Bank Consolidations Must Stop

Hello everyone.  Larry here once again.  I know I am not here that often these days but am proud to say that Joyce has been doing a great job in her daily posts.  I am also happy to announce that our readership has also increased.  I must also attribute this to the fine job Joyce is doing.  Keep up the good work Joyce.

Larry's Corner






The trend of bank consolidations in this country must stop.  The era of Too Big To Fail must end.  In fact, it is time for many banking giants to be broken up and return to more manageable size with more emphasis on customer service then on over stated profits.  Banks like any other company should grow and profit through increased revenue derived from competitive business practices serving and servicing their customers.

Growth through acquisition has never worked as we saw back in the 1980's when consolidations and mergers were the daily drink.  Eventually, most all of these mergers divested themselves of all but their core businesses with most returning to increased profitability, higher stock values, better customer service benefiting both their stockholders and customer base.

Now here comes Capital One Bank best known for its credit card business and all those "what's in your wallet" television advertisements.  (In case they don't know it, "what's in most people's wallets" in the U.S. is no cash).  Yes, some still have plastic but just like the explosive "plastique" (C-4) these cards have and will continue to explode driving more and more people into economic disaster.  Once again, we cannot use debt to cure the debt crisis either nationally or individually.

Today I received an email from The House Committee on Financial Services whose ranking member is Barney Frank wherein he sent out a letter asking Ben Bernanke, Chairman of The Federal Reserve for more time to have the public respond to the pending acquisition of ING Direct by Capital One Bank.  This acquisition would make Capital One the fifth largest bank in the U.S.

Here now, a copy of Frank's letter to Bernanke:

Note that he is asking for public hearings to be held "to explore the impact of this acquisition on consumers, communities and the economy in general".

I must whole heartedly agree with Congressman Frank on this one.  It appear from the sound of his letter that this is going to be another Federal Reserve ramrod down the throats of the American People.  We spent years breaking up monopolies now we are spending years and government resources on creating monopolies to the detriment of this entire nation.

This pending purchase would be Capital One's second purchase as they had announced earlier their intent to acquire HSBC's credit card business as well.

As reported in the Wall Street Journal,

The deals would make Capital One the nation's fifth-largest bank by deposits and an even larger credit-card lender. Jason Arnold, an analyst with RBC Capital Markets, wrote in a research note last week the two deals "will be an alley-oop dunk if the two-part play is executed successfully."  (read the full article...click here)

In a Reuters report today on this topic,

Frank cited concerns about the transaction's impact on consolidation of banking assets, the availability of credit from the resulting bank and community programs.

"A number of national consumer, civil rights and housing advocacy groups have raised concerns about the practices of the acquiring bank, including its track record with regard to previous acquisitions," Frank said in the letter.

"These concerns merit an extension of the comment period in order to allow a thorough investigation," he said.

In a lengthy statement in response to Frank's letter, Capital One said the ING deal would actually decrease its risk profile and would expand public access to banking services.

The Capital One response in part said,

"After the acquisition, the resulting institution, with just over $300 billion in assets, remains very much in line with other regional banks in terms of size and simplicity," Capital One said. "(The) combined organization will remain well below the trillion dollar balance sheets of the largest U.S. banks and will not engage in the types of risky investment banking activities that can generate systemic risk."

How can Capital One even say  "the resulting institution, with just over $300 billion in assets, remains very much in line with other regional banks in terms of size and simplicity," 

They are not saying they would create the fifth largest "regional bank" in the U.S., this acquisition would  make them the fifth largest bank in the United States.  They go on to say that their size would be in line with other regional banks in "terms of size and simplicity".  Do they really think we are all that stupid.  How can the fifth largest bank in the entire United States operate with "simplicity"?  What Viking drugs are in Capital One's wallet that they are taking to make such a statement?


The ING deal stems from an agreement the Dutch banking company had made with the European Commission following a 2008 Dutch government bailout.(Read it all ...click here)

From Reuters,

ING had to sell the business, one of the jewels of its retail banking franchise, as part of a deal with the European Commission following its October 2008 Dutch government bailout.

My feelings folks is that ING should be negotiating a deal with someone on their side of the pond.  While this division of ING Direct may be a very viable entity - it is called "the jewel" of ING, perhaps a merger with a true smaller regional bank would be more effective.  In addition it would probably help create a few more jobs and elevate a smaller bank into higher profitability giving them an opportunity for expansion and the creation of new jobs without making it a "powerhouse" and Too Big Too Fail.

Let the People Be Heard on this one.  If you oppose this acquisition or if you agree with it, let your voice be heard.  Send a letter to Ben Bernanke at the address shown on Barney Frank's letter above or use this link to email your comments to The Fed.

Mr. Bernanke, let's have public debate on this issue.  The people have this right and even though you work for a private company, not part of the U.S. government in any way, shape, manner or form, you should still be accountable to "the people".   Some say your position is more powerful then even the Presidency of the United States.  I believe so as well.  You have entirely too much power internationally and work entirely too independently to serve the real needs of the American people.  


Grant Congressman Frank's request for an extension of time for public hearings on the Capital One purchase of ING Direct.  Let the people be heard.

Related articles

• Hiccups in Capital One's Expansion Plans (blogs.wsj.com)
• Barney Frank Seeks Longer Review of Capital One's ING Deal (businessweek.com)

The Faustian Bargains of Goldman Sachs

Today's news online reminds us of all the pacts that Goldman Sachs has made in order to attain and maintain power and money. The stink from Goldman Sachs is so profound that one hardly knows where to start:

There is the new Goldman Sachs "interested" guy who morphs from Peter Simonji to Peter Haller in order to carry out his side of the bargain. He has moved from the SEC to Goldman Sachs and from Goldman Sachs back to government (Congress) where he lobbies for Issa right and left against regulations of derivatives, regulations that might affect Goldman Sachs's bottom line. Pheww!

Then there is Fred N. Sauer's excellent summary of all the nefarious maneuvers Goldman Sachs has undertaken to retain money and power, including the important use of borrowed Fed money that Goldman Sachs needed to remain afloat during the financial crisis of 2008.

However, the story we will go with today concerns Matt Taibbi's latest expose of the SEC. Our Goldman Sachs guy there is Adam Storch about whom we have heard before here. You can see from the excerpt below that the threat of criminal prosecution does make a difference in people's behavior. We need more of the same and perhaps a good place to start is at the SEC.

Is the SEC Covering Up Wall Street Crimes?
A whistleblower claims that over the past two decades, the agency has destroyed records of thousands of investigations, whitewashing the files of some of the nation's worst financial criminals.
By Matt Taibbi - Rolling Stone

. . . .

For the past two decades, according to a whistle-blower at the SEC who recently came forward to Congress, the agency has been systematically destroying records of its preliminary investigations once they are closed. By whitewashing the files of some of the nation's worst financial criminals, the SEC has kept an entire generation of federal investigators in the dark about past inquiries into insider trading, fraud and market manipulation against companies like Goldman Sachs, Deutsche Bank and AIG. With a few strokes of the keyboard, the evidence gathered during thousands of investigations – "18,000 ... including Madoff," as one high-ranking SEC official put it during a panicked meeting about the destruction – has apparently disappeared forever into the wormhole of history.

. . . .

Wester copied the letter to Adam Storch, a former Goldman Sachs executive who less than a year earlier had been appointed as managing executive of the SEC's enforcement division. Storch's appointment was not without controversy. "I'm not sure what's scarier," Daniel Indiviglio of The Atlantic observed, "that this guy worked at an investment bank that many believe has questionable ethics and too cozy a Washington connection, or that he's just 29." In any case, Storch reacted to the NARA letter the way the SEC often does – by circling the wagons and straining to find a way to blow off the problem without admitting anything.

Last August, as the clock wound down on NARA's 30-day deadline, Storch and two top SEC lawyers held a meeting with Flynn to discuss how to respond. Flynn's notes from the meeting, which he passed along to Congress, show the SEC staff wondering aloud if admitting the truth to NARA might be a bad idea, given the fact that there might be criminal liability.

"We could say that we do not believe there has been disposal inconsistent with the schedule," Flynn quotes Ken Hall, an assistant chief counsel for the SEC, as saying.

"There are implications to admit what was destroyed," Storch chimed in. It would be "not wise for me to take on the exposure voluntarily. If this leads to something, what rings in my ear is that Barry [Walters, the SEC documents officer] said: This is serious, could lead to criminal liability."

When the subject of how many files were destroyed came up, Storch answered: "18,000 MUIs destroyed, including Madoff."

. . . .

Please read all the details in the article here

Goldman Sachs is Being Sued Over and Over Again!

Goldman Sachs will be pleased that it set aside $2 billion for legal matters because it will need a few million of that to pay for lawsuits that have recently been filed. What could stop all these payouts is for the justice system to put the perpetrators in jail instead of allowing them to reach into their pockets time and time again in order to pay off the system. These suits are just penny ante stuff when a corporation that is worth many billions of dollars knows how to work the system to get the best deals all round. That's what all this looks like.

Maybe William K. Black is right when he says that Holder should resign if he doesn't go after some criminal prosecutions for bankers that created toxic CDOs and fraudulently made billions of dollars at the expense of the pubic.

And so we have two stories:

Allstate Sues Goldman Sachs Over Residential Mortgage-Backed Securities
By Karen Freifeld - Bloomberg

Goldman Sachs Group Inc. (GS) was sued by Allstate Insurance Co. over the sale of more than $100 million worth of residential mortgage-backed securities that the insurer claims the bank itself called “junk” and “lemons.”

Allstate asked for damages including the lost market value of the securities, plus principal and interest payments in the complaint filed today in New York state Supreme Court in Manhattan.

The insurer, based in Northbrook, Illinois, has filed similar suits against JPMorgan Chase & Co. over $700 million of mortgage-backed securities the bank sold the insurer; Credit Suisse Group AG (CSGN) units for more than $231 million of the securities; Bank of America Corp.’s Merrill Lynch unit over some $167 million; Citigroup Inc. (C), over more than $200 million; and Deutsche Bank AG (DBK), over about $185 million. Allstate said the banks misrepresented underwriting standards, owner occupancy data and loan-to-value ratios.

Goldman knew these types of securities were “junk,” “dogs,” “crap” and “lemons,” according to today’s suit, which claims the words are Goldman’s own, recently revealed in governmental investigations, to describe them.

Michael Duvally, a spokesman for Goldman Sachs, declined to comment on the suit.

Goldman Sachs said in a quarterly filing last week that Allstate was among entities that “threatened to assert claims against the firm in connection with various mortgage-related offerings.”

Allstate purchased more than $123 million of the securities from April 2006 to March 2007 in reliance on Goldman’s misrepresentations and omissions, according to the complaint.

Read the full story here

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

UPDATE 1 - CIFG sues Goldman, M&T over mortgage bonds

By Ben Berkowitz and Jonathan Stempel - Reuters

NEW YORK, Aug 17 (Reuters) - Bond insurer CIFG Assurance North America [CADEGA.UL] has sued Goldman Sachs Group (GS.N) and M&T Bank Corp (MTB.N) in New York state court, claiming they fraudulently convinced CIFG to insure $275 million in mortgage-backed securities.

CIFG is the latest bond insurer to sue Goldman over mortgage-backed securities that went bad, and the latest to make a similar claim -- that Goldman knowingly sold shaky mortgage bonds to get the risk off its books. ACA Financial Guaranty [ACAFG.UL] sued Goldman in January for similar reasons. [ID:nN06139329]

The suit, filed Tuesday, relates to securities from a portfolio of 6,204 loans, most of which CIFG said were made by M&T. Goldman subsequently packaged them and sold the GSAA Home Equity Trust 2007-S1 in February 2007; CIFG insured the Class A-1 certificates from the securitization.

CIFG said in the suit that it has reviewed a sample of loans from the portfolio that are in default and that most of them violate Goldman's own guidelines and M&T's representations and warranties on the loans.

"Consistent with the findings from this sample, the loans in the asset pool -- most of which should never have been made in the first place, let alone sold and packaged into a securitization -- have been defaulting at staggering rates, with delinquencies beginning prior to closing of the securitization and increasing rapidly thereafter," the suit said.

CIFG asked the court to order Goldman and M&T to compensate it for claims it may have to pay out in the hundreds of millions of dollars, as well as to buy back the nonperforming loans from the portfolio.

Goldman Sachs declined to comment. An M&T spokesman was not immediately available to comment. CIFG is currently in run-off, managing existing policies but not writing any new business. It is in the process of transferring much of its public finance portfolio to Assured Guaranty (AGO.N).

Read the entire story here

The Taxpayer Subsidizes Goldman Sachs

We should remind ourselves every day about who and what caused the Great Recession which began in 2008. Make no mistake, Goldman Sachs was right there fraudulently creating mortgage-backed securities , having them rated AAA and selling them for huge fees to unwary investors. The securities turned shitty and people lost money through their pension funds, their savings and foreclosures. Municipalities that bought these securities lost their money too.

The Great Recession was not an accident: Goldman Sachs knew what it was doing and gleefully piled billions onto their salaries in bonuses beyond belief.

Remember that as you try to make sense of the transfer of wealth from us to the banks like Goldman Sachs.

As William D. Cohan says, Of course the taxpayer is subsidizing Goldman Sachs!

Ending the Moral Rot on Wall Street, Part 2: William D. Cohan
By William D. Cohan - Bloomberg

Can it be true that the trillions of dollars we spent bailing out Wall Street only restored the deeply flawed status quo, instead of bringing about the fundamental system overhaul we needed?

One of the unintended consequences of the rescue of the banks in 2008 was to restore many of the most heinous aspects of Wall Street’s culture, thus exponentially increasing the inherent risks in the system. Indeed, while Main Street continues to suffer from high unemployment and plunging home prices, the financial industry is dancing a jig after paying itself about $150 billion in compensation in 2010.

In September and October 2008, as the fear of financial and economic collapse was at its most acute, there was a brief moment when it seemed there was a real chance that Wall Street would be reformed. That didn’t happen.

Since 1970, when financial companies began selling shares to the public, the industry has ensnared the rest of us in repeated crises of its own making. There was the crash of 1987 and the credit freeze that followed, the Asian crisis, the Mexican crisis, the Russian crisis, the collapse of Long-Term Capital Management, the Internet bubble and, most recently, the risky mortgage-related behavior that led to the Great Recession and brought us to the edge of economic devastation. As the past few weeks have shown, we are still suffering its aftershocks.

Capital Markets

At the time, each of these crises seemed existential and rendered the capital markets -- the engine room of capitalism -- dysfunctional for long periods. The increasing rapidity and intensity of each of these events is directly correlated with the decisions by Wall Street companies to go public. The consequence is that Wall Street replaced its traditional partnership culture -- where stakeholders shared profit and losses -- with a bonus culture that encouraged accountability- free, asynchronous risk-taking with other people’s money. Rather than accept responsibility for these recurring crises, Wall Street’s defenders resort to the patently false argument that they are the result of normal market vicissitudes.

Wouldn’t such an obviously broken system need repairing? Apparently not. Instead of a genuine fix, in the past two years, Washington has put Wall Street back on its feet without demanding any accountability for the damage caused to the economy and with only modest changes to the way business is done. Although a boon to congressional campaign coffers, such accommodation damages the credibility of markets and does little to rehabilitate an ailing economy.

Dodd-Frank Act

Worse, the cozy relationship endures, as Wall Street’s lobbyists and executives exert influence over regulators such as the Securities and Exchange Commission and the Commodity Futures Trading Commission. This gives Wall Street sway over the drafting of the new rules governing our financial system that were mandated by the inadequate Dodd-Frank Act.

Read the rest of the article here

Goldman Sachs Would Like the Mortgage Mess to Go Away

Goldman Sachs is one of the participating investors in an announced settlement of mortgage repurchase and issuing claims for Countrywide mortgage-backed securities that failed. Bank of NY is the trustee. Bank of America/Countrywide agreed to pay "$8.5 billion to settle claims of 530 trusts. The filing is awaiting court approval." Not everyone is happy with the deal. An excerpt from Yves Smith's article is below:

Quelle Surprise! New York Fed Director Shills for Bank of New York, Argues Against Rule of Law
By Yves Smith - Naked Capitalism

If you accept that logic, it takes you some interesting places. Andrew Haldane of the Bank of England has already told us what inefficient looters the bank really are. His analysis concluded that the cost that the big banks imposed on the global economy in the financial crisis was so great that even if you spread a low estimate of the costs out over 20 years, the first year charge would wipe them out. Since I believe members of the Mafia make less money on average than Wall Street employees, they are more efficient looters, and Wylde ought to be promoting them too.

Of course, what Wylde blithely ignores [is] that this looting is a wealth transfer. Those jobs created on the back of fraud are at the expense of mortgage bond investors, who are in the end ordinary citizens, and homeowners, who are certain to suffer from an overshoot of housing to the downside thanks to chain of title issues deterring buyers of foreclosed homes, and vacancies depressing prices of neighboring properties. The destruction of consumer balance sheets is having a far greater impact on employment in the New York area and nationwide than can even remotely be justified by the comparatively few jobs created in the mortgage finance and RMBS trustee businesses of the too big to fail banks.

Please read the entire article here

The Banality of Goldman Sachs

Sometimes we need to look at what the financial system has become. It seems that what was once considered corrupt, illegal, unethical and immoral in business practices (to be eschewed) is now commonplace and acceptable as part of the capitalistic system.

It is now acceptable to participate in practices that were once thought of as unfair. It is now normal to become conspicuously wealthy by defrauding the unwary investor by means of mortgage-backed securities that were fraudulently labelled safe.

It is an organized and acceptable practice to bet on the failure of mortgage-backed securities: Goldman Sachs made money through fees then made even more money by betting against those same securities. It is now considered normal every-day behavior to treat greed as a routine way to accumulate wealth.

It is all right for small acts of corruption to go unpunished when a very large number of people practice them. Not one executive of GS has been criminally prosecuted for its unethical practices. It is now okay to prey upon others in order to transmit wealth from the many to the few at the top.

Bailouts of banks are now considered commonplace and a good way to forgive the debts of banks but it is less likely that foreclosed homeowners will ever have their debts forgiven. It has become normal business practice for Goldman Sacks to set aside $3.4 billion for taking care of future lawsuits. What appears trivial to Goldman Sachs is devastating to those seeking redress from the effects of GS power and wealth.

Short selling is a normal way to conduct financial business even when it destroys the very same banks practicing it! We are now participating in a new normal where Goldman Sachs's survival as a bank is more important than the individuals that suffered great losses because of GS frauds, frauds that have been laid out in this blog.

No wonder there is no confidence in the banks as Rober Lenzner's article describes it below:

The Battered Investment Class Has No Confidence in Markets, Companies, Banks, Governments
By Robert Lenzner - Forbes

Over the past ten years investors have been battered by the dotcom bubble(off over 50%), 9/11 (off over 25%), the credit crisis bubble(off 50%), the crash of commodities(down 25%) and now the government debt downgrade together with a dire European sovereign debt crisis(down 20-25%). Nor have we ever gotten back to the all-time peak of the Dow Jones industrial average of 1410, set in October, 2007. It’s no surprise that investors are fleeing equity mutual funds and shoved $50 billion of their savings in money market funds yielding zero laast week. Zero is once again again preferable to losing money.

Just last week trading volume doubled to 13 billion shares daily as volatility was King; down 634.76 on Monday; up 429.92 on Tuesday; down 519.83 on Wednesday and up 422 on Thursday. This kind of record trading volume plus volatility can only have been the result of extraordinary high frequency trading by computer and the quant hedge funds, going in and out of Apple and IBM and big bank shares dozens of times a day.

. . . .

Every day there is another government investigation or law suit against Goldman Sachs, Citigroup, Bank of America, or JP Morgan. Every day there are unconfirmed rumors about giant international banks in Europe like Societe Generale. Fear runs rampant, causing the ban on selling short bank shares in Europe. Margins have been raised on the speculation in gold. The panic is so powerful that investors are pushing up Treasury bond prices as they rush into the safe confines of Uncle Sam–the gentleman who just had his credit rating lowered.

And there seems no therapy or cure for this intense post traumatic stress syndrome to finance capitalism. You better pray there’s no hard landing coming for China.

Read the article here

Goldman Sachs Is Downgraded By The People

Hubris knows no bounds when Goldman Sachs downgrades BofA. Who downgrades Goldman Sachs? It began with the FCIC report and ended with the Levin/Coburn report which pinpointed Goldman Sachs at the centre of the financial meltdown of 2008. It is the bank that has been accused, and found guilty, of civil fraud and found wanting in other areas. Yet, Goldman Sachs had only to pay a piddling fee for its "mistakes."

The People will downgrade Goldman Sachs and have been doing so for years. Just read any comments on internet stories about Goldman Sachs since 2008. The downgrade is from "get those suckers out of their positions" to "put those executives in jail." The people cite something more substantial than rumors: i.e., Goldman's mortgage backed securities that it fraudulently sold as safe which then turned into junk.

Goldman's revenue is down substantially; it is being sued by everyone; and its executives have been losing money because of the market downturn.

When you remember that Goldman Sachs has few redeeming social values, the downgrade by the People seems fair.

Goldman Sachs Downgrades Bank of American, Cites Market Rumors As The Reason
By Courtney Comstock - Business Insider

Goldman Sachs also downgraded 19 other banks today, but their revised outlook on Bank of America is what really stings.

That's because the market is buzzing with rumors about Bank of America, and Goldman's negative view might signal that the firm believes that Brian Moynihan is unable or limited in his ability to quash the concerns, now and in the future.

Even though Moynihan recently appeared on CNBC and on a much-criticized 90-minute conference call with shareholders and hedge fund manager Bruce Berkowitz in order to quash the rumors (and he tried hard -- Moynihan said essentially that those people who think we're in trouble, I'll see you in court if that's what it takes) , Goldman cites those market rumors -- that BofA has too little capital -- as one of the main reasons it's downgrading Bank of America.

Read the whole article here

Goldman Sachs is the Epitome of the Richest 1%

The rich have become more politically powerful than ever before. Goldman Sachs executives are very rich and know how to obtain money by betting, by high frequency trading and by using unregulated derivatives (fraudulently). Goldman Sachs guys were placed in strategic positions in the government and proceeded to deregulate laws that protected citizens from predatory practices. For example, Treasury Secretary Rubin (formerly of Goldman Sachs) was instrumental in making sure that derivatives were not regulated and that other protective laws were done away with (e.g., the repeal of the Glass–Steagall Act).

Goldman Sachs profited from creating and selling highly rated sub-prime mortgage-backed securities that they sold to unwary investors, such as pensioners, savers and municipalities. These securities turned to junk and investors lost their money. Then Goldman Sachs made big bets on the collapse of the mortgage industry and collected billions more dollars!

Now Goldman Sachs lobbies both Republican and Democratic politicians in order to further carry out the goals of Goldman Sachs, such as lowering taxation of the rich and extending Bush tax cuts. They would support deficit reduction by reducing Medicare, health and other entitlement provisions that many poorer citizen rely upon. By not properly, and fairly, taxing the richest in society the government has produced a financial crisis that has become endemic.



View the video here

Goldman Sachs Being Investigated for Bribery

From Wikipedia concerning the bailout of the Mexican peso in 1995:

"The Mexican "bailout" attracted criticism in Congress and the press for the central role of the former Co-Chairman of Goldman Sachs, U.S. Treasury Secretary Robert Rubin. Rubin used a Treasury Department account under his personal control to distribute $20 billion to bail out Mexican bonds, of which Goldman was a key holder."

Goldman Sachs did all right from that deal. Now, however, it may not do so well with its deals in Libya. In 2008, Goldman Sachs was asked to invest $1.3 billion in a currency bet. The trade cost Khadafy 98% of his investment. Now Goldman Sachs is being investigated by the SEC for bribery in those deals with Libya:

SEC Probes Goldman Over Libya Deals
By Samuel Rubenfeld - Corruption Currents

Goldman Sachs Group Inc. said in a securities filing regulators are investigating whether the firm violated U.S. foreign bribery laws.

The Wall Street Journal reported Wednesday on the filing, which was made late Tuesday. Goldman said in the filing that a probe of the company’s “compliance with the U.S. Foreign Corrupt Practices Act” was among the string of investigations and regulatory reviews it faced in the past quarter.

The revelation was part of an 8,179-word “Legal Proceedings” section of its quarterly report to the Securities and Exchange Commission.

Goldman didn’t elaborate further in the text of the filing and declined to comment to the Journal about it. The SEC also declined to comment to the Journal.

Sources told the Journal that the SEC is looking over Goldman’s dealings with Libya’s sovereign-wealth fund, known as the Libyan Investment Authority. Goldman made options trades for the fund in 2008, but the trades ended up losing $1 billion.

The Journal reported in June about the scrutiny over Goldman’s work with the LIA, focusing on an initial agreement to pay the fund a $50 million fee to help it recoup some of the losses. Though Goldman never made the payment, it is still potentially exposed to the FCPA, which bans bribing — or offering to bribe — foreign officials to keep or obtain business.

Libya’s sovereign-wealth fund planned to pass the $50 million fee to an outside adviser called Palladyne International Asset Management BV, which was owned at the time by the son-in-law of the head of Libya’s state-owned oil company, documents reviewed by the Journal said.

The SEC’s investigation of Goldman is separate from its ongoing examination of ties between financial firms and sovereign-wealth funds, sources told the Journal.

See the article here

Goldman Sachs, Sued Again

Is there any corner of the financial market that Goldman Sachs didn't foul? Probably not. Maybe Credit Unions should not deal with these "big boys!" We should be very angry that a bank like Goldman Sachs goes everywhere, in every little corner, to sniff out where it can make money through fraudulent practices.

Nothing is sacred to Goldman Sachs. Credit Unions are non-profit and owned by the individual members none of whom seeks to be as rich as Croesus. Goldman Sachs is a wealth destroying bank.

Goldman Sachs is also roiling around with the likes of Rupert Murdock, which is probably more understandable. Foul, foul. Goldman Sachs has its own witches' brew--"For a charm of powerful trouble, /Fire burn, and caldron bubble." GS has charm in spades as the financial system burns and bubbles away because of their fraud. Oy!

A Korean firm, Heungkuk Life Insurance Co., is suing the Korean-based Goldman Sachs executives for selling them fraudulent CDOs. As was said before, They are everywhere inhaling profits. You can read about other potential lawsuits against Goldman Sachs here.

Credit Union Regulator Accuses Goldman
By Bloomberg News

The Goldman Sachs Group was sued on Tuesday by the National Credit Union Administration over claims that the bank violated federal and state laws in the sale of mortgage-backed securities to corporate credit unions that subsequently failed.

The agency, which charters and regulates credit unions, said in a statement that it was seeking more than $491 million from Goldman Sachs. The complaint, filed Tuesday in federal court in Los Angeles, is the fourth case aimed at recovering almost $2 billion from “sellers and underwriters of questionable securities,” the National Credit Union Administration said. It claims in the complaint that Goldman Sachs misrepresented securities in offering documents, causing the credit unions to believe the risk of loss was minimal when it was substantial.

Goldman Sachs “systematically abandoned the stated underwriting guidelines described in the offering documents” for the mortgages in the pools of collateralized residential mortgage-backed securities it underwrote, the group’s complaint said.

Stephen Cohen, a spokesman for Goldman Sachs, declined to comment on the lawsuit.

The agency said it expected to file five to 10 such cases. On June 20, the agency separately sued, in federal court in Kansas City, JPMorgan Chase and the Royal Bank of Scotland over similar claims.

“N.C.U.A. continues to carry out our responsibility to do everything reasonable in our power to seek maximum recoveries,” its chairwoman, Debbie Matz, said in the statement. “Those who caused the problems in the wholesale credit unions should pay for the losses now being paid by retail credit unions.”

The Goldman complaint relates to the collapse of the U.S. Central and Western Corporate federal credit unions, two of the five liquidated under the conservatorship of the national agency, the regulator said.

Read the article here

Goldman Sachs Sets Aside Billions For Legal Defense

By this time, we should have been reading about how Goldman Sachs executives were being criminally prosecuted for CDO fraud and we should have been anticipating that they would spend some time in jail. It didn't happen and it looks like it won't happen. Instead we read about how Goldman Sachs sets aside billions of dollars purely for fighting any litigation that points their way. At first, Goldman Sachs set aside $3.4 billion for such legal matters. They revised this to $2.7 billion and now they are saying that $2 billion will probably be adequate.

We have become so jaded and used to banks having their way that when such "blood money" is reported, no one sees it as unusual. As has been said before, What kind of bank anticipates that it will have legal problems that require billions of dollars to take care of? What happened to honesty in banking where, when the law is adhered to, there should be no legal proceedings against the bank? How could a bank be so corrupt?

Yves Smith asks the question that so many have been asking: Why are the big banks getting off scot-free? We know that Goldman Sachs laid out the groundwork for their own position long before the meltdown took place. We know the names of their people who prepared the way: Robert Rubin, Henry Paulson, Gary Gensler, Arthur Levitt, Joshua Bolton, Kenneth D. Brody, Jon Corzine, Mario Draghi, etc. Their names are infamous. Their goal appears to have been achieved.

The following paragraph from Yves Smith's essay has Goldman Sachs written all over it:

The critical language comes in Rule 10b-5 of the Securities Act of 1934:

It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange, (a) To employ any device, scheme, or artifice to defraud, (b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or (c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.

Why are the big banks getting off scot-free?
By Yves Smith - Salon

For most citizens, one of the mysteries of life after the crisis is why such a massive act of looting has gone unpunished. We've had hearings, investigations, and numerous journalistic and academic post mortems. We've also had promises to put people in jail by prosecutors like Iowa's attorney general Tom Miller walked back virtually as soon as they were made.

Yet there is undeniable evidence of institutionalized fraud, such as widespread document fabrication in foreclosures (mentioned in the motion filed by New York state attorney general Eric Schneiderman opposing the $8.5 billion Bank of America settlement with investors) and the embedding of impermissible charges (known as junk fees and pyramiding fees) in servicing software, so that someone who misses a mortgage payment or two is almost certain to see it escalate into a foreclosure. And these come on top of a long list of runup-to-the-crisis abuses, including mortgage bonds having more dodgy loans in them than they were supposed to, banks selling synthetic or largely synthetic collateralized debt obligations as being just the same as ones made of real bonds when the synthetics were created for the purpose of making bets against the subprime market and selling BBB risk at largely AAA prices, and of course, phony accounting at the banks themselves.

Louise Story and Gretchen Morgenson lament this sorry state of affairs in an article today on a $10 billion lawsuit expected to be filed today by AIG against Bank of American over dodgy mortgage securities:

The private actions stand in stark contrast to the few credit crisis cases brought by the Justice Department, which is wrapping up many of its inquiries into big banks without filing any charges. The lack of prosecutions — the Justice Department has brought three cases against employees at large financial companies and none against executives at large banks — has left private litigants, mainly investors and consumers, standing more or less alone in trying to hold financial parties accountable.

“When federal authorities don’t fulfill their obligation to enforce the law, they essentially give an imprimatur to the financial entities to do whatever they want and disregard the law,” said Kathleen C. Engel, a professor at Suffolk University Law School in Boston. “To the extent there are places where shareholders and borrowers can pursue claims, they are really serving the function of the government. They are our private attorneys general.”

Read the entire article here

We Have No Doubt that Goldman Sachs Committed Fraud

I am proud of the fact that we have been collecting information and writings about the fraud committed by Goldman Sachs since January 2, 2009. Below our masthead, Larry has put the definition of Fraud because that is our focus. Others may not want to admit that the financial system tanked in 2008 because of the fraud committed by banks, including Goldman Sachs.

We have explored this fraud in every way possible by posting links to almost all the essays, articles, reports and pieces that deal with the activities of Goldman Sachs before and after the financial crisis. This aggregation (which I know is anathema to main stream media) has endeavored to portray all the manifestations of fraud in which Goldman Sachs participated and I am sure there are some that we do not know about.

There have been many others who have talked openly and frankly about this fraud but few instances appear in the mainstream media, at least not in depth and not for extended periods of time. However, in decidedly raunchy language (that suits the subject matter), Mark Ames (The Exiled) wrote more than a year ago about the fraud found everywhere. Of course, Goldman's name appears. He listed these at the end of his rant as:

Confessions of a Wall Street Nihilist: Forget About Goldman Sachs, Our Entire Economy is Built on Fraud
By Mark Ames - The Exiled

. . . .

1). Accounting Fraud: Last year, America’s leading banks were insolvent. They had tens or hundreds of billions in losses on their books, and the only way to wipe those losses out would be to either a) own up to the mess, raise enormous amounts of money on top of all the bailout money; or b) get out a big fat eraser, and wipe those losses off the books as if they never existed. The first option was nice and all, but a real hassle. So Geithner and Larry Summers chose Door Number Two: Accounting Fraud. They forced the FASB to accept a rule-change in the accounting methodology called “mark-to-model” which let banks decide how much their assets were worth, rather than letting the markets decide. So if for example a BofA owned a complex security called “Orion Butt Fungus” that was worth 5 pesos on the open market, but BofA was too broke to go out and raise 5 pesos to cover that loss, under the new accounting rules, the government told BofA that rather than pricing “Orion Butt Fungus” at what the market will actually pay for it, why not first ask, “How much would BofA like ‘Orion Butt Fungus’ to be worth, in a perfect world?’” If BofA answers, “Doyee, gee I dunno, how about $500 million?” then under the “mark-to-model” accounting rules, BofA could now value “Orion Butt Fungus” at $500 million, and voila! Their problems are over. That wasn’t so hard, was it? Suddenly, BofA looks like it knows how to pick winners! And no one’s going to second-guess them, because everyone else is mark-to-modeling their “Orion Butt Fungi” too! The end result: under the old rules, BofA would have had to raise money just to cover its debts, sort of like you and me have to do, and that’s just a lot of money going to waste. But now that its portfolio is so profitable, BofA has a much easier time raising money, which it uses to pay ginormous bonuses to its executives.

2). Big Pharma Fraud. Remember that scene early in Fight Club, when Edward Norton explained his job, when it was more profitable to let a car defect go and pay whatever lawsuit settlements come from the deaths, and when it’s better to recall the cars because the number of deaths will result in too many lawsuits? This is humanitarian do-gooder stuff compared to the savage real-world fraud-for-profit model that drives America’s drug companies. It’s really simple and it goes like this: the more fraud a drug company commits, so long as it’s off-the-scale fraud with the most horrible consequences for the victims, the drug company’s profits always outdo the criminal fines and lawsuits by factors of 20, 30, 100… It’s as simple as that. Because the billion in penalties here or the two billion in class action lawsuit settlements there are always far less than the tens of billions you earn from pushing harmful drugs on unsuspecting idiots. To wit: Between May 2004 and March 2010, a handful of top drug companies like Pfizer, Eli Lilly and Bristol-Myers paid over $7 billion in criminal penalties for bribing doctors to prescribe drugs for unapproved uses, with sometimes deadly consequences. However, as a Bloomberg report noted, the fines are always a fraction of the profits—Pfizer alone paid almost $3 billion in criminal fines since 2004, yet that was just one percent of their total revenues; Eli Lilly got busted bribing doctors to prescribe a schizophrenia drug, Zyprexa, to elderly patients suffering from dementia, even though company-run clinical trials showed an alarming death rate of 31 people out of 1,184 participants (double the placebo rate). Whatever—the market for elderly dementia patients meant billions in extra revenues. So Eli Lilly continued pushing Zyprexa on the elderly for another four years until it the Feds busted them. Eli Lilly got hit with $1.42 billion fine, but that was peanuts compared to the $36 billion it earned on Zyprexa sales from 2000-2008. To make it happen, the drug companies buy off all the checks and balances: lawsuits revealed the enormous bribes they pay to doctors, and even America’s medical journals are so corrupted by drug company influence that they’re no longer reliable as much more than hidden advertisements, according to a recent UCSF study. Medical journals are 5 times more likely to publish “positive” drug reviews than negative reviews, and one-quarter of all clinical trials are never published at all, leading doctors to prescribe drugs assuming they have all the information. The result: prescription drugs kill one American every five minutes …while Americans pay more for drugs than anyone in the world, spending a total of $12 billion on drugs in 1980 to spending $291 billion in 2008—a 1,700% increase. America is ranked only 17^th in the world in life expectancy.

3). Alan Greenspan: Fraudonomics Maestro. America’s central banker from 1987-2006 once told a do-gooder regulator not to fuck with the bankers’ fraud schemes, because in Greenspan’s mind, fraud was not a crime and didn’t need to be regulated. Then Greenspan forced the regulator, Brooksley Born, to resign. Just in time for his next and final act as Central Bank chief: from 2001-2004, Greenspan pumped up the biggest housing bubble in human history by holding rates down to nothing, while touring the country promoting the glories of subprime and Alt-A mortgages. Then in late 2005, when the bubble was ready to burst, Greenspan tendered his resignation and switched over to the other side, signing lucrative contracts with three investment firms all of which bet big against gullible American homeowners, and reaped billions. First, Greenspan signed up to work for Deutsche Bank, which is being sued for securities fraud for selling an Abacus-like CDO to a Warren Buffett-owned bank, M&T; Greenspan also worked for Pimco, which earned $2 billion in a single day in September 2008, when Fannie Mae and Freddie Mac were nationalized with Greenspan’s lobbying help; and lastly, Greenspan went to work for Paulson & Co., the hedge fund that raked in $1 billion off the same Abacus CDO deal that brought the SEC fraud suit against Goldman Sachs. It’s an unusually perfect record for Greenspan, given his atrocious forecasting record at the Fed. It recalls the old Greenspan circa 1984-5, when he worked as a lobbyist for Charles Keating trying to push regulators off his back and vouching on the record for Keating’s character…Keating was eventually jailed for fraud in the worst savings and loan collapse of all.

4). Municipal Debt Fraud. America’s $2.8 trillion municipal bond market is rife with fraud of the sort you’d expect in an emerging tinpot economy: opacity rather than transparency, plenty of corruption and kickbacks, resulting in decimated budgets and services cutbacks in communities across the country. The problem all stems from way the bonds are issued these days: instead of holding open tenders, nearly all are the result of backroom deals. Back in 1970, only 15 percent of municipal bond contracts were awarded through no-bid contracts; last year, 85% of muni bond deals were assigned in no-bid, non-transparent agreements of the sort that made Halliburton rich in Iraq. Studies show that no-bid bonds invariably cost municipalities more than bonds resulting from open tenders. So far, fraud and corruption charges have been leveled against state employees and city councilors in Florida, New York, New Mexico, Alabama and California, to name a few. Muni bond defaults soared from just $348 million in 2007 to $7.4 billion in 2008—that’s an increase of 20 times– with growing numbers of cities, counties and states on the verge of bankruptcy. And here’s the real kicker: the biggest bailed-out banks and funds stand to make huge profits again if California’s state and city bonds fail–meaning they make big fees selling the bonds in corrupt deals, then they bet against the bonds buying CDS derivatives. Right now Wall Street has a $27 billion bet against the California bonds they helped to sell–and you better believe Wall Street will use every trick in the book to push California into bankruptcy and make those CDS bets pay off big. In fact just last year, the big banks made $1 billion in fees by selling off Obama-stimulus-backed Build America Bonds which were basically a way of massively overpaying bankrupt banks to lined up bankrupt cities and states with skittish investors to fund corrupt projects–like the San Francisco Bay Bridge modernization, which went from $1.8 billion to $13.6 billion, $8 billion just in interest. Good news is that Wall Street is making tons of money, which is always something to cheer–and of course, the bill is all being charged to regular car-driving suckers, who pay a $5 toll today to cross the bridge, up from $2 in 2003.

5). Journalism fraud. The Washington Post got caught whoring out their venerable editorial staff to corporate lobbyists for anywhere from $25,000 to $250,000 a date, depending on the access. The Atlantic Monthly admitted to TalkingPointsMemo that it routinely sold access to its editorial staff for cash. As for business journalism, all sorts of articles and studies have asked the obvious question: “How did every mainstream business outlet miss the financial collapse of 2008?” Among all the self-flagellating mea-kinda-culpas, you won’t find the word “fraud” in their answer. Speaking of business journalism and fraud, The Business Insider, one of the top business news blogs, published a pair of articles defending Goldman Sachs against the SEC fraud charges. The author of the articles defending Goldman Sachs is Business Insider’s co-founder and editor, Henry Blodget. In 2003, Blodget himself was charged with securities fraud by the SEC for repeatedly misleading clients into buying stocks of companies that in private emails Blodget referred to as “piece of shit.” Under the terms of Blodget’s settlement with the SEC, he agreed to a lifetime ban from the securities industry, and he paid $4 million in fines and disgorgements. Since he is not barred from the world of business journalism, Blodget was able to post an article last Friday headlined: “HOLD EVERYTHING: The SEC’s Fraud Case Against Goldman Seems VERY Weak.”

6). Fraudonomics K-12. If you want your kid to grow up to succeed in a fraud-based economy, you need to teach him the ABC’s of cheating starting at a young age. This is one area where America’s schools aren’t failing their students. Cheating is so rampant in schools that nowadays if the student doesn’t cheat on his exam, chances are his teacher or administrator will cheat on his test for him. One in five elementary schools in Georgia are currently being investigated for tampering with the students’ standardized test scores—although suspicious patterns of erasing and remarking answers showed up in half of the state’s elementary schools. In California, as many as two-thirds of its public schools admitted to fudging its students’ standardized test scores. A survey of graduate school students found that 53 percent of business school grad students admitted to cheating, more than any other grad school discipline. Overall, up to 98 percent of college students today admit to cheating, compared to just 20 percent who cheated in 1940.

7). Boardroom Fraud. Corporate America’s boardrooms are stacked up these days in tight, intertwined relationships that turn public companies into crime scenes, plundering money from unsuspecting shareholders and divvying up the loot among the directors and top executives. In 2008, Chesapeake Energy’s stock price collapsed from $74 per share to $9.84, wiping out $33 billion in shareholder value. The CEO, Aubrey McClendon, gambled and lost 94% of his stock in the company on a margin call, personally losing about $2 billion. So what did the board of directors do? They voted to award McClendon $112 million for 2008, the highest of any CEO in America. Shareholders were outraged, calling it a “bailout,” and several pension funds tried suing Chesapeake, but the courts in Oklahoma blocked the lawsuits. That’s because Aubrey McClendon is sort of the George Bush of Oklahoma—a spoiled fuck-up with a rich and powerful granddaddy—Robert Kerr, former governor and senator, and founder of Kerr-McGee—meaning plenty of VIP connections for the loser grandkid. So on Chesapeake’s board, you had Aubrey’s cousin, Breene Kerr; Frank Keating, Republican ex-governor of Oklahoma whose son Chip (and Chip’s wife) works for Chesapeake; Don Nickles, Republican ex-Senator of Oklahoma who co-funded with Aubrey the Republican anti-gay marriage campaign in 2004; Richard Davidson, the former head of Union Pacific, whose corrupt board of directors (which included the head of the US Chamber of Commerce) lavished Davidson with tens of millions in bonuses and a $2.7 million per year pension when he retired… Now multiply a board of directors like this by the sum total of “Corporate America” and you get…a corrupt, tin-pot corporate culture masquerading as a civilized First World corporate culture. That’s us. (You can read about this problem in an excellent new book Money For Nothing: How The Failure of Corporate Boards is Ruining American Business and Costing Us Trillions.)

8). Corrupt credit rating agencies. The only way big institutional investors like pension funds could justify buying a piece of the Orion Butt Fungus CDO pie was if ratings agencies like S&P or Moody’s gave it a top-notch seal of approval: AAA rated, with a little star on the forehead for good behavior. And in the world of fraudonomics, good behavior looks like this email from a Standard & Poor ratings analyst in December 2006:

“Rating agencies continue to create an even bigger monster _ the CDO market. Let’s hope we are all wealthy and retired by the time this house of cards falters.”

The happy ending to this story is that a huge percentage of thieving scum like this emailer saw their hopes become reality: they got wealthy and retired before the CDO market crashed in a trillion-plus dollar heap of shit. And if they didn’t retire, even better—because bonuses in 2009 were soaring, thanks to the always-gullible American taxpayer.

9). Regulatory Fraud: In the OTS, OCC, Fed, pension benefit guaranty agency and of course the SEC, where whistleblowers were routinely ignored because the regulators were too busy painting their monitors while surfing sites like www.fuck-my-wife.com.

• 10). Judicial Fraud: Juvenile court judges in Pennsylvania took millions of dollars in kickbacks from privately run prisons in exchange for sentencing thousands of innocent kids to juvenile prison terms. Chronic on-the-bench masturbation is running rampant: an Oklahoma judge was accused of using a penis pump on the bench, while nearby in Texas, a Harris County judge masturbated and ejaculated on a defendant’s hand. Speaking of Texas, the entire juvenile prison system there was turned into a sex abuse racket involving Texas state officials–over 750 official complaints about prison administrators molesting or raping underaged inmates in all 13 juvenile facilities had been officially logged between 2000 and 2007.
• 
  
• The list goes on and on. Hell, even our literature was corrupted with fraud: James Frey’s addiction “memoir” A Million Little Pieces turned out to be A Million Pieces of Bullshit, the biggest literary fraud of our time. Fooled readers sued, Oprah chewed him out and Frey is now a bestelling [sic]“fiction” author. Frey was just one literary con-artist among many, recounting fake tales of street prostitution, being raised by wolves, even fake Holocaust memoirs (read John Dolan’s article about literary frauds).

This is just scratching the surface, but you get the point. We’re way past the point of redemption. No wonder everyone’s dreaming of a violent apocalypse to wipe the slate clean, and take us away to another plane where everything would be better. Anything but this.

Read the entire article here

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

James K. Galbraith gave a keynote lecture to the 5th annual "Dijon" conference on Post Keynesian economics in Denmark on May 13, 2011, in which he lamented the absence of discussion about how fraud played a pivotal role in the 2008 financial meltdown. He stated that many present-day economists have chosen not to talk about the role fraud played. There is also silence from "government officials, regulators, consultants" or the academic advisers to government. Why? Because of "personal complicity," according to Galbraith.

Here is an excerpt from the final words of Galbraith in which he suggests what we need to know in order "to build a new line of resistance" against fraud:

James K. Galbraith: The Final Death (and Next Life) of Maynard Keynes

Posted by Selese -firedoglake

. . . .

First, an understanding of the money accounting relationships, that pertain within societies and between them, so that we cannot be panicked by mere financial ratios into self-destructive social policies or condemn ourselves to lives of economic stagnation and human waste. And in particular I should add, since it’s important in Denmark at the moment, to the destruction of social welfare systems and pension systems which provided the foundation of a decent life for a large part of the population for decades.

Second, an effective analysis of the ongoing debt deflation, the banking debacle and the inadequate fiscal and illusory monetary policy responses so far. In America and in Europe, this is a crisis primarily of banks not of governments and it’s for us to call attention to this fact.

Third, a full analysis of the criminal activity that destroyed the banking sector, including its technological foundation, so as to quell the illusion that these markets can effectively be restored to anything like their form of 4 or 5 years ago. As part of this, obviously, it would be useful to have a renewed commitment to expose crime, to punish the guilty, and enforce the laws. Post Keynesian Economists for a More Effective FBI, I think is a splinter organization I would be happy to sponsor and solicit your membership in.

Fourth, an understanding of the way in which financial markets interact with the changing geophysics of energy, especially oil, with the commodity markets to choke off economic recovery unless the energy problem is addressed squarely. I think that’s something that we’re seeing happening now.

Fifth, a new strategic direction to redesign and rebuild our societies for the challenges of aging, infrastructure, energy, climate change and shared development which we all face. And to create the institutions required to make this happen. That requires, I think, from an intellectual point of view, a merger of the Keynesian, Post-Keynesian and the Institutionalists traditions which is, in fact, something that is already underway.

Sixth, to achieve these goals by mobilizing human brains and muscles to overcome unemployment and to assure a widely-shared, decent, and reasonably egalitarian society according to the most successful and enduring social models, by which I mean a commitment to the deepest policy principles that Keynes himself held and also an understanding that we should use history as a guide to what has worked and what does not.

And seventh, the reconstruction of the instruments of public power — the power to spend, the power to tax, the money power and the power to regulate — so as to effectively pursue these goals with democratic checks and balances to prevent the capture of new state institutions by predatory forces.

I will not pretend, as Keynes did, that nothing stands in the way but a few old gentlemen in frock coats who require only to be bowled over like nine pins and might enjoy it if they were.

We should take on this challenge simply as a matter of conscience. We are not contestants for power. It is for us a matter of professional responsibility and civic duty.

Read the transcript here

Goldman Sachs's Paulson Squirming in Discomfort: That's the Only Satisfaction We Get?

The Daily Bail reported on the AIG bailout money which Goldman Sachs collected on a speculative trade for its own account. No one seems to have taken to task this little bit of trickery that gave Goldman Sachs $2.9 billion because of Henry Paulson's deal to bail out banks who had committed so much stupidity that it led to the financial meltdown of 2008.

Goldman Got Billions From AIG For Its Own Account
By Shahien Nasiripour - The Daily Bail

Goldman Got Billions From AIG For It's Own Account

Goldman Sachs collected $2.9 billion from the American International Group as payout on a speculative trade it placed for the benefit of its own account, receiving the bulk of those funds after AIG received an enormous taxpayer rescue, according to the final report of an investigative panel appointed by Congress.

The fact that a significant slice of the proceeds secured by Goldman through the AIG bailout landed in its own account--as opposed to those of its clients or business partners-- has not been previously disclosed. These details about the workings of the controversial AIG bailout, which eventually swelled to $182 billion, are among the more eye-catching revelations in the report to be released Thursday by the bipartisan Financial Crisis Inquiry Commission.

The details underscore the degree to which Goldman--the most profitable securities firm in Wall Street history--benefited directly from the massive emergency bailout of the nation's financial system, a deal crafted on the watch of then-Treasury Secretary Henry Paulson, who had previously headed the bank.

• "If these allegations are correct, it appears to have been a direct transfer of wealth from the Treasury to Goldman's shareholders," said Joshua Rosner, a bond analyst and managing director at independent research consultancy Graham Fisher & Co., after he was read the relevant section of the report. "The AIG counterparty bailout, which was spun as necessary to protect the public, seems to have protected the institution at the expense of the public."

When news first broke in 2009 that Goldman had been an indirect beneficiary of the AIG bailout, collecting the full value of some $14 billion in outstanding insurance polices it held with the firm, the officials who brokered the deal justified these terms as a necessary stabilizer for the broader financial system. As the world's largest insurance company, AIG's inability to cover its outstanding obligations could have threatened the solvency of the institutions holding its policies, asserted the Federal Reserve Bank of New York, which oversaw the deal.

• Goldman fended off claims that the arrangement amounted to a backdoor bailout by asserting that none of the money from the AIG rescue landed in its own coffers. Rather, those funds went to compensate clients or institutions on the other side of its trades, Goldman said.

But the report from the financial crisis commission, obtained by The Huffington Post in advance of its release, appears to challenge that assertion: The report reveals another pot of money conveyed to Goldman--the $2.9 billion to cover trades the Wall Street investment house made for itself. That money went straight to the bank's bottom line, according to the report.

Over the last two years, Goldman has reported nearly $22 billion in profits, according to its official earnings statements. During those years, it has paid out $31.6 billion in compensation to its employees.

• According to the report, the financial crisis commission first learned that the $2.9 billion in AIG funds landed in Goldman's account through an e-mail the bank sent to the panel on July 15, 2010 in response to questions.

Previously, Goldman executives had testified that the AIG bailout funds the bank collected went to compensate its clients and institutions that held the other side of its trades.

• At a hearing on July 1, 2010--two weeks before Goldman sent the e-mail acknowledging how $2.9 billion in AIG funds wound up in its own account--the crisis panel questioned Goldman's chief financial officer, David A. Viniar and managing director David Lehman. Both said they knew nothing about AIG funds landing in the bank's private coffers, according to a transcript of the hearing.

The report concludes that Goldman collected the $2.9 billion as payment for so-called proprietary trades made for its own account--essentially successful bets on large pools of financial instruments.

• "The total was for proprietary trades," the report asserts. "Unlike the $14 billion received from AIG on trades in which Goldman owed the money to its own counterparties, this $2.9 billion was retained by Goldman."

"At the time, the idea was the sucker could go down because there wasn't enough liquidity in the system, money wasn't moving, and you could see a domino effect," said Ann Rutledge, a principal at R&R Consulting in New York, which specializes in structured finance.

• In reality, she contends, those fears were overblown: There was ample money in the financial system. Rather, individual institutions did not have enough cash on hand to survive their losses, she asserts. But the fear of a broader liquidity crisis was used as justification for what now appears to have been a backdoor means of bailing out Goldman, said Rutledge.

Read the whole article here

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

About the only satisfaction we may ever get (as no one seems to be going to jail for committing criminal acts of fraud) is to watch this video as Paulson squirms uncomfortably:



View the video here

Goldman Sachs is an SDI--a "Systemically Dangerous Institution"

A report in New Economic Perspectives by William K. Black entitled U.S. Subsidies to Systemically Dangerous Institutions Violate WTO Principles describes how the TBTF banks in the United States have become dangerous to society and the economy.

Goldman Sachs is a Systemically Dangerous Institution (SDI) as described by William K. Black insofar as

1. Goldman Sachs received large government subsidies
--via bailout programs
--via massive purchases by the Fed of poor quality mortgage paper
--via borrowing more cheaply and having greater leverage as TBTF:

2. Goldman Sachs is not properly regulated;

3. Goldman Sachs was badly run with (potentially) large losses which could have caused cascading failures without government bailout;

4. Goldman Sachs is a ticking time bomb;

5. Goldman Sachs committed accounting control fraud in its inadequate or non-existent underwriting of mortgage securities that it sold to investors as highly rated when they were actually junk;

6. Goldman Sachs contains the ingredients for a recipe for accounting control fraud by maximizing income, maximizing compensation and maximizing real risks and/or losses.

Goldman Sachs is not a "systemically important" institution or only a LCFI--a "Large, Complex Financial Institution" but an SDI--a "Systematically Dangerous Institution."

When you read Black's essay, please substitute Goldman Sachs every time you see SDI (and make some small grammatically changes) and you will feel right at home. Here are some excerpts from William K. Black's article:

U.S. Subsidies to Systemically Dangerous Institutions Violate WTO Principles
By William K. Black - New Economic Perspectives

. . . .

Economists Argue that Subsidizing SDIs make Free Markets Impossible

The destruction of competition and the creation of a perfect environment for accounting control fraud inherent with SDI subsidies mean that free markets are impossible. The Stern (2011) authors are blunt on this point: “there was nothing free about these markets” (p. 21). SDIs create extreme market concentration and enormous income inequality.

Akerlof & Romer and financial regulators and criminologists’ discovery of the recipe that the controlling officers use to maximize reported (albeit fictional) reported income concur that the optimal strategy is to make or purchase loans with a negative expected value. This makes “markets” profoundly inefficient. Accounting control frauds are engines of mass financial destruction that destroy wealth at a prodigious rate. Accounting control frauds also cluster in the most criminogenic industries, regions, and products. This, and each of the ingredients of the fraud recipe, makes them the ideal weapon for hyper-inflating financial bubbles. Financial bubbles are damaging as they grow because they systematically misallocate assets and capital, but they can be catastrophic when they collapse if they have been allowed to hyper-inflate.

Accounting Control Frauds Spawn “Echo” Epidemics

George Akerlof’s seminal 1970 article on “lemon” markets presents several examples of anti-customer control frauds in which the seller deceives the buyer about the quality of the good. He added the powerful insight that these frauds could produce a “Gresham’s” dynamic because dishonest sellers would gain a competitive advantage over their honest rivals. At the extreme, the market would become perverse and drive honest sellers out of the marketplace. Criminologists have employed Akerlof’s insights to explain how control frauds deliberately create Gresham’s dynamics suborn “controls” (e.g., appraisers) and agents (e.g., mortgage brokers) into fraud allies in manner that produces limited risk of detection and prosecution. The CEO running a fraudulent nonprime lender simply creates perverse financial incentives that create intense Gresham’s dynamics. It is insane for an honest lender to pay bonuses to loan officers and brokers based on volume with no penalty for making bad loans – but it is optimal for an accounting control fraud to do so. In criminological jargon: control fraud is criminogenic. In plainer English: fraud begets fraud.

Accounting Control Fraud Erodes Trust and Can Cause Market Collapses

Economists and scholars from multiple disciplines have increasingly begun to find how valuable trust is in many contexts. It is essential to finance. The defining element at law of “fraud” is “deceit.” To commit a fraud a perpetrator gains the victim’s trust – and then betrays it. This is why fraud is the most effective acid against trust. Fraud by elites is the most destructive assault on trust. Fraud can cause market collapses long before it becomes endemic because of its ability to harm trust. Consider attending a conference or concert where everyone is given a bottle of water. If the public health authorities announce that one bottle in a hundred is contaminated, how many of us will drink our bottle. Markets collapsed in 2008 because bankers no longer trusted other bankers to tell the truth about the value of the assets they were selling. That lack of trust was rational, for deceit was the norm in the sale of “liar’s” loans.

Vigorous Regulation Can Block SDIs from Causing Crises – but SDIs Destroy Regulation

The Stern (2011) authors stress that the SDIs inherently create a regulatory “race to the bottom” (p. 41). More broadly, they understand that economic domination of this degree not only destroys free markets but free democracies. The SDIs will use political contributions and lobbying power to try to emasculate regulation and criminal justice systems because they recognize that only these public sector bodies can possibly restrain or remove the SDIs. The good news is that economists broadly agree that the SDIs confer no real economic advantages. They are too large to be efficient. Their domination is due solely to their receipt of huge governmental subsidies. That means that shrinking the SDIs in size would simultaneously increase bank efficiency and market efficiency while dramatically reducing fraud and systemic risk and restoring more functional and democratic government.
. . . .

Read the whole article here