A Path That Was Totally Unsustainable
The Hartford Courant reports from Connecticut. “Investment giant Goldman Sachs & Co., facing federal charges of defrauding investors in selling them packages of risky mortgages, also could be investigated in Connecticut. ‘There may well be a factual and legal basis to consider state investigation … and my office has begun a preliminary review,’ said state Attorney General Richard Blumenthal. ‘The SEC’s allegations read like a ‘Sopranos’ episode,” Blumenthal said. “The SEC is accusing Goldman Sachs of constructing — at hedge fund manager John Paulson’s request — securities designed to fail so that Paulson’s hedge fund could make billions betting against them. It would be like Goldman selling consumers houses deliberately designed to collapse just so Paulson could collect the insurance.”
The Day in Connecticut. “Allegations Friday that Goldman Sachs defrauded investors of more than $1 billion didn’t exactly shock Chris Dodd, the Senate Banking Committee chairman struggling to win support for his overhaul of the nation’s financial system. ‘I’d like to tell you I was surprised,’ the Connecticut Democrat said. ‘But I’m not.’”
“In a civil suit filed in Manhattan, the Securities and Exchange Commission charged that Goldman, the Wall Street investment bank, created and sold a financial product that helped a hedge fund pocket huge profits from the collapse of the housing market. Goldman and one of its vice presidents stuffed the product - known as a collateralized debt obligation - with mortgage-backed securities that were riskier than they appeared and sold it to investors for a large commission, the SEC alleged.”
“‘As we are painfully aware, things were going on,’ Dodd said of the Wall Street implosion. ‘There were some making far too much money at the people’s expense - and without regard to its effect on the economy.’”
“Dodd couldn’t escape mention of the financial reform bill he’s crafted and which Senate Republicans have failed to embrace. ‘We must pass Wall Street reform to bring practices like these into the light of day and protect our economy from another devastating blow,’ Dodd said of the Goldman case in a statement.”
From Fortune. “Could the civil fraud case against Goldman Sachs be the break regulatory reformers have been looking for? The shift could pave the way for the enactment of reform legislation sponsored by Sen. Chris Dodd, who chairs the Senate Finance Committee. The latest version of the Dodd bill, introduced last month, hasn’t found a single Republican supporter.”
“‘This is going to have a major impact on the Dodd bill,’ said Simon Johnson, a finance professor at the Massachusetts Institute of Technology and co-author of 13 Bankers, a book calling for the biggest banks to be broken up.”
“The Dodd bill wouldn’t break up the biggest banks. But a measure offered Friday by Sen. Blanche Lincoln, D-Ark., would force them to spin off the businesses at the heart of the financial crisis and in this case — their highly profitable derivatives operations. ‘This is another example of how risky Wall Street behavior puts our nation’s financial system in peril and further illustrates the need for the strong reform that my legislation provides,’ she said.”
The New York Times. “The lawsuit could be a sign of a revitalized Securities and Exchange Commission, which has been criticized for early missteps in assessing the causes of the financial crisis. The agency appears to be tracing the mortgage pipeline all the way from the companies like Countrywide Financial that originated home loans to the raucous trading floors that dominate Wall Street’s profit machine.”
“In recent months, Goldman has been defiant in the face of criticism, repeatedly defending its actions in the mortgage market, including its own bets against it. In a letter published last week in Goldman’s annual report, the bank rebutted criticism that it had created, and sold to its clients, mortgage-linked securities that it had little confidence in. ‘We certainly did not know the future of the residential housing market in the first half of 2007 any more than we can predict the future of markets today,’ Goldman wrote.”
The Boston Globe in Massachusetts. “Butler Bank became the first financial institution in Massachusetts to fail in 16 years when state and federal regulators seized the small Lowell lender…and turned it over to the Federal Deposit Insurance Corp. The FDIC in turn arranged for all of Butler’s customer deposits and bank branches to be sold to People’s United Bank.”
“About 75 FDIC employees, wearing agency ID badges, were expected to work as late as midnight at Butler branches to handle the transfer to People’s United, sorting through documents and accounts, according to FDIC spokesman Eric Raines.”
“‘This is an anomaly,’ said Suzanne Moot, a Milton banking consultant who closely follows the Massachusetts banking industry. ‘This is a bank that specializes in a relatively risky form of lending — residential construction lending.’”
“Moot said it is possible one or two more struggling banks might fail in Massachusetts before the economy fully recovers, but doubted the problem would become more widespread.”
The Boston Business Journal in Massachusetts. “Butler Bank failed because of a raft of bad loans on residential construction projects in Massachusetts, New Hampshire and Maine. ‘One of the fastest growing banks in Massachusetts, Butler Bank has posted a staggering 30 percent annual growth,’ the bank said in its Dec. 8, 2006, press release.”
“Founded by the Pearson family in 1901, the bank built its reputation on being an aggressive construction lender. Its Web site once touted ‘98% of builders loans approved!’”
The Boston Herald in Massachusetts. “A Hub developer has sold the site of his planned luxury condominium project for $8.2 million. As the city’s real estate market tanked, Ted Raymond abandoned plans to turn the last empty lot in the Back Bay and an adjacent apartment building into a five-story luxury condo project. Each of the 4,000-square-foot units was expected to fetch up to $8 million.”
“‘The real estate market got a little soft on condos, so we felt it would be best to sell,’ said Raymond.”
The New York Post. “In just about every real estate cycle, you’ll find the wild-eyed dreamer — the person who makes the case that the moment is ripe to try something new. Something expensive. Something labor-intensive. Something that will change the face of the city as we know it. Of course, these dreamers only get a hearing during the boom years. Everything changes with a bust. But, yes, we admit that these visions can get pretty far afield before their patriarchs are led to a padded cell.”
“Our most recent real estate cycle was no different. ‘In this market, we’re suffering like everybody else,’ says condo developer Albert Marengo of Gary H. Silver Architects, which built the Observatory Place condo building and has two more East Harlem condo buildings set to open later this year. ‘Consumption of units has been very slow, and the ones that are selling are selling at such a reduced rate that there’s no way people can make any money on them.’”
“The Barclays Center is the crown jewel in the $4.9 billion Atlantic Yards project, which will include 6,430 new housing units (2,250 of which will be affordable). ‘Obviously, the timing of Atlantic Yards, that’s been deferred,’ says Brooklyn Borough President Marty Markowitz. ‘The original plans that we were so excited about back in 2004 — obviously the world’s changed.’”
The Downtown Express in New York. “Saying the Trump Soho New York condo-hotel has created 350 permanent jobs and will boost business for Downtown stores and restaurants, Donald Trump led a ribbon-cutting ceremony last Friday, officially opening the towering new building. As Trump was striding out of the room, I cornered him — well, actually, Trump looked like he was eager to talk to the media.”
“First question: Exactly how will the restrictive declaration covering condo owners’ use of their units be enforced? (Stays at the hotel are limited to no more than 29 days in a row within a 36-day period, and 120 days total per year.)”
“No problem, Trump said, confidently: It will all be done by ‘computer,’ and is a great system.”
“I then asked the millionaire mogul about the recently report by the Wall Street Journal that only a third of the building’s 391 units are in contract to be sold, and that it isn’t clear how many of them will actually close. That question he didn’t want to answer. ‘O.K., I’ll see you later,’ he said, then turned on his heel and walked out.”
“I bumped into Trump again in the lobby, and again asked about the reportedly slow sales, and this time Trump answered the question, sort of. ‘I think the building will do well,’ he said, adding, ‘We’re really involved in the management. We’re the managers — they’re the sellers,’ he said, referring to Bayrock and Sapir.”
“What of all the community opposition from Soho residents, who even filed a lawsuit against the project? ‘They’re all our friends now,’ Trump assured. ‘Everybody likes our building.’ As for the building’s gargantuan size, he stated, ‘We had a zoning that allowed us to build this tall, and we took advantage of that. I think it’s going to be a landmark in New York.’”
“In a telephone interview, Sean Sweeney, the Soho Alliance’s director, said he was looking at the Trump Soho at that very moment — but that only about one-third of its rooms’ lights were on. ‘Do you know what it’s like getting up in the morning and having to look at Donald Trump’s erection?’ he said. ‘I’d much rather cut it down to size.’”
The Times in New Jersey. “More than two years into the foreclosure crisis, the number of homes in Mercer County whose owners have fallen behind on their mortgages remains at historically high levels.’ This crisis is still going strong,’ said Markese Humphrey, director of housing and homeownership at Isles Inc., and a member of Trenton Mayor Douglas Palmer’s foreclosure mitigation task force. ‘You would think the rate would have slowed a year later, but no, it has not. It’s at a continuous rate, if not higher. There’s no drop anywhere. It’s very consistent in Hamilton, Ewing. We’ve got people as far up as Princeton, Hightstown, the whole of Mercer County.’”
“Trenton has the region’s highest foreclosure rate, particularly in its South Ward, where large numbers of older homeowners are losing their homes after becoming jobless, seeing their incomes drop or facing other personal crises, Humphrey said.”
“Phyllis Salowe-Kaye, executive director of New Jersey Citizen Action, attributed the persistently high foreclosure rate in part to adjustable rate mortgages that have recently reset, increasing their interest rates and requiring higher payments from cash-starved homeowners. In many cases, the owners are unable to refinance or take advantage of government-backed mortgage modification programs, she said.”
“‘Some are finding they can’t move into a lower rate mortgage because their property values have decreased,’ Salowe-Kaye said.”
The Asbury Park Press in New Jersey. “Idle New Jersey homebuilders don’t have to hurry back to the job any time soon, according to an industry expert. Instead, they should use this protracted bust which shows scant signs of a speedy recovery to rethink the housing needs of the future.”
“Analyst Jeffrey G. Otteau told a roomful of New Jersey builders Tuesday at Caesars Hotel and Casino that luxury McMansions on sprawling country lanes are dead. ‘The next crop of first-time buyers will be earning 17 percent less than their parents earned 30 years ago, so luxury housing is severely troubled,’ said Otteau.”
“While home prices will rise slowly, inventories will shrink over time and credit will loosen. Otteau predicted full recovery will be delayed until 2020. Baby boomers are not likely to bail the industry out because more are staying in their homes longer, then moving out of state to lighten their tax burden.”
From ABC News. “Never judge a house by its tax bill. That’s the lesson Don Newby, 65, is learning. The construction manager from Gibbsboro, N.J., is paying boom-era property taxes on a home that has lost 20 percent of its value in the past three years. He blames the Gibbsboro tax authorities, who haven’t reassessed property values in the town since 2003.”
“‘That’s absurd,’ says Newby, who pays $14,000 a year in taxes on a four-bedroom, bi-level modern house in the New Jersey township near Philadelphia. Newby, who was unemployed for a year after the economic collapse, says he believes the government is intentionally delaying new assessments to benefit from the lag as long as possible.”
“‘When you watch how property values have come down, it appears I could save almost $2,000 in taxes,’ he says.”
The Concord Monitor on New Hampshire. “New Hampshire’s real estate market showed signs of continued growth last month, as the number of home sales and median home prices both increased. But Realtors are hesitant to predict an immediate recovery, especially as a well-publicized government subsidy for new homebuyers is set to expire in two weeks.”
“‘It’s definitely picked up, and we have our fingers crossed,’ said Pamela Kenison, a Realtor in Concord. ‘We’re hoping that the end of the homebuyer tax credit doesn’t put the brakes on everything.’”
“Meanwhile, the number of foreclosure deeds in the state remains historically high. The most recent figures from the New Hampshire Housing Finance Authority show there were 326 foreclosure deeds in February - a new record for that month. Foreclosure deeds were also up 50 percent compared with the same month last year. Jane Law, communications director for the New Hampshire Housing Finance Authority, said the steady foreclosure rate continues to be the result of broader economic struggles, such as unemployment and wage cuts.”
“‘People have been saying the recession is over,’ Law said. ‘But that’s not showing on the ground yet for folks who don’t have jobs and are still trying to catch up. If you’re not working, the recession isn’t over yet.’”
The Union Leader in New Hampshire. “Home sale prices in New Hampshire have risen year over year for the first time since the housing boom went bust, and the president of the state Association of Realtors hopes that’s a sign that the ailing real estate market is beginning to recover. ‘I don’t want to call it a trend yet, but everything seems to be in place for that to be happening,’ said Monika McGillicuddy, a Realtor in Hampstead.”
“According to NHAR figures for the first two months of this year, the median sale price of a single-family home statewide was higher than last year at this time — the first time that’s happened since the peak of the housing boom in 2005. ‘To end the first two months of the quarter with the first price increase in something like 52 or 53 months, that’s significant,’ McGillicuddy said.”
“And it may be a good omen for homeowners who may want to sell but who have seen their home values drop steadily. According to NHAR figures, the median sale price for a single-family home has dropped 21 percent since 2005. That was when the median sale price of a home hit $270,000 for the year — a 112 percent increase from the $127,500 median price back in 1998.”
“Home values have been dropping steadily ever since. McGillicuddy views the drop in real-estate values as a market correction. When the median price hit $270,000, she said, ‘no doubt many buyers were priced out of the market. We knew there was going to be an adjustment,’ she said. ‘We were just going on a path that was totally unsustainable.’”
“The lawsuit could be a sign of a revitalized Securities and Exchange Commission,”
Well, I certainly hope that is true but pardon my cynicism when I say that we’ll have to see where this really leads. Something tells me this civil suit is little more than window dressing so it appears that government is doing something.
The Goldman case is stupid. Be realistic. They stole billions of dollars with Paulson, Bernanke, Geithner and Obama as the accomplices. Now they are being sued for some stupid deal with John Paulson. This is a farce. They are going after murderers for jaywalking. This is political. This is nonsense.
I am pleased to say we are stuck in Europe. That is a lie. I am not pleased at all. This is the biggest overreaction since 9/11. Theÿ have shut down everything willyńilly. There is nobody giving out good information. The same jerks that can run an economy cannot run the airline system. This is a joke. We are getting no information. I am embarrassed for Europe. Their so called leaders are dumber than Bush.
Did air travel stop after Mount Saint Helens. I am amazed at the number of people repeating that this is for our own good. As if life comes with no risk. I would get on a test flight gladly. We have no idea when we can get home.
I believe that stocks like Priceline and Expedia are dead from here. Their service sucks. This episode is going to be a huge black eye for them. They decided to outsource their call centers to save a buck. Good job. The service is horrendous. You get to speak with robots that are taught to pretend they are from Nebraska or California. These companies deserve universal scorn and I believe they will receive just that. We are also dealing with British Airways. I have nothing good to say about any of them. Short away at will. Who will fly to Europe after this clusterphuck. I know I will never come back again.
We are trying to take advantage of the extra time but the limitations of technology are showing once again. May the force be with you and screw all of the zombies that think that this closure of a continent is a good idea.
Boy, someone woke up on the wrong side of the Atlantic.
According to BA’s website, looks like flights are cancelled for 4/19 as well.
So, why not hole up in a hotel and play Cousin Cousine with Mrs. NYCityBoy? If you don’t know the movie, rent it and then play.
How often do you get the chance to slack off and have an great excuse to do so?
Sorry to hear you’re stranded, NYCityBoy. With the demented emphasis on “shareholder value” and “cost efficiency,” caring about the customer fell by the wayside a long time ago. In a Black Swan situation that becomes even more apparent. Hope you catch a break and can get out soon.
NYC,
I was stuck in Montreal during 9/11. I had a great time during my extended vacation.
Try and make the best of it.
“Do you know what it’s like getting up in the morning and having to look at Donald Trump’s erection?’ he said. ‘I’d much rather cut it down to size.’”
Gotta be one of the all-time best bubble quotes.
Did the guy realize his statement was a double entendre?
During WWI, didn’t France, Britain, and Russia form the triple entendre?
Did the guy realize his statement was a double entendre?
I only see a single entendre, but Mrs. Chile says I have a dirty mind.
I do have a dirty mind and that Chump Tower in Soho is an overpumped penis that should be brought down immediately. I remember one person dying when a window fell out. That was tragic. The whole farging project is tragic. I hope Trump rots in hell for his transgressions. I hope the devil feeds him that gard damn toupee at gunpoint and makes him bark like a seal while he eats it. Have a nice day.
Nope, it’s a double. “Erection” as in erecting a building (like erector sets from the 70s) and “Erection” as in the dirty-mind meaning.
Ditto for cutting it down to size.
This reminds me of the old SNL skit featuring Emily Litella reporting on free elections in China:
“China is holding flee erections…never mind…”
My loverly wife failed to see the humor in that passage. She was utterly disgusted after I had her read it.
My thoughts exactly. The man cannot build something understated or dignified; it’s not in his personality to do so.
I always thought “The Apprentice” was more a celebration of his ego than an honest attempt to find someone with business instincts and talent. I spent half the show wishing one of the candidates would quit and tell Trump to f___ off.
The Soho project has to be seen to be believed. It is beyond ridiculous. I hope the man dies a painful death.
BTW, I heard Trump in a radio ad promoting some MLM scheme bearing his name. Gotta get in on the ground floor! Not.
Allegations Friday that Goldman Sachs defrauded investors of more than $1 billion didn’t exactly shock Chris Dodd….
‘I’d like to tell you I was surprised,’ the Connecticut Democrat said. ‘But I’m not.’
So Dodd is confessing that he knew ahead of time? I’m so confused.
http://www.opensecrets.org/politicians/contrib.php?cycle=Career&cid=N00000581
Chris Dodd’s top campaign contributors read like a who’s who of banksters. Goldman Sachs was his #6 contributor. Anyone expecting this clown to push for meaningful banking reform is delusional.
Dodd’s is retiring ,but he thinks meaningful reform is having a automatic 50 billion in bail out funds for these casino houses built into the Bill . You can’t let these Investment Houses be lenders in the future .
Do you remember Y2K? Greenspan promised to pump 50 billion into the money market on Jan. 2nd. to backup the system in case the system froze up. Y2K was a really a media-news hoax but if we lose even 20% of the mega banks on Wall St. and the dominoes start falling fast 50 billion won’t last long anyway. In principal I can see the need for such a fund to mop up after a BofA or a JP Morgan goes down overnight. This pool should be collected directly from the management & bond holders of the mega-corp, electronically, instantly like a marriage prenuptial clause. Bang-Boom done, see ya in court.
“You can’t let these Investment Houses be lenders in the future .”
As i have contended since this whole dog-and-pony show began, ALL THE Brokerage Houses, Goldman first of all, should have been allowed to fail. They should not be using FED funds to run their speculations. But Paulson, with some 700 million in investments at Goldman would be bankrupted and poor, along with all his compatriots. It’s all been robbery in broad daylight.
There is NO reason that the FED, which provides free money to “banks” could not have started a whole new banking system, with newly leased buildings and new stacks of dollars, while the books of Goldman, Citi, JPMorgan, Bank of Amerika, etc, were reviewed to determine how much personal property of the executives would be needed to compensate their shareholders. I am sure the value would exceed their holdings.
The investigations are long passed due, but will do mostly nothing. The FIX is in, and always will be so long as the crony capitalism is allowed to work with Wallstreet running the Treasury and the Regulators. The American Public has been steadily robbed as Jefferson predicted back at the turn of the last Century (1802) should their be a “central bank” allowed in the US. That prediction has come true.
Andrew Jackson rode the banksters out on a rail, but that was the last administration that wasn’t doing the two-step with Wallstreet/bankster swindlers.
I expect all window dressing and no real change. ALL TALK. A few patsy’s may be kicked around as a show for the public.
Dodd should be in prison, along with Bernanke, Geithner, Paulson, and the whole lot at Goldman. Crooks, they are.
I would like very much to see a bill sponsored in Congress that would allow removing all pension and benefits to congressman who could be investigated for contributing to these financial schemes to defraud. Yes, I have dreams, too.
+1
Do you think Dudd can’t figure out the origins of his campaign contributions?
“The Dodd bill wouldn’t break up the biggest banks.”
Why not? Other than providing politicians with campaign contributions, how do great vampire squids across the face of humanity benefit society?
I heard this guy on the radio, and I wish his opinions could get out there more. Of course, the host on NPR said breaking up the banks would never happen while introducing him!
‘Simon Johnson, a finance professor at the Massachusetts Institute of Technology and co-author of 13 Bankers, a book calling for the biggest banks to be broken up’
Simon Johnson has also said that the only way meaningful reform will be enacted is if the American people quit electing politicians who are beholden to Wall Street. That’s a drum I’ve been beating for years now, but even in here most don’t make the connection between their vote for Wall Street puppets and those same puppets continuing policies that are leading us to ruin.
“Of course, the host on NPR said breaking up the banks would never happen while introducing him!”
I regularly listen to NPR; they frequently mention that the NAR is a major contributor. I don’t know how much Megabank, Inc donates to their operation, but I suspect that with billions and billions in profits at their disposable to purchase influence, they may have bought most of the American MSM over to their point of view…
Jeebus, I was listening to NPR yesterday (we don’t have much to choose from here) and they had this woman call in who wanted to move closer to the Jersey shore. They asked her this and that about selling and buying. Not once was the idea of renting even mentioned!
I never listen to NPR. I can’t stomach more than 5 minutes of slanted “news”. That aside, who would want to stop a game where the “FED” prints money, gives it to banks, the banks loan it to the “treasury”, at interest, then book the interest payments of multi-billion dollar profits, providing no service, whatsoever, for the “free money”, then give “campaign contributions” in the hundreds of millions to the people who support the game?
It’s great. The best part is that if you want to rake off some more money, you can speculate with the FED free money and run up investment prices, at leverage, which for Goldman and other “investment banks” was taken at as much as 30 or 40 to one.
What a great scheme. Bet ONE Million. Buy 40 million. prices rise by 20%, you get 8 million dollars, on a one million dollar “loan”. I wish they would let me be an “investment bank”.
Trade goes against the bets………….BAILOUT. too big to fail.
Boy oh boy I am with you on that NPR thing….that is why I now only listen/watch those truth tellers Rush/Glen Beck.
lmao.
“‘It’s definitely picked up, and we have our fingers crossed,’ said Pamela Kenison, a Realtor in Concord. ‘We’re hoping that the end of the homebuyer tax credit doesn’t put the brakes on everything.’”
Don’t worry, Pamela, I am expecting the Treasury Secretary to announce a commensurate new real estate stimulus program (probably linked to the December 24, 2009 elimination of the GSE budget limit) the very week the $8K credit is fazed out.
I think so too.Got to get the party going again.
Buy a house and get rich!!!!!!!!!!!!!!!!!!!
Are you being snarky about THE AMERICAN DREAM?!
‘The number of pending single-family home sales skyrocketed by 27 percent last month in Massachusetts as numerous home buyers raced to take advantage of federal tax credits before they expire. Walter Hall, founder and chairman of Norwell-based HouseSavvy, warned that the number of unsold listings in Greater Boston rose by nearly 25 percent from December to March. He said if sales activity slows down considerably after the tax credits expire, the balance could quickly shift toward a buyers’ market again.’
‘We’re in a moderate sellers’ market,’ Hall said. ‘There are a few more buyers than sellers. But boy, it could change real fast, and we think it might well do that.’
‘Sales of single-family homes in the Pioneer Valley rose 16.5 percent in the first quarter, from 639 in the first three months of 2009 to 745 in the first quarter this year. The median price of those homes rose 6.2 percent from $169,500 in the first quarter of 2009 to $180,000 in January. Home prices in the Pioneer Valley are up 21.2 percent during the past seven years, from $148,500 in 2003.’
‘Mark D. Abramson, a broker at The Masiello Group in Greenfield and 2009 president of the Realtor Association said what the housing market does after the deal expires depends largely on the job market. ‘When you lose your job, you are not out looking for a house,’ he said.’
‘New London County foreclosures numbered 174 in March, unchanged from February, according to RealtyTrac. Windham County, which was the most troubled of the state’s eight counties in February, had foreclosures decline 4.7 percent in March to 101 from 106 in February.’
‘The wave of foreclosures due to the subprime lending has pretty much abated,’ Renee Main, executive officer of the Salem-based Builders Association of Eastern Connecticut, wrote in an e-mail. ‘Current problems in meeting mortgage obligations are primarily due to the unemployment rate.’
“The wave of foreclosures due to the subprime lending has pretty much abated,”
Just in time for the coming wave of foreclosures due to recasts of Alt-A, and “Prime” boat-and-boob-job cash-out refis, as per Credit Suisse. They couldn’t all have refi’d.
But I do agree…a lot of people who did things right are still in trouble because of the job loss.
Yep. I’m seeing it folks. REO inventory dropping off the roster quick and it’s got me and Mrs. royally pissed off. It seems like 2003 (or so) all over again.
Goldman Sachs Vampire Squid Gets Handcuffed
By L. Randall Wray|Apr 17, 2010, 9:41 PM|Author’s Website
In a startling turn of events, the SEC announced a civil fraud lawsuit against Goldman Sachs. I use the word startling because a) the SEC has done virtually nothing in the way of enforcement for years, managing to sleep through every bubble and bust in recent memory, and b) Government Sachs has been presumed to be above the law since it took over Washington during the Clinton years. Of course, there is nothing startling about bad behavior at Goldman—that is its business model. The only thing that separates Goldman on that score from all other Wall Street financial institutions is its audacity to claim that it channels God as it screws its customers. But when the government is your handmaiden, why not be audacious?
The vampire squid hasn’t been handcuffed. Cobalt Blue posted this excellent piece which to me offers the most cogent explanation for the very belated and limited SEC move against GS.
http://www.goldmansachs666.com/
No kidding, this is exactly what everyone’s known all along, that GS, and their insider clients, have been profiting by betting against the very debt products they help to package and sell.
Is the U.S. Government really getting serious about going after these guys? NO WAY. There are always token fall guys and this is all theater and show.
Think about the timing of this. It comes just as I have been talking about a “triggering event” that will take the blame for turning the markets. This suit was reported AFTER the open on OPTIONS EXPIRATION day. Why now? My suspicious mind says that it was timed to allow the options sellers and contract speculators to walk away and to instill maximum damage on the retail buyers of the ALL TIME RECORD number of option call buyers who were in the market just yesterday.
Markets almost always turn on such sentiment extremes, but I know that Goldman controls the government and absolutely is in control of the S.E.C. too! It’s almost a joke to me that they would turn the markets by allowing the S.E.C. to bring suit against themselves. And I’m willing to bet the majority of people will believe there’s no way they would do that. Want to bet?
Watch future events unfold, I can almost guarantee that there will be fines that are later mitigated, that a few people may take a fall, but nothing real or meaningful will come of it other than an opportunity to profit on the short side after running the market up to bubble extremes. It’s a nice game to play when you control all the pieces on the board. Meanwhile the people of the world are simply played as fools and pawns. How’s that feel, were you long the market?
How many times before people learn that what’s most important is not WHAT backs your money, but WHO is in control. America gets what it deserves, karma’s a bitch and it seems to be going around.
Not an hour before the release of this I was talking about bubbles and triggering events that take the blame. Take a look at the 30 day, 30 minute chart of Goldman Sachs. All parabolic profits of the past month GONE in an instant.
“There are always token fall guys and this is all theater and show.”
It’s the Congressional version of Grand Kabuki Dance…
Exactly.
The only “change” that may come of this is a push-through of financial “reform” that will be the opposite of reform and which will result in more costs being dumped on the taxpayers while Gollum Sacks and the rest walk away with the loot.
Oh, and we can expect a magical, new home-buyer fraud stimulus credit, too, once the current home fraud credit expires at the end of the month.
“…which will result in more costs being dumped on the taxpayers while Gollum Sacks and the rest walk away with the loot.”
That’s part of the tax cheat and other members of the Obamanomics Teams’ Wall Street recovery plan, isn’t it? Lather, rinse, repeat…
‘the bank rebutted criticism that it had created, and sold to its clients, mortgage-linked securities that it had little confidence in. ‘We certainly did not know the future of the residential housing market in the first half of 2007 any more than we can predict the future of markets today,’ Goldman wrote.’
I’ve been following this a bit. GS let this hedge fund guy PICK the loans (which were subprime, BTW) that would be the subject of the derivatives. Considering that subprime defaults in the absence of a mania default at around 14%, add the insane prices, appraisal fraud, etc, and this was as sure a bet as one could make.
I recall the old saying, ‘you set em’ up, I’ll knock em’ down.’
How did Gollum think they would get away with this? The hubris defies belief.
It’s not hubris when they own just about every politician on Capital Hill. They’re above the law and they know it. So do the people who are pretending to be investigating them.
“They’re above the law and they know it.”
They thought they were above the law, and acted like it. I am feeling more optimistic this weekend than I have in a long time, even though I am aware the politicians’ main objective from here forward will be to create a sham investigation of Gollum and friends whose main purpose is to palliate the masses rather than to reform the system.
How about that other Hedge Fund Company that was tied into Goldman that had 50 billion in MBS’s that defaulted by 96% .
Investors should just pull their funds from Goldman and BK that
Vampire that runs the government . With on line trading ,who needs the crooks .
While I agree with all of the above posted comments regarding GS’s ownership of the gov’t, let’s not forget the law of unintended consequences.
GS has made a lot of enemies. This SEC suit has let one of the cats out of the bag. Now one cat is out, it might be difficult to keep the rest of them securely in the bag.
Also, GS has deep pockets and is thus a tempting target.
“Government Sachs” has a free hand to conduct its swindles in the US, thanks to its ownership of Capital Hill. However, it might be a different story if burned German and other foreign investors go after them. It would be even better if the regulators who turned a blind eye to GS’s activities ended up facing lawsuits for their negligence/complicity.
I heard a piece about the history of Goldman Sachs, and many in the company not wanting it to go public. The leadership will probably take the piles of money they’ve stolen and let the ship go down. Then buy up the pieces and take GS private again.
I know one California gubernatorial candidate who will not receive my vote. Anyone with financial ties to Gollum Sucks is henceforth on my personal black list.
Apr 13, 2010 4:12 am US/Pacific
Critics Question Whitman’s Financial Connections
Reporting
Dave Bryan
TUSTIN, Calif. (CBS) ―
Whitman is leading GOP polls in the race for governor by a huge margin, but some critics are concerned whether her personal finances raise questions about conflict of interest.
Republican Gubernatorial Candidate Meg Whitman said it’s time to slash state spending and make California more business-friendly.
Whitman was in Orange County Monday, where she pushed her plan to turn California around, but some critics are raising questions about her own financial connections.
Whitman is leading GOP polls in the race for governor by a huge margin, but some critics are concerned whether her personal finances raise questions about conflict of interest as she sharpens her campaign themes, looking ahead to the general election in November.
…
In an investigative report posted online this past weekend, California watch questioned whether Whitman’s long-standing relationship with Wall Street giant Goldman Sachs could be a conflict of interest if she becomes governor.
Goldman received $10 billion in taxpayer funded bailout funds, which was later repaid.
Long before the bailout in 2001, Whitman was reported to have been paid nearly a half million dollars by Goldman for sitting on its board for a year, and steered millions of dollars of eBay’s investment banking business to Goldman when she was CEO.
Goldman has underwritten nearly $80 billion in California state bonds in the last four years. Whitman says there would be no conflict.
If I am elected governor of California, we would do everything we can to mitigate any real or perceived conflicts of interest, so we will put as many assets as we need to into a blind trust. If we have to sell some of our assets to make that work we will certainly do that,” she said.
Whitman left the Goldman board in 2002, in the face of an expanding congressional investigation into “spinning” - a questionable practice where Goldman gave Whitman and representatives of other big commercial customers access to new corporate offerings coming onto the market at bargain basement prices.
A judge in the case reportedly wrote that Whitman reaped millions of dollars in profits.
“But it was a very standard practice at the time and there was absolutely no connection between investment banking business at eBay and these shares,” Whitman said.
…
“Goldman has underwritten nearly $80 billion in California state bonds in the last four years. Whitman says there would be no conflict.”
Anyone who thinks Wall Street’s subprime lending sump pump has ceased to operate is missing it.
How the World Works
Monday, Apr 12, 2010 09:35 EDT
Goldman Sachs runs for governor of California
Meg Whitman once served on the vampire squid’s board of directors. Should that disqualify her for public office?
By Andrew Leonard
Meg Whitman, Republican candidate for California governor
Will California voters care that Meg Whitman, the former eBay CEO and Republican candidate for governor, boasts numerous ties to Goldman Sachs, the investment bank that everyone loves to hate? Lance Williams and Carla Marinucci trace the web of connections in a detailed new piece for the independent non-profit investigative reporting outfit California Watch.
I hope California voters have the good sense to avoid letting the great vampire squid get a tighter grip on our face than it already has.
Goldman’s notoriety will hopefully mean that GS or other deep Wall Street ties will be considered toxic for any politician. Not a minute too soon.
‘Goldman’s notoriety’
This is where I see some hope. It’s hard to turn on the radio or TV and not hear someone attacking WS. These guys have been given most of the blame for the ‘financial crisis’ and they deserve it IMO. That’s never happened before.
And another first is to hear the politicians trying to one-up each other pledging to undo the too-big-to-fail stuff. Finally, TBTF is a commonly known, much discussed matter.
Remember, hope was the last thing in Pandora’s Box.
“Meet the new boss, same as the old boss”.
Please excuse me if I don’t jump up and down over the recent developments. GS getting sued is pure politics. Meg Whitman ‘reinventing’ California is pure BS. Illegal amnesty, coming to a town near you, is more of the same. Yea, let’s embrace our new friends and we promise we’ll enforce the citizenship rules next time.
Honest.
Scotty, beam me up. There is no intelligent life form on this planet.
Let’s stop kvetching and keep getting the word out. The last thing California needs is a former Gollum director in the governor’s mansion. F- Gollum, F- Wall Street and F- all of their minions.
Believe me PBear, I’ve been banging that drum for awhile now.
In fact, almost as long as Combo has been bangin’ the “cash is king” drum.
Just having fun, Combo.
CALIFORNIA VOTERS SHOULD AVOID ANYONE ASSOCIATED WITH GOLDMAN SACHS LIKE THE PLAGUE!!!!! This firm and anyone associated with it should hence forth be black balled.
I personally would rather vote for Governor Moonbeam.
* POLITICS
* APRIL 19, 2010
California Race Gets A Wrinkle
By NICK WINGFIELD and STU WOO
The furor over Goldman Sachs Group Inc. could become a sticky issue in one of the highest-profile political races in the country: the campaign for California governor.
Both leading candidates for the governor’s office have ties of sorts to the Wall Street firm, and are already pointing fingers at their chief opponent about them.
Former eBay Inc. CEO Meg Whitman sat on Goldman’s board until resigning more than seven years ago, after a controversy over a Wall Street practice that saw her and other executives receiving shares in hot initial public offerings managed by Goldman. Ms. Whitman subsequently held stakes in Goldman and Goldman-managed investment funds, campaign financial records show.
“Over the course of this campaign, I think the voters are going to be fully aware of Meg Whitman’s financial dealings at Goldman Sachs and they’ll hold her accountable for them,” said Sterling Clifford, a spokesman for the campaign of Democrat Jerry Brown, currently California’s attorney general.
Ms. Whitman’s campaign, meanwhile, points out Mr. Brown has a Goldman connection of his own: his sister, Kathleen Brown, is a former California state treasurer and head of public finance for the west region of Goldman Sachs.
Goldman Sachs declined to comment for this article.
Last week, a Democratic group critical of Ms. Whitman, Level the Playing Field, issued a press release saying Ms. Whitman’s connections to Goldman Sachs place her “at the scene of the crime where the middle class got turned upside down.” The group, which says it isn’t connected to Mr. Brown, made the comments following a joint report by the San Francisco Chronicle and the Center for Investigative Reporting about the connections between Ms. Whitman’s and Goldman’s fortunes, before the Securities and Exchange Commission filed fraud charges against it last week.
…
‘We certainly did not know the future of the residential housing market in the first half of 2007 any more than we can predict the future of markets today,’ Goldman wrote.”
Wow….those pants are not just on fire, they are burnt to a crisp.
It’s amazing how the Really Smart Guys Investment Bank’s banksters could have been so blind to the future. Isn’t there some kind of law against falsely professing stupidity?
Like a fine wine, that slide show just gets better with age.
These clowns knew it was falling apart in late 2005 ,who are they trying to kid .
We certainly did not know the future of the residential housing market in the first half of 2007 any more than we can predict the future of markets today,’ Goldman wrote.”
OK prove it
Let’s see the CEO’s personal investments from 2006-2010.
My guess is many had a pile of money with Paulson’s Hedge Fund.
The last paragraph is funny, possible “isolated incident”. Sorry but you are dealing with professional ivy league fraudsters and thieves. They have been engineering and gaming their system for decades.
Goldman CDO case could be tip of iceberg.
Aaron Pressman and Joseph Giannone - Analysis
BOSTON/NEW YORK (Reuters) - The case against Goldman Sachs Group Inc (GS.N) over a 2007 mortgage derivatives deal it set up for a hedge fund manager could be just the start of Wall Street’s legal troubles stemming from the subprime meltdown.
The U.S. Securities and Exchange Commission charged Goldman (GS.N) with fraud for failing to disclose to buyers of a collateralized debt obligation known as ABACUS that hedge fund manager John Paulson helped select mortgage derivatives he was betting against for the deal. Goldman denied any wrongdoing.
The practice of creating synthetic CDOs was not uncommon in 2006 and 2007. At the tail end of the real estate bubble, some savvy investors began to look for more ways to profit from the coming calamity using derivatives.
Goldman shares plunged 13 percent on Friday and shares of other financial firms that created CDOs also fell. Shares of Deutsche Bank AG (DB.N) ended down 9 percent, Morgan Stanley (MS.N) 6 percent and Bank of America (BAC.N), which owns Merrill Lynch, and Citigroup (C.N) each declined 5 percent.
Merrill, Citigroup and Deutsche Bank were the top three underwriters of CDO transactions in 2006 and 2007, according to data from Thomson Reuters. But most of those deals included actual mortgage-backed securities, not related derivatives like the ABACUS deal.
Hedge fund managers like Paulson typically wanted to bet against so-called synthetic CDOs that used derivatives contracts in place of actual securities. Those were less common.
MORE LAWSUITS?
The SEC’s charges against Goldman are already stirring up investors who lost big on the CDOs, according to well-known plaintiffs lawyer Jake Zamansky.
“I’ve been contacted by Goldman customers to bring lawsuits to recover their losses,” Zamansky said. “It’s going to go way beyond ABACUS. Regulators and plaintiffs’ lawyers are going to be looking at other deals, to what kind of conflicts Goldman has.”
An investigation by the online site ProPublica into Chicago-based hedge fund Magnetar’s 2007 bets against CDO-related debt also turned up allegations of conflicts of interest against Deutsche Bank, Merrill and JPMorgan Chase.
Magnetar has denied any wrongdoing. Deutsche Bank declined to comment. Merrill and JPMorgan had no immediate comment.
The Magnetar deals have spawned at least one lawsuit. Dutch bank Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., or Rabobank for short, filed suit in June against Merrill Lynch over Magnetar’s involvement with a CDO called Norma.
“Merrill Lynch teamed up with one of its most prized hedge fund clients — an infamous short seller that had helped Merrill Lynch create four other CDOs — to create Norma as a tailor-made way to bet against the mortgage-backed securities market,” Rabobank said in its complaint filed on June 12 in the Supreme Court of New York.
Regulators at the SEC and around the country said they would be investigating other deals beyond ABACUS.
“We are looking very closely at these products and transactions,” Robert Khuzami, head of the SEC’s enforcement division, said. “We are moving across the entire spectrum in determining whether there was (fraud).
Meanwhile, Connecticut Attorney General Richard Blumenthal said in a statement his office had already begun a preliminary review of the Goldman case.
“A key question is whether this case was an isolated incident or part of a pattern of investment banks colluding with hedge funds to purposely tank securities they created and sold to unwitting investors,” Connecticut Attorney General Richard Blumenthal said in a statement.
I sense another good opportunity ahead to buy the dip.
If I was a betting man ,I would say that it was rather weird that these Firms went bIg into MBS’s in 2007 ,while many side bets against them were being placed .Again ,than Hank Paulson comes riding in on his white horse (ex-Goldmans VP ) with a strange retirement just to become Treasury Sec. who secures bail-outs ,especially AIG ,a Insurance Company that made insurance bets on these MBS’s.
Anybody think that this wasn’t a big scheme that was dreamed up by the Money Changers to rob a bunch of people, namely the taxpayers . The Government had no business bailing out Insurance Company bets and that wasn’t even discussed by Paulson when he asked for a Blank Check and immunity to buy toxic assets with his bogus” FIRE “call .
The information that is coming out makes the CEO’s chant of “We didn’t see it coming “,so tied in with the credit default swap fraud .
This is exactly what happened.
I think you are right. This GS thing could result in similar market correction caused by the “cooked books” fiasco by Anderson Accounting in the early part of the last decade.
I’m better prepared for such a correction than I was in 2002. I have a lot of cash and no debt this time.
Just prepare a few more ‘lost’ decades along the way. Gosh, this is so much more exciting than reality TV. Uh, hey, wait a minute……
I agree with the sentiments that the reverberations from the Goldman-backed fund that bet against American mortgages have not yet been fully felt throughout our economy and the world economies.
I believe investments that Goldman profiteered from also accelerated the demise of Lehman Brothers and some of those saved through government (taxpayer) bailouts. Even a commie can be right sometimes, and Marx was correct saying, “A capitalist will sell you the rope to hang yourself.”
You’ve got the quote wrong. Lenin said “The capitalists will sell them the rope we hang them with.”
True, although the rope (built by off-shore labor or illegals) will have been sold to us by Gollum Sachs, who will bet against the rope surviving. The rope breaks, Gollum wins the bet, then beats us while taking our wallet. Then, they claim to be doing “God’s work” and the dance continues…
Thanks for the correction Sammy. Sans my misquote I’m sticking with my opinion in the rest of my OP.
Actually I got the quote wrong too. Lenin said “The capitalists will sell US [Soviet Russia] the rope we use to hang them.”
And how did that turn out?
Well we did sell them the rope, but in the end they collapsed under the weight of a bloated and inefficient bureaucracy that ignored reality to impose its own ideological agenda, crippling military spending, deeply entrenched corruption and cronyism, and interventions in Third World conflicts that bled them dry.
Sound familiar?
You missed the tens of millions who died in the gulag and no 1st or 2nd Amendment…
The Second Amendment is the best and only guarantee we’ll never have gulags here.
Treasury pay czar releases 2010 pay guidelines
Treasury announces 2010 pay guidelines that will reduce cash salaries.
WASHINGTON (AP) — The Treasury Department said Friday that five big companies still living on federal bailout money will see cash salaries for some of their top earners limited in 2010 so that only five of those executives in this group will be making cash salaries above $500,000.
The Treasury Department said that would be a reduction from 65 officials in this group who sought cash compensation above $500,000 in 2009.
The five firms involved are General Motors and its financing arm GMAC, Chrysler and its financing arm Chrysler Financial and insurance giant American International Group.
These five companies are the only ones remaining under compensation restrictions supervised by Kenneth Feinberg, the Obama administration’s pay czar.
On Friday, Treasury released Feinberg’s rulings for 2010 covering officials at the five companies below the top 25 executives at each firm. Those officials received their compensation rulings from Feinberg last month.
Friday’s rulings cover executives from 26 to 100 at each of the companies.
Treasury officials said that in this group, Treasury had gotten requests to award cash salaries above $500,000 for only five executives, down from requests received from 65 executives in this group last year.
Treasury officials indicated that those five requests had been approved for 2010. In December, Feinberg told reporters that he had allowed about 12 officials in the group of 65 to receive cash compensation above the $500,000 cap.
While these executives will have cash salaries capped at $500,000 this year, their total compensation can be much higher. However, that compensation must be paid in the form of stock with the executives only allowed to cash in those stock payments over a period of three years.
Isn’t a failure by Gollum to disclose a pending investigation to their shareholders patently illegal? A ten percent one-day drop in Gollum’s share price looks pretty material to me, but I am no expert. Polly, help us out here if you are reading today.
April 17, 2010, 5:14 p.m. EDT
Goldman warned of SEC suit 9 months ago: report
Investment bank could be exposed to a raft of private lawsuits
By Alistair Barr, MarketWatch
SAN FRANCISCO (MarketWatch) — Goldman Sachs Group Inc. was warned nine months ago that Securities and Exchange Commission staff wanted to bring a civil case against it, but the investment bank didn’t specifically disclose this to investors in regulatory filings, Bloomberg News reported Saturday, citing unidentified people it credited with direct knowledge of the communications.
…
On Friday, the SEC charged Goldman with securities fraud, alleging that the bank didn’t tell investors in a collateralized debt obligation that hedge-fund firm Paulson & Co. had helped structure the deal and was betting against it. Goldman shares slumped 13% after the suit, the stock’s biggest one-day loss in more than a year, knocking more than $10 billion off the company’s market value. See Financial Stocks for more perspective on Friday’s share decline.
Companies typically disclose legal issues such as regulatory probes in their quarterly and annual financial reports. If companies get Wells notices from the SEC, they often specifically disclose this, too. However, Goldman wasn’t required to disclose the Wells notice if it believed it wasn’t a material event. The notices don’t always lead to charges or fines, a Wall Street Journal report noted.
…
Goldman wasn’t required to disclose the Wells notice if it believed it wasn’t a material event.
In defense of Goldman, this was a minor annoyance not a “material event.” Their influence over this administration and the politicians of both parties is so total it gives them impunity from irksome SEC investigators - especially if this is pro forma “let’s pretend we’re acting in the public interest” eyewash from that body.
“First question: Exactly how will the restrictive declaration covering condo owners’ use of their units be enforced? (Stays at the hotel are limited to no more than 29 days in a row within a 36-day period, and 120 days total per year.)”
In case you are wondering, the building is in a manufacturing zone, where hotels are permitted but housing is not. The Donald got the property cheap for that reason, then got the Department of Buildings to agree that he was building a condominium hotel. The restrictive declaration is attached to his building permit. He was caught advertising the building as housing.
What is The Donald good at. Breaking rules other lesser people must follow. Going broke, repeatedly, while staying rich. And promoting himself. Maybe people were right — in today’s America he should be President.
..never far from our thoughts:
http://www.usdebtclock.org/
The Audacity of Hope lives on at Gollum.
Goldman Sachs Preparing $5 Billion In Bonuses Amid Fraud Lawsuit
Posted on 18 April 2010 by | Author: James Johnson | Posted In: Business
Goldman Sachs may be the world’s largest investment bank, but recently they’ve also come under fire for acts of fraud which has brought the firm plenty of negative publicity. Now even with accusations and investigations flying the company is expected to pay out £3.5 billion ($5 Billion USD) to employees worldwide for just three months worth of work.
Those bonus payouts are equal to nearly $150,000 for each of the companies 32,500 employees. Of course that money isn’t being spread evenly among the organization, with various workers receiving million dollar and multi-million dollar bonuses.
Included in those bonuses is £600m for the groups 5,500 London-based staffers for work completed through just the first 3 months of the year, an amount equal to what those bankers were making when the market was still in full bull mode in 2007.
Goldman Sachs received news of a U.S. Securities and Exchange Commission lawsuit brought against them over $1 billion in fraudulent transactions this week, although they are denying the charges. Among those named in the lawsuit is Fabrice Tourre, a vice-president in the London office which is set to receive much of the companies bonuses. [Times UK]
Meet America’s Ambassador To Germany — Guess Which Fraud-Accused Bank He Used To Work For
Joe Weisenthal | Apr. 17, 2010, 7:57 PM | 1,587 | comment 10
As Germany apparently mulls legal action against Goldman Sachs (GS), you might want to know who our ambassador to the country is.
He’s Philip D. Murphy. You’ve already guessed who he used to work for.
Here’s his bio:
———–
Philip D. Murphy was confirmed by the U.S. Senate as U.S. Ambassador to the Federal Republic of Germany on August 7, 2009 and presented his credentials on September 3, 2009. He and his family arrived in Berlin on August 21, 2009.
Born in 1957, Ambassador Murphy is a native of the Boston, Massachusetts area. He graduated from Harvard University in 1979 with an A.B. in Economics and received an M.B.A. in 1983 from The Wharton School of the University of Pennsylvania. He and his wife, Tammy, have four children, Josh, Emma, Charlie and Sam.
From 1993-1997, Ambassador Murphy headed Goldman Sachs’ Frankfurt office, where he had oversight responsibility for activities in Germany, Switzerland and Austria, as well as in the then-emerging nations of Central Europe. From 1997-1999, Ambassador Murphy served as the President of Goldman Sachs (Asia). In all, he spent 23 years at Goldman Sachs and held a variety of top-level positions before becoming a Senior Director of the firm in 2003, a position he held until his retirement in 2006.
After leaving Goldman Sachs, Ambassador Murphy served from 2006-2009 as the National Finance Chair of the Democratic National Committee.
Read more: http://www.businessinsider.com/philip-d-murphy-goldman-sachs-2010-4#ixzz0lTjnwi4v
The real black swan guano bomb in the unraveling of the housing bubble may come in the form of a repudiation of the longstanding myth that Gollum and the other Wall Street Megabanks operate above the rule of law.
Bloomberg
Britain, Germany Weigh Action Against Goldman Sachs (Update1)
April 18, 2010, 8:06 AM EDT
More From Businessweek
* Brown Says He Wants Special Investigation of Goldman Sachs
* Yen Rises as U.S. Stocks Drop on Goldman Sachs Fraud Charge
(Adds academic’s comment in fifth paragraph. For more stories on the Goldman case, see {EXT2 }.)
By Robert Hutton, Tony Czuczka
April 18 (Bloomberg) — Britain joined Germany in calling for a probe of Goldman Sachs Group Inc. after the U.S. Securities and Exchange Commission said it was suing the company for fraud.
U.K. Prime Minister Gordon Brown said he wants the Financial Services Authority open an inquiry, declaring he was “shocked” at the “moral bankruptcy” indicated in the suit. The German financial regulator, Bafin, asked the SEC for details on the suit, a spokesman for Chancellor Angela Merkel said.
“This is probably one of the worst cases we’ve seen,” Brown said on the BBC’s Andrew Marr program in London today. “It looks as if people were misled about what happened. The banks are still an issue. They are a risk to the economy.”
The investigations widen the threat to the New York-based bank, which on April 16 denied wrongdoing. The U.S. regulator accused Goldman Sachs of fraud tied to collateralized debt obligations that contributed to the financial crisis.
“We will see politicians throughout the world piling on Goldman Sachs,” said Scott Moeller, a former investment banker now teaching at Cass Business School in London. “Now they have vulnerability. Everyone and anyone, especially politicians are going to be try to make hay with this one.”
Fiona Laffan, a spokeswoman for Goldman Sachs, and Heidi Ashley, a spokeswoman for the FSA, declined to comment.
…
David Paul
President of the Fiscal Strategies Group
Posted: April 18, 2010 12:49 PM
Goldman Sachs Fraud Case is a Distraction From the Real Issue of Substantial Financial Reform
Goldman Sachs is robustly protesting their innocence. The SEC accusations–that Goldman is guilt of fraud and duplicity–are “completely unfounded in law and in fact.”
But even if Goldman is proven right, that does not make the SEC wrong.
As the old saw goes,
When the law is against you, pound the facts.
When the facts are against you, pound the law.
When both the law and the facts are against you, pound the table.
It is table pounding time.
…
I have to chuckle anytime AlGore pisses off the enviro wackos. He in it for one reason…$$$ yet so many think he’s just trying to help mother earth. Typical a-hole hypocrite, he done a damn good job of making money on this scam though. Have to give him credit for that.
Gore takes cash for water campaign from chemical firm
Environmentalists condemn former vice-president for letting controversial company fund Life Earth.
UK Independent
Al Gore, the self-styled squeakiest-clean and deepest-green politician in American history, has some explaining to do this weekend. His environmental organisation has taken money to raise awareness about the need for clean water from a controversial chemicals company involved in the aftermath of one of the world’s worst pollution disasters.
Dow Chemical, the US firm which now owns the leaking pesticides factory responsible for thousands of deaths in Bhopal, India, is sponsoring Life Earth events in 150 cities today. The event aims to raise money for clean water programmes. Research by environmental organisations has found dangerous levels of highly toxic chemicals in rivers, lakes and other water supplies close to several other factories owned by Dow and its subsidiaries in countries including the United States, Brazil and South Africa.
He=He’s - twice
If the government imposes a value added tax, how will that affect inflation?
“We believe Americans are already taxed to the hilt and any additional taxes will have the effect of reducing tax revenues. We need to move the discussion in America away from taxes and towards inflation. It is impossible to fund our current level of government spending and pay back our national debt through taxation. It will all be paid through massive monetary inflation.”
…from the National Inflation Association.
Southern California office market continues to weaken
Vacancies are increasing and rents are falling. The trend is tough for landlords but great for tenants who are looking for new space or negotiating to renew their existing leases.
COMMERCIAL REAL ESTATE QUARTERLY April 18, 2010
Southern California’s long-suffering office market continued to weaken in the first quarter as demand slid and rents fell, a pattern expected to carry on through the months ahead.
The trend is dreary for landlords, who have seen their incomes fall for more than a year, but a boost for office renters who are looking for new space or negotiating to renew their existing leases as they expire.
“Rents are as low as they have been in a number of years,” said Joe Vargas, executive vice president of real estate brokerage Cushman & Wakefield.
With its long lease agreements — five years is typical — commercial real estate is a lagging indicator of the economy. So even though the nation’s economic outlook is showing some signs of improvement, the office market has yet to digest the downturn.
Overall office vacancy in Los Angeles County reached 17.6% in the first quarter, up from 14.3% a year earlier, according to Cushman & Wakefield. The average rent landlords asked for dropped to $2.60 a square foot per month from $2.82 in last year’s first quarter.
“Financial reform”, those two words are being bandied about all over the cesspool lately. With GS in the spot light for the moment, the little chest pounding 535 will be all over it.
Not one damn thing will come of it, watch and see. Even if there are ‘reforms’ imposed, the loop holes will be the size you could drive a tractor trailer through. It always has been and always will be about $$$/payola.
The machine runs on green backs, and that is a iron clad fact. The show must go on.
Clinton: I Was Wrong to Listen to Wrong Advice Against Regulating Derivatives* ABC NEWS
In my EXCLUSIVE “This Week” interview, I asked former President Bill Clinton if he thought he got bad advice on regulating complex financial instruments known as derivatives from his former Treasury Secretaries, Robert Rubin and Larry Summers. He acknowledged that he was wrong to take the advice of those advising him against regulating derivatives.
“On derivatives, yeah I think they were wrong and I think I was wrong to take [their advice] because the argument on derivatives was that these things are expensive and sophisticated and only a handful of investors will buy them and they don’t need any extra protection, and any extra transparency. The money they’re putting up guarantees them transparency,” Clinton told me.
“And the flaw in that argument,” Clinton added, “was that first of all sometimes people with a lot of money make stupid decisions and make it without transparency.”
The former President also said he was also wrong about understanding the consequences if the derivatives market tanked. “The most important flaw was even if less than 1 percent of the total investment community is involved in derivative exchanges, so much money was involved that if they went bad, they could affect a 100 percent of the investments, and indeed a 100 percent of the citizens in countries, not investors, and I was wrong about that.”
Clinton also blamed the Bush administration for scaling back on policing the financial industry. “I think what happened was the SEC and the whole regulatory apparatus after I left office was just let go.”
Clinton “I was misled”
“Honest”
“Most people prefer to believe their leaders are just and fair even in the face of evidence to the contrary, because most people don’t want to admit they don’t have the courage to do anything about it. Most propaganda is not designed to fool the critical thinker but only to give moral cowards an excuse not to think at all.”
-Michael Rivero
Wall Street Journal
Goldman fights back against SEC - 1 hour ago
Goldman said all three firms that participated in the deal the SEC is investigating were sophisticated players and had a hand in selecting the mortgages …
Can Gollum force the WSJ to rescind articles?
Doo-dee-doo-dah doo-dee-doo-dah doo-dee-doo-dah doo-dee-doo-dah.
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Who would place any trust in a ‘morally bankrupt’ bank?
* BUSINESS
* APRIL 19, 2010
Bank Wages Battle to Save Reputation
Goldman Denies Fraud Charges and Reaches Out to Clients; Hot Seat for Blankfein, Firm Assailed as ‘Morally Bankrupt’
By SUSANNE CRAIG
Goldman Sachs Group Inc. is mobilizing for a counterattack against the U.S. government’s fraud accusations amid mounting concerns the firm could lose business to Wall Street rivals.
On Sunday, the New York company again denied the Securities and Exchange Commission’s allegations that it duped clients by selling them a financial instrument secretly designed by hedge-fund firm Paulson & Co., which then made a $1 billion profit by betting on the deal’s downfall.
Goldman said all three firms that participated in the deal the SEC is probing were sophisticated investors and had a hand in selecting the mortgages they subsequently bet on. Goldman added that it wasn’t required to disclose who provided input into the mortgage-selection process or what views their clients were taking on the portfolio.
“As normal business practice, Goldman does not disclose the identities of a buyer to a seller and vice versa, and the suit is unfounded in law and fact,” a Goldman spokesman said.
On Sunday, U.K. Prime Minister Gordon Brown said he would instruct the Financial Services Authority to conduct an immediate special investigation into how Goldman’s alleged actions affected British banks. “There is a moral bankruptcy reflected in what I am reading about and hearing about,” Mr. Brown told the BBC’s Andrew Marr show.
There were few signs Sunday the crisis is forcing executives to launch a large-scale damage-control campaign with customers and shareholders, though Goldman on Friday emailed its staff and its sprawling “alumni network,” which includes many hedge-fund clients, and was in contact with clients all weekend, trying to dispel any concerns.
The mess is especially awkward for Goldman’s powerful chairman and chief executive, Lloyd C. Blankfein, and close friend Gary D. Cohn, president and chief operating officer at the firm. Both men pushed hard as Goldman evolved over roughly the past decade from an elite private partnership with a reputation as a sober adviser on corporate mergers to a take-no-prisoners public company increasingly focused on using its own capital to drive its business for clients and its own accounts.
Mr. Cohn turned the once-sleepy mortgage department into a major trading operation, putting the firm’s capital to work for clients, buying assets and reselling them later, often for a tidy profit. By last year, investment banking generated just 11% of Goldman’s net revenue of $45.17 billion, down from 33% in 1999, the year the company went public. In 2009, Goldman got nearly 90% of its $19.83 billion in pretax earnings from trading and principal investments.
According to Goldman’s latest proxy statement, Messrs. Blankfein and Cohn each had total compensation of more than $50 million in 2007, the year the $2 billion financial instrument called Abacus 2007-AC1 was created. Goldman was paid $15 million to arrange the deal but suffered a $90 million loss after taking a bullish position on it.
…
I suppose screwing over your clients is part of the normal conduct of business at Megabank, Inc?
* BUSINESS
* APRIL 18, 2010, 10:35 A.M. ET
Wall Street Reacts to Goldman Sachs Case
By AARON LUCCHETTI And RANDALL SMITH
Friday, news of U.S. regulators’ fraud lawsuit against Goldman Sachs Group Inc. dominated trading floors and financial channels.
Saturday, it moved to little-league sidelines, birthday parties and other weekend venues of adult conversation.
“It’s the flavor of the day,” said Gustavo Dolfino, senior managing director at executive recruiting firm Accretive Solutions, on his way to a dinner meeting in London. The Goldman case, he said, was the No. 1 topic at nearly every meeting he had there this weekend.
The Securities and Exchange Commission on Friday filed civil charges against Goldman, claiming it deceived clients by selling them mortgage securities designed by a hedge-fund firm run by John Paulson, without revealing his role in structuring the deals. Mr. Paulson profited from betting on the housing market’s collapse. Goldman has denied the charges. Mr. Paulson and his company, Paulson & Co., aren’t charged.
Some welcomed the government’s move or thought it had legs.
“We’re starting to peel back a layer of the onion that we hadn’t gotten to yet,” said Christopher Whalen, managing director of Institutional Risk Analytics, a research and risk-management firm. After reviewing the case, Mr. Whalen said it appears the “SEC has been very cautious.”
Catherine Banat, a former Goldman employee in treasury and securities services who now specializes in compliance issues, said she has felt “shock and disappointment” at the charges. “We all hold Goldman to a higher standard,” she explained.
On the other hand, Ms. Banat said, the case “reassures investors that the SEC is investigating and trying to be more vigilant. If it has substance, it would be a big win for the SEC.”
The head of a boutique advisory firm, Peter J. Solomon, said “this allegation, even if unproven, strikes at the heart of the securities industry because participants have to believe they are dealing with counterparties in good faith.”
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I am elated the Goldman scandal has escalated into an international incident, as it seems less likely the German and UK governments are captured the same was the U.S. government is. Gollum’s presumption that it operates above the rule of law looks like it is in for a severe test.
Got popcorn? I am about to go make some right now.
Gordon Brown and Angela Merkel attack Goldman Sachs
Bank under pressure amid claims it misled clients as PM calls for investigation and threatens bonus ban
* Andrew Clark in New York
* guardian dot co dot uk, Sunday 18 April 2010 22.01 BST
* Article history
A crisis gripping Goldman Sachs deepened today as Britain and Germany moved towards joining the US in pursuing a fraud investigation against the Wall Street bank for allegedly fiddling clients out of $1bn ($650m) through a misleading mortgage investment deal.
Gordon Brown ordered a special investigation into Goldman, accusing the bank of “moral bankruptcy”. He threatened to block multimillion-pound bonus payouts if the firm is found guilty of wrongdoing.
In Berlin, Angela Merkel’s government said it had sought information from the US Securities and Exchange Commission with a view to evaluating “legal steps” against Goldman.
Goldman’s shares dived by 13% on Friday when the SEC charged the firm with collaborating with a hedge fund, Paulson & Co, to sell a deliberately skewed package of doomed mortgages in 2007, leaving clients including Royal Bank of Scotland and a German bank, IKB, nursing losses of more than $1bn. Paulson & Co made a fortune out of the deal by taking a short position to bet on the package’s demise.
A London-based Goldman Sachs director, Fabrice Tourre, who is accused of masterminding the fraud, is still working as usual, although efforts by Sunday newspapers to track the Frenchman down to his flat near Sadler’s Wells theatre in north London were unsuccessful. A Goldman spokeswoman said: “He’s still an employee. He hasn’t been suspended.”
The case against Goldman has sent a ripple through the financial services industry, with analysts predicting it could be the first of many against similarly structured mortgage instruments known as collateralised debt obligations. The SEC’s action took place amid wrangling in Congress over an overhaul of Wall Street regulation, where Republicans object to the scope of moves proposed by the administration.
Goldman could face fresh opprobrium on Tuesday, when it is due to publish its financial results for the first quarter of the year and is forecast to reveal revenue of more than $10bn – of which nearly $5bn could be earmarked for employee pay.
Brown told the BBC’s Andrew Marr show that the case against Goldman fuelled his argument for a global tax on financial transactions: “I am shocked at this moral bankruptcy. This is probably one of the worst cases that we have seen.
“It makes me absolutely determined we are going to have a new global constitution for the banking system which I am pressing for, a global financial levy for the banks that all countries that are major financial centres pay, and we quash remuneration packages such as Goldman Sachs’.”
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This popcorn is really delicious. You ought to all enjoy some! The party is just getting started.
Is it unfair to suggest that Gollum may have caused the Icelandic volcanic eruption to occur? The cockroach colony that has infested Wall Street must be running scared by now.
Goldman’s woes put markets on red alert
By Sam Fleming
Last updated at 10:18 PM on 18th April 2010
Markets are braced for a week of turbulence as fraud allegations at Goldman Sachs threaten to spill over into the wider banking sector.
The increasing prospects of a hung parliament in Britain are also expected to hit nerves, while airline stocks are likely to come under pressure thanks to the volcano-induced travel disruption.
More than £7.7bn was wiped off Goldman Sachs shares after America’s Securities and Exchange Commission said late on Friday that it was suing the bank over its toxic debt dealings.
Experts warned yesterday that the £650m civil fraud probe may be the tip of the iceberg, as regulators dig into the shadowy dealings in the run-up to the sub-prime implosion. This could hit banking shares in the coming days.
Read more: http://www.dailymail.co.uk/money/article-1267072/Goldmans-woes-markets-red-alert.html#ixzz0lUo15KrY
What are the chances that Gollum and Greece both go up in smoke at the same time? Is anyone betting on that long-shot scenario?
The silver lining in all of this: Demand for U.S. Treasurys is up and interest rates are held low without the need for any more quantitative sleaze, thanks to the flight-to-quality move.
* APRIL 16, 2010, 3:45 P.M. ET
Treasurys Up; Goldman Charges, Greece Worries Spark Safety Bid
By Deborah Lynn Blumberg
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)–Treasurys rallied Friday as investors sought safety in low-risk government debt after word that the Securities and Exchange Commission charged Goldman Sachs Group Inc. with fraud, and amid ongoing worries about debt-laden Greece.
The duo sparked investors to buy Treasurys as stocks deteriorated, pushing the two-year yield further under 1% and the 10-year yield further away from the key 4% level, which it breached last week for the first time since June. Investors typically seek safety in Treasurys when there is troubling news on the economy or on financial markets.
Treasurys posted weekly gains, with the five and seven-year notes outperforming. The price of the five-year was up by 14/32, to yield 2.471%, and the seven-year was up by 18/32 to 3.192%. The two-year note was up by 4/32 to yield 0.959%, the 10-year was up 20/32 to 3.768% and the 30-year was up by 28/32 to 4.671%.
Stocks fell, with the Dow Jones Industrial Average down by 1% and the S&P down by 1.48%. Goldman’s stock was down by nearly 13%.
Swap spreads pushed wider, with the two-year swap spread at 15.50 basis points, from 15 basis points Thursday and the 10-year spread at -3 from -3.25 basis points. Swap rates were at 1.1114% and 3.740%.
The SEC said Friday morning that it charged Goldman, and one of its vice presidents, for defrauding investors by misstating and omitting crucial facts about a financial product tied to subprime mortgages.
The SEC said that Goldman structured and marketed a synthetic collateralized debt obligation, or CDO, that was based on the performance of subprime residential mortgage backed securities, and that it failed to reveal to investors important information about the CDO.
The news helped Treasurys, and could continue to do so as it “could weigh on financials going forward because it’s not clear if other suits of this nature could be coming down the pike,” said Ward McCarthy, managing director of the fixed-income division at Jefferies & Co. in New York.
The Goldman complaint is part of the SEC’s investigation into investment banks and others that securitized complex financial products connected to the U.S. housing markets as it started to show signs of stress, said Kenneth Lench, Chief of the SEC’s Structured and New Products Unit.
Gains built on already fragile investor sentiment as worries continued Friday about debt-laden Greece. The country has yet to ask for support for its fiscal problems, despite a EUR30 billion aid package that has been crafted for it. Market participants are worried the package will not be enough to solve the country’s long-term debt problems and are fretting over whether other European nations will suffer the same fate.
In the latest development, Greece did ask to start formal discussions on an aid package Thursday. Friday, euro-zone finance ministers are meeting, and a German proposal to improve the euro zone’s stability pact is expected to be discussed at that gathering.
The concern is, “even if they can deal with Greece, who’s next?” said Carl Lantz, an interest rate strategist at Credit Suisse in New York. Sovereign debt worries are “going to be an issue that ebbs and flows,” he said.
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I like the idea of expanding the scope of fraud accusations beyond Gollum. In fact, I would personally prefer a full-fledged witch hunt followed by heretic trials for anyone on Wall Street who might have potentially been involved in fraudulent activity to the current attempt to gloss over misdeeds.
The Baseline Scenario
What happened to the global economy and what we can do about it
John Paulson Needs A Good Lawyer
By Simon Johnson, co-author of 13 Bankers: The Wall Street Takeover and The Next Financial Meltdown
Of all the reactions so far to various dimensions of Goldman fraudulent securities “Fab” scandal, one stands out. On Bill Maher’s show, Friday night, I argued that John Paulson – the investor who helped design the CDO at the heart of the affair – should face serious legal consequences.
On the show, David Remnick of the New Yorker pointed out that Paulson has not been indicted. And since then numerous people have argued that Paulson did nothing wrong – rather that the fault purely lies with Goldman for not disclosing fully to investors who had designed the CDO.
But this is to mistake the nature of the crime here – and also to misread the legal strategy of the SEC.
The obvious targets are Goldman’s top executives, whom we know were deeply engaged with the housing side of their business in early 2007 – because it was an important part of their book and they were well aware that the market was in general going bad.
Either Goldman’s executives were well aware of the “Fab” and its implications – in which case they face serious potential criminal and civil penalties – or they did not have effective control over transactions that posed significant operational and financial risk to their organization.
They will undoubtedly pursue the “we did not know” defense – which of course debunks entirely the position taken by Gerry Corrigan (of Goldman and formerly head of the NY Fed) when I pressed him before the Senate Banking Committee in February. Corrigan claimed that Goldman’s risk management system is the best in the business and simply superb; the former may be true, but the latter claim will be blown up by Lloyd Blankfein’s own lawyers – they must, in order to keep him out of jail. (Aside to Mr. Blankfein’s lawyers: the people you are up against have already read 13 Bankers and may put it to good use; you might want to get a copy.)
And don’t be misled by the purely civil nature of the charges so far – and the fact that the announced target is only one transaction. This is a good strategy to uncover more information – for broader charges on related dimensions – and it allows congressional enquiries to pile on more freely.
As for John Paulson, the issue will of course be the “paper trail” – including e-mails and phone conversations. A great deal of pressure will be brought to bear on the people who have worked with him, many of whom now faced permanently broken careers in any case.
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If the scope of fraudulent activities on Wall Street were truly limited to Gollum, why did the other Wall Street Megabanks’ share prices swoon on Friday? I am thinking there must be a bevy of cockroaches quaking in their boots this weekend. There has never been a better time to crush Megabank, Inc.
Will Goldman’s Scandal Prompt Cultural Changes on Wall Street?
Terry Corbell, The Biz Coach
April 17, 2010
A government agency’s fraud allegations against Goldman Sachs over that controversial 2007 mortgage derivatives deal underscores the fear of many Americans that the market is rigged against them because Wall Street is a haven for questionable behavior.
The Security and Exchange Commission’s legal filing over Goldman Sachs’ handling of the collateralized debt obligation (CDO) in subprime mortgages shows the Wall Street sheriff is back and is flexing some muscles. A Goldman Sachs vice president, Fabrice Tourre, who designed the scheme, has also been charged by the SEC.
Not to prejudge Goldman Sachs, but the appearance of fraud is damaging.
Failure to disclose that a hedge fund manager, John Paulson, helped select the underlying securities and then bet against them to make more than $1 billion is bad enough.
It’s looking even worse now that Bloomberg has reported Goldman Sachs has known it was under investigation for nine months but failed to disclose the investigation in their financial reports to investors.
Such omissions are sure to trigger lawsuits from investors who have lost money.
The resulting headlines are reminiscent of the financial-greed scandals involving the 1980’s shadowy behavior of convicts Mike Milken and Ivan Boesky, as well as the principals at Enron and Worldcom.
Several questions have arisen:
1. Is the SEC action really the tip of the iceberg of upcoming legal challenges?
2. Will it give impetus to Sen. Maria Cantwell’s campaign to ban the risky derivative trading?
3. Will it lead to a stock market correction?
4. Will it end the entitlement attitudes seemingly held by many investment bankers?
5. Will it improve the culture in the financial sector?
The answer to the first three questions is a probable yes. This is an ideal situation for New York’s litigious community, and lawyers say they have clients who lost money in related deals. Sen. Cantwell has been on the right track demanding common sense and transparency. The market declined immediately after the SEC charges.
So did Goldman shares – 13 percent – as well as the shares of other financial companies trading in CDOs, including Deutsche Bank AG, Morgan Stanley, Bank of America (the parent of Merrill Lynch) and Citigroup.
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Haven’t heard much out of Demon this weekend. Is JP Morgan next in line after Gollum’s trip to the woodshed is over?
Bloomberg
White House Urges Blankfein, Dimon to Stop Bill Fight (Update2)
April 14, 2010, 2:10 PM EDT
(Adds quotes from today’s meeting in sixth paragraph.)
By Julianna Goldman and Alison Vekshin
April 14 (Bloomberg) — Top White House officials last week pressed the chief executive officers of Goldman Sachs Group Inc., Bank of America Corp. and JPMorgan Chase & Co. to stop lobbying against a financial-regulatory bill advancing in Congress, according to people who attended the meeting.
President Barack Obama’s senior adviser David Axelrod and National Economic Council Director Lawrence Summers met with Goldman Sachs CEO Lloyd Blankfein, JPMorgan’s Jamie Dimon, Bank of America’s Brian Moynihan and about 12 other executives at an April 6 event in Washington hosted by the Financial Services Forum, said the people, who declined to be identified because the meeting was private.
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Say whatever you want about the likelihood that meaningful reform will follow in the wake of the SEC action. I would like to personally thank whichever SEC official had the balls to go after Gollum. So far as I am concerned, and final outcomes notwithstanding, this was an act of courage which deserves a Medal of Freedom or some such.
The Buzz
Three cheers for the SEC!
By Paul R. La Monica, editor at large April 16, 2010: 2:54 PM ET
NEW YORK (CNNMoney dot com) — The SEC showed some major teeth Friday. It’s about time. And hopefully this won’t be the last time the agency bares its fangs.
The Securities and Exchange Commission is going after the biggest of the big on Wall Street. Goldman Sachs.
The SEC alleged that Goldman Sachs (GS, Fortune 500) failed to disclose to investors in a pool of subprime mortgages that Paulson & Co., one of the most influential hedge funds in the world, was making bets against the security.
If the SEC’s claim is true, this is a major transgression. Even if it turns out that the wrongdoing was the work of one rogue employee — the SEC specifically named Goldman Vice President Fabrice Tourre — it is clear that Goldman has some explaining to do and must pay.
Since the credit markets imploded a few years ago, many financial experts have argued that Wall Street firms were coddled by Washington and were being rewarded with bailouts instead of being punished for their role in the subprime mortgage crisis.
Even former Washington Mutual CEO Kerry Killinger, who appeared before Congress earlier this week to explain the collapse of WaMu, the largest bank failure in history, claimed that there was a clubby culture on Wall Street and Washington. His Seattle-based savings and loan apparently was not part of the financial sector’s too-big-to-fail cool kids clique.
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Stay the course, America. We’ve got ‘em on the run now. Hopefully Dodd will get swept down the tubes along with Godzilla. Let’s keep rekindling the collective memory about who caused this disaster so historians don’t forget who is responsible.
Comment: MSM econoganda notwithstanding, Countryslide was a residential lender, not commercial.
* The Wall Street Journal
* COMMERCIAL REAL ESTATE
* APRIL 19, 2010
Countrywide Probe Shows Signs of Life
By JOHN R. EMSHWILLER
LOS ANGELES—Federal criminal investigators looking into the collapse of Countrywide Financial Corp. have been calling witnesses before a grand jury, say people familiar with the matter. Such a step suggests that the investigation of the one-time mortgage giant, which has been continuing for about two years, could be moving closer to a resolution.
[cwide] Agence France-Presse/Getty Images
Countrywide founder Angelo Mozilo faces SEC civil charges.
The grand jury began hearing witnesses on the Countrywide case late last year, say people familiar with the matter. Word of this development hasn’t yet surfaced publicly, since grand-jury proceedings are routinely shrouded in secrecy. It isn’t known which individuals the Countrywide grand jury here is looking at or what potential crimes are being investigated.
Last June, the SEC filed a civil suit in Los Angeles federal court against three former top Countrywide executives, including the company’s longtime chief executive, Angelo Mozilo.
The pending SEC suit asserts that the three men defrauded investors by falsely claiming that Countrywide underwrote low-risk mortgages at a time when the company was getting into increasingly risky parts of the lending business, including so-called “subprime” mortgages made to less creditworthy borrowers.
The SEC additionally accuses Mr. Mozilo of insider trading of Countrywide stock. The suit is seeking monetary and other penalties against the defendants, including repayment from Mr. Mozilo of $139 million in alleged stock-trading profits. A trial in the case is scheduled for October.
All three defendants vehemently deny any wrongdoing and say they plan to fight the SEC charges. Attorneys for the three either didn’t return phone calls or declined to comment on the pending criminal probe of Countrywide.
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Let the SEC’s Wall Street inquisition begin!
* LAW
* APRIL 19, 2010
SEC Probes Other Soured Deals
By CARRICK MOLLENKAMP, SERENA NG, GREGORY ZUCKERMAN and SCOTT PATTERSON
The Securities and Exchange Commission, after having hit Goldman Sachs Group Inc. with a civil fraud charge, is investigating whether other mortgage deals arranged by some of Wall Street’s biggest firms may have crossed the line into misleading investors.
The SEC’s case against Goldman Friday has exposed an open secret on Wall Street: As the housing market began to wobble a few years back, some big financial firms designed products aimed at allowing key clients, such as hedge funds, to bet on a sharp housing downturn.
Among the firms that created mortgage deals that soon went sour were Deutsche Bank AG, UBS AG and Merrill Lynch & Co., now owned by Bank of America Corp. It isn’t known what deals the SEC is investigating.
Further cases could hinge on whether the SEC sees what it considers misrepresentation, and not just questions such as whether a deal favored one client over another. A critical part of the SEC’s case against Goldman is that the firm allegedly misled investors by not notifying them of the role of hedge-fund investor John Paulson—who was dubious of the housing boom—in selecting what went into the mortgage deal Goldman sold. Goldman said it fully disclosed the investments and didn’t need to reveal the Paulson connection.
The deals generated about $1 billion in total fees for the firms, traders say. Investors that bought them often lost heavily. Now private lawsuits, along with the SEC’s case against Goldman, are shedding light on how some of these mortgage deals were put together.
Soured mortgage investments helped trigger the near-collapse of American International Group Inc., which had insured at least $1 billion of bond deals issued by Wall Street firms in 2005 that reflected hedge funds’ input, according to documents reviewed by The Wall Street Journal and people familiar with the matter. Taxpayers had to foot the bill for AIG’s rescue.
Ultimately, the problems landed at American doorsteps. Losers in the mess included, for instance, a county in Washington state.
On Friday, SEC enforcement director Robert Khuzami said the agency will look closely at mortgage deals similar to the Goldman one that is the focus of the SEC action.
At the center of the scrutiny are instruments called collateralized debt obligations. These are typically instruments backed by bundles of mortgage bonds and other assets, including complex derivatives based on the bonds’ performance.
In the late stages of the housing boom, some hedge funds that doubted its staying power worked with banks to create CDOs that would provide them with a way to bet against the mortgage market. Often the hedge funds bought insurance-like contracts, called credit-default swaps, that would rise in value if the bonds, and thus the CDOs, weakened.
In the Goldman structure at the center of the SEC complaint, credit-rating firms downgraded 99% of the underlying mortgage securities by January 2008. Some CDOs created by Deutsche Bank, Merrill and UBS also suffered downgrades to most of their assets by early 2008, according to analyst reports.
Deutsche Bank’s traders and bankers were on alert for problems in the housing industry as early as September 2005, well before the market cracked, when a top-ranked mortgage-securities analyst at the bank issued a report warning of pending losses in subprime loans. That report, issued after the analyst visited firms that service mortgages in California, said it would be “sensible” to buy credit protection against mortgage-bond defaults.
From 2005 through late 2006, the U.S. securities arm of Deutsche Bank created several CDOs that sold credit protection on mortgage bonds that the firm’s hedge-fund clients bet against, according to people familiar with the matter. Deutsche Bank facilitated the deals, earning fees, by selling credit-default swaps to the hedge funds and clients. To offset its risk, the bank itself bought swaps that would pay off if mortgages backing the CDOs weakened.
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