A world in economic crisis

The tumbling world of Goldman Sachs

Posted in dodgy swaps and derivatives, Goldman Sachs, Uncategorized by Aussie on April 24, 2010

The Global Economic Crisis was caused for a multiple of reasons including the behaviour of certain banks and hedge funds. One of those banks was Goldman Sachs. I have already mentioned their role in the present Greek crisis and I will return to that subject shortly. However, the big news concerns lawsuits against Goldman Sachs in the USA. It is only the beginning of a crumbling tumbling world for Goldman Sachs. BBC News reports:

Goldman Sachs’ chief executive, Lloyd Blankfein, is being sued by shareholders.

He and other company officials have been named in two new lawsuits filed on Thursday.

The cases are related to fraud allegations brought last week by the US federal government.

These latest complaints were filed in the New York State Supreme Court. Two shareholders accuse them of breaching their fiduciary duties.

They say the executives did this by allowing Goldman’s to enter into a series of transactions, known as Abacus, involving investments tied to subprime mortgages.

Abacus was the subject of a civil fraud lawsuit filed against Goldman on 16 April by the US financial watchdog, the Securities and Exchange Commission.

That concerns Goldman’s marketing of sub-prime mortgage investments just as the US housing market faltered.

The SEC said Goldman failed to disclose “vital information” that one of its clients, Paulson & Co, helped choose which securities were packaged into the mortgage portfolio.

These securities were sold to investors in 2007.

But Goldman did not disclose that Paulson, one of the world’s largest hedge funds, had bet that the value of the securities would fall.

Whilst Goldman Sachs seems to be taking the high ground over the issue, the fact remains that there was something very dodgy about these transactions. I certainly believe that the shareholders have a good case against the CEO of Goldman Sachs on the issue of fiduciary duty.

I must point out that the tale of Goldman Sachs and their involvement in these dodgy swaps and derivatives, is truly only a fraction of the story with regard to the global crisis. Paulson’s actions to my mind were unconscionable. However, there are other players, especially Franklin Raines and Barney Frank as well as those involved in Fannie Mae and Freddie Mac. The fact is that loans were being given to people who had no means to pay them back. The whole issue is extremely murky.

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