The People ARE Angry At Goldman Sachs

Finally, investors are beginning to rev up opposition to the lack of action by government regulatory bodies and by the Congress for not investigating and prosecuting the TBTF banks, including Goldman Sachs, who greedily sucked up the retirement funds of the people for their own use.

You can read the press release here. Visit The Derivative Project website here. There is a lot of information about the banks and about what kind of action is needed. There is also information on the role that Secretary of the Treasury Henry Paulson played in a "conflict of interest" situation when he decided to bail out Goldman Sachs via AIG.


May all the American people Rise Up and send the requests enumerated on that website to their representatives in Congress. This is action that everyone can participate in!

You can find your Congressional Representative here

Below is one of The Project's suggestions:

How To Prevent Another Financial Crisis and Collapse of Retirement Savings

• Commence a long overdue civil and criminal investigation to reverse the taxpayer payments of over $50 billion to U.S. and international banks for collateral calls for AIG over-the-counter derivative contracts, that were entered into fraudulently between AIG and other counter parties, including Goldman Sachs. Fine Goldman Sachs and then Secretary Henry Paulson for misrepresenting that AIG would collapse without the collateral call payments to Goldman Sachs. Goldman Sachs could have totally prevented the "crisis" with AIG by not demanding immediate delivery of the collateral by the U.S. taxpayer and sought an unwinding of the contracts.

• Revamping of FINRA and SEC and elimination of FINRA as Securities Law Enforcer

• SEC should monitor Investment Advisors, not the SRO FINRA

• Congress must pass a law enabling a right of private action for individual retirement investors for breach of fiduciary duty under the Investment Advisors Act of 1940.

You can read the rest of the document here

Who Would Miss Goldman Sachs If It Weren't Around?

It makes my blood boil when I read an opinion article like the one Robert Lenzner (Streettalk, Forbes) wrote entitled, "There Can't Be A Criminal Prosecution Of Goldman Sachs." Oh, yes, there can be; there just isn't the will to follow the rule of law and prosecute where corruption occurs. To my mind, it is corrupt not to prosecute.

According to Mr Lenzner, a criminal prosecution of Goldman Sachs would threaten Goldman Sachs's status as a dealer in government securities. To which I reply, GSs's status already threatens the work of the government, and in the future that may include securities. We still do not know what the end will look like.

Mr Lenzner says that a criminal case would hinder Goldman Sachs's ability to borrow money in global markets. To which I reply, there are other banks who can do the borrowing. TARP money alone could have created a bank in each state that would have performed the borrowing and lending role that was needed (an idea obtained from the videos on Geithner by Khan Academy). Another idea put forth by Khan Academy is that the big six banks should have been wound down and the TARP money paid to Main Street for the Wall Street losses (in pension funds, insurance companies, municipalities, university endowments, small business, savings, etc.).

Mr Lenzner says that Goldman Sachs would suffer when other banks do not want it as a counterparty. To which I reply, knowing what I do now about Goldman Sachs's actions before the financial crisis, I wouldn't want the risk of having GS as a counterparty or the risk of being one of its clients.

Finally, the zinger, If Goldman Sachs were accused or found guilty of criminal acts, "the entire fabric of the global financial system would be threatened." To which I say, it has already happened and but for a few well-placed people objecting to any prosecutions (Geithner?), many people should have been prosecuted already for all the illegal, immoral and unethical behavior of banks like Goldman Sachs. And the penalty should have been paid in time, not cash.

It is not the "wiser heads" that will prevail when Goldman Sachs escapes any censure for its fraudulent, criminal or corrupt actions. It is the stupider ones--the banks, including Goldman Sachs, share a large share of the responsibility for the collapse of the financial system and now they play the role of The Great Transfer-or of Wealth to the richest members of society which, of course, includes Blankfein and all his partners.

Current Lawsuits Against Goldman Sachs

One effect of all the media attention on Goldman Sachs because of the Senate Report on the financial crisis is that it may attract more lawsuits than can be handled by the $3.4 billion that GS has set aside for such matters. Some suits are described below.

In an article in Bloomberg's Businessweek by Lindsay Fortado, Cazar Search Ltd. says it was not paid by Goldman Sachs Group Inc.'s UK unit and is suing . Cazar said it introduced Mirek Urbanski to Goldman Sachs as a tentative employee who later was hired by GS but GS said Cazar was not entitled to a fee.

In an article by Susanne Craig , DealBook, Marvell Technology, a semiconductor company, is suing Goldman Sachs for forcing them to sell shares in their own company during the financial crisis. Goldman Sachs said that an SEC rule governing stocks used for margin made the sale necessary. The lawsuit says, "Goldman forced its clients to unnecessarily liquidate their holdings through forced margin calls, only to repurchase these same shareholdings for accounts owned by Goldman and its related hedge funds."

Creditors of bankrupt Capmark Financial Group, as reported in Bloomberg by Steven Church, want to sue Goldman Sachs for $96 million. Judge Sontchi will consider allowing the suit which claims Goldman Sachs used their insider position to collect $96 million from Capmark. The money is meant to go to lower-ranking creditors.

Finally, Eric Johnston in BusinessDay (The Sydney Morning Herald), sums up another of Goldman Sachs's troubles which may presage more headaches in the future:

NAB eyes Goldman lawsuit
by Eric Johnston, BusinessDay, smh

NATIONAL Australia Bank is believed to be considering legal action against its one-time house broker Goldman Sachs after a US Senate report found the bank was apparently misled when it was sold an exotic security that quickly turned toxic.

Senior NAB executives yesterday were reviewing the bank's legal position following a wave of revelations contained in a report on the financial crisis by the US Senate that draws on internal documents and private communications of bank executives and regulators.

The 650-page report, Wall Street and the Financial Crisis: Anatomy of a Financial Collapse released this week reveals detailed accounts of questionable business practices and investment banks riddled with conflicts of interest in the lead-up to the 2008 finance market implosion.

Specifically, the report outlined how Goldman marketed to NAB a $US80 million tranche of a collaterised {sic} debt obligations, a structured asset-backed security known as Hudson.

While Goldman was selling the securities it did not disclose it was taking substantial bets against Hudson, under which the investment bank would make large profits the more the securities fell in value.

NAB lost on the investment, but it got off lightly compared with Wall Street bank Morgan Stanley, which made the largest investment, taking $US1.2 billion of the super senior portion of the same CDO.

''Goldman constructed Hudson as a way to transfer its … risk to the investors who bought Hudson securities,'' the US Senate report found.

''When marketing the Hudson securities, Goldman misled investors by claiming its investment interests were aligned with theirs, when it was the sole short party and was betting against the very securities it was recommending,'' it found.

In a statement, Goldman Sachs said: ''While we disagree with much of the report, we take seriously the issues explored by the subcommittee.''

Read more of the article here

Taibbi and Spitzer on Goldman Sachs

What Goldman Sachs Taught Hank Paulson

Hank Paulson worked for Goldman Sachs for more than 30 years. In 2006 he became Treasury Secretary under President George W. Bush. In one of Paulson's speeches as Secretary of the Treasury, according to Wikipedia, he "identified the wide gap between the richest and poorest Americans as an issue on his list of the country's four major long-term economic issues to be addressed." While he was Treasury Secretary, his pronouncements indicated that he had no inkling about the impending financial crisis in subprime mortgages, nor about the lack of adequate regulation of banks nor about the instability of markets. All these became apparent in 2008.

During the financial crisis, Paulson devised a plan to use $700 billion of Treasury money to inject cash into financial institutions which were in danger of becoming insolvent because of the risks they had incurred that led directly to the financial crisis. He used hundreds of billions of Treasury dollars "to help financial firms clean up nonperforming mortgages." Note that he didn't think of injecting money into Main Street to help the average American citizen who also suffered from the results of the credit crisis.

That was the man who introduced us to the the financial crisis but probably made the situation even worse because he created a sense of panic, instability and alarm that may have led to bad decisions for Main Street. So much for the wealth gap that he paid lip service to!

Of course, Goldman Sachs benefited from Paulson's plans to infuse banks with money from the Treasury and also obtained billions more from the bailout of AIG.

Below are two teaching videos from Khan Academy (free) that present another way that Paulson and Geithner could have solved the financial problem. You can look at the other videos that lead up to these videos here.





All the videos are found here

Goldman Sachs Perjured Itself

Yves Smith at naked capitalism has interesting comments to make about the Levin and Coburn report called Wall Street and the Financial Crisis.

Certain widespread actions that the players deny and other key elements we are familiar with for having stimulated the financial crisis are there in the report. However, Yves is interested in "supportive evidence" that is not stressed in the report. She will surely be looking for that evidence.

However, she makes the observation that Goldman Sachs will almost certainly not be prosecuted for perjury. It is unfortunate that she has to end her column on such a pessimistic note. Below is an excerpt:

Senator Levin Claims Goldman Execs Perjured Themselves Before Congress on Mortgage Testimony
by Yves Smith - naked capitalism

As readers may know, the Senate Permanent Subcommittee on Investigations just issued another report, Wall Street and the Financial Crisis. This is a far more focused and damning document than the Financial Crisis Inquiry Commission report, which was produced at considerably more expense and was undermined by dissent among its commissioners (which in fairness appears to have been by design).

I confess to having only gotten partway through the document and plan to issue a more thorough discussion in the next few days. However, some things are clear at this juncture. The committee took the approach of drilling into certain practices and players they regarded as key to see where that took them. On the one hand, that serves to provide far more concrete proof of the extent and nature of certain practices believed to be widespread that industry players have either denied or argued were based only on anecdotal evidence and were therefore simply isolated examples. It serves to demonstrate that the degree of institutional failure and fraud were widespread and played a direct and significant role in the crisis. On the other hand, it is not and cannot be a comprehensive account, and therefore misses other key elements which this writer along with other industry participants believe were serious and insufficiently examined drivers of the crisis (in particular collusive relationships among major players that were presented as independent). Thus it does not in the end do more to explain the crisis (all its research focused on issue, such as rating agency bad behavior and regulatory incompetence) that are widely accepted by the public and virtually all analysts of the crisis not operating on behalf of the financial services industry, but provides more support and color around some of the major issues. However, I suspect that some of its supporting evidence, which the subcommission also released, will point to issues that the report did not stress.

. . . .

Senator Carl Levin, in releasing the report, took aim at Goldman’s truthiness in its testimony before Congress and called on Federal prosecutors to examine whether Goldman committed perjury. Two issues are at stake. First it the Goldman claim that it lost money on its housing bets and was not net short housing (or at least not for long). Second is the notion that the firm was acting merely as a market marker, which basically means caveat emptor, if clients made bad bets, Goldman was merely acting as a neutral middleman.

While Goldman made the usual pious denials, the evidence in the report supports the Levin charges. It notes:

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.

Read the full article here

Is Goldman Sachs a Pariah Yet?

After a two-year investigation, Senator Levin and Senator Coburn present their report on "Wall Street and the Financial Crisis: Anatomy of a Financial Collapse." According to Levin, Goldman Sachs was not truthful and made misleading statements.

Not Truthful <==> Lying
Misleading <==> Lying

Anyone who has been paying attention to Goldman Sachs and the financial crisis knows that Goldman Sachs had conflicts of interest, manipulated the market, fraudulently deceived clients, used unethical means to enrich themselves, and so on.

We are tired of Goldman Sachs admitting to "incomplete information," making "mistakes," and "taking seriously" everything said by the committees investigating their behaviors which are full of omissions and prevarications. It is time that someone in Goldman Sachs paid for their bad behavior, not with a fine, but with "time served."

As the report is a long one, there are many opinions and facts to explore. Some interesting articles are listed below:


Banks Falling Early as Mortgage Shenanigans Laid Bare - Goldman, DB Hit Hard
- By Avi Salzman - Barron's The Wall Street Journal

Goldman Sachs misled Congress after duping clients, senate panel chairman says - By Bloomberg and The Washington Post

Criminal Charges Loom For Goldman Sachs After Scathing Senate Report
- By Halah Touryalai - Forbes

Goldman Sachs Misled Congress After Duping Clients, Levin Says
- By Robert Schmidt, Clea Benson and Phil Mattingly - Bloomberg Businessweek

Senator Levin Says He'll Refer Goldman Testimony From Last Year's Congressional Hearings To The DOJ For Possible Perjury Charges
-By Katya Wachtel - Business Insider

Naming Culprits in the Financial Crisis
-By Gretchen Morgenson and Louise Story - The New York Times
http://www.nytimes.com/2011/04/14/business/14crisis.html

Simon Johnson on Goldman Sachs

Here's another video about the banking system and the financial collapse. Simon Johnson says that there are only two solutions to the problem of big banks: either let them collapse or bail them out, both choices being somewhat scary. There are no other resolutions for the problem of "too big to fail." Instead, the banks are getting even bigger and, therefore, more unstable and risky. The old bank structures, which failed in 2008, were reinforced by the bailouts.




The video can be found here

Spitzer's Interview with William Cohan on Goldman Sachs

It is interesting to note that "conflict of interest" has become the way to do business as far as Goldman Sachs is concerned. The video points out that nothing has changed on Wall Street since the financial collapse. The rules for governing a new financial system have yet to be put into place.

You can find the video here
Transcripts can be found here

Why Doesn't Goldman Sachs Give Up Its Bank Licence?

Here's hoping that Volcker is right when he says that banks like Goldman Sachs will be allowed to collapse if they fail (again). Sheila Bair, chair of the US Federal Deposit Insurance Corporation (FDIC) since 2006, wanted to use part of the $700 billion Bush bailout funds to help Americans who were facing foreclosures. Perhaps she will figure out how to handle "too big to fail" banks so that main street doesn't have to pay for Wall Street's excesses in the future.

According to the following article in Bloomberg, Goldman Sachs hangs onto its bank holding status just in case the market comes round to letting investment banks fail when they become insolvent (the next time round)!

Soros Says Moral Hazard Looms; Volcker Says Banks Can Fail
by John Detrixhe - Bloomberg Businessweek

April 11 (Bloomberg) -- Moral hazard in the financial system “looms larger than ever before,” even after the Dodd- Frank law gave U.S. federal agencies tools to regulate institutions that may be deemed too big to fail, said billionaire investor George Soros.

“The evidence is overwhelming that the first priority of the authorities is to prevent a market collapse, and everything else has to take second place,” Soros, chairman of Soros Fund Management LLC, said yesterday at a conference in Bretton Woods, New Hampshire.

Paul Volcker, former Federal Reserve Chairman, challenged the notion that large financial institutions wouldn’t be allowed to collapse, and asked Soros whether the extra yield on Goldman Sachs Group Inc. bonds relative to Treasuries would widen if the firm gave up its bank license.

“Probably currently it wouldn’t go up very much, but it would go up,” Soros said.

The Fed allowed investment banks Goldman Sachs and Morgan Stanley to convert to bank holding companies in September 2008. Dodd-Frank, the financial-regulation law enacted in July, gave the Federal Deposit Insurance Corp. authority to wind down complex firms after the bankruptcy of Lehman Brothers Holdings Inc. exacerbated the credit crisis and forced the U.S. to bail out companies including American International Group Inc.

“So you’re not 100 percent sure,” Volcker replied. “You want a tough administrator, you get Sheila Bair up here and she’ll tell you what will happen if you fail on her watch.”

‘Too-Big-to-Fail’

Federal Deposit Insurance Corporation Chairman Bair told bankers last month that while the Dodd-Frank law is not “perfect,” it will strengthen the sector by giving the agency tools to regulate “too-big-to-fail” institutions.

Goldman Sachs’ $1.5 billion of 5.15 percent notes due January 2014 traded at 107.21 cents on the dollar to yield 111.6 basis points more than similar-maturity Treasuries as of April 8, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The securities fell to a low of 75 cents in October 2008.

“It’s clear they’re clinging to this banking license they got during the crisis because they think the market would permit them to fail if they weren’t a bank,” Volcker said. “Otherwise, why would they be holding onto the banking license with all the additional regulation?”

Volcker Rule

Volcker, 83, is known for taming inflation in the 1980s as Fed chairman and he provided advice on economic issues as well as the rewriting of regulations for financial institutions. The law enacting those regulations included the so-called Volcker rule, which banned proprietary trading at banks and restricted their investments in private-equity and hedge funds.

He was President Barack Obama’s head of Obama’s Economic Recovery Advisory Board and was replaced by General Electric Co. Chief Executive Officer Jeffrey Immelt.

While the Volcker provision “was loosened up a bit,” it’s incorrect to say that it was completely watered down, the former Fed chairman said. There’s still “intense” lobbying by the banking industry to influence financial reform, he said.

Europe’s refusal to allow members of the monetary union to restructure their debt has added to moral hazard in the financial system, Soros said. Portugal will start negotiations with the European Union and the International Monetary Fund this week on a rescue package estimated at 80 billion euros ($116 billion). The country was forced to seek aid, following Greece and Ireland, after its budget gap helped drive up borrowing costs.

Read the rest of the article here

First, We Need Some Goldman Sachs Bankers to Go To Jail

It is time for a rapid-fire analysis of the financial crisis which also happens to be a Crisis of Capitalism according to JRK and David Harvey's animated account. It is refreshing to see the financial crisis discussed from a Marxist viewpoint. It takes into account all the different reasons that have been put forth for the causes of the crisis, such as, human frailty, predatory instincts, delusions of investors, greed of bankers (as shown by the daily practice of firms like Goldman Sachs), on to institutional failures, obsessions with false theory and so on.

Finally, systemic risk and internal contradictions of capitalism are looked at. In the past, the excessive power of labor was attacked and that problem was variously solved; then the excessive power of financial capital arose. During the latest financial crisis, billionaires and millionaires increased in number and wealth because of the obscene remuneration of financiers and hedge fund managers, for example. And now the problem is the excessive power of finance.

The conclusion: We need to change our mode of thinking, which would be helped along by first putting some of the bankers in jail!




The video can be found here

More About Goldman Sachs in Cohan's Book

One thing is for certain: it cannot be said too many times what an egregious firm Goldman Sachs is. Whether it pretends to be the smartest guys on Wall Street or the dumbest guys in finance, they did things that were (and are) basically unethical, immoral and/or illegal. Sure, the executives and players at Goldman Sachs would like the rest of us to forget what they really did during the run-up to the financial crisis and afterwards; it was only by luck (and by government intervention) that they did not bankrupt themselves. They certainly helped to bring down some of their competitors.

It would seem to me that because Goldman Sachs was underwriting sub-prime mortgages and securitizing them, they would only have to look at their own junk creations to see that there was going to be a risk of failure of mortgages in the future.

We should never forget the role Goldman Sachs played in manipulating and bringing down the financial system, and in infiltrating the government in order to bring about its basest desires.

The following excerpt of Cohan's book is from The Telegraph:

Goldman Sachs chief Blankfein was 'stunned' by SEC lawsuit: extract from Money and Power

A new book by William D. Cohan exposes the startling truth about Goldman Sachs. In this extract, CEO Lloyd Blankfein reacts to the filing of an SEC lawsuit against the firm and a Senate investigation into what role it played in causing the financial crisis.
in The Telegraph

Wall Street has always been a dangerous place. Firms have been going in and out of business ever since speculators first gathered under a buttonwood tree near the southern tip of Manhattan in the late 18th century.

Despite the ongoing risks, during great swaths of its mostly charmed 142 years, Goldman Sachs has been both envied and feared for having the best talent, the best clients and the best political connections, and for its ability to alchemise them into extreme profitability and market prowess.

Indeed, of the many ongoing mysteries about Goldman, one is just how it makes so much money, year in and year out, in good times and in bad, all the while revealing as little as possible to the outside world about how it does it.

Another – equally confounding – mystery is the firm's steadfast, zealous belief in its ability to manage its multitude of internal and external conflicts better than any other beings on the planet.

The combination of these two genetic strains has made Goldman the envy of its financial services brethren. But it is also something else altogether: a symbol of immutable global power and unparalleled connections, which Goldman is shameless in exploiting for its own benefit.

The firm has been described as everything from "a cunning cat that always lands on its feet" to, now famously, "a great vampire squid wrapped around the face of humanity", by Rolling Stone writer Matt Taibbi. But in the early 21st century, thanks to the fallout from Goldman's very success, the firm is looking increasingly vulnerable. For the first time since 1932, when Sidney Weinberg, then Goldman's senior partner, knew that he could quickly reach his friend, President-elect Franklin Delano Roosevelt, the firm no longer appears to have sympathetic high-level relationships in Washington.

Goldman's friends in high places, so crucial to the firm's extraordinary success, are abandoning it. Indeed, in today's charged political climate, which is polarised along socio-economic lines, Goldman seems particularly isolated and demonised.

Certainly, Lloyd Blankfein, Goldman's chairman and CEO, has no friend in President Barack Obama. According to Newsweek columnist Jonathan Alter's book The Promise, the "angriest" Obama got during his first year in office was when he heard Blankfein justify the firm's $16.2bn (£10bn) of bonuses in 2009 by claiming "Goldman was never in danger of collapse" during the financial crisis that began in 2007.

According to Alter, President Obama told a friend that Blankfein's statement was "flatly untrue" and added for good measure: "These guys want to be paid like rock stars when all they're doing is lip-synching capitalism."

Read the full extract here

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

Bloomberg has a videotaped interview of Cohan here

CBS 60 Minutes Exposes Bank Fraud

While this story is not specifically related to Goldman Sachs, Goldman's mortgage and mortgage servicing entities are - I believe - involved in this fraud on the courts (and the people) as they continue to mercilessly foreclose on homes.

Yes, there are many of you who say, "if you cannot afford the payments then you should be foreclosed on" and to some degree under very different circumstances I would be he first to agree with you.  But let's look at the facts, the real facts on how this foreclosure crisis began and who was responsible for it.

The real culprits here are - you guessed it - the banks and our friends at GS.  Why are they to blame you ask?  Well, it was their decisions to lower qualification guidelines, devise creative methods of securitization to "spread the risk" and then conjour up fancy names for securities (junk) that would insure against failure.  In other words, the likes of GS (the premier bond trading company), Merrill Lynch, Bear Stearns and Lehman Bros not to mention banks such as HSBC, Deutsche Bank, JPMorgan and Bank of American, all interested in the creation of hundreds of thousands if not millions of mortgage notes for sale to a fraudulently informed investing public worldwide.  Enter please, the criminal conspiracy accomplices - the rating agencies, Moody's Standard and Poors and Fitch - who knowingly - gave these mortgage backed securites (MBS) false "AAA" ratings which in fact told the investing public that there was little risk in these investments.

So what does all this have to do with being foreclosed on legally or illegally?  A great deal.  Let's look at some logic not fact that I have researched.  As guidelines for mortgage qualifications continued to be lowered, more and more people purchased homes - sometimes multiple homes - that they truly could not afford.  These people did (notice the past tense here) deserve to be foreclosed on LEGALLY.  I believe that as the so called "mortgage meltdown" began in mid 2007. the majority of those purchasing multiple properties, second homes and even primary residences did lose these properties to the banks. (the legality question still does exist, however)

But, again, it is my belief that the majority of foreclosures since then are not due to people who over extended themselves, purchased multiple properties or second homes.  The majority of foreclosures today, I believe, are due to Great Recession which still has milllion upon millions of people unemployed.

This excessively high rate of unemployment as a result of the Great Recession and the Great Recession itself is a direct result of the extensive greed that permeated the banking industry causing them to operate fraudulently, outside the view of the SEC and other regulatory agencies.  These banks (perhaps led by the biggest bond traders of them all - GS) were the sole reason we had a worldwide economic crash all tied into mortgage securites and things called derivatives - things that you can gamble with but don't really exist.

Today it is my belief again that the majority of foreclosures are against innocent victims who through no fault of their own found themselves unemployed and perhaps stripped of their savings and found that their investments became worthless in the wake of the economic crash.

Let us also keep in mind that while the people of this country began suffering and losing the banks who created this mess to begin with all began profiting.  Our friends at GS showing greater profits then pre economic crash.  What's up with that?

Of course, our government stepped in to help but helped the wrong ones.  Instead of helping us, the people, as they are supposed to do, they chose to strip us even more of any financial freedom by bailing out those that hurt us to begin with.

Calling themselves Too Big To Fail they instilled fear into some, fooled many others and gave a good excuse for prominent (bought and paid for) politicians who knew better to fund them to the tune of trillions closing a blind eye to the multitude of criminal activities they engaged in to create their extreme wealth which then caused the financial destruction globally.


What is important about this 60 Minutes piece is that it in no uncertain terms discloses - by admission of some involved - the frauds that banks have committed in the effort to take back homes ILLEGALLY.  I emphasize illegally as this precedence could and most probably will - if left unchecked - cause a demise of our entire judicial system removing any equity that must exist giving preferential treatment above and outside of law to those that have priority status in our society such as banks.  This blatant disregard for justice and dispensation of laws in our courtrooms will create a two tier system in our country.  One system that must obey the law and be punished by it and those that do not need to obey any laws and can walk free and profit by breaking the laws.  Our courtrooms will become shams where the guilty will go free and the innocent will suffer by punishment.

This story is big and as 60 Minutes says by its title, the second wave is coming.  Illegal actions, condoned by our courts and those judges who close a blind eye to the laws they have sworn to uphold will cause the demise of this Republic as we know it and as our forefathers imagined it to be.

Freedom does not come without sacrifice but loss of freedom due to power, greed and a disregard for law is not a sacrafice any should ever have to make.

Please watch both of the video segments.  The first is the one aired, the second is one aired on their web site only as a continuation.

The next housing shock ...from CBS 60 Minutes

http://www.cbsnews.com/video/watch/?id=7361572n&tag=contentMain;contentAux Sorry, embed did not work correctly.  click on image at left to link to video.

 

 

 

 

Mortgage mess: Who really owns your mortgage?

Sorry, embed did not work correctly.  click on image at left to link to video.










This is important.  Pass this along to everyone you know.  We must put the "just" back in justice.

This is the beginning of what I am calling FORECLOSUREGATE.

Related articles

• Judges Waking Up To Fraud on the Court (theforeclosuredetonator.wordpress.com)
• Foreclosure nightmares won't end (finance.fortune.cnn.com)
• Do Banks tell the truth? (temeculahomesblog.wordpress.com)
• "Who Owns My Mortgage"...Demand To Know (theforeclosuredetonator.wordpress.com)
• Fraud-Based Economy (businessinsider.com)

Another Book About Goldman Sachs

One could suppose that any publicity is good publicity in which case Goldman Sachs probably revels in the latest book about its own profiteering. William D. Cohan has written a book about Goldma Sachs called, Money and Power: How Goldman Sachs Came to Rule the World. The title alone is rather scary.

Below are excerpts from three reviews:

Book Review: Money and Power: How Goldman Sachs Came to Rule the World by William D. Cohan
By Ian McGugan - Bloomberg Business Week

. . . .
Given Goldman's bare-knuckled attitude, Cohan depends on a wide range of unnamed sources. Judiciously relying on their insights, he has produced the frankest, most detailed, most human assessment of the bank to date. Yet the firm winds up looking in many ways like nothing more than a slightly brighter, slightly less foulmouthed version of Bear; it's just as greedy, just as arrogant, and just as prone to mistakes. Though Cohan acknowledges the firm's extraordinary ability to recruit and indoctrinate the best and brightest, what seems to truly set Goldman apart is its ability to be a half step quicker than its rivals in correcting itself.

After all, this is a firm that periodically eviscerates those who trust it most. In the 1920s, Goldman ran a Ponzi-like scheme involving investment trusts. In the 1970s, it peddled soon-to-be-worthless commercial paper for the soon-to-be-bust Penn Central Railroad. And, in 2007, the firm that prided itself on being "long-term greedy" sold gullible clients on the merits of mortgage-backed securitieswhile simultaneously shorting some of those same debt obligations. The firm has succeeded, in part, by ignoring these nastier aspects of its past. In fact, Goldman never misses an opportunity to celebrate the holier-than-thou principles laid down by former senior partner John Whitehead. Rule No. 1: Our client's interests always come first.

Money and Power suggests the bank does possess a few special powers, starting with its remarkable ability to convince some of the world's smartest young people that touting stocks, sniffing out arbitrage opportunities, and shaking down corporate clients amount to a noble calling. One illuminating anecdote in Money and Power concerns Robert Rubin, the former Goldman head who would go on to become Treasury Secretary under Bill Clinton. During his third year at the firm, back in 1969, Rubin's career path may have hit a rough patch. Sandy Lewis, who at the time ran the arbitrage department for a rival bank, tells Cohan that Rubin approached him regarding a job opportunity. Lewis explains that Rubin had grown disgusted with the Goldman way. "It's a dishonest mess," Lewis recalls Rubin saying to him, "that's making honest people dishonest."

Whether or not Rubin was seriously looking outside the firm, he stuck around and soon led Goldman into areas that had previously been considered off-limits—such as asset management—for fear of potential conflicts with clients. A former top partner—unnamed, but in a position to judge the firm's swelling appetite for profits at any cost—says Rubin encouraged a culture of undisciplined risk taking. "A lot of these practices were set up when [Rubin] was there," he tells Cohan. "The lack of a risk committee, trusting individual partners ... and letting traders become too important and being afraid to confront them if they've been big moneymakers. All that sort of stuff built up."

As profits swelled under Hank Paulson, and then Lloyd Blankfein, Goldman was edging further into trading money for its own account—and pushing the boundaries of what had previously been considered an acceptable conflict of interest. Simultaneously, the bank became more obsessive about managing the darker side of its sprawling empire. A reputational risk department, staffed by former CIA operatives and private investigators, vetted new hires and policed employees who got out of line. While the department may have missed clues about "Fabulous" Fabrice Tourre, the firm relied on its level of diligence, and it became part of the culture. "Not that they would come to my house and beat me up or something or kill my children," a former Goldman trader says. "But certainly they would drag you through court or do something to screw up your life. If you did anything to hurt that firm in any way, all bets were off."

. . . .

Read the review here

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

Still Standing
by Mary Kissel - WSJ

. . . .

Mr. Cohan's complaints against Goldman seem to be that it is "ruthless" in pursuit of profit; doesn't do enough to protect its institutional clients from making bad decisions; works too closely with government; too often advises companies on both sides of a deal; and skirts close to the line of "insider trading."

The first two complaints would be better lodged against the very nature of capitalism; the third does ­address the problem of cronyism that has always existed on Wall Street. The last two complaints—about the firm's being on both sides of a deal and relying on ­"insider" knowledge—are areas worth exploring, though regulators have never drawn bright lines (in part because it is almost impossible to do so). The relationship of ­Goldman to the Fed and its "too big to fail" status definitely merit a studied critique. But Mr. ­Cohan doesn't have enough knowledgable sources or hard evidence to write a full book on such matters. Instead he gives us reams of unedited emails between Goldman insiders peppered with drivel, including nauseating missives from trader Fabrice "Fabulous Fab" Tourre boasting to his girlfriend about his genius.

. . . .

Read the rest of the review here

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

Annals of C-suite dysfunction, Goldman Sachs edition
By Felix Salmon - Reuters

Ian McGugan has a good review of Bill Cohan’s huge new book on Goldman Sachs which includes an intriguing quote about how Bob Rubin “encouraged a culture of undisciplined risk taking” — something which goes directly against the reputation he’s spent many years cultivating. It comes from Chapter 15, which starts in the dangerous year of 1994 and which is full of juicy gossip about the very human frailties of the people running Goldman. Here’s more of it:

“For a long time he just sort of sat in his office,” one partner said of Corzine. “He would sit in his office breaking out in tears at various times while the firm was losing all this money.”…

As the losses in 1994 mounted, many partners became increasingly nervous that the firm was at risk… Some forty partners left Goldman at the end of 1994, the first time anything like that many partners had voted with their feet. “People resigned out of fear,” one partner said. “That should tell you something.”… Howard Silverstein, the partner in charge of Goldman’s Financial Institutions Group, left. “He was perceived as being an expert,” one partner on the Management Committee said. “And all he did was just do a simple calculation if this continues. You know: wiped out.”…

Paulson cut people, travel expenses, allowances for overseas living, and many of Goldman’s vaunted perks. He even cut back on the use of a corporate jet and recalled grueling overseas trips flying around Europe and Asia on commercial flights…

Goldman’s problems at that time weren’t only ones of cost and bad bets. A culture of undisciplined risk taking had built up over many years. “A lot of these practices were set up when [Rubin] was there,” one top partner said. “Okay? The lack of a risk committee, trusting individual partners, model-based analytics — that by God you can be smart and figure it all out — and letting traders become too important and being afraid to confront them if they’ve been big moneymakers. All that sort of stuff built up.” …

Aside from why Friedman had seemingly botched his departure, the other lingering question that remained among many of the Goldman partners was how Corzine could have emerged as the firm’s leader when he was leading the very division — fixed- income — that had lost hundreds of millions of dollars in 1994…

Goldman had selected as its new leader the very person who had just presided over a complete meltdown in Goldman’s fixed- income business and who, as a result, never fully had the trust and faith of the firm’s investment bankers. “That is one good question,” one Goldman trading partner said. “At a normal place, it would be discordant. You couldn’t imagine it. And I guess at this place, somehow you could.”

This, remember, is the world’s best investment bank. It’s worth bearing in mind when you see those eight-figure salaries and wonder whether they’re earned. And when you hear politicians bellyaching about the importance of keeping US banks “competitive” on the international stage. If this is competitive, it might well be best to just drop out of the competition all together.

Read the review here

What Goldman Sachs Wants, Goldman Sachs Gets!

When Robert Rubin was secretary of the Treasury (in 1995), he recommended that Congresss reform or repeal the Glass-Steagall Act which separated commercial and investment banking. He believed with others that banks could regulate themselves. Rubin worked for Goldman Sachs for 26 years and Goldman Sachs is not a fan of regulation. Rubin also advised Clinton not to regulate derivatives. Eventually, Glass-Steagall was repealed and derivatives were not regulated. Both of these factors contributed to the financial crisis in 2008.

When Goldman Sachs invested in Facebook, it offered its own clients a special purpose vehicle in order to get around the rule that restricts the number of US shareholders to 500 unless the company were to go public. So GS withdrew its offer from its US clients and instead offered it to foreigners.

Now, guess what? The SEC is thinking of changing that rule. The world seems to gravitate around the wishes of Goldman Sachs!

Here's how Max Keiser puts it:

As I Predicted, After Goldman Sachs Broke the Law, They Lobbied the SEC to Change the Law

*SEC Might Delay Tech IPOs Even Further By Raising Shareholder Limit

This has been a recurring pattern on Wall St. for years. Firms like Goldman and JP Morgan break various laws all the time, but then they lobby to have the laws changed retroactively (yes, this law will change – and the talk now is to make it look like they are weighing some issues other than the massive kickback in cash they’ll get to change this law). This is obviously a complete breakdown in the concept of the rule of law. BusinessInsider shamefully carries the headline that insiders will have to wait for an IPO – instead of covering the fact that there’s been a miscarriage of justice. Any wonder Americans are becoming poorer? The average American can’t make up laws and rules to suit their personal net worth interests, but they are forced to compete with banks like Goldman that do.

This is BusinessInsider’s spin: “So if the SEC changes the rule it might be a further disincentive for tech companies to go public.” Huh? What about the fact that Goldman Sachs BROKE THE LAW!!!!

See Max Keiser here
See the original article here

The Ethical Environment Around Goldman Sachs

Nitasha Tiku's article in the New York Mag entitled What We've Learned About Wall Street From Watching The Raj Rajaratnam Trial has some interesting points to make about the ethical environment that surrounds Wall Street Banks like Goldman Sachs.

In summary, they could be interpreted as follows:

1. The Rich are all about money;
2. The Rich are all about making money;
3. The Rich value good information (i.e., intelligence) about money;
4. The Rich like to work their magic in secret (i.e., without a paper trail);
5. The Rich and rich wannabes learn how to avoid paper trails (e.g, by using voice mail which is the favorite communication tool of Lloyd Blankfein);
6. When you are Rich, being caught and found guilty of fraud, for example, doen not mean the end of your financial career;
7. Ethics classes are not de rigueur for the financial elites.

Here's an excerpt from the article by Nitasha Tiku:

What We've Learned About Wall Street From Watching the Raj Rajaratnam Trial
by Nitasha Tiku - New York Mag

Depending on whom you talk to, the allegations of $63.8 million in securities fraud against the Galleon hedge-fund owner Raj Rajaratnam amount to either the biggest insider-trading case since Michael Milken or the largest insider-trading case, ever, period, the end. Twenty-seven people were charged, and nineteen have pleaded guilty. Authorities investigated Rajaratnam's alleged network of co-conspirators like they were the Sopranos, with 2,400 wiretaps producing 90 hours of tape. Thanks to those recordings and testimony from power brokers at Goldman Sachs, Intel, and McKinsey, the first few weeks of the trial have offered a rare glimpse into the Brioni-collared, Ferragamo-slippered tribe normally hidden behind closed doors. The defense has yet to present its arguments. But as the prosecution prepares to rest its case today, here’s what we learned so far.

Being Astronomically Rich Is All Relative
To the uninitiated, it might seem like Rajat Gupta had it made. The former head of McKinsey had a Harvard MBA, board seats at Goldman Sachs and Procter & Gamble, and a resplendent crown of hair to rival Alec Baldwin's. But even for established multimillionaires, cash rules everything around them. According to a wiretap between Rajaratnam and ex-McKinsey director Anil Kumar, Gupta was contemplating leaving Goldman for a gig at KKR, a global private equity firm. The two discussed Gupta's motivation:

"But is it really that he was so greedy for the $12 million that K.K.R. has offered him?” Mr. Kumar asks on the recording.

“I think he wants to be in that circle,” Mr. Rajaratnam says. “That’s a billionaire circle, right? Goldman is like the hundreds of millions circle, right?”

Sixty-three-year-old bankers take their cues from The Social Network. Lesson learned.

Read the full article here

Wealth and Power at Goldman Sachs

When a millionaire or a billionaire has acquired all the possessions that he wants and needs, then what does he spend his money on? Lloyd Blankfein already has the American Dream writ large: a fine expensive home, a job to go to every day, bonuses increasing exponentially, a pay check to die for, so will he ever have enough? The answer: greed has no limit. Gaming the system is fun.

Wealth is power. "Power tends to corrupt, and absolute power corrupts absolutely. Great men are almost always bad men."--Lord Acton, 1887

The actions of Goldman Sachs during the financial meltdown successfully transferred enormous sums of money from the pockets of pensioners, savers, and homeowners into the coffers of Goldman Sachs. That is, billions and billions of dollars accumulated by Goldman Sachs were acquired under circumstances that were fraudulent and immoral, if not criminal.

The result: the ordinary American is being subjected to austerity as reported in the following article by George W. Mantor from 4closurefraud who examines some of the ways that austerity impacts on the individual:

Austerity Comes To America
By George W. Mantor - 4closurefraud

Just when I thought things couldn’t get any worse it has now become clear what the real endgame is, and it’s really bigger and more sinister than I ever imagined.

Never mind any of that talk about a return to prosperity, welcome to Austerity American style. We’ll get to that “rosy” jobs picture in a moment, and I assure you that it is all spin. In fact, the March report from the Bureau of Labor Statistics simply presents selected facts. And then, the news agencies tell you what to think about it.

The second paragraph of the Bureau’s report sums it all up with the simple truth. “The number of unemployed persons (13.5 million) and the unemployment rate (8.8 percent) changed little in March.”

Yes, that’s the bottom line…little change, less hope.

The fact that we are experiencing record foreclosures and high unemployment while productivity and corporate profitability are producing record setting Wall Street bonuses is a clue. How is it that Wall Street is an Island of prosperity in a sea of poverty?

But, what we are experiencing are only the symptoms of something that would have been unimaginable to me a few years ago. I thought Wall Street could steal more from a prosperous country, but that wasn’t the plan.

America is systematically being driven over a cliff by a world banking elite with a very simple and so far unstoppable agenda, to seize all wealth and power for themselves.

I know, send me the tin foil hats and call me a conspiracy theorist, but I have been to the bottom of the rabbit hole on this four year voyage into the world of corporate banking and, as a reasonable person, I am left with but one conclusion.

There can be no other explanation for where we find ourselves, and we are not alone. Countries all over the world are a year ahead of us and we can learn much by watching what plays out there. This is the $1,000 Trillion Dollar Question coming home to roost.

When you eliminate every other possible explanation, whatever you are left with, no matter how improbable, is the truth.

Stay with me for a second here and ask a question or two from an investigative journalist perspective. You arrive at the scene of the train wreck and you start to ask questions. Everything is cause and effect.

Families who worked hard all of their lives and played by the rules are losing everything. Why?

If the economy is good enough to produce record bonuses for CEOs, why are we talking about cutting programs for the elderly, the unemployed, and our returning veterans?

Why do 83 of America’s most profitable companies pay no taxes and get government subsidies?

Why do we spend tax payer’s money to train foreign workers to take American tax payers’ jobs without putting anything back into the system?

Austerity is the pretext under which our government is about to break its most fundamental compact with its people, and there will be no promise too sacred to break.

We are apparently too ill-informed or too fat to riot in the streets. And, in the last California Primary election, only a third of registered voters bothered to cast a ballot. “I know, but like Dude, everything is going so well.”

While everyone was celebrating the “explosion” of jobs here is what slipped by without comment. It’s all about Austerity.

The State of Michigan, hard hit by manufacturing job losses, is planning to reduce unemployment benefits. That can’t turn out well.

In the meantime, our federal reps, locked in a theatrical Kabuki dance pretending to care about the budget, are talking about withholding a cost of living increase from social security recipients when food and energy prices are rising. One can only wonder about the dark consequences of that.

And, the military wants our returning service people to be responsible for their own health care. Yes, that also includes those wounded in action.

Social Security had been producing a surplus every year, but they just spent that on whatever they wanted.

So, there you have it and no one is safe. The elderly, the unemployed and returning military are the first targets. Who is next?

In the style of Pastor Martin Niemöller:

When they came for the trade unionists, I was glad because those trade unionists put pressure on employers to share the wealth and that robs us of our freedom.

When they came for the unemployed, I thought it was about time that these freeloaders and deadbeats got what is coming to them for ruining America.

When they came for the defaulters, it confirmed my suspicion that many people were buying homes they didn’t deserve.

When they came for the sick and injured, I viewed it as a necessary “thinning of the herd”.

When they came for the elderly, I figured, well, they’d have to come for them eventually anyway.

When they came for the single moms, I didn’t speak out because I wasn’t a single mom.

So, when they came for the apathetics, there was no one left to speak for me.

Folks, it’s all gone. And, all of that money that Bernanke is printing and giving to the banks under the bogus title of “quantitative easing” is just being piled on top of the $13.8 trillion of national debt. The interest alone exceeds our entire gross domestic product.

And, that’s the real problem. Financing these unending wars and the interest on the money we borrow to do that is now all that we can afford.

They weren’t satisfied spending all of the money we generously gave them; they spent money we don’t even have.

As for those 216,000 “new jobs” created in March, when you apply that against the current 13.5 million unemployed it would take 15 years. Not mentioned was the fact that every month 130,000 new workers enter the work force. So, the net gain is actually 86,000.

It’s not enough just to get back the 8.36 million jobs that were lost, the US also needs to create about 15 million more jobs over the next 10 years in order to stay even with population growth and return to full employment. That’s about 23 million all together.

Read the rest of the article here

For the Economists at Goldman Sachs

Naked Capitalism has published the most wonderful posthumous letter by Professor Outis Philalithopoulos that I think would be worthy of publication on Goldman Sachs's website. Below are two excerpts that are of special interest:

Blacklisted Economics Professor Found Dead: NC Publishes His Last Letter
by Guest Post - Naked Capitalism

. . . .

Is it really plausible that economists threaten top banks that in the absence of some kind of payoff, they will change the theories they teach in a direction that is less favorable to the banks? There are certainly cases in history of the following sequence:

a. Economist E espouses views that are less favorable to certain special interest groups S. Doing so threatens the ability of S to extract rent from the public.
b. Later, E changes his view, thereby withdrawing the prior threat.
c. Still later, E is paid large amounts of money by representatives of S in exchange for services that do not appear particularly onerous.

For example, let E = Larry Summers and let S = the financial services industry. In 1989 E was (a) a supporter of the Tobin tax, which threatened to reduce the rent extracted by S. This threat was apparently later withdrawn (b), and in 2008 E was paid $5.2 million (c) in exchange for working at the hedge fund D. E. Shaw (an element of S) for one day a week.

. . . .

If the theories of economists are harmful to the general welfare, why doesn’t someone try to persuade the public that these theories are mistaken? Collective action in this sense is infeasible. If we instead consider the efforts of a single individual, the cost in terms of time and effort of discrediting an economic theory is substantial, while the benefits are dispersed over many people and so are comparatively small. In any case, the efforts of one person are unlikely to be decisive in swinging the consensus of economists away from a given erroneous theory. It follows logically that the rational decision for an intellectual consumer is to be inactive on this front, and even to be ignorant of the flaws in economic theory.

It might be thought that when economic theories are marred by particularly glaring problems, the public would notice. However, the consequence may simply be to select for economic theories that are particularly difficult for the public to evaluate, without implying any increase in the aggregate accuracy of such theories.

. . . .

Read the rest of the letter (and comments) here

Others Think Goldman Sachs's Executives Are Paid Too Much!

Well, Blankfein may have been joshing when he said he was doing "God's work" at Goldman Sachs but there are others who are serious about doing God's work and they believe that Blankfein is paying himself too much. It is such delicious news that maybe God is sending Blankfein a message directly through His messengers. Love it!

Wouldn't it be nice if all the pressure made Goldman Sachs relinquish its bank holding status and return to private partnerships so they wouldn't have to answer to anyone else?

Nuns ask Goldman Sachs bosses whether they're really worth $69.5 m
by Richard Blackden, US Business Editor -The Telegraph

Goldman Sacs is facing a call from four leading orders of catholic nuns to review whether the pay awarded to chief executive Lloyd Blankfein and other top executives is excessive.

The proposal will be put forward at the Wall Street bank’s annual general meeting next month by the orders, who own shares in Goldman, the bank revealed in a filing with the Securities and Exchange Commission.

The Sisters of Saint Joseph of Boston, the Sisters of Notre Dame de Namur, the Sisters of St. Francis of Philadelphia and the Benedictine Sisters of Mt. Angel want Goldman’s compensation committee to report back by the beginning of October.

The bank’s pay practices have faced criticism from religious orders in the past, but this call comes as Goldman revealed last week that its five most senior executives were awarded $69.5m in pay last year despite a drop in the bank’s profits.

Mr Blankfein, who famously said in an interview in 2009 that the bank was doing “God’s work”, received a cash bonus of $5.4m as part of a total pay package of $14.1m for last year.

The Benedictine nuns, along with the US charity, The Nathan Cummings Foundation, also asked Goldman’s committee to explore “how sizeable layoffs and the level of pay of our lowest paid workers impact senior executive pay.”

Goldman has been a lightning rod for public anger at Wall Street since the crisis erupted, even though that outcry is now not as loud as in Britain. Late last year the bank changed how it reported its results to show how much it made from trading and its own investments.

In the SEC filing, the bank said that shareholders already have enough information to assess how Goldman rewards its executives and a further report would “entail an unjustified cost to our firm and would not provide shareholders with any meaningful information.”

Last year, Morgan Stanley and Deutsche Bank were sued by a group of Irish nuns for allegedly failing to redeem an investment for them.

Read the entire article here

The Coprophagous Goldman Sachs

If you look up the word "corrupt" in the dictionary, you will notice that its derivation is very organic. It means "To spoil or destroy (flesh, fruit or other organic matter) by physical dissolution or putrid decomposition; to turn from sound into unsound impure condition; to cause to 'go bad;' to make rotten or rotting." (Oxford English Dictionary, Vol. 1)

That is a good place to start. Banks like Goldman Sachs which exist as investment banks are meant to assist "individuals, corporations and governments in raising capital." That sounds innocuous enough but Goldman Sachs's actions leading up to the financial crisis took on a corrupt character in at least two ways:

One, it helped destroy the integrity of the rating agencies by buying or bribing higher ratings for junk bonds so that investors would be encouraged to buy their products; and Two, they created MBSs that were themselves tainted in quality. Additionally, by GS's buying up sub-prime mortages for its securities, it encouraged mortgage servicing companies to ignore their lending rules so that more mortgages could be obtained, some of them fraudulently. Another bit of putrefaction that Goldman Sachs contributed to.

Compare Blankfein's testimony with Levin's analysis, and you begin to see how sound business practices rotted away; how ethical standards were infected; how the little bit of integrity left at GS was perverted by greed; and how dishonestly and unfaithfully Goldman Sachs behaved throughout.

Let's see what Lloyd Blankfein said about his company in his testimony before the Permanent Senate Subcommittee on Investigations on April 27, 2010, and compare that with what Chairman Carl Levin said about the role of Goldman Sachs during the financial crisis.

First, here is Blankfein:

. . . .

I recognize, however, that many Americans are skeptical about the contribution of investment banking to our economy and understandably angry about how Wall Street contributed to the financial crisis. As a firm, we are trying to deal with the implications of the crisis for ourselves and for the system. What we and other banks, rating agencies and regulators failed to do was sound the alarm that there was too much lending and too much leverage in the system -- that credit had become too cheap. One consequence of the growth of the housing market was that instruments that pooled mortgages and their risk became overly complex. That complexity and the fact that some instruments couldn’t be easily bought or sold compounded the effects of the crisis.

While derivatives are an important tool to help companies and financial institutions manage their risk, we need more transparency for the public and regulators as well as safeguards in the system for their use. That is why Goldman Sachs, in supporting financial regulatory reform, has made it clear that it supports clearinghouses for eligible derivatives and higher capital requirements for non-standard instruments.

As you know, ten days ago, the SEC announced a civil action against Goldman Sachs in connection with a specific transaction. It was one of the worst days in my professional life, as I know it was for every person at our firm. We believe deeply in a culture that prizes teamwork, depends on honesty and rewards saying no as much as saying yes. We have been a client centered firm for 140 years and if our clients believe that we don’t deserve their trust, we cannot survive.

While we strongly disagree with the SEC’s complaint, I also recognize how such a complicated transaction may look to many people. To them, it is confirmation of how out of control they believe Wall Street has become, no matter how sophisticated the parties or what disclosures were made. We have to do a better job of striking the balance between what an informed client believes is important to his or her investing goals and what the public believes is overly complex and risky.

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

Here is Chairman Levin:

. . . .

Today we will explore the role of investment banks in the development of the crisis. We focus on the activities during 2007 of Goldman Sachs, one of the oldest and most successful firms on Wall Street. Those activities contributed to the economic collapse that came full-blown the following year.

Goldman Sachs and other investment banks, when acting properly, play an important role in our economy. They help channel the nation’s wealth into productive activities that create jobs and make economic growth possible, bringing together investors and businesses and helping Americans save for retirement or a child’s education.

That’s when investment banks act properly. But in looking at this crisis, it’s hard not to echo the conclusion of another congressional committee, which found, “The results of the unregulated activities of the investment bankers … were disastrous.” That conclusion came in 1934, as the Senate looked into the reasons for the Great Depression. The parallels today are unmistakable.

Goldman Sachs proclaims “a responsibility to our clients, our shareholders, our employees and our communities to support and fund ideas and facilitate growth.” Yet the evidence shows that Goldman repeatedly put its own interests and profits ahead of the interests of its clients and our communities. Its misuse of exotic and complex financial structures helped spread toxic mortgages throughout the financial system. And when the system finally collapsed under the weight of those toxic mortgages, Goldman profited from the collapse. The evidence also shows that repeated public statements by the firm and its executives provide an inaccurate portrayal of Goldman’s actions during 2007, the critical year when the housing bubble burst and the financial crisis took hold. The firm’s own documents show that while it was marketing risky mortgage-related securities, it was placing large bets against the U.S. mortgage market. The firm has repeatedly denied making those large bets, despite overwhelming evidence.

Why does this matter? Surely there is no law, ethical guideline or moral injunction against profit. But Goldman Sachs didn’t just make money. It profited by taking advantage of its clients’ reasonable expectation that it would not sell products that it didn’t want to succeed, and that there was no conflict of economic interest between the firm and the customers it had pledged to serve. Goldman’s actions demonstrate that it often saw its clients not as valuable customers, but as objects for its own profit. This matters because instead of doing well when its clients did well, Goldman Sachs did well when its clients lost money. Its conduct brings into question the whole function of Wall Street, which traditionally has been seen as an engine of growth, betting on America’s successes and not its failures.

To understand how the change in investment banks helped bring on the financial crisis, we need to understand first how Wall Street turned bad mortgage loans into economy-wrecking financial instruments.

. . . .

Goldman Sachs was an active player in building this mortgage machinery. During the period leading up to 2008, Goldman made a lot of money packaging mortgages, getting AAA ratings, and selling securities backed by loans from notoriously poor-quality lenders such as WaMu, Fremont and New Century.

Of special concern was Goldman’s marketing of what are known as “synthetic” financial instruments. Ordinarily, the financial risk in a market, and hence the risk to the economy at large, is limited because the assets traded are finite. There are only so many houses, mortgages, shares of stock, bushels of corn or barrels of oil in which to invest. But a synthetic instrument has no real assets. It is simply a bet on the performance of the assets it references. That means the number of synthetic instruments is limitless, and so is the risk they present to the economy. Synthetic structures referencing high-risk mortgages garnered hefty fees for Goldman Sachs and other investment banks. They assumed an ever-larger share of the financial markets, and contributed greatly to the severity of the crisis by magnifying the amount of risk in the system.

Increasingly, synthetics became bets made by people who had no interest in the referenced assets. Synthetics became the chips in a giant casino, one that created no economic growth even when it thrived, and then helped throttle the economy when the casino collapsed.

But Goldman Sachs did more than earn fees from the synthetic instruments it created. Goldman also bet against the mortgage market, and earned billions when that market crashed. In December 2006, Goldman decided to move away from its “long” positions in the mortgage market in what began as prudent hedging against the firm’s large exposure to that market, exposure that sparked concern on the part of the firm’s senior executives. The edict from top management after a Dec. 14, 2006 meeting was “get closer to home,” meaning get to a more neutral risk position. But by early 2007, the company blew right past a neutral position on the mortgage market and began betting heavily on its decline, often using complex financial instruments, including synthetic collateralized debt obligations, or CDOs.

Goldman took large net short positions throughout 2007. This chart, which is based upon data supplied to the Subcommittee by Goldman Sachs, tracks the firm’s ongoing huge net short positions throughout the year. These short positions at one point represented approximately 53% of the firm’s risk as measured by the most relied upon risk measure, “Value at Risk” or “VaR.” And these short positions did more than just avoid big losses for Goldman. They generated a large profit for the firm in 2007.

Goldman says these bets were just a reasonable hedge. But internal documents show it was more than a reasonable hedge – it was what one top executive described as “the big short.”

Listen to a top Goldman mortgage trader, Michael Swenson, who touted his success in 2007, what he called his “proudest year” because of what he called “extraordinary profits” – $3 billion as of September 2007 – that came from bets he recommended the firm take against the housing market. Mr. Swenson told his superiors, “I was able to identify key market dislocations that led to tremendous profits.”

Another Goldman mortgage trader, Joshua Birnbaum, wrote in his performance evaluation about the billions of dollars in profits earned in 2007 betting against the mortgage market. “The prevailing opinion within the department was that we should just ‘get close to home’ and pare down our long,” he wrote. He then touted the fact that he had urged Goldman Sachs “not only to get flat, but get VERY short.” He wrote that after convincing his superiors to do just that, “we implemented the plan by hitting on almost every single name CDO protection buying opportunity in a 2-month period. Much of the plan began working by February as the market dropped 25 points and our very profitable year was under way.” When the mortgage market collapsed in July, he said: “We had a blow-out [profit and loss] month, making over $1Bln that month.”

These facts end the pretense that Goldman’s actions were part of its efforts to operate as a mere “market-maker,” bringing buyers and sellers together. These short positions didn’t represent customer service or necessary hedges against risks that Goldman incurred as it made a market for customers. They represented major bets that the mortgage securities market – a market Goldman helped create – was in for a major decline.

Goldman continues to deny that it shorted the mortgage market for profit, despite the evidence. Why the denial? My best estimate is that it’s because the firm cannot successfully continue to portray itself as working on behalf of its clients if it was selling mortgage related products to those clients while it was betting its own money against those same products or the mortgage market as a whole. The scope of this conflict is reflected in an internal company email sent on May 17, 2007, discussing the collapse of two mortgage-related instruments, tied to WaMu-issued mortgages, that Goldman helped assemble and sell. The “bad news,” a Goldman employee says, is that the firm lost $2.5 million on the collapse. But the “good news,” he reports, is that the company had bet that the securities would collapse, and made $5 million on that bet. They lost money on the mortgage related products they still held, and of course the clients they sold these products to lost big time. But Goldman Sachs also made out big time in its bet against its own products and its own clients. Goldman CEO Lloyd Blankfein summed it up this way: “Of course we didn’t dodge the mortgage mess. We lost money, then made more than we lost because of shorts.” The conflict of interest that lies behind that statement is striking.

Read the rest of the Opening Statement here