A humerous tongue-in-Cheek article I'm sure stolen from another site on the internet but good for a laugh.
Could Make Prosecution Difficult, Experts Say
NORFOLK, VIRGINIA – (The Borowitz Report) Eleven indicted Somali pirates dropped a bombshell in a U.S. court today, revealing that their entire piracy operation is a subsidiary of banking giant Goldman Sachs.
There was an audible gasp in the courtroom when the leader of the pirates announced, “We are doing God’s work. We work for Lloyd Blankfein.”
The pirate, who said he earned a bonus of $48 million in dubloons last year, elaborated on the nature of the Somalis’ work for Goldman, explaining that the pirates forcibly attacked ships that Goldman had already shorted.
“We were functioning as investment bankers, only every day was casual Friday,” the pirate said.
The pirate acknowledged that they merged their operations with Goldman in late 2008 to take advantage of the more relaxed regulations governing bankers as opposed to pirates, “plus to get our share of the bailout money.”
In the aftermath of the shocking revelations, government prosecutors were scrambling to see if they still had a case against the Somali pirates, who would now be treated as bankers in the eyes of the law.
“There are lots of laws that could bring these guys down if they were, in fact, pirates,” one government source said. “But if they’re bankers, our hands are tied.”
Interesting article from the Naked Capitalism website by Yves Smith -
Is Goldman Finally About to be Leashed and Collared?
Goldman may have made a fatal mistake. Fatal not to the existence of the firm, but to its standing, reputation, legitimacy, and ultimately, to the thing it covets most, its profits.
Power is most effective when it is used as sparingly as possible. Niall Ferguson, in book The Cash Nexus, stressed the importance of financing to military success (he argues that England was able to punch above its economic weight due to its superior tax collection apparatus and more highly developed bond markets). The Rothschilds, which among other things financed governments at war, went to some lengths to underplay their influence so as not to threaten their state patrons/clients.
The problem is that the behaviors that contributed to Goldman’s commercial success have over time become unbalanced, and are putting it at odds with governments. It is one thing to abuse the likes of a Jefferson County, as JP Morgan has. As deplorable as that behavior is, they cannot retaliate. It is quite another to mess with bodies that really are, ultimately, bigger than you are.
When I was young and worked briefly at Goldman, the firm was a pig and let even the very junior staffers understand precisely how its pigginess worked so that they would improve upon it when they grew up. For instance, on the deals it lead managed Goldman managed its stock and bond syndicates so as to extract as much as possible, to the disadvantage of other members of the syndicate, who shared the underwriting risk. I was told that Goldman was far more aggressive than other firms in hogging the deal revenues than any other firm on the Street, but could get away with it as a major lead manager. Similarly, on another deal, I walked into the Syndicate department when one of the most powerful partners at Sullivan & Cromwell was on a conference call, instructing the younger members of the department what the right answers to questions would be when the SEC came in asking questions on what they were about to do on this particular transaction, an underwritten call (note: what made Goldman savvier than most firm was that everyone got the official rationale for technically legal but questionable behavior BEFORE they did it, which made it much easier to maintain party line, rather than after the fact, when some conversations and communiques might contain remarks that were decidedly unhelpful. Note that this practice was well established over two decades before e-mails became pervasive).
Anyone who has read Roger Lowenstein’s account of the LTCM crisis, When Genius Failed, will recall how Goldman’s lawyer is assigned to a key negotiating role, and proceeds to cut the transaction in ways that favor Goldman over the other rescue group members. It is almost an uncontrollable reflex, the sort you see a predator take when someone makes the mistake of standing between it and its kill.
Now this aggressiveness was tempered (somewhat) by the posture Goldman called “long term greedy”, which basically meant not bleeding customers too much. One of the corporate accounts I worked on was a very reliable fee generator, and the M&A bankers were desperate to talk it out of a deal (on which they would have earned a fee) because they were convinced it was a turkey.
But the Goldman of the new millennium has kept the same relentless focus on the firm’s financial interest, and has become utterly, hopelessly sociopathic, incapable of understanding right versus wrong. The firm’s defense strategies vary among priggish and legalists reports (a Lucas van Pragg speciality), insincere, non-specific apologies (Blankfein), or stony silence. But the truth of how the members of the firm see things comes out again and again, through the many ways the Goldmanites keep maintaining that they really deserve what they make (starting with the heinous Blankfein “God’s work” comment), revealing again and again their inability to see how sharp practices and numerous forms of government support are an integral part of their recent “success”.
Every generation seems to have at least one financial firm that abuses its priviledges and power to the point when their pathological behavior brings about their downfall: Drexel, Salomon, Bankers Trust, Enron (Frank Partnoy argues that Enron was a “highly profitable derivatives bank”). It is too early to say for sure, but Goldman looks to be at risk of joining their ranks.
Although the Fed is far from an aggressive investigator, the fact that is has taken interest in Goldman’s role in Greece is significant. And the FCIC is also probing Goldman’s too clever by half strategy of using collateralized debt obligations to tee up short bets, since the buyers of the CDO would assume that they were purchasing a legitimate investment, not something that Goldman would have an incentive to design to fail.
From the Financial Times:
The US central bank is looking into Goldman Sachs’s role in arranging contentious derivatives trades for Greece, which helped the country to massage its public finances, Ben Bernanke, chairman of the Federal Reserve, revealed on Thursday.
“We are looking into a number of questions relating to Goldman Sachs and other companies and their derivatives arrangements with Greece,” Mr Bernanke said, apparently referring to Greek currency transactions structured by Goldman….
Mr Bernanke said default swaps are “properly used as hedging instruments” and that “using these instruments in a way that intentionally destabilises a company or a country is counterproductive”.
Separately, Phil Angelides, chairman of the US Financial Crisis Inquiry Commission, told the Financial Times he was concerned about the practice of creating securities and “fully betting against them” – and about Goldman’s role in particular. Goldman declined to comment.
The US comments came as an official in German chancellor Angela Merkel’s ruling Christian Democratic Union party said the G20 nations were discussing whether a ban on the speculative use of CDS was workable.
February 2, 2010 Warning: This is Not Another Wall Street Conspiracy Theory, These are the Facts By Shah Gilani, Contributing Editor, Money Morning
Just last week, the House Committee on Oversight and Government Reform held a hearing on the U.S. Federal Reserve's decision to directly pay billions of dollars to banks as part of its scheme to bail out insurance giant American International Group Inc. (NYSE: AIG).
According to committee Chairman Dennis Kucinich, D-Ohio, the testimony that congressmen heard just didn't "pass the smell test."
What really stinks about the whole mess is not only the cover-up of what really happened and why, but the inability of anybody in Congress to actually do their homework and be able to frame pointed questions and get to the truth.
It's not complicated, but it is convoluted. Here are the facts and some questions that Congress needs to ask - and that the American people deserve straight answers to.
What the House Committee heard, overwhelmingly, on Wednesday was that AIG had to be bailed out because if it wasn't, the financial implosion that would result would send unemployment to 25% and America into the tailspin of another Great Depression.
U.S. Treasury Secretary Timothy Geithner and former Treasury Secretary Henry M. "Hank" Paulson Jr. both testified that the systemic risk resulting from the bankruptcy of AIG would destroy the company's insurance businesses, devastating millions of Americans and resulting in economic ruin.
Let's start there. The reality is that at the time of the government's initial $85 billion infusion into AIG on Sept. 16, 2008, for which it received a 79.9% ownership interest, there was no mention of AIG's endangered insurance subsidiaries. In fact, New York Insurance Superintendent Eric Dinello, who oversaw AIG's insurance businesses, was confident enough in the subsidiaries to consider transferring $20 billion in excess reserves from the insurance subsidiaries to their AIG parent.
What was really sucking the life out of AIG were collateral demands - in other words, margin calls. A wholly owned, London-based financial-products subsidiary of AIG had written hundreds of billions of dollars of credit-default-swap contracts on exotic collateralized debt obligations (CDOs).
The derivative swaps on the CDOs were insurance policies that would protect the buyers of those CDOs against losses on underlying subprime mortgage pools. As losses on subprime mortgages mounted, the insured parties demanded more collateral from AIG.
AIG ran out of cash to make the collateral calls.
At the time of AIG's crisis, the Fed and the Treasury Department were terrified that if the "counterparties" to AIG's credit default swaps weren't paid, the ripple effect would threaten all counterparties - not to mention the entire financial system.
So here's what the Fed did. It formed two Delaware-based, limited-liability companies, Maiden Lane II and Maiden Lane III (Maiden Lane I had already been set up and funded by $29 billion of taxpayer money to buy and hold the bad assets from the failure of The Bear Stearns Cos., so that JPMorgan Chase & Co. (NYSE: JPM) could take over whatever remained of Bear's carcass).
Maiden Lane II borrowed $19.5 billion from the Federal Reserve Bank of New York to buy $39.3 billion of residential mortgage backed securities from AIGs solvent insurance subsidiaries for $20.8 billion, or about 50 cents on the dollar. Maiden Lane III borrowed $24.3 billion from the New York Fed to buy an asset portfolio of CDOs, whose "fair value" was estimated to be $29.6 billion.
The CDOs were purchased from AIG's counterparties. Between the $29.6 billion the counterparties received, and the cash they got from the collateral calls provided by taxpayers when AIG didn't have the cash to make good on its obligations, those counterparties were made 100% whole on more than $62 billion in par value of toxic-derivative CDOs.
Here's the rationale behind this egregious maneuver: Government officials believed that the counterparties would sell their toxic junk, and would then cancel their CDS insurance contracts with AIG - which would then end the margin calls.
In the public hearings, House Committee members focused on why the Fed paid out 100 cents on the dollar to the counterparty banks and why those involved in the payout scheme then tried to hide who got that taxpayer money.
But the real story was unfolding behind the scenes. Congress doesn't know about it, and the American people don't know about it. But it will prove to be nightmare of massive proportions.
Although there were many U.S. banks that received inordinate amounts of money in this pay-off scheme, an equally sickening amount was paid to a handful of foreign banks.
But the biggest recipient of the cash siphoned from taxpayers was Goldman Sachs Group Inc. (NYSE: GS).
A Conspiracy Theory You Can't Laugh Off The same day that AIG received the $85 billion taxpayer infusion back in September 2008, Goldman Sachs Chief Financial Officer David A.Viniar said he "would expect the direct input of our credit exposure to both of them [referring also to bankrupt Lehman Brothers Holdings (OTC: LEHMQ)] to be immaterial."
Goldman officials had been telling every analyst or journalist who would listen that the investment bank was hedged against any counterparty risk. But what Goldman officials weren't saying at the time was that the company was also hedged against AIG going bust. How? The company had purchased credit-default-swap insurance on AIG's demise.
We know that is true because Stephen Friedman - the former Goldman CEO and onetime New York Fed chairman who was called to testify at the hearing - said so.
Attached to Friedman's "Factors Affecting Effects to Limit Payments to AIG Counterparties: Prepared Testimony of Stephen Freidman Jan. 27, 2010," was a "Chronology of Selected Events and Disclosures."
That chronology included a reference to an Oct. 31, 2008 Wall Street Journal article that Friedman specifically chose to illustrate that it was common knowledge that Goldman was not in need of any government assistance, and wouldn't be in any danger if AIG were to fail. This Journal excerpt included by Friedman contained the statement: "Goldman hedged its exposure by making a bearish bet on AIG, buying credit-default swaps on AIG's own debt, according to one person knowledgeable about this move."
Friedman was called to testify for one very key reason: At the time of the payments to the counterparties, he was chairman of the board of the New York Fed, which authorized those payments. But that's not all. As a member of the board of directors and a former CEO of Goldman Sachs, Friedman would no doubt have had an excellent idea of the investment bank's exposure to AIG - as well as what it stood to gain from those payments.
Freidman subsequently resigned from his post at the New York Fed on May 7, 2009, in response to criticism of his December 2008 purchase of $3 million of Goldman stock, which added to his substantial holdings - a purchase made only after he had ushered through Goldman's approval to become a bank-holding company, enabling the firm to feed at the Fed's generous liquidity trough.
Friedman continues to serve on Goldman's board. But that's another story.
Another Way to Print Money Congress and the public have forgotten what was happening in the fall of 2008. Mortgage-backed securities (MBS) were not trading. There were no buyers. It was impossible to accurately price mortgage securities and even harder to price CDOs. The only "price discovery" mechanism was the London-based Markit Indices. These indices were supposed to represent various pools of mortgage securities and CDOs.
Unfortunately, it is possible to make bets on the direction of the indexes. In order to hedge what holders of these complex and toxic assets couldn't sell - or for pure speculation or "other" purposes - traders sold short and drove down the indexes.
It didn't matter that mortgage pools really weren't defaulting and that they were still paying out cash flow, they were judged to be worth pennies on the dollar simply because the only "active" price-discovery mechanism against which they could be valued were the indexes. And it was these indexes - which were being shorted by "interested parties" - that drove down prices and triggered collateral payments on credit default swaps to AIG's counterparties.
Goldman was paid 100 cents on the dollar - or some $12.9 billion - for the CDOs it had AIG write credit default swaps on. All the counterparties got 100 cents on the dollar. Why is that an issue? Because the CDOs that were insured hadn't actually defaulted and were still - according to what Maiden Lane III paid - worth about 50 cents on the dollar. So why would the Fed assume the CDOs were never going to recover and that the insured parties were entitled to get paid as if the collateralized securities were totally worthless?
Even more suspicious is the fact that there was a more elegant and simple solution to the problem. And that solution was already available. Why was it not used?
The problem at the time was that rating-agency downgrades were about to trigger more margin calls against AIG. By then, however, the U.S. government already owned 79.9% of AIG. Surely it would have been cheaper for the government to make any margin calls than to pay off all of the counterparties. Even more sickening: If that solution was implemented as the value of the CDOs increased (which some have), collateral that was given to the counterparties would actually have to be returned to AIG - now 80% owned by U.S. taxpayers.
This whole affair raises scores of questions. Last week's hearing before Congress drove that point home. In fact, as I watched the testimony, I realized that our elected representatives didn't even know the correct questions to ask. That's why it's time to write your congressmen and tell them to ask:
Why didn't the Treasury Department make the required margin calls - if they were needed - and stand to get collateral back if the insured CDOs rose in value? Why did the New York Fed buy paper at 50 cents on the dollar and pay banks 100 cents, when they had no idea what the intrinsic value of those securities was at the time? Who really leaned on the New York Fed to not disclose who got our taxpayer money? What did Stephen Friedman know about the payments to Goldman? What records exist of correspondence between Friedman and Timothy Geithner, who was then president of the New York Fed? What records exist of correspondence between Friedman and Henry M. Paulson, Geithner's predecessor as Treasury secretary and a former Goldman CEO himself. If Goldman was really hedged as Friedman appeared to claim, then why did taxpayers pay the investment bank 100 cents on the dollar? Did Goldman (and others) drive down the value of securities to collect cash, demand to be made whole and at the same time buy credit-default-swap insurance on AIG, which they were helping to sink? Can we see the trade blotters of Goldman's trading desks to determine what trading strategy those traders employed during this period and later when making record profits? Why are so many Goldman Sachs people in so many powerful government positions? Why has the United States government allowed a cabal of financial interests to hijack America? That's a start. I urge you add to the list and forward it to President Barack Obama and to your elected representatives in Congress. It's our money, our future and our financial freedom being held hostage.
[Editor's Note: Retired hedge fund manager R. Shah Gilani is one of the leading experts on the global financial crisis, and the credit crunch that it spawned. His opinion pieces and economic analyses have been read by millions across the Internet. Gilani last wrote about how Wall Street's shenanigans are choking the American economy. To read that story, please click here.]
The housing mortgage crisis that's eating up American households at a record pace (4,000,000 plus per year and who knows how many short sales) happens to have a golden lining for certain priviledged Goldman-Sach's related investors.
For my 299th blog I'd like to revisit one of my favorite subjects: Lobbying.
If you have the time do a search of my site you'll find 4 previous articles on banking and lobbying.
Here's the update - Goldman Sachs and their minions are in league with the devil.
It's not because they have a direct pipeline into Washington DC.
It's not because they set aside 16.7 BBBBBBillion Dollars for bonuses (that's $530,000 per employee).
It's not because they've directly and indirectly received 22.9 BBBBBillion Dollars from the federal government.
Then why are they evil?
In the first half of the year they spent a large portion of $224,000,000 lobbying members of the House of Representatives and Senate. They spent this $224,000,000 in six months to subvert the purpose of our elected officials. They spent this money to get our politicians to represent their interests.
Why do you suppose they gave $224,000,000 to lobbyists? Could it be to have their way? Could it be to influence the votes of members of the House and Senate? Could it be that they have $224,000,000 reasons to celebrate their bonuses? Could it be they do it because they are kind generous human beings? Could it be they do it for the benefit of every American?
Do you believe these same bought-and-paid-for politicians can adequately reform the regulations that control our financial system?
If I pay you lots of money and then you vote the way I want you to is that prima facia evidence of bribery? Isn't that the definition of bribery? My dictionary says that if you're an elected official and I pay you to do what I say, that's bribery.
A full year ago our financial system was rocked to its foundations. Could we need to make some improvements in the rules?
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