Sunday, September 21, 2008

Goldman Sachs: Wall St. Gangstas

In a scene reminiscent of the St. Valentine's Day Massacre, Goldman Sachs has emerged victorious in the recent Wall St. Gang Wars. Like all good Organized Criminals, the GS gang has high-level officials on their payroll that assist them in getting away with their nefarious deals. In this case look no further than Secretary of Treasury, Henry Paulson, the former Chairman and CEO of Goldman Sachs.

While other Wall St. firms were coming to a bloody end, the GS gang was prospering.

Excerpts from "How Goldman Sachs defies gravity" - September 20, 2007, Fortune Magazine.
As the credit markets fell apart over the summer, causing the prices of hundreds of billions of dollars of mortgage-backed bonds to plunge, Goldman Sachs had already positioned itself so that it would profit massively from a decline in those securities. Thursday, Goldman reported earnings for its fiscal third quarter that were far above expectations.

Amassing a large bearish position in mortgages would have required planning and direction from a senior level. On the conference call, Viniar said the bet was executed across the whole mortgage business, implying that it wasn't the work of one swashbuckling trader or trading desk. Of course, the prescience of the short sale would seem to confirm the view that Goldman is the nimblest, and perhaps smartest, brokerage on Wall Street.
Was this really because the GS gang was the "smartest" in 2007, or did it have insider information from the Treasury Dept. and the Federal Reserve that allowed it to time the market? Clearly the "prescience of the short sale" was a result of cheating the system. Would the GS gang place such a large "bet" without some assurances. To do otherwise would be reckless gambling. What if they lost this huge "bet"? What would have been the cost to the gang? Shouldn't Congress and the SEC be investigating this type of suspicious activity?

So the GS gang made billions on short selling in the Summer of 2007. But when the GS gang was under attack by short sellers in the past week, their man Paulson bailed them out.

Excerpt from "Details of a Rescue Plan Are Unclear, but Some Already Benefit"  from the NY Times, September 19, 2008.
Even more disheartened on Friday were officials at Lehman Brothers, who saw their stock virtually wiped out after the firm filed for bankruptcy protection last Sunday. Had the government moved sooner, executives said, Lehman would not be selling itself in pieces to Barclays and private equity firms.

“We don’t understand it, and we are angry,” one senior executive said Friday. “We were essentially pushed into bankruptcy and now they tighten the short-selling rules? Now they start buying mortgage assets? People here feel lousy.”

Goldman Sachs will be able to sell some troubled assets. That fact reignited discussion about the many administration officials who are Goldman alumni. Along with the Treasury secretary, who created the plan, another former executive of the firm is Joshua Bolten, the White House chief of staff. The plans lifted Goldman’s shares 20 percent on Friday, to $129.80. Mr. Paulson, once Goldman’s biggest individual shareholder, had to sell his stake when he moved to the Treasury Department.
So are we supposed to believe that Paulson isn't benefiting directly from this? Does the NY Times think we're that stupid? At least Newsweek has the guts to point out the obvious calling Paulson "King Henry". King Rat might be more appropriate.

It's time to recognize who the biggest criminals are. It's not the "narco-trafficers" or the "islamo-terrorists". The biggest Organized Criminals are on Wall St. And the biggest and most powerful of the Wall St. Gangs is Goldman Sachs.


Anonymous said...

"Was this really because the GS gang was the "smartest" in 2007, or did it have insider information from the Treasury Dept. and the Federal Reserve that allowed it to time the market?"

That's a funny one there. As if the Fed knew more than Goldman. After all you *are* saying that Goldman has is the fed in essence.

Anyway, this brought to mind a few things. For one, AIG had to know that Goldman was shorting supbrime. How? By buying Credit Default Swaps in mass quantity. For the uninitiated, CDSs are just complicated insurance policies against a companies demise or inability to pay.

So AIG knew they were shorting subprime. I can't imagine that AIG wouldn't know, or didn't care that Goldman was shorting what both of them were selling.

No doubt they both knew the Gov. would have to bail them out. So instead of stopping their risky behaviour in 2006 they both decided to increase it. That way the Gov. would have *no* choice but to save them, or lose their own power.

But they needed no one to tell them how to act or when. All they had to do was go back to the S&L buyout back in the 80s and see how the Gov. saved the country from failing.

End of story. No need for an insidious conspiracy theory. Actually it was an open conspiracy if anything.


Frank Hope said...

Hi ron_o,

Thanks for your comment. At the beginning of your comment you seem to be disputing the idea that GS used government contacts to increase its profits, but by the end of your comment you seem to agree that GS did benefit from its influence in the government. So I really don't know how to respond directly to your comment.

I can tell you that since I wrote this article I learned that the Chairman of the New York Fed, Stephen Friedman, is also on the board of GS. (See this article.) So yes GS does have direct access to insider information regarding Fed policy. In fact the current New York Fed President who replaced Tim Geithner is also a GS alum. (See this article.) And it is significant to note that the New York Fed President has a permanent seat on the FOMC which determines monetary policy.

As for AIG, I gather from the reading that I have done that after 2005 they began to scale back on their activities because they started taking losses. I also suspect that GS may have shorted AIG in 2008 while pressuring AIG to come up with more collateral on its CDSs. (See this article.)

So is there a conspiracy? And is it an "open" (overt) conspiracy or a "closed" (covert) conspiracy? I would say that there is definitely a conspiracy involving GS (and other financial oligarchs) and government officials. I would say that this has been done in a covert way in the past, but that now with the financial crisis the conspiracy is being exposed. And that is very good news.

The troubling question that remains is whether the conspirators are "too big to jail". (See this article.)

katzmeow said...

So what dreaded punishment do they have to look forward to on civil fraud charges, other than a monetary fine? Must be a really scary time for those charlatans since they're no doubt struggling to make ends meet like the rest of the average folks who lost their homes, their jobs, and most, if not all their retirement in the financial meltdown of our country.
They should be sent to prison just like that other Wall Street bird, Bernie Madoff. Guess it just depends on who you're chummy with as to the severity of the 'punishment' Or lack of I should say.