Tag Archives: Goldman
Taibbi on the SEC charges against Goldman
Matt Taibbi is back with a piece in The Smirking Chimp. This time he is writing about the underlying attitude at Goldman.
Even if he stands to make a buck at it, even your average used-car salesman won’t sell some working father a car with wobbly brakes, then buy life insurance policies on that customer and his kids. But this is done almost as a matter of routine in the financial services industry, where the attitude after the inevitable pileup would be that that family was dumb for getting into the car in the first place. Caveat emptor, dude!
Goldman investigated by Justice Department
The Wall Street Journal is reporting (subscription required) that the US Justice Department has opened a criminal investigation of Goldman Sachs. It is apparently focuses on whether Goldman committed fraud in connection with mortgage trading and is a result of a referral from the SEC.
This is very big and could spell disaster for Goldman, regardless of whether a formal criminal charge is made. And an actual indictment alone could so cripple Goldman’s business that it could fail.
More from the Washington Post.
Goldman watches out for clients
This speaks for itself.
Ben Stein on Goldman Sachs
I always loved reading Ben Stein’s column in the New York Times. Unfortunately, he was dropped by the Times a couple of years ago.
Fortunately, he continues to write, now for Bloomberg. Check out his take on the Goldman fraud case.
If Goldman can make money by creating a scam synthetic security, as the SEC’s complaint alleges, and then make more money by co-operating with short sellers to demolish that security and consequently attack the industry around it — in this case, housing — is there anything Goldman can’t do? Is there no limit to how anti-social and unpatriotic traders and underwriters can be? Or is it all about making the quick and immense buck? That is, in a world in which young Americans are fighting terrorists in Iraq and Afghanistan, is there any limit to what financiers here at home can do? And if there aren’t adequate limits, why don’t we have them, and soon?
Also worth a look is Stein’s piece on CBS Sunday Morning yesterday.
Greed quote of the day
Of course we didn’t dodge the mortgage mess. We lost money, then made more than we lost because of shorts.
– Goldman Sachs CEO Lloyd C. Blankfein, from a November, 2007, email, quoted in the New York Times.
One of their defenses to the current SEC charges is that they lost money on mortgage investments, at least in one case. Clearly, their massive short positions, credit default swaps related to mortgages, some which were insured by AIG and ultimately paid in full by taxpayers, made Goldman billions. From the same New York Times article:
Goldman also released detailed financial statements for its mortgage trading unit. Those statements showed that a group of traders in what was known as the structured products group made a profit of $3.69 billion as of Oct. 26, 2007, which more than covered losses in other parts of Goldman’s mortgage unit.
Matt Taibbi on Goldman Sachs
Wall Street quote of the day (updated)
The SEC’s charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation.
– Goldman Sachs, in response to a civil lawsuit filed by the SEC against Goldman alleging that Goldman engaged in fraud. My reaction: stunned, of course. Who could believe that fraud was involved in Wall Street peddling billions of highly questionable mortgages while at the same time betting against them?
Update: GS has now issued a longer statement.
Oh, and you can read the complaint here.
“The product was new and complex, but the deception and conflicts are old and simple,” Robert Khuzami, the director of the S.E.C.’s division of enforcement, said in a statement. “Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party.”
And check out these items from the New York Times blog.
Finally, there is this from Bill Black and Barry Ritholtz:
Taibbi on the fraud in Jefferson County, AL
Matt Taibbi is back. He is single-handedly doing the kind of financial reporting that the NYT and WSJ should be doing, but aren’t. His latest article in Rolling Stone provides chapter and verse on exactly how Wall Street ripped off Jefferson County, Alabama. You owe it to yourself to read the story in its entirety, but here is a taste:
Wall Street was happy to help. First, it employed the same trick it used to fuel the housing crisis: It switched the county from a fixed rate on the bonds it had issued to finance the sewer deal to an adjustable rate. The refinancing meant lower interest payments for a couple of years — followed by the risk of even larger payments down the road. The move enabled county commissioners to postpone the problem for an election season or two, kicking it to a group of future commissioners who would inevitably have to pay the real freight.
But then Wall Street got really creative. Having switched the county to a variable interest rate, it offered commissioners a crazy deal: For an extra fee, the banks said, we’ll allow you to keep paying a fixed rate on your debt to us. In return, we’ll give you a variable amount each month that you can use to pay off all that variable-rate interest you owe to bondholders.
In financial terms, this is known as a synthetic rate swap — the spidery creature you might have read about playing a role in bringing down places like Greece and Milan. On paper, it made sense: The county got the stability of a fixed rate, while paying Wall Street to assume the risk of the variable rates on its bonds. That’s the synthetic part. The trouble lies in the rate swap. The deal only works if the two variable rates — the one you get from the bank, and the one you owe to bondholders — actually match. It’s like gambling on the weather. If your bondholders are expecting you to pay an interest rate based on the average temperature in Alabama, you don’t do a rate swap with a bank that gives you back a rate pegged to the temperature in Nome, Alaska.
Not unless you’re a fucking moron. Or your banker is JP Morgan.
Here is Taibbi speaking with Don Imus about the story:
Goldman continues practices that caused the problem (updated)
According to report in Sunday’s New York Times, Goldman Sachs offered to help Greece hide it financial challenges. How? Buy offering to to “buy” Greek government assets that produced cash-flow (such as airport landing fees). What was really involved was a sale of cash flow for an up-front payment worth far less than the reasonable present value of the cash flow streams.
Greece didn’t take the bait when it was offered by Goldman in November, 2009. But several earlier similar transactions were consummated earlier.
In dozens of deals across the Continent, banks provided cash upfront in return for government payments in the future, with those liabilities then left off the books. Greece, for example, traded away the rights to airport fees and lottery proceeds in years to come.
Critics say that such deals, because they are not recorded as loans, mislead investors and regulators about the depth of a country’s liabilities.
Some of the Greek deals were named after figures in Greek mythology. One of them, for instance, was called Aeolos, after the god of the winds.
More from TheMonkeyBusinessBlog. Update: And even more from Baseline Scenario.
Bankers and greed
I’m sure somebody will eventually be able to convince me that this is a bad idea, but my initial reaction to UK Chancellor of the Exchequer Alistair Darling’s temporary 50% bank bonus tax is why the heck not?
–Justin Fox, Time Magazine
And while we are on the subject of bankers, here is my reaction to the latest Goldman approach of paying senior executives in restricted stock: Don’t think that such an approach will change in any way the view of most people regarding your greed.
There are several reasons. One, this approach only applies to 30 individuals in all of Goldman. Two, Goldman has often paid large portions of bonuses in the past in the form of equity so this isn’t all that new. Three, the 30 affected individuals will receive only their bonuses in stock; they all received exceedingly large cash compensation. Keep in mind that Goldman this year has set aside $16.7 billion to pay its workers, or roughly $700,000 per employee. Four, you may recall that last year Goldman converted to a bank in order to receive large amounts of aid from the Federal Reserve, which they continue to profit from. Five, and most importantly, the only reason that Goldman stock is worth anything at all is that the Federal government bailed out both Goldman and, at least as importantly, AIG which was Goldman’s counterparty in a huge amount of toxic derivatives.
An armed Goldman?
Can they be this afraid of populist outrage over at Goldman Sachs? Apparently, many Goldman Sachs employees are arming themselves, according to Bloomberg.
“I just wrote my first reference for a gun permit,” said a friend, who told me of swearing to the good character of a Goldman Sachs Group Inc. banker who applied to the local police for a permit to buy a pistol. The banker had told this friend of mine that senior Goldman people have loaded up on firearms and are now equipped to defend themselves if there is a populist uprising against the bank.
Matt Taibbi (naturally) offers a quick take.
There’s the image of Goldman guys walking into Dean and DeLuca’s nervously grabbing at their holstered nines as they buy espresso and soy waffles. There’s the idea that some of these dorks might actually think that they’re going to forestall proletarian rebellion by keeping guns in their Hamptons beach houses. There’s even the impossible-to-resist image of a future accidental shooting of some innocent hot dog vendor on Park Avenue, followed by the inevitable p.r. response from Goldman in which the bank claims that the only thing its employees are guilty of is “being really good at shooting people.”
The Lloyd’s Prayer
Below is the Lloyd’s prayer (Lloyd being Lloyd Blankfein, CEO of Goldman).
THE LLOYD’s Prayer
Our Chairman,
Who Art At Goldman,
Blankfein Be Thy Name.
The Rally’s Come. God’s Work Be Done
On Earth As There’s No Fear Of Correction.
Give Us This Day Our Daily Gains,
And Bankrupt Our Competitors
As You Taught Lehman and Bear Their Lessons.
And Bring Us Not Under Indictment.
For Thine Is The Treasury,
The House And The Senate
Forever and Ever.
Goldman.(via The Big Picture)
Goldman Sachs gets flu vaccine. Oh really?
More from Maureen Dowd in today’s New York Times:
In an interview with The Sunday Times of London, the cocky chief of Goldman Sachs said he understands that a lot of people are “mad and bent out of shape” at blood-sucking banks.
“I know I could slit my wrists and people would cheer,” Lloyd Blankfein, the C.E.O., told the reporter John Arlidge.
But the little people who are boiling simply don’t understand. And Rolling Stone’s Matt Taibbi, who unforgettably labeled Goldman “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money,” doesn’t understand.
Banks, Blankfein explained, are really serving the greater good.
“We help companies to grow by helping them to raise capital,” he said. “Companies that grow create wealth. This, in turn, allows people to have jobs that create more growth and more wealth. It’s a virtuous cycle. We have a social purpose.”
When Arlidge asked whether it’s possible to make too much money, whether Goldman will ignore the people howling at the moon with rage and go on raking it in, getting richer than God, Blankfein grinned impishly and said he was “doing God’s work.”
Foxes in charge of the hen house
In the aftermath of Madoff and other SEC enforcement failures, the agency has publicly promised reform and reinvigorated investigations and prosecutions. So, who best to head the newly recharged enforcement unit? Adam Storch is the answer. Who is he? He is in the business intelligence unit of Goldman Sachs.
This is certainly not the best of choices. How many Goldman Sachs veterans can be put into positions of power inside the Federal government before the government becomes another division of Goldman Sachs?