SEC Files Civil Suit Alleging Fraud Against Goldman-Sachs
Goldman Partner, Paulson and Co., Knew Housing Would Dive in 2007
During a commercial, my wife asked a reasonable question.
"I don't get exactly what they were selling."
I scratched my head and blinked. Enron was ostensibly selling energy contracts but it sold a lot of air castles, too. Since the economic collapse, we are now accustomed to air castles-they go now by the name of "derivatives, swaps, CDO's" and variations thereof.
So how can this be happening again today with Goldman-Sachs? The SEC announced today they filed a civil suit against Goldman-Sachs, alleging that Goldman defrauded investors by the kind of backdoor dealing that brought down Enron. With the announcement that Goldman was implicated in this latest scam, the stock market, already due for a correction according to many people, took a 100 plus point drop and dragged down lots of financial stocks. Goldman-Sachs is down 26 at the moment, and I'm not crying real tears.
Goldman-Sachs will survive this because there are no rolling blackouts to call attention to it. Another reason is that people who have enough money to invest in Goldman financial investments are already too rich to worry about. But lots of working stiffs have pension funds, usually run by someone else, and such persons better hope they weren't suckered in. So what happened?
Goldman was selling mortgage CDOs, an investment product that didn't exist twenty years ago. What's a CDO? It's either an air castle or a mortgage derivative, depending on how exciting or boring you find the vast world of finance. Goldman was telling people to invest in their CDOs and they would get rich, even though they knew investors would soon get poor if they took the bait. The company that helped "fabricate" the CDO's, at least, knew that the mortgage markets (in 2006-2007) were about to collapse. So why did they issue CDOs?
Back in the day, there was a hip-hop song which says "it's all about the benjamins" and that's the long and short of it. Goldman and its agent, Paulsen and Co., colluded to sell these products and everybody except your pension fund (if they bought into this) made money.
The reason the SEC is filing civil charges is because Paulsen and Co. sold housing mortgages short, that is, they made money on heavy bets that the mortgage market was on its way down. At the same time, they kept the fantasy going among everyone else that the housing markets were doing great-very important to the scam.
The quasi-government agencies like Fannie Mae and Freddie Mac were players, too, in taking bad mortgages from Chris Dodd's political pals at Angelo Mozilo's Countrywide bank. Obama players in the scam include the notorious Fannie/Fredie Executives Jamie Gorelick, Jim Johnson, and Franklin Raines, all of who scrammed with millions in their pockets before the collapse. I'm not trying to say that financial corruption has a political party-but you owe it to yourself to do at least a Google search on those people. There were hundreds of people making money by passing out what they knew was bad paper and would soon collapse.
Unfortunately, the SEC filing is a civil and not a criminal charge. It will be up to Andrew Cuomo, New York's Attorney General to do that-if it is to be done. I'm still trying to understand the complex of financial tangles that brought us to this economic mess. One thing I do know is that there were hundreds of people in government and business who knew this was coming.
So how is housing doing in your neighborhood?
Published by Anthony Ventre
I have a background in traditional print media and radio news. The proliferation of online writing opportunities has changed things for me, largely for the better. News moves quickly in the information a... View profile
- Why is Goldman Sachs so Successful?In the financial crisis, Bear Stearns collapsed. Merrill Lynch fell. Lehman Brothers helplessly died. Morgan Stanley struggled. Only Goldman Sachs was able to maintain growth and profits. Why did Goldman fare so diffe...
Doing God's Work at Goldman Sachs - Llyod Blankfein, Today's Marie Antoi...Nothing says "bring on the Guillotine" quite as well as the capitalist pigs themselves...- Goldman Sachs: Thank You Mr. PresidentDonÕt listen to noises suggesting that we make money on trades even when we buy and sell at the same price levels to ourselves.
- Goldman Sachs Earnings Are Available and Are Better Than Expected
- New York Times: Goldman Sachs CEO Said, "Goldman was Doing 'Gods Work' in Its Bus...
- Lloyd Blankfein, Goldman Sachs CEO, Among Those Grilled by Financial Crisis Commis...
- Todd Genger, Goldman Sachs Lawyer, Charged with Soliciting Underage Girl
- Why Are Former Goldman Sachs Executives Overseeing the Wall Street Bailout?
- Goldman Sachs CEO to Play Guitar at Homeless Shelters
- Goldman Sachs Hired by San Diego Padres in Attempt to Sell the Major League Baseba...
10 Comments
Post a CommentA very thought-provoking article. I have a good idea as to what the next step will be. Keep eyes peeled on a stock market takeover.
The market is set up to allow the stock holders to do business, just as the government represents the people the companies represent the stock holders. In some cases majority share holders run them. Show me a share holder willing to refund his or her dividend check because of questionable dealings.
There is no doubt that you are correct about Goldman's ability to bring an entire country down. They completely dominate every trading market, from S&P futures to the index options pits to the currency markets. That's why the lowest level handwringers who work there get paid million dollar bonuses. The idea that Hank Paulsen was Treasury Secretary, bringing down a trillion in taxpayer bailout dollars to the investment banks, when he headed the very organization that exploited the house of cards, is really despicable. And yet, I still worry more about the prescribed legislative cure spearheaded by the Obama administration.
Unfortunately, Tony Jingo is right, too. With this Obama administration, the cure is worse than the disease. They'll take advantage of this fiasco as an "opportunity" to grab more political power. It wasn't for nothing that the so-called White House/Congress "financial reform" bill conceived a $50 billion dollar trust fund reserved for more bailouts of politically favored financial institutions and corporations.
Scruples? We no longer call them "scruples"--we call them "derivatives" and collude to sell as many as we can to drive the prices up even though we know that the underlying housing market is collapsing. The trick, for both government and Wall Street executives, is to get as much as you can and then get out--before the collapse you know you are creating.
I become enraged when I hear this stuff...What happened to scruples?
look for Obama to use this as a spring board to further expand govt tentacles into the finance bus. As he exploited the ills of those falling through the cracks of the health care industry as an excuse to expand gov't & further erode our Freedoms..he will exploit the financial woes & abuses to continue fed expansion in that area.
I'll say it again, J. C. --you a brainiac. I'm just pissed they put all that liquidity out there (and still are) to continue a bunch of Ponzi schemes. Perhaps I've misunderstood, but you bought puts on stock issued by subprime mortgage companies, is that right? I'm not clever enough to buy options, to tell the truth. I'm glad you made a buck That's different from the company Goldman hired to structure CDOs in which they took positions themselves while Goldman tells public investors and the media that Goldman's not betting on a housing decline. These people, including the government, keep changing the whole game. Some analyst today warned they could do the same thing with "Sovereign Funds"-- In other words, teams of hedge fund managers collude to do such things as drive countries down--meaning Greek debt right now, with Portugal to follow. The analyst said they could mount an "attack" on a country that way. We don't have to worry about that--we're busy attacking ourselves.
The upshot is that these CDOs are worth no more than the underlying residential mortgages that gave rise to them. Men and women with high school or less educations, in every corner bar in America, predicted that the housing market would crash (at least 3 or 4 years) before it did. The reason why they knew: no one had ever so easily granted them, their parents or grandparents, mortgage money to buy homes. Most of them, in fact, knew that they would default, but it was too good to resist while it lasted. I bought puts on three subprime lenders and kept rolling them over for nearly 2 years. All three went BK. It was a nice payday. As for Goldman, of course, it was a blatant conflict of interest to do what they did. It's difficult for me to believe that there are no statutes or regulations preventing them from making a market in a product while shorting it. They couldn't do the same thing with stocks.
The wicked heart of man surfaces again! Good article, I was wondering about this.