Goldman Sachs: A Bank Without Pity

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

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

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

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

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

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

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

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

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

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!

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

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

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

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

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

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

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

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 

Why Goldman Sachs Will Never Face Criminal Charges

For awhile many people thought that Eric Schneiderman, NY Attorney General, was going to aggressively pursue serious investigations of mortgage-backed securities.  Instead, he caved in to the government's wishes and became part of the foreclosure settlement with the banks in which banks will only pay a small sum and all the fraud will be overlooked.

None of the investigations or task forces is serious about prosecuting financial fraud for any bank or organization.

No wonder Goldman need never fear it will be criminally prosecuted for its mortgage-backed securities.

Rest easy, there will be no Pecora Commission for the 2008 Great Recession.

Memo to Schneiderman Mortgage Task Force:  When You are in a Hole, Quit Digging
By Yves Smith - Naked Capitalism

. . . .
But an even worse sign, the task force appears to be shunning assistance from that very sort of expert. One colleague reported that he has spoken to attorneys who said they were involved with the Schneiderman task force. He has argued that many of the SEC cases filed as civil suits, such as the Goldman and Citigroup CDO cases, could have been brought as criminal cases. Two months ago, they were very eager to speak with him. They’ve since gone radio silent.

Why? The excuse through the grapevine is that the failed Bear Stearns prosecutions show it’s just too hard to prevail on criminal charges. Bollocks. Those suits were badly conceived. The SEC relied on what it thought was decisive evidence in various e-mails. It failed to do enough discovery (critically, enough in the way of depositions of the targets) to find out that the e-mails didn’t necessarily tell the whole story. Those suits failed due to lazy, hasty preparation, and probably also to poor choice of target (the Bear Stearns funds were investors, and thus in many ways victims more than perps).

The real reason is that the Administration has absolutely no interest in pulling hard on the fraud thread and seeing what it unravels. This is an election year and the banks are one of the very biggest donor groups, second only to health care. Obama’s policy is not to look back, and Geithner last week repeated the official mantra that the banks were just hoist on their own petard. How convenient. From The Hill (hat tip Amanda):

Geithner took things a step further, suggesting that it was primarily human nature, not criminal actions, that caused the crisis.
“Rarely is an actual crime a material source of the damage. This is a tragic thing. I wish it were different,” he said. “You cannot legislate away stupidity and risk-taking and greed and recklessness.”

Funny how we don’t accept “human nature” as an excuse for wife-beating, illegal drug use, statutory rape, or embezzlement. But if you are powerful enough to have a Treasury secretary doing your PR, presumably any conduct goes. 

Read the whole article here 

Goldman Sachs: You Can't Make Silk Out of a Sow's Ear

Goldman Sachs, you do not need a media manager.  Instead of trying to control others, control yourself.  You need more than a "positive online presence;"  you need an overhaul.

Here are some suggestions for changing your habits:

1.  Have a high ethical standard; i.e., forgo CDOs that bring havoc to investors; endeavour not to commit fraud;
2.  Be morally, rather than monetarily, persuasive; i.e., reduce salaries and give up bonuses especially when the bank does not make a profit;
3.  Be honest; admit your wrongdoing that led to the Great Recession; i.e., say you were wrong to vote against the mortgage market that you helped to bring down;
4.  Be empathetic; i.e., understand and sympathize with your fellow human beings, especially those on whom you foreclosed and used robo-signing forgery;
5.  Go back to your partnership roots; i.e., give up your access to Fed money and bailouts and stop being a bank holding company.

Those suggestions to becoming part of the conversation are just for starters. Other people may have ideas to add.

Goldman Looks to Hire Social Media Strategist
By William Alden - DealBook

Goldman Sachs may dominate financial markets, but there is one frontier it has not yet conquered: social media.

So the Wall Street firm that many on the Internet love to hate plans to hire a “social media community manager,” according to a posting on its Web site. The position involves overseeing the firm’s online communities and developing a “positive online presence.”

It is a presence that could use some rehabilitation. The firm’s Facebook page is littered with negative comments. A Twitter account under the Goldman Sachs name has yet to post a message.

Perhaps the most prominent online voice emanating from the Wall Street firm is a parody Twitter account, @GSElevator, that claims to post snippets of dialogue overheard at work, tending toward the profane.

Like its rivals on Wall Street, Goldman Sachs has kept social media at arm’s length. The firm bars staff members from accessing major social media sites at work, and it has been known to crack down on employees who share too much online. Although Goldman is one of the investment banks leading the giant Facebook I.P.O., technically its workers are not allowed to browse the social networking site.

Even firms that have given employees partial access to social media, like Morgan Stanley Smith Barney, tightly control postings. This is partially because of regulations governing communication, which require firms to archive and monitor messages.

But now, Goldman wants to be part of the online conversation.

Read the whole article here 

Eventually, Goldman Sachs Ruling the World Will No Longer Be a Metaphor

We find out from a CCPA report that Canadian Banks were bailed out during the Great Recession but the Harper government has denied any such bailout.  What are we to make of this?  Now, you don't suppose that because our Governor of the Bank of Canada is from Goldman Sachs that that fact could give us a hint?  The Bank of Canada did for Canadian banks what the Federal Reserve did for US banks except that the Canadian Parliament did not have a say in whether a bailout should be given.

We should always be suspicious when Goldman is mentioned in any context.

Now we see that another Goldmanite is being touted for the Governor of the Bank of England.  When all the central banks in the West are run by Goldmanites, then we will surely know that we are royally screwed!  We only suspect it now.

Goldman's O'Neill tipped to join Bank governor race

            By Simon English - The Independent

From the comments page by 12758

Goldman Sachs takeover of Europe: All these people are Goldman Sachs employees or former Goldman Sachs employees (with the exception of Papademos).

Karel Van Miert:  Former EU competition commissioner.
Otmar Issing:  Former board member of Bundesbank and the ECB helped create the Euro
Mario Draghi: Head of the European Central Bank
Petros Christodoulou: Head of Greece's debt management agency
Lucas Papademos: Prime minister of Greece, Ran the Central Bank of Greece at the time of the controversial derivative deal with Goldman that enabled Greece to hide the size of its debts.
Mario Monti: Prime minister of Italy
Antonio Borges: until recently  head of the IMFs European department.
Peter Sutherland: Attorney General Ireland

Outside Europe:

Mark Carney: Governor, Bank of Canada
Henry Paulson: United States Secretary of the Treasury
Robert Zoellick: President of the World Bank

Virtually everyone connected with finance and financial regulation in the US.
It looks like someone has been paid off or threatened to ensure that this appointment goes through. It hasn't even been advertised yet and already the GS spin machine is working. If GS get this appointment take all your money out the bank, it'll be safer. Everything in the country will end up privatised.

Read the article here

Goldman Sachs Closes "Dark Pools" in Canada

It would be interesting to know exactly why Goldman Sachs closed its "dark pool" trades on the TMX in Canada.  They had planned on "beating Canada's biggest banks to the punch."

Canadian can only be most happy with the turn of events described below:

Goldman Sachs Closes Canadian Dark Pool Seven Months After Open
By Nina Mehta - Bloomberg Businessweek

Goldman Sachs Group Inc. (GS) (GS) closed Sigma X Canada today, shutting down the dark pool for equities seven months after starting it. 

The stock trading venue stopped taking orders, according to a statement from the Investment Industry Regulatory Organization of Canada. Since all orders expire daily on Sigma X Canada, none will be open after it closes, the agency said.

Virtually no trading occurred on the platform, which finished last on a list of 12 Canadian venues ranked by market share compiled by IIROC. Dark pools are private stock trading systems that don’t display offers to buy and sell shares to the public. 

Read the entire article here 

Goldman Sachs and "Money, Power, and Wall Street"

Often we don't get enough in-depth coverage of the financial crisis on the mainstream media.  The program Frontline sometimes analyzes topics in depth; however, it seems to have missed the boat as far as its latest series called "Money, Power, and Wall Street."

Yves Smith of Naked Capitalism discusses what Frontline got wrong:

Frontline's Astonishing Whitewash of the Crisis
By Yves Smith - Naked Capitalism

Several of my savviest readers wrote expressing disappointment and consternation with the Frontline series on the crisis, “Money, Power, and Wall Street.” The first two parts of the four part series have been released, and it’s probably safe to say that this program is far enough along to be beyond redemption.

It’s a recitation of conventional wisdom, with just enough focus on some of the numerous things the banks and the authorities did wrong so as to make it seem daring for mainstream TV. But anyone who has been on this beat will find the first two segments cringe-making (one advantage I had was that of reading the transcripts, which makes it much easier to parse the construction). Despite the obligatory shots of Occupy Wall Street protestors, displaced homeowners, and stymied officials, much of the story line is remarkably bank-friendly.

The first segment is particularly troubling. It heavily cribs from the Gillian Tett book Fool’s Gold, which to be blunt was not very well received by reviewers. Fool’s Gold discussed the development of the credit default swaps market from the perspective of JP Morgan executives and staffers, with the result that it verged on hagiography. Oh, those great, intrepid, innovative bankers who just wanted to make the world better, and maybe make a buck or two in the process.

The book at least explained that the reason for the creation of the CDS was to solve a rather big problem for JP Morgan, that it was carrying a ton of loan risk and could use a way to lay it off (the broadcast, by contrast, made it sound like this was a market just waiting to happen, as opposed to one JP Morgan, and later its competitors, cultivated).

And no one clearly explains that CDS, as currently used, are certain to produce periodic blowups of undercapitalized guarantors (the monolines and AIG are prototypical). Tett and pretty much everyone in the segment perpetuates the industry PR that CDS are derivatives. A derivative is an instrument whose price “derives” from an actively traded underlying instrument. CDS, by contrast, are the economic equivalent of unregulated insurance contracts. The pernicious feature of CDS is that the CDS protection writers (the guarantors) aren’t regulated for capital adequacy, the way other insurers are. They instead are required to post collateral to reflect the current value of the contract. But that is no guarantee that the CDS protection writer will be able to pay out. When a default or other credit event occurs, the price of the CDS spikes up, and the guarantor may not be able to make good on the new, higher collateral posting. And requiring CDS protection writers to put up enough margin to allow for “jump to default” risk would make the product uneconomical.

Read the whole piece here 

How Goldman Sachs Delays Tax Payment

Wherever there is a loophole, you will find Goldman Sachs.  This time it is a "timing difference" which, by the way, allows Goldman to keep its money and make more money from it before using it to pay taxes.  Apparently, Goldman is capable of paying the tax in full with cash on hand.

 Maybe Goldman should set aside a yearly sum for tax money just as it sets aside large sums for "legal" payments; that is, to pay fines for malfeasance.

Goldman Sachs pays £4.1m tax on £1.9bn profit
Wall Street giant attacked for deferring 99 percent of its tax bill
By Gideon Spanier - The Independent


The London arm of Goldman Sachs paid only £4.1m in corporation tax to the Treasury last year despite making pre-tax profits of £1.92bn, annual accounts have revealed.

Goldman Sachs International (GSI) had a corporation tax bill of £422.3m but it deferred £418.2m – or more than 99 per cent of the amount – that it had to pay immediately in "current tax". The Wall Street giant, presided over by Lloyd Blankfein, was able to postpone payment because of "timing differences", according to the accounts.

Goldman's decision will be a blow to the Treasury's coffers as the Chancellor George Osborne battles to reduce the Government's deficit. There is no suggestion that GSI is seeking to avoid corporation tax by deferring payment. However GSI's tax activities have come under scrutiny after it emerged last year that the Inland Revenue boss Dave Hartnett had "let off" the bank to the tune of £10m.

Mr Hartnett insisted to MPs that "a mistake had been made" and he is retiring early this summer.
The bank's UK corporation tax bill fluctuates yearly as it can be skewed by the value of its bankers' share options, which oscillate in tandem with the stock market.

The £4.1 m GSI has paid in "current" corporation tax in 2011 is in stark contrast to the £336m it paid in the previous financial year.

The accounts showed revenues slumped 31 per cent to £3.19 bn last year because of eurzone jitters and "lower global equity prices". But profits jumped, partly because the "paper" value of share options paid to staff fell by more than £1.1 bn, thus cutting the bank's wage bill.

Labour MP John Mann, a member of the Commons Treasury select committee, said Goldman Sachs should not defer tax payments when it could hand over the cash now.

"It's morally and ethically wrong. These are people who are at the heart of the problem in the financial world who've paid extraordinary bonuses to their partners and aren't prepared to pay a fair amount of tax. It's pure unadulterated greed."

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