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Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsIn case anyone forgot Goldman Sachs sold worthless mortgages as AAA investments
David Fiderer - Posted: 06/18/2010 5:12 am EDT
"Although Goldman Sachs held various positions in residential mortgage-related products in 2007, our short positions were not a 'bet against our clients.'"
That claim, from Goldman's letter to its shareholders, is easily refuted. The S.E.C. has brought fraud charges on one of Goldman deals known as synthetic subprime mezzanine collateralized debt obligations, or CDOs. While most of these deals remain shrouded in secrecy, one of them, Anderson Mezzanine Funding 2007, Ltd. lays out its blueprint in sufficient detail so that we can pinpoint how and why this transaction's failure was never in doubt.
When the deal closed on March 20, 2007, there was virtual certainty that investors would get wiped out and that Goldman would receive a windfall. And that's exactly how things turned out. By December 2009, Anderson Mezzanine's nominal value had shrunk by more than two-thirds, from $307 million to $94 million, though remaining assets' fair market value was far less. The investment portfolio, which held only two performing assets, had an average credit rating of CC.
~Snip~
Playing the Ratings Game
But these pitfalls weren't exactly conspicuous. A potential investor would need to spend a lot of time and effort deciphering the offering circular and related documents, such as the Bond Indenture, the Liquidation Agency Agreement, or the Forward Purchase Agreement, in order to figure out what was really going on. He would also need to conduct a financial analysis of the 61 different mortgage securities being insured via credit default swaps.
Or he might take some shortcuts, and simply rely on the deal's stellar ratings. The most senior tranches of the CDO, comprising 70% of the capital structure, were rated AAA. After all, the rating agencies had reviewed and rated all of the 61 insured mortgage bonds, so their institutional memory and expertise was embedded inside the ratings awarded the Anderson deal...
Read more:
http://www.huffingtonpost.com/david-fiderer/goldmans-blueprint-for-du_b_542176.html
6:36 PM EDT - April 14, 2011
April 14 (Bloomberg) -- Goldman Sachs Group Inc. misled clients and Congress about the firms bets on securities tied to the housing market, the chairman of the U.S. Senate panel that investigated the causes of the financial crisis said.
Senator Carl Levin, releasing the findings of a two-year inquiry yesterday, said he wants the Justice Department and the Securities and Exchange Commission to examine whether Goldman Sachs violated the law by misleading clients who bought the complex securities known as collateralized debt obligations without knowing the firm would benefit if they fell in value.
The Michigan Democrat also said federal prosecutors should review whether to bring perjury charges against Goldman Sachs Chief Executive Officer Lloyd Blankfein and other current and former employees who testified in Congress last year. Levin said they denied under oath that Goldman Sachs took a financial position against the mortgage market solely for its own profit, statements the senator said were untrue.
In my judgment, Goldman clearly misled their clients and they misled the Congress, Levin said at a press briefing yesterday where he and Senator Tom Coburn, an Oklahoma Republican, discussed the 640-page report from the Permanent Subcommittee on Investigations.
Much of the blame for the 2008 market collapse belongs to banks that earned billions of dollars in profits creating and selling financial products that imploded along with the housing market, according to the report. The Levin-Coburn panel levied its harshest criticism at investment banks, in particular accusing Goldman Sachs and Deutsche Bank AG of peddling collateralized debt obligations backed by risky loans that the banks own traders believed were likely to lose value.
Read more:
http://www.bloomberg.com/news/articles/2011-04-14/goldman-sachs-misled-congress-after-duping-clients-over-cdos-levin-says
House of Roberts
(5,169 posts)they then coerced AIG to sell them policies to protect GS from those bundled mortgages failing, knowing they were going to fail.
think
(11,641 posts)Bernie Sanders and Elizabeth Warren are two that come to mind....
FSogol
(45,485 posts)foreclosure.
His "Its time to put the national interest before the interests of Wall Street." speech:
Structural reforms arent enough. We must bring fundamental change to the culture of Wall Street, beginning with real accountability. To this day, the Justice Department and financial regulators have done virtually nothing to bring criminal charges or hold leadership accountable. Legal deterrents are critical for improving the culture of Wall Street and showing that fraudulent behavior will be punished. We can solve this problem in a few ways. The first is to replace the leadership at banks that are repeat offenders. CEOs should not remain in charge of institutions that they have failed to manage properly. Second, we must appoint people to positions attorney general and SEC chair for starters who will prosecute those who commit or permit crimes. Thus far, settlements have been nothing more than CEOs using shareholder money to buy their way out of jail.
Third, we must end the days of neither admit nor deny, and force law-breaking banks to publicly admit it. We have allowed big banks to avoid admitting guilt due to claims that it will cause them too much harm its time to end that game and let banks face the legal consequences and harm to their reputation. Fourth, we must make banks bear the full weight of financial penalties. As unbelievable as it sounds, the worst actors on Wall Street have written off large portions of these penalties as if they were donations to charity. We should not allow banks to deduct fines from their taxes.Finally, we need a three strikes and youre out or a points-accrual policy like the one drivers face to revoke a banks right to operate if they repeatedly break the law. This would increase transparency, reduce recidivism and put banks out of business if they repeatedly disregard the law. Unfortunately, while many good people who work in finance and in Congress understand our vulnerability to another crash, further reform faces an uphill climb against powerful special interests. Today, most Republicans in Congress are hell-bent on disassembling the Dodd-Frank Act. And too many Democrats have been complicit in the backslide toward less regulation. All while last years Wall Street bonuses were double the total earnings of all full-time workers making minimum wage.
Its time to put the national interest before the interests of Wall Street.
The future of our economy and Americas middle class depends on it.
think
(11,641 posts)This sounds exactly like what this country needs to be protected against unscrupulous activity on Wallstreet.
Enthusiast
(50,983 posts)appalachiablue
(41,132 posts)Whiskeytide
(4,461 posts)... The Big Short: Inside the Doomsday Machine by Michael Lewis. Astounding what the industry did and how they pulled it off.
think
(11,641 posts)Whiskeytide
(4,461 posts)... be forewarned. It will really piss you off.
think
(11,641 posts)thanks for the warning all the same
el_bryanto
(11,804 posts)Michael Lewis is an amazing writer - that said, he has a pretty tight focus. I'd also recommend "All the Devils Are Here: The Hidden History of the Financial Crisis" by Bethany McLean and Joe Nocera, which gives a very thorough review of all of the moving pieces that created the problem, and "Chasing Goldman Sachs: How the Masters of the Universe Melted Wall Street Down...And Why They'll Take Us to the Brink Again" by Suzanne McGee, which gives a good overview as well, but drills down on the mentality of Wall Street and why this is a big deal.
If you want to go the other way and read a really bad book about the crisis, "A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers" by Lawrence G. McDonald and Patrick Robinson, which is sort of about how Lehman Brothers made a lot of bad calls, but really about how great Lawrence G McDonald and his cronies at Lehman Brothers were.
Bryant
Whiskeytide
(4,461 posts)... on the central characters/players who would talk to him - mostly the guys who saw the problem coming and started betting against the CDOs before the meltdown - and ended up making a lot of money. But it was an interesting perspective.
I will get the two you suggested. Thanks.
1StrongBlackMan
(31,849 posts)McGee's piece. I suspect the short version of the piece (regarding the mentality of wall street) can be boiled down to: FEES & BONUSES!
I will state, again, my decidedly unpopular cure for this conduct ... Jailing the bad actors will not stop the conduct (as with ALL economic crimes, there will always be someone willing to risk prison for the big pay day), nor will the jailings reach high enough into the bad businesses to affect the needed cultural change within the businesses ... The only fix that I see would be to enact regulations that make such conduct, unprofitable.
I would welcome regulations which contain severe claw back provisions ... specifically, if found liable, we must get back every dime associated with the transaction, including money lost by investors, the fees charged by the corporation(s) touching the deal, and/but more, the bonuses/salaries of everyone associated with the deal.
el_bryanto
(11,804 posts)And it's not just Fees and Bonuses - the issue isn't that individual bad actors are bribed to take bad actions. The issue is that the mentality of Wall Street is to offer those bribes, and unless the culture on Wall Street changes, nothing is going to happen.
Bryant
1StrongBlackMan
(31,849 posts)prove the bribe (and the resulting action) and claw back every F'ing dime.
And I say, convict the briber AND the bribee (and their immediate manager, or whomever approved the pay-out); and, place them on probation, with a condition that they secure and maintain employment and pay restitution to the victims of the crime (the investors); and, establish the restitution at the amount investors lost in the deal; and, to satisfy the restitution, start by and take every dime the offenders (and their immediate family) have, and take every dime the offender makes (see above probation condition), leaving them $1.00 more than the public assistance eligibility cut off amount; and, ban them from the industry, forever.
(There is precedent for all of these actions ... though they tend to only be placed on the poor and working class offender)
One_Life_To_Give
(6,036 posts)I don't see the top execs, with their places in the Hamptons already secured, fearing much in their corps profitability. Financial penalty's to their Corp have little effect on themselves personally. Having to share a living space with Commoners though. Without having them all slobbering to serve and ingratiate themselves to their betters.
1StrongBlackMan
(31,849 posts)then they fear prison. They don't give a sh!t about "having to share a living space with Commoners", in fact, I would argue that wealthy CEOs don't give that a second thought.
But that's just my experience.
dixiegrrrrl
(60,010 posts)they are collections of his pieces in Rolling Stone.
He distills complicated concepts into plain and enjoyable language, very well.
1StrongBlackMan
(31,849 posts)I prefer works that are less sensational and with less editorializing.
longship
(40,416 posts)It is a damned good book. Steve Eisman, an incredible character who foresaw the catastrophe, is one of the incredible featured characters.
But what's more important about this book is not the entertaining characters, but that it answers the question, what the hell is a mezzanine synthetic CDO? (Hint: the answer is: it is a toxic waste dump.)
I heartily recommend "The Big Short".
dixiegrrrrl
(60,010 posts)Michael Lewis writes about financial issues in a clear language, much as Matt Taibbi does, or even Michael Hudson.
I recommend Lewis' The Flash Boys esp. about how High Frequency Trading was created and developed.
Not at all boring to anyone interested in our current financial crime littered landscape.
Whiskeytide
(4,461 posts)... but I'll look for it. I usually get books like these from the library on CD and listen to them when I travel. Flash Boys will be on the top of my list next time. Thanks.
btw - I really like your tag line about the fastest lemming. I'm going to start working that into conversations with my Republican friends!!
dixiegrrrrl
(60,010 posts)There is a lot to it, his writing is clear, but much to absorb.
( there's no advantage to being the richest lemming, either..... )
99Forever
(14,524 posts)... getting paid huge sums of cash to give pep talks to Goldman Sachs.
If I could only remember which one that was...
.... hmmmmmmmmmmmmmmmmmmmmmmm.
think
(11,641 posts)antigop
(12,778 posts)erronis
(15,257 posts)By that nominee's cheerleaders...
dixiegrrrrl
(60,010 posts)Bankers and their billions have been a fixture of the WH for a long time.
hifiguy
(33,688 posts)the bankers in those administrations were subject to Glass-Steagall and, more importantly, were gambling exclusively with their own money in their private business dealings and could not be reimbursed by the US Treasury.
ibewlu606
(160 posts)I wonder how this fits in with them being one of HRC's biggest campaign contributors?
One_Life_To_Give
(6,036 posts)Now this bridge is really sweet. Going to triple your investment in nothing flat........
Omaha Steve
(99,632 posts)Long stint in jail comes to my mind.
hifiguy
(33,688 posts)into little rocks, ten hours a day.
mountain grammy
(26,621 posts)gregcrawford
(2,382 posts)... Goldman Sachs was deemed "Too Big To Jail," undoubtedly because it was Obama's largest single campaign contributor. Too big to jail? Well then, just chop Blankfein and his crew into chum and jail the fish that eat them. Simple.
Duppers
(28,120 posts)Problem is the average voter lacks the info and even the curiosity to make the connection between this and their lives. There's a huge gap.
Madmiddle
(459 posts)It's up to the people to fight back on this mortgage fraud. Make banks take you to court. Demand to see the original note. The destroyed 99% of them.
Enthusiast
(50,983 posts)But in this corrupt media world they do not have a care.
There are still internet sockpuppets claiming the economic collapse was the fault of the Community Reinvestment Act. I'm not sure but I assume Lying Fox News is still making that assertion.
appalachiablue
(41,132 posts)are known to be fighters for the people and justice.*sarcasm*. Correct, the pols should be ashamed to be around these financial 'institutions', paragons of the American economy run by geniuses. Not!
Enthusiast
(50,983 posts)I don't do Facebook so I couldn't say anything. He repeated the same old Lying Fox News bullshit that the government FORCED banks to lend to poor black people that had no intention of paying back the loans. And that caused the entire economic collapse. See? Very simple. The end.
appalachiablue
(41,132 posts)CNBC scrambled fast to come up with the lies. Sorry to still hear this 7 years later. Yep, it's always 'the big, bad government' made us do it! It wasn't our fault. No responsibility, all profit.
Might have to do another post on one of those videos of 2008-09 Congressional Grillings- I mean Hearings. Each one takes a lot out of ya, but if it helps educate people it's important.
mother earth
(6,002 posts)Last edited Thu May 7, 2015, 02:13 PM - Edit history (1)
some of it on v&mm or Economy. A big K & R!
Spitfire of ATJ
(32,723 posts)jtuck004
(15,882 posts)Goldman Sachs Group (GS) reported net revenues of $10.62 billion, the highest quarterly earnings in four years. Its net profits surged by 40% to $2.84 billion when compared with the first quarter of the previous year. Along with strong mergers and acquisitions activity in the first quarter, higher equity and related offerings across the globe backed this performanc...
http://marketrealist.com/2015/04/goldman-sachs-reports-highest-profits-five-years/
Bank$ter profits made on the lives of 7 million families thrown in the street in foreclosure, ten million families moved into poverty with children, most of whom will be there for the rest of their lives, joined by perhaps a hundred million more who work for half or less than they did before this financial crisis, many who will never work another job in their lives, all in a plan by this administration who thought it was more important to save the bank$ters that donated to their campaign than working voters and their families.
You can read about the plan in his book by Timothy "Killer" Geither (who may well have been responsible for more long-term suffering than the terrorists who took down the world trade center), or hear voters laugh at his face when he tries to spin it otherwise here: http://thedailyshow.cc.com/extended-interviews/z9b8f1/timothy-geithner-extended-interview
You can just look around and see the continuing devastation as we continue to try to pump up the assets of those with more wealth on the backs of many who have nothing. And we will see what this brings us.
Enthusiast
(50,983 posts)AgingAmerican
(12,958 posts)The Bush administration simply stopped enforcing regulations.
And now another Bush want's to continue the legacy.
appalachiablue
(41,132 posts)hifiguy
(33,688 posts)should NEVER be forgotten.
L0oniX
(31,493 posts)hifiguy
(33,688 posts)L0oniX
(31,493 posts)Nice that they had the extra money laying around for that. I'm sure it did not come from everyone they ripped off.
econoclast
(543 posts)If you read Michael Lewis' book The Big Short and are kicking this thread then you didn't understand much of what you read.
The shocking ignorance virtually guarantee another financial disaster because people will demand more bad policies and mis-regulation / mal-regulation.
It is sad.
think
(11,641 posts)I've not read it but can read these articles and understand that the American people got screwed by GS.
What's your take?
econoclast
(543 posts)You want it on a postit note?
Derivatives had little to do with the financial crisis. Example .... It occurred in Ireland and Spain as well and they had hardly a derivative among them.