated.
By Darwin BondGraham - East Bay Express

Oakland's debt to Goldman Sachs has angered progressives in part because the Wall Street giant received multibillion-dollar bailouts from the federal government, and yet refuses to renegotiate expensive financial instruments with cities that are costing local taxpayers millions more. During a meeting last June on Oakland's budget, Councilwoman Rebecca Kaplan fired off a letter to Goldman Sachs' CEO: "Many of us stood united as leaders supporting federal action that used taxpayer funds to save your company from economic disaster," Kaplan wrote to Lloyd Blankfein, whose pay topped $40 million in 2008. "These actions — to use taxpayer dollars in order to salvage private, for-profit corporations — was justified to the public on the grounds that it would enable companies such as yours to then be able to operate in a manner that would be beneficial to the public.

"Unfortunately," she concluded, "that half of the deal has not taken place."

Kaplan's letter followed research by the Service Employees International Union and the Alliance of Californians for Community Empowerment that exposed the unfairness of so-called rate-swap agreements between cities and investment banks across California. Last June SEIU members picketed the California Street offices of Goldman Sachs in San Francisco, demanding renegotiation of the deal's terms. "The $26 million the city has already paid is half of Oakland's deficit this year," activists said at the time, "but only 1 percent of Goldman Sachs' profits for the first quarter of 2011." But this campaign, as well as a resolution for the Oakland City Council to seek termination of the swap deal, later fell by the wayside.

The toxic rate-swap agreement in question dates to 1997 when Goldman Sachs convinced Oakland officials that it would protect taxpayers against the possibility that interest rates would rise on variable rate bonds that the city planned to issue the next year. Rate swaps — essentially contracts between two parties — allow governments to transform variable-rate debt payments into fixed-rate debt. Oakland's deal with Goldman Sachs converted floating rates on $187 million of bond debt into a fixed 5.6 percent.

The problem for Oakland, however, was that floating interest rates only briefly exceeded 5.6 percent in the past fifteen years; first between 1998 and 2001, and again at the height of the housing bubble between 2006 and 2008. During the economic recession that followed 9/11, interest rates plummeted below 2 percent, forcing Oakland to make much higher payments to Goldman Sachs than it would have had it never signed the deal. Then, with the collapse of the economy in 2008, the US Federal Reserve reduced its lending rates to virtually zero, with variable rates in markets trailing close behind. Yet Oakland was still stuck paying more than 5 percent.

You can read the whole article here

Goldman Sachs's "Just Deserts"?

We know that Goldman Sach has accumulated much wealth through betting on failures or defaults of others. It would be the kind of retribution that many would find fitting if Goldman and other Wall Street banks found themselves done in through their own swaps.

How Greece Could Take Down Wall Street
By Ellen Brown - HuffPost Business

In an article titled "Still No End to 'Too Big to Fail,'" William Greider wrote in The Nation on February 15:

Financial market cynics have assumed all along that Dodd-Frank did not end "too big to fail" but instead created a charmed circle of protected banks labeled "systemically important" that will not be allowed to fail, no matter how badly they behave.

That may be, but there is one bit of bad behavior that Uncle Sam himself does not have the funds to underwrite: the $32 trillion market in credit default swaps (CDS). Thirty-two trillion dollars is more than twice the U.S. GDP and more than twice the national debt.

CDS are a form of derivative taken out by investors as insurance against default. According to the Comptroller of the Currency, nearly 95 percent of the banking industry's total exposure to derivatives contracts is held by the nation's five largest banks: JPMorgan Chase, Citigroup, Bank of America, HSBC, and Goldman Sachs. The CDS market is unregulated, and there is no requirement that the "insurer" actually have the funds to pay up. CDS are more like bets, and a massive loss at the casino could bring the house down.

It could, at least, unless the casino is rigged. Whether a "credit event" is a "default" triggering a payout is determined by the International Swaps and Derivatives Association (ISDA), and it seems that the ISDA is owned by the world's largest banks and hedge funds. That means the house determines whether the house has to pay.

The Houses of Morgan, Goldman and the other Big Five are justifiably worried right now, because an "event of default" declared on European sovereign debt could jeopardize their $32 trillion derivatives scheme. According to Rudy Avizius in an article on The Market Oracle (UK) on February 15, that explains what happened at MF Global, and why the 50 percent Greek bond write-down was not declared an event of default.

If you paid only 50 percent of your mortgage every month, these same banks would quickly declare you in default. But the rules are quite different when the banks are the insurers underwriting the deal.

Read the rest of the article here

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

From BBC's Newsnight, a short documentary on the scam which involved the Usual Suspect: Credit default swaps.

You can see the video here

Looking for Someone to Blame? Congress is a Good Place to Start

 While we here are committed to exposing the actions of Goldman Sachs - many of which helped, if not directly, created our economic problems - we often over look and under report on those who have and had the power to prevent the actions of Goldman Sachs and their band of merry banksters (including The Fed).  Charlie Reese says it in plain and simple language.  A report that he began in the 1980's and modified several times.  The version below was the one from 1995, long before anyone could have ever imagined the mess we would be in at the beginning of the 21st century. 

In the midst of this political year and all the BS we are hearing from all candidates and would be candidates, "We, The People" need to read Charlies  column and make our decisions based on the knowledge he reminds us of.

Pass this one around.  The country needs this reminder reminding us that we have the power by our vote to right the wrongs.

Journalist Charley Reese (now retired) was part of the Orlando Sentinels staff for three decades between 1970-2001, during which time he (among other duties) penned a thrice=weekly column which was distributed to other newspapers nationwide by King Features Syndicate.  During the 1980’s Reese wrote the first version of an editorial opining that 545 people (i.e., the President of the United States, plus all the members of Congress and the Supreme Court) “are directly, legally, morally and individually responsible for the domestic problems that plague this country,” and he has amended, updated and republished that piece several times since then.  The version cited below is taken from the 7 March, 1995 edition of the Orlando Sentinel, where it ran under the title “Looking for Someone to Blame?  Congress is a Good Place to Start.”
Source:  snopes.com

  Source:  snopes.com

545 vs. 300,000,000 People
-By Charlie Reese - 1995

Politicians are the only people in the world who create problems and then campaign against them.

Have you ever wondered, if both the Democrats and the Republicans are against deficits, WHY do we have deficits?

Have you ever wondered, if all the politicians are against inflation and high taxes, WHY do we have inflation and high taxes?

You and I don't propose a federal budget. The President does.

You and I don't have the Constitutional authority to vote on appropriations. The House of Representatives does.

You and I don't write the tax code, Congress does.

You and I don't set fiscal policy, Congress does.

You and I don't control monetary policy, the Federal Reserve Bank does.

One hundred senators, 435 congressmen, one President, and nine Supreme Court justices equates to 545 human beings out of the 300 million are directly, legally, morally, and individually responsible for the domestic problems that plague this country.

I excluded the members of the Federal Reserve Board because that problem was created by the Congress. In 1913, Congress delegated its Constitutional duty to provide a sound currency to a federally chartered, but private, central bank.

I excluded all the special interests and lobbyists for a sound reason. They have no legal authority. They have no ability to coerce a senator, a congressman, or a President to do one cotton-picking thing. I don't care if they offer a politician $1 million dollars in cash. The politician has the power to accept or reject it. No matter what the lobbyist promises, it is the legislator's responsibility to determine how he votes.

Those 545 human beings spend much of their energy convincing you that what they did is not their fault. They cooperate in this common con regardless of party.

What separates a politician from a normal human being is an excessive amount of gall. No normal human being would have the gall of a Speaker, who stood up and criticized the President for creating deficits. The President can only propose a budget. He cannot force the Congress to accept it.

The Constitution, which is the supreme law of the land, gives sole responsibility to the House of Representatives for originating and approving appropriations and taxes. Who is the speaker of the House now? He is the leader of the majority party. He and fellow House members, not the President, can approve any budget they want. If the President vetoes it, they can pass it over his veto if they agree to.

It seems inconceivable to me that a nation of 300 million cannot replace 545 people who stand convicted -- by present facts -- of incompetence and irresponsibility. I can't think of a single domestic problem that is not traceable directly to those 545 people. When you fully grasp the plain truth that 545 people exercise the power of the federal government, then it must follow that what exists is what they want to exist.

If the tax code is unfair, it's because they want it unfair.

If the budget is in the red, it's because they want it in the red.

If the Army & Marines are in Iraq and Afghanistan it's because they want them in Iraq and Afghanistan ...

If they do not receive social security but are on an elite retirement plan not available to the people, it's because they want it that way.

There are no insoluble government problems.

Do not let these 545 people shift the blame to bureaucrats, whom they hire and whose jobs they can abolish; to lobbyists, whose gifts and advice they can reject; to regulators, to whom they give the power to regulate and from whom they can take this power. Above all, do not let them con you into the belief that there exists disembodied mystical forces like "the economy," "inflation," or "politics" that prevent them from doing what they take an oath to do.

Those 545 people, and they alone, are responsible.

They, and they alone, have the power.

They, and they alone, should be held accountable by the people who are their bosses. Provided the voters have the gumption to manage their own employees...

We should vote all of them out of office and clean up their mess!


What you do with this article now that you have read it... is up to you.
This might be funny if it weren't so true.
Be sure to read all the way to the end:

Tax his land,
Tax his bed,
Tax the table,
At which he's fed.

Tax his tractor,
Tax his mule,
Teach him taxes
Are the rule.

Tax his work,
Tax his pay,
He works for
peanuts anyway!

Tax his cow,
Tax his goat,
Tax his pants,
Tax his coat.

Tax his ties,
Tax his shirt,
Tax his work,
Tax his dirt.

Tax his tobacco,
Tax his drink,
Tax him if he
Tries to think.

Tax his cigars,
Tax his beers,
If he cries
Tax his tears.

Tax his car,
Tax his gas,
Find other ways
To tax his ass.

Tax all he has
Then let him know
That you won't be done
Till he has no dough.

When he screams and hollers;
Then tax him some more,
Tax him till
He's good and sore.

Then tax his coffin,
Tax his grave,
Tax the sod in
Which he's laid...

Put these words
Upon his tomb,
'Taxes drove me
to my doom...'

When he's gone,
Do not relax,
Its time to apply
The inheritance tax.

Accounts Receivable Tax
Building Permit Tax
CDL license Tax
Cigarette Tax
Corporate Income Tax
Dog License Tax
Excise Taxes
Federal Income Tax
Federal Unemployment Tax (FUTA)
Fishing License Tax
Food License Tax
Fuel Permit Tax
Gasoline Tax (currently 44.75 cents per gallon)
Gross Receipts Tax
Hunting License Tax
Inheritance Tax
Inventory Tax
IRS Interest Charges IRS Penalties (tax on top of tax)
Liquor Tax
Luxury Taxes
Marriage License Tax
Medicare Tax
Personal Property Tax
Property Tax
Real Estate Tax
Service Charge Tax
Social Security Tax
Road Usage Tax
Recreational Vehicle Tax
Sales Tax
School Tax
State Income Tax
State Unemployment Tax (SUTA)
Telephone Federal Excise Tax
Telephone Federal Universal Service Fee Tax
Telephone Federal, State and Local Surcharge Taxes
Telephone Minimum Usage Surcharge Tax
Telephone Recurring and Nonrecurring Charges Tax
Telephone State and Local Tax
Telephone Usage Charge Tax
Utility Taxes
Vehicle License Registration Tax
Vehicle Sales Tax
Watercraft Registration Tax
Well Permit Tax
Workers Compensation Tax


STILL THINK THIS IS FUNNY?Not one of these taxes existed 100 years ago, & our nation was the most prosperous in the world.
We had absolutely no national debt, had the largest middle class in the world, and Mom, if agreed, stayed home to raise the kids.

What in the heck happened? Can you spell 'politicians?'
I hope this goes around THE USA at least 545 times!!! YOU can help it get there!!!

Again, Goldman Sachs Is Used As a Case Study

The video is entitled, "Crooks on the Loose? Did Felons Get a Free Pass in the Financial Crisis?" And the answer is Yes and the video will tell you why.

I listened very carefully to this video and came away disappointed. But in order to make some sense of what was on the video, I chose to make a rough comparison of the four panalists with the perceived reactions of the population of the United States to the Great Recession of 2008.

That is to say, about 50% of Americans seem to respond to the financial crisis (especially if it didn't affect them directly) as something that happened and the government and justice department are doing everything they can to make things better by passing laws and making agreements with the banks to make some restitution to foreclosed homeowners. Everything about the crisis is complex and diffused. Tough people are working hard and creating relationships. The justice system in the US is majestic. That represents what came out of Lanny Breuer's and Mary Jo White's mouths. In other words, everything is fine; we are going to catch the bad guys, we've already caught thousands of them and the world will be all right soon.

About 25% of the American population seems to think that something went very wrong before and after the financial crisis. They are asking questions such as What happened? Did the revolving door from banking to government make things better or worse? What role is politics having in resolving the financial crisis? How did the terrorist attacks on 9/11 deplete the resources that could be used to investigate and bring to justice those who committed white collar crime before 2008? That is the tone that Neil Barofsky brought to the panel discussion.

About 25% of the American people are fully informed about who caused the financial crisis and want to know why there have not been prosecutions of the executives of the banks, like Blankfein of Goldman Sachs, for the role they played in committing fraud (accounting control fraud, to be exact). Why haven't any investigations been undertaken into the securities frauds committed by the banks? Why has the government agreed with the AGs to settle the foreclosure fraud through throwing money at it? Eliot Spitzer was the only panelist that named names (he used Goldman Sachs as his case study and had many good suggestions on how to investigate for criminal wrong-doing and how to make civic fraud settlements include deterrence.) But his is a lone voice in the wilderness that seems to become more muted as time passes. He is not in a position to bring about the change that he knows must happen.

That is what I got from listening to this panel discussion. It bodes ill for the future of investigations and prosecutions. So watch out, everyone, for the next big financial crisis!!

"Crooks on the Loose? Did Felons Get a Free Pass in the Financial Crisis?"
Posted by Yves Smith - Naked Capitalism



You can see the video here

Goldman Sachs Loves Those Toxic Assets!

What a perversion of justice. First, Goldman Sachs created toxic CDOs to sell to investors who subsequently lost money. Goldman received both the fees from the sale and then bet against the mortgage market and earned billions more. The price for such unethical fraudulent actions should have been to bar Goldman Sachs from ever dealing in mortgage debt no matter what kind. Did that happen? Did the government not even think of such a penalty?

No, instead Goldman Sachs has bought $6.2 billion of the same toxic assets from the NY Fed (Goldman selling to Goldman; Goldman buying from Goldman) to use for pure speculative purposes. Or maybe Goldman will dress them up, give them a great rating and good PR and sell them to their clients.

This is what the economy looks like when it is corrupted and run by banksters. Not a pretty sight!

Why Toxic Debt Looks a Lot Less Toxic
Goldman Sachs and hedge funds are buying risky mortgages again
By Jody Shenn and Saijel Kishan - Bloomberg Businessweek

Some of the same investors who made big profits betting against mortgage bonds before the 2007 housing bust have started snapping up the toxic assets. Hedge fund manager Kyle Bass, who made $500 million when subprime debt cratered, is raising a fund to buy them. He’s joining John Paulson, who made $15 billion in 2007 thanks to the housing bust. Goldman Sachs Group has bought the bonds this year. Remarkably, so has American International Group (AIG) —the insurer that had to be rescued by the U.S. government in 2008 after its wagers on risky mortgages went bad.

These investors are jumping in as the $1.1 trillion market for mortgage bonds without government backing joins a global rally in everything from stocks and commodities to corporate loans. They are attracted to the riskiest mortgage bonds by their high potential yields. And they are speculating that the bonds’ prices have fallen so far that even continued weakness in the housing market won’t drive them down much further. “You can end up, even using severe assumptions on things such as home prices and defaults, with a very high yield based on the prices that bonds are trading at,” says Larry Penn, chief executive officer of Old Greenwich (Conn.)-based investment company Ellington Financial. “Especially with interest rates this low, if you can buy something where you can end up with a double-digit yield under severe assumptions, that’s great.”

Read the rest of the article here

Goldman Sachs "Hoist With Its Own Petard"

Goldman Sachs loves self-regulation: it baulks at others, as per the Volcker Rule, imposing rules on its market making and proprietary trading. So it is rather interesting how Goldman has tried to comply with Shariah Law with its "Sukuk" bond derivative. Goldman finds that it can raise the money in Islamic markets but it cannot use those funds for its own business. Oops!

Goldman Sachs caught in a Sharia Catch-22
By Joy Brighton - Washington Examiner

In September 2011, Goldman Sachs announced it would issue a $2 billion Shariah Compliant Islamic Bond derivative known as a "Sukuk" to finance its current business operations.

However, by Feb. 15, 2012, despite Goldman Sachs' many acts of obeisance in the service of capital, Abu Dhabi Islamic Bank's Shariah scholars decided that Goldman Sach's Islamic bond program was "noncompliant with Shariah."

Why? Because Middle East petrodollar funding must be used to strengthen Middle East petrodollar goals.

According to an article in the Arab News, Shariah-committed imams declined to issue its religious approval (fatwa) for the Goldman Bond derivative because the "use of proceeds" to fund Goldman's non-Islamic business is forbidden, according to Shariah finance laws.

Goldman Sachs is the victim of a Catch-22 business deal -- it can legally raise $2 billion in the Shariah-based Islamic market, but it cannot legally apply these funds to its business operations.

Stringent requirements placed on Western banks wanting to engage in Shariah banking were created to pull Western and American dollars out of free capital markets and divert into imam-controlled financial markets.

Read the whole article here

Justice In Spite of Goldman Sachs

It only seems fair to give someone a break just as Goldman Sachs has enjoyed considerable leniency from prosecution over many years. Goldman never has to admit its wrongdoing; it pays a fine; it goes on its merry way and continues pushing against ethical and legal boundaries at every opportunity that might give it a profitable return. Just take the "robo-signing" agreement with the Fed and the NY regulator; "robo-signing" is just a euphemism for "forgery" which is a fraudulent activity that could put you in jail. But Goldman just paid a fine, did some restitution (which it should have done without being told) and promised not to do it again.

So when we hear a story that warms our hearts, such as Sergey Aleynikov's acquittal from a criminal conviction brought against him by Goldman Sachs for stealing computer code, we really feel that justice has been done. A panel of three judges decided Aleynikov was not guilty of Economic Espionage and should not have been criminally charged. Finally, the justice system got it right.

NJ programmer freed as NY court orders acquittal
By Larry Neumeister - (AP) The Kansas City Star

NEW YORK -- A smiling former Goldman Sachs computer programmer was freed from prison Friday after a surprise ruling from a federal appeals court reversed his conviction on charges he stole computer code.

"Justice occasionally works," declared the beaming programmer, Sergey Aleynikov.

He said he "just jumped all over the place" at 6 a.m., the moment he read and repeatedly reread an email from his lawyer informing him that the 2nd U.S. Circuit Court of Appeals in Manhattan had reversed his conviction. The words were, he said, "'We won!'"

The reversal came less than a day after defense lawyer Kevin Marino told a three-judge panel that Aleynikov was wrongly convicted. The 42-year-old North Caldwell, N.J., man had already served a year of a more-than-eight-year prison sentence after a jury convicted him in December 2010 of stealing trade secrets and transporting stolen property in interstate and foreign commerce.

Aleynikov said outside court that he looked forward to seeing his family, including his 8-, 6- and 3-year-old daughters.

"This is such big news to me that I don't have time to think about what will happen tomorrow," said Aleynikov, dressed in a gray sweat suit and white sneakers. "Today, it's a victory."

His lawyer said: "I've never felt better in my life."

The highly unusual immediate dismissal of a conviction by the appeals court came in a case that tested the boundaries of what can be considered a crime as companies seek to protect their intellectual property from competitors.

Aleynikov has been in prison since he was sentenced in March. A three-judge appeals panel heard arguments Thursday, but the judges gave no indication they would reverse the lower court hours later with a terse, one-paragraph order. The 2nd Circuit said it would issue a written ruling "in due course" to explain its decision.

Marino said Aleynikov's immediate reaction when he spoke to him early Friday was: "There is justice in the world."

"It's justice because Sergey Aleynikov did not commit either of the crimes with which he was charged," Marino said. "The government's attempt to stretch this criminal federal statute beyond all recognition resulted in a grave injustice that put Sergey Aleynikov in prison for a year."

Read more here: http://www.kansascity.com/2012/02/17/3434986/ny-appeals-court-orders-acquittal.html#storylink=cpy

Read the whole article here

Goldman Sachs and the Demise of New Century Financial

In a posting on February 4, 2012, we described how Goldman Sachs is facing a class-action lawsuit for defrauding investors in a 2006 offering of risky mortgage securities made from New Century Financial sub-prime mortgages.

We read elsewhere:

"The suit also alleges that New Century didn't follow its own mortgage underwriting standards when making loans....Goldman's alleged negligence arises from its failure to properly vet the loans and the inaccurate information about the quality of the loans investors say they received as a result." (from an article by Tracey Samuleson - WNYC News)

But there is more to this story and much more to learn about the relationship that Goldman Sachs had with New Century Financial Corp. Mark Mitchell published a report on March 4, 2010, that traces the demise of New Century Financial through the predation of others including Goldman Sachs. If you want to know how Goldman works it magic to make a profit, be sure to read the report.

How David Einhorn and Dan Loeb along with Goldman Sachs Brought Their Special Talents to Bear On New Century Financial
By Mark Mitchell

You don’t hear much about it, but the March 2007 bankruptcy of a company called New Century Financial was arguably one of the most important events leading up to the financial crisis that nearly caused a second Great Depression.

It was the demise of New Century, then the nation’s second largest mortgage lender, that triggered the collapse of the market for collateralized debt obligations. And it was the collapse in the value of collateralized debt obligations (a majority of which contained New Century mortgages) that hobbled a number of big financial firms. Once hobbled, the likes of Bear Stearns and Lehman Brothers were ripe targets for unscrupulous hedge fund managers who amplified their problems by spreading exaggerated rumors while bombarding them with illegal naked short selling.

So we must ask: Why did New Century Financial go bankrupt? Did the company die of natural causes, or did miscreants orchestrate its destruction?And if miscreants destroyed New Century, did they do so planning to profi tfrom the broader economic calamities that were certain to result from its collapse?

I do not yet have definitive answers to these questions. But interviews with sources close to New Century and a review of documents, including the oddly biased 500-page New Century bankruptcy report, make it clear that at least two hedge fund managers — David Einhorn of Greenlight Capital and Dan Loeb of Third Point Capital — played a significant role in creating the conditions that made New Century vulnerable to catastrophe. And they did so while building massive short positions in Bear Stearns, Lehman Brothers, MBIA and other companies that were likely to be seriously damaged if New Century were to go bankrupt.

. . . .

Moreover, some banks, most notably Goldman Sachs [NYSE:GS], created and sold collateralized debt obligations containing New Century mortgages while simultaneously betting that the CDOs would plummet in value. Multiple media stories (such as this one in “Investment News”) have speculated that Goldman Sachs actually designed these CDOs in such a way that they would be certain to implode, delivering large profits to Goldman and preferred hedge fund clients. Those CDO could not have been created without Einhorn and his allies inside New Century delivering the mortgages that went into them. And there is no doubt that Goldman Sachs delivered the knock-out punch that put New Century out of business, ensuring that the CDOs would,in fact, implode. This constellation of facts may be coincidental, of course. Or not. This essay lays them out, and leaves it to the reader to decide.New Century’s problems began in December 2005, when board member Richard Zona drafted a letter in which he threatened to resign if senior executives did not agree to sell a greater percentage of the mortgage loans on its books to various banks, such as Goldman Sachs. In his letter, Zona explicitly stated that he was making this demand in league with David Einhorn and Dan Loeb.

Read the entire report here

Another Goldman Sachs "Guy of Interest"

Henry King, a Goldman Sachs analyst, is being scrutinized by Federal Investigators for providing confidential information to hedge fund clients. A former director of Goldman, Rajat Gupta, is serving an eleven-year prison term for insider trading. Mr. King is based in Asia.

It seems that the laissez-faire regard for ethics is endemic at Goldman.

Goldman Analyst Is Said to Face Insider Trading Inquiry
By Peter Lattman and Azam Ahmed - DealBook

A Goldman Sachs stock analyst has been drawn into the government’s sweeping investigation into insider trading at hedge funds.

Federal investigators are examining whether Henry King, a senior technology industry analyst for Goldman based in Asia, provided confidential information to the bank’s hedge fund clients, according to a person with direct knowledge of the matter who requested anonymity because he was not authorized to discuss it publicly.

Mr. King recently took a leave of absence from Goldman, according to this person.

Mr. King could not be reached for comment. A spokesman for the firm declined to comment. The Federal Bureau of Investigation declined to comment.

The Wall Street Journal reported earlier on Mr. King’s role in the investigation.

Goldman has figured prominently in the government’s insider trading inquiry. Last year, federal prosecutors charged Rajat K. Gupta, a former director of Goldman, with leaking secret boardroom discussions to Raj Rajaratnam, the former head of the Galleon Group hedge fund who is serving an 11-year prison term after a jury convicted him of insider trading crimes last May.

Mr. Gupta has denied the charges. His trial is set to begin in May.

During pretrial hearings in Mr. Gupta’s case, it emerged that there was a second insider at Goldman who was said to have leaked Mr. Rajaratnam illegal stock tips. A letter filed with the court by federal prosecutors in the Gupta case said that another unidentified Goldman executive had provided Mr. Rajaratnam with confidential information.

Judge Jed S. Rakoff, the judge presiding over the case, agreed to keep the content of the leaks under seal because they were unrelated to the charges against Mr. Gupta.

Read the entire article here

Another Tap on Goldman Sachs's Wrist

So Goldman Sachs, who has been fined for its own fraud, can hardly be expected to recognize the fraudulent behavior or so-called "red flags" of others. Goldman pays another small fine of $9.8 million from its trillions of dollars of profit and does not have to admit any wrongdoing!

And so it will go on ad infinitum--no admission of wrong doing, pay a small fine and continue "business as usual." Fraud begets fraud.

We are snookered again.

Goldman's Settlement With 'Mini Madoff' Receiver Approved
By Liz Moyer - Deal Journal

A federal judge in Florida on Friday approved a $9.8 million settlement by Goldman Sachs’ clearing and execution division in connection with a Florida Ponzi scheme that unraveled in the aftermath of the financial crisis.

Arthur Nadel’s Scoop Management Inc. and related funds lost $168 million for investors before the scheme discovered in 2009. Nadel, called “Mini Madoff” in the press as his unraveling followed soon after the discovery of Bernie Madoff’s scheme, was sentenced in 2010 to 14 years in prison.

Goldman Sachs Execution & Clearing reached the settlement with the receiver in the case in December. It wasn’t accused of wrongdoing, but was linked to Nadel through Shoreline Trading Group LLC, a broker-dealer that cleared Nadel’s trades through Goldman.

Regulators have put extra scrutiny on interactions between clearing banks and their customers. Goldman disclosed last year that its clearing division faced possible civil fraud charges by the Commodity Futures Trading Commission over whether it knew a customer was using customer accounts, and not its own money, in transactions with Goldman.

In addition, Goldman is fighting a $20.5 million arbitration award resulting from its role as clearing broker for the failed hedge fund Bayou Group LLC. The creditors of Bayou say Goldman ignored signs of fraud at the fund run by Samuel Israel III before it failed in 2005.

Read the rest of the article here

The Maneuverings of Goldman Sachs

Goldman Sachs requires its very own regulatory body to oversee all its ingenious moves to make loopholes for itself. Just as it was difficult to distinguish "market making" from proprietary trading as Goldman practiced them, now we have difficulties seeing the difference between hedge funds and credit funds as Goldman defines them. Goldman wants to "loosen proposed limits" of the Volcker Rule, another in a long line of special tactics that includes repeal of Glass Steagall, non-regulation of derivatives, acquiring the perks of a commercial bank, selling fraudulent sub-prime CDOs, betting with CDSs, using HFT and so on and so on.

When will it all end? Will Goldman's manipulation for profit's sake ever end?

Goldman Sachs Seeks Exemption for Bank Stakes in 'Credit Funds'
By Christine Harper - Bloomberg Businessweek

Feb. 14 (Bloomberg) -- Goldman Sachs Group Inc., which says it owns the world’s largest family of so-called mezzanine loan funds, is asking regulators to loosen proposed limits on bank investments in such pools.

Four Goldman Sachs employees and three lawyers from Sullivan & Cromwell LLP met on Feb. 2 with Federal Reserve Board staff to discuss Volcker rule limits on banks’ fund investments, according to a summary published yesterday by the central bank. The Volcker rule limits depository institutions from supplying more than 3 percent of the capital in a hedge fund, private- equity fund or other “covered fund.”

Goldman Sachs “expressed their view that the proposed rule does not permit a banking entity to acquire over 3 percent of the ownership interests in a ‘credit fund’ that is principally engaged in making or acquiring extensions of credit,” according to the Fed summary. “GS explained that investors in credit funds require at least 5 percent ‘skin in the game’ from sponsors.”

Goldman Sachs, which was the most profitable securities firm in Wall Street history before converting to a bank in 2008, typically has supplied about 30 percent of the money to the hedge funds, private-equity funds and credit funds the firm manages for clients. Andrea Raphael, a spokeswoman for New York- based Goldman Sachs, declined to comment.

GS Mezzanine Partners, which raised $13 billion for its fifth fund in 2007, has been extending mezzanine credit to buyout firms and corporations since 1996, according to Goldman Sachs’s website. Mezzanine debt, often used in leveraged buyouts, typically us repaid after bank loans in a bankruptcy and has higher yields than broadly marketed public bonds.

Read the entire article here

Occupy the SEC Comment Letter on the Volcker Rule

You can read the letter here

Goldman Sachs and "Criminal Affirmance"

What happens after the Department of Justice and the President decide that no bank executives will be prosecuted or held responsible for their contribution to the financial crisis of 2008?

Mary K. Ramirez has written an unpublished paper called Criminal Affirmance: Going Beyond the Deterrence Paradigm to Examine the Social Meaning Expressed by Exercising Discretion to Decline Prosecution of Elite Crime. Below is an excerpt:

Criminal Affirmance: Going Beyond the Deterrence Paradigm to Examine the Social Meaning Expressed by Exercising Discretion to Decline Prosecution of Elite Crime

by Professor Mary Kreiner Ramirez - Washburn University School of Law

Recent financial scandals and the relative paucity of criminal prosecutions in response suggest a new reality in the criminal law system: some wrongful actors appear above the law and immune from criminal prosecution. As such, the criminal prosecutorial system affirms much of the wrongdoing giving rise to the crisis. This leaves the same elites undisturbed at the apex of the financial sector, and creates perverse incentives for any successors. Further, this undermines the legitimacy of the rule of law and encourages even more lawlessness among the entire population. These considerations transcend deterrence as well as retribution as a traditional basis for criminal punishment. Affirmance is far more costly and dangerous with respect to the crimes of powerful elites that control large organizations than can be accounted for under traditional nations of deterrence. Few limits are placed on a prosecutor’s discretionary decision about whom to prosecute, and many factors against prosecution are available, especially in resource intensive white collar crime prosecutions. This article asserts that prosecutors should not exercise that discretion without considering its potential affirmance of crime. (Page 3)

. . . .

from the Conclusion

Social meaning in law has evolved so certain individuals, and white collar fraudsters in particular, understand they face little risk of criminal punishment for acts that fall into the definition of criminality. When the criminal actors can move the question of exercising prosecutorial discretion to charge by highlighting the costs to society of punishing corporations or their leaders, or by characterizing the pursuit of justice as a political act of retribution rather than a reasoned decision to deter future conduct, the impact of such influence upon prosecutorial discretion can be obfuscated by the traditional factors deemed appropriate for consideration in exercising discretion. Allowing money or politics to influence discretionary charging decisions, whether real or perceived, conveys social meaning that undermines effective government, models bad behavior, and reinforces rewards creating a moral hazard for future wrongdoing.

Before prosecutors refrain from charging, they need to factor in the idea of “affirmance” in exercising prosecutorial discretion so that an offensive approach to such criminality is constructed and conveys a new social understanding for those in politically or financially powerful positions.265 Prosecutorial discretion is broad, but there is a need to compel the government to impose criminal punishment upon these law-breakers so that they are constrained by the law to the benefit of society because these laws and the enforcement of them have meaning. Moreover, failure to enforce some laws can undermine the confidence in all laws.266 Prosecutors must recognize the social compact formed by law abiding citizens who obey and respect the laws and expect nothing less of the rest of society.267

Affirmance of the crimes of the powerful means they retain the power to impose massive costs into the future through their continued control of massive firms, and the incentives facing others holding such power. A petty thief may steal again when not prosecuted, but only a bank CEO can engage in fraud that can crash the global financial system. Similarly, a petty thief that evades prosecution has zero impact on the rule of law, but a CEO that evades prosecution could tempt millions into skirting the law. Today, America flirts with financial and corporate elites that behave as if they are above the law,and a public that holds the legal system in contempt. As such, affirmance may lead to future economic lawlessness and catastrophes.268 (Pages 79-81)

Read the entire paper here