A world in economic crisis

Goldman Sachs is accused of misleading investors by U.S. Senate

Posted in dodgy swaps and derivatives, Goldman Sachs by Aussie on April 15, 2011

According to this BBC report, a US Senate probe says that Goldman Sachs had misled investors selling mortgage-backed investments it knew would fail.

The name Goldman Sachs has cropped up in a number of different places when it comes to the provision of misleading information. Greece comes to mind, because it was Goldman Sachs who helped the Greek government prepare reports that were meant to fool the European Economic Community so that they could gain access to the Euro zone.

The Senate Permanent Subcommittee on Investigations claims that Goldman Sachs lied in a testimony given in 2010.

Goldman had marketed four sets of complex mortgage securities to banks and other investors, but failed to tell them that the investments were risky.

According to Carl Levin the Democrat who heads the subcommittee Goldman had exploited the clients.

This might be true with regard to Goldman Sachs, and there is evidence that this is the case because Goldman Sachs settled a civil lawsuit relating to a large deal known as Abacus to the tune of $550 million,  but it seems that there are also a number of other issues that were not explored by this subcommittee, for example:

1. What was the impact of the act that removed the requirement to have a deposit before lending was approved?

2. What was the impact of lending to people who could not pay or would not pay back the mortgage?

In other words, it is more than likely that Goldman Sachs deserves to be called out for possibly lying to clients about the risk involved in taking on those investments.




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Lose some – but win more with shorts

Posted in dodgy swaps and derivatives, Goldman Sachs by Aussie on April 25, 2010

The Goldman Sachs subprime mortgage scandal is getting bigger and bigger as more information is provided regarding the activities of the group. The ABC online reports:

Goldman Sachs officials discussed making “serious money” in 2007 off the subprime crisis as mortgages were starting to falter in rapid numbers, according to a collection of emails released by a Senate panel on Saturday.

“Of course we didn’t dodge the mortgage mess. We lost money, then made more than we lost because of shorts,” Goldman Sachs chief executive Lloyd Blankfein said in an email dating from November 2007.

“Sounds like we will make some serious money,” said Goldman Sachs executive Donald Mullen in a separate series of emails from October 2007 about the performance of deteriorating second-lien positions in a collateralized debt obligation, or CDO.

The Senate Permanent Subcommittee on Investigations is holding a hearing on Tuesday with Mr Blankfein and other Goldman executives, scheduled to testify about the role Goldman Sachs played in the financial crisis.

The firm has been sued for civil fraud by the Securities and Exchange Commission over its marketing of a CDO.

Commenting on the emails, Senator Carl Levin, chairman of the subcommittee, said that they showed Goldman “made a lot of money by betting against the mortgage market.”

It is unquestionable that the executives at Goldman Sachs knew exactly what they were doing and that they intended to make money out of the subprime market, even though it was becoming toxic. It is really disgusting that Goldman Sachs has benefited so much out of TARP funds.

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The walls of Goldman Sachs come tumbling down

Posted in Goldman Sachs by Aussie on April 24, 2010

Goldman Sachs implicated in shorting Lehman shares – Telegraph

Not only is Goldman Sachs facing lawsuits in the USA but it seems that other governments are looking closely at their involvement in the crashes of other businesses. In this case the investigation is associated with the possible of shorting of Lehman shares.

The Telegraph reports:

Goldman has been subpoenaed to hand over documents to Lehman’s Bryan Marsal, the man responsible for winding up the bank’s affairs and repaying creditors. Goldman was named in the court filing along with four other firms, including hedge funds SAC Capital and Citadel. Goldman declined to comment on the Lehman case.

n a further potential legal case, it emerged that AIG is considering suing Goldman over about $2bn (£1.3bn) of losses it incurred from past derivatives instruments. The troubled insurer is understood to be considering action as a result of protection it was forced to pay to buyers of credit-default swaps when collateralised debt obligations (CDOs) in Goldman’s Abacus programme lost their value.

The new worries came as Goldman hit back against the SEC’s charges, which it said are “completely unfounded both in law and fact”.

Questions were last night being asked as to why the bank had not publicly disclosed the regulator’s probe. It is understood Goldman was first contacted by the US financial watchdog over its examination of mis-selling in the mortgage-backed securities industry two years ago, and that it received what is known as a “Wells Notice” – an intention to file charges – as early as July last year.

Goldman has filed 8m documents with the SEC in relation to the investigation, and five of its staff were interviewed as part of an exchange which saw the bank attempt to defend its point of view. Lloyd Blankfein, the bank’s chairman, has been attempting to boost staff morale ahead of today’s first-quarter results, which are expected to show a profit of as much as $3.8bn. “The extensive media coverage on the SEC’s complaint is certainly uncomfortable, but given the anger directed at financial services, not completely surprising,” he said in one voicemail left on an employee’s phone.

Fabrice Tourre, the bond trader at the heart of the SEC’s probe, has begun an undetermined period of absence. The bank maintained that while he has done “nothing wrong” and remains an employee, he had made a “personal decision to take a bit of time off”.

I recognize that the business conducted by Goldman Sachs does involve some risk. However, they have taken the money from clients such as superannuation funds and they have indulged in participating in some very risky business. Personally, I do not blame Goldman Sachs or most other companies for what they have done, because government failed to have the regulations in place to prevent the cowboy behaviour. At the same time the derivatives that were packaged and then sold were known to be high risk by those who were packaging them. I do in fact place the blame on the U.S. Congress and on Obama in particular because he was the one who lobbied to allow these companies to indulge in this kind of risk taking in the first place. I do not believe that we should be fooled into placing the blame on the likes of Godlman Sachs alone. I believe that there are many players involved and that each of the players are to blame for the debacle that has ensued. Millions of people have seen their superannuation funds disappeared. In the USA I believe that this is associated with those 401(k)s that I hear mentioned all of the time. Here in Australia we do in fact have compulsory superannuation, and the funds are responsible for what happens to our money…. we have taken an enormous hit as a result of the shenanigans… and who is behind it?  George Soros, Obama… and a number of other names, some that are known and others that are not so well known. We are the ones that have lost whilst people like Paulson have gained……

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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.

The stench that is Goldman Sachs

Posted in dodgy swaps and derivatives, European Union, Goldman Sachs, Greece, United Kingdom by Aussie on February 16, 2010

Over the past year I have heard the name of Goldman Sachs in less than flattering terms. It is for that reason that I have noted the involvement of Goldman Sachs with the Greek Government, and a cover-up of the financial deficit in Greece. This cover up really stinks.

The Mail Online makes the following comment about the activities of Goldman Sachs and Greece:

Goldman Sachs struck a secret deal with Greece to help it mask its vast debts, it emerged yesterday.

The Wall Street giant is claimed to have reaped as much as £192million in fees by entering a complex currency transaction in 2001 that helped Athens borrow cash without putting it on the books as a loan.

The so-called ‘swap’ deal, while permitted under EU rules, helped Greece meet eurozone limits on government borrowing.

However, it should be noted that other European countries have also been involved in similar activities. Now if one looks at the various European countries that are now in crisis, one has to ask the obvious question: Were they involved in a similar swap deal that had the intention of masking the size of the country’s budget deficit?
Countries such as the U.K. are still feeling the pain of the FGC in 2008. That collapse had a lot to do with derivatives and swaps. I am not in a position to talk about the use of these derivatives and swaps because they are new financial instruments. However, what seems to be clear is that their use has not been for a good purpose. What is also clear that a Wall Street firm such as Goldman Sachs has obtained huge amounts of benefit as a result of participating in these deals.
The fact that the swaps are not new, and they have been used all over Europe makes me question what happened to the other merchant bank Beare Stearns. Was it this kind of swap that then defaulted that caused the collapse of Beare Stearns? At this stage, until I can find more information, I have to say that I have no idea on that subject, but I do want to know more about why it collapsed.
This information regarding Goldman Sachs and their dealings with governments all over the world is quite relevant to the present economic crisis. This bank has been used to mask government debt. When this happens there is good reason to be suspicious about what is going on in any country which is about to end up in financial collapse.