SEC moves against Goldman

[Artifice]

Apologies if a repost:

 

http://www.nytimes.com/2010/04/17/business/17goldman.html

 

U.S. Accuses Goldman Sachs of Fraud

 

Brendan McDermid/Reuters

The new Goldman Sachs global headquarters in Manhattan.

 

By LOUISE STORY and GRETCHEN MORGENSON

Published: April 16, 2010

Goldman Sachs, which emerged relatively unscathed from the financial crisis, was accused of securities fraud in a civil suit filed Friday by the Securities and Exchange Commission, which claims the bank created and sold a mortgage investment that was secretly devised to fail.

 

The move marks the first time that regulators have taken action against a Wall Street deal that helped investors capitalize on the collapse of the housing market. Goldman itself profited by betting against the very mortgage investments that it sold to its customers.

 

The suit also named Fabrice Tourre, a vice president at Goldman who helped create and sell the investment.

 

The instrument in the S.E.C. case, called Abacus 2007-AC1, was one of 25 deals that Goldman created so the bank and select clients could bet against the housing market. Those deals, which were the subject of an article in The New York Times in December, initially protected Goldman from losses when the mortgage market disintegrated and later yielded profits for the bank.

 

As the Abacus deals plunged in value, Goldman and certain hedge funds made money on their negative bets, while the Goldman clients who bought the $10.9 billion in investments lost billions of dollars.

 

According to the complaint, Goldman created Abacus 2007-AC1 in February 2007, at the request of John A. Paulson, a prominent hedge fund manager who earned an estimated $3.7 billion in 2007 by correctly wagering that the housing bubble would burst.

 

Goldman let Mr. Paulson select mortgage bonds that he wanted to bet against — the ones he believed were most likely to lose value — and packaged those bonds into Abacus 2007-AC1, according to the S.E.C. complaint. Goldman then sold the Abacus deal to investors like foreign banks, pension funds, insurance companies and other hedge funds.

 

But the deck was stacked against the Abacus investors, the complaint contends, because the investment was filled with bonds chosen by Mr. Paulson as likely to default. Goldman told investors in Abacus marketing materials reviewed by The Times that the bonds would be chosen by an independent manager.

 

“The product was new and complex, but the deception and conflicts are old and simple,” Robert Khuzami, the director of the S.E.C.’s division of enforcement, said in a statement. “Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party.”

 

Mr. Paulson is not being named in the lawsuit. In the half-hour after the suit was announced, Goldman Sachs’s stock fell by more than 10 percent.

 

In recent months, Goldman has repeatedly defended 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 anymore than we can predict the future of markets today,” Goldman wrote. “We also did not know whether the value of the instruments we sold would increase or decrease.”

 

The letter continued: “Although Goldman Sachs held various positions in residential mortgage-related products in 2007, our short positions were not a ‘bet against our clients.’ ” Instead, the trades were used to hedge other trading positions, the bank said.

 

In a statement provided in December to The Times as it prepared the article on the Abacus deals, Goldman said that it had sold the instruments to sophisticated investors and that these securities “were popular with many investors prior to the financial crisis because they gave investors the ability to work with banks to design tailored securities which met their particular criteria, whether it be ratings, leverage or other aspects of the transaction.”

 

Goldman was one of many Wall Street firms that created complex mortgage securities — known as synthetic collateralized debt obligations — as the housing wave was cresting. At the time, traders like Mr. Paulson, as well as those within Goldman, were looking for ways to short the overheated market.

 

Such investments consisted of insurance-like policies written on mortgage bonds. If the mortgage market held up and those bonds did well, investors who bought Abacus notes would have made money from the insurance premiums paid by investors like Mr. Paulson, who were negative on housing and had bought insurance on mortgage bonds. Instead, defaults spread and the bonds plunged, generating billion of dollars in losses for Abacus investors and billions in profits for Mr. Paulson.

 

For months, S.E.C. officials have been examining mortgage bundles like Abacus that were created across Wall Street. The commission has been interviewing people who structured Goldman mortgage deals about Abacus and other, similar instruments. The S.E.C. advised Goldman that it was likely to face a civil suit in the matter, sending the bank what is known as a Wells notice.

 

Mr. Tourre was one of Goldman’s top workers running the Abacus deal, peddling the investment to investors across Europe. Raised in France, Mr. Tourre moved to the United States in 2000 to earn his master’s in operations at Stanford. The next year, he began working at Goldman, according to his profile in LinkedIn.

 

He rose to prominence working on the Abacus deals under a trader named Jonathan M. Egol. Now a managing director at Goldman, Mr. Egol is not being named in the S.E.C. suit.

 

Goldman structured the Abacus deals with a sharp eye on the credit ratings assigned to the mortgage bonds associated with the instrument, the S.E.C. said. In the Abacus deal in the S.E.C. complaint, Mr. Paulson pinpointed those mortgage bonds that he believed carried higher ratings than the underlying loans deserved. Goldman placed insurance on those bonds — called credit-default swaps — inside Abacus, allowing Mr. Paulson to short them while clients on the other side of the trade wagered that they would not fail.

 

But when Goldman sold shares in Abacus to investors, the bank and Mr. Tourre only disclosed the ratings of those bonds and did not disclose that Mr. Paulson was on other side, betting those ratings were wrong.

 

Mr. Tourre at one point complained to an investor who was buying shares in Abacus that he was having trouble persuading Moody’s to give the deal the rating he desired, according to the investor’s notes, which were provided to The Times by a colleague who asked for anonymity because he was not authorized to release them.

 

In seven of Goldman’s Abacus deals, the bank went to the American International Group for insurance on the bonds. Those deals have led to billions of dollars in losses at A.I.G., which was the subject of an $180 billion taxpayer rescue. The Abacus deal in the S.E.C. complaint was not one of them.

 

That deal was managed by ACA Management, a part of ACA Capital Holdings, which changed its name in 2008 to Manifold Capital Holdings.

 

Goldman at first intended for the deal to contain $2 billion of mortgage exposure, according to the deal’s marketing documents, which were given to The Times by an Abacus investor.

 

On the cover of that flip-book, it says that the mortgage bond portfolio would be “selected by ACA Management.”

 

In that flip-book, it says that Goldman may have long or short positions in the bonds. It does not mention Mr. Paulson or say that Goldman was in fact short.

 

The Abacus deals deteriorated rapidly when the housing market hit trouble. For instance, in the Abacus deal in the S.E.C. complaint, 84 percent of the mortgage bonds underlying it were downgraded by rating agencies just five months later, according to a UBS report.

 

It takes time for such mortgage investments to pay out for investors who short them, like Mr. Paulson. Each deal is structured differently, but generally, the bonds underlying the investment must deteriorate to a certain point before short-sellers get paid. By the end of 2007, Mr. Paulson’s credit hedge fund was up 590 percent.

 

Mr. Paulson’s firm, Paulson & Company, is paid a management fee and 20 percent of the annual profits that its funds generate, according to a Paulson investor document from late 2008 titled “Navigating Through the Crisis.”

[Atticus]

somewhere there is a VERY happy law firm (or 3, more likely) licking its lips.

[futureage1]

What a joke. A civil suit with a possibility of a fine? I'm sure Goldman Sachs is really scared. This attempt to look tough on Wall Street is more sad theatrics from the Obama administration, since the numbers tell such a vastly different story. Make sure to tune into CNBC where former Goldman Sachs Jim Kramer or former Goldamn Sachs/Citi Group publicist Erin Burnett will tell you how this is no big deal and Goldman is not criminal in destroying the U.S economy. It was those damn poor people and families who wanted to own a home. Or maybe tune into MSNBC so Alan Greenspan's wife,Andrea Mitchell, can give you some in depth "analysis" of how Obama is getting tough on Wall St, you know "reliable" sources of conventional wisdom and award winning Tiger Woods coverage.

 

 

The Financial Terrorists Who Destroyed Our Economy Will Pay Zero in Taxes -- and Get $33 Billion in Refunds

You and I are working our asses off, paying 30% of our limited income in taxes. Not the banks that triggered the financial crisis.

By David DeGraw

 

http://www.alternet.org/story/146509/the_financial_terrorists_who_destroyed_our_economy_will_pay_zero_in_taxes_--_and_get_%2433_billion_in_refunds?page=entire

 

April 18, 2010-Journalist David DeGraw has put together a devastating report detailing how Wall Street continues to pillage the economy with the government's help. "The staggering level of theft continues unabated," writes DeGraw. "Our future is going up in flames and our government isn’t even making the slightest effort to put out the fire. In fact, they are purposely pouring gasoline all over it." DeGraw's investigation is a follow up to his previous report The Economic Elite Vs. The People of the United States of America -- check that one out to get caught up. AlterNet will run in a series of articles based on DeGraw's investigation. Here is part one.

 

The first thing people need to understand is that the economic crash wasn’t a crash for the people who caused it. In fact, these financial terrorists are now doing better than ever. In a recent report, titled “Social Inequality in America: Widening Income Disparities,” more evidence of the unprecedented transfer of wealth was revealed:

 

“As of late 2009, the number of billionaires soared from 793 to 1,011, and their total fortunes from $2.4 trillion to $3.6 trillion…. Despite the crisis, the list of billionaires has grown by 218 people and their aggregate capital has expanded by 50%. This may seem paradoxical, but only at first glance. This result was predictable, if we recall how governments all over the world have dealt with the economic crisis.”

 

The inequality of wealth in the United States between the economic top 0.5% and the remaining 99.5% of the population is now at an all-time high. The economic top 1% of the population now controls a record 70% of all financial assets. The point here is that while the economic crisis has been devastating for 99% of America, the Wall Street elite are awash in record breaking profits. The most profitable firm in Wall Street history, Goldman Sachs, just had their most profitable quarter in their 140-year history and Wall Street firms issued an all-time record breaking amount in bonuses.

 

All of this is occurring after giving these firms $14 TRILLION in taxpayer support - that works out to be $46,662 of your hard-earned money. That’s $46,662 for every man, woman and child in this country. If you have a family of four, sorry, your future just got robbed and you and your children just lost $186,648!

 

So what are all these firms doing with these record-breaking profits? Are they returning them into the tax system in which they came from, the tax system that was looted just to keep their scam running?

 

No!

 

Let’s start with Wells Fargo. After being bailed out with our money in 2008, their top five executives DOUBLED their compensation and each one of them made over $11 million in 2009. Wells Fargo CEO John Stumpf made off with a cool $21.3 million last year.

 

And now comes news that Bank of America and Wells Fargo will pay zero, yes ZERO in federal taxes for 2009. Bank of America will net a $3.6 BILLION benefit from the federal government in 2009. Wells Fargo, after $8 BILLION in earnings for 2009, will net $4 BILLION from the federal government.

 

So you and I are working our asses off just to make ends meet, paying 30% of our limited income in taxes, and gizillionaire John Stumpf’s company is paying ZERO in taxes so that he can personally swipe another $21.3 million of tax payer funds.

 

Al Capone is a dime store thief compared to this guy!

 

Well, to be fair, Mr. Stumpf is just a small-timer himself in this all-time greatest heist.

 

JP Morgan Chase made $12 BILLION in profit in 2009, as a direct result of our tax money - yes, I need to keep repeating this fact. These are profits that would not exist if it weren’t for our tax dollars.

 

It’s also important to point out that this is just the level of theft that has already occurred. However, as I also can’t stress enough, the theft still continues without any let-up.

 

Now comes news that JP Morgan is on the verge of getting a $1.4 BILLION tax refund! Yes, you heard me right, a $1.4 BILLION TAX REFUND. But JP is not alone in this latest theft. In total, the financial terrorists are due to receive $33 BILLION IN TAX REFUNDS!

 

Do you comprehend how depraved it is to give these people another $33 billion in tax refunds? I assume that they’re thinking that after stealing $14 TRILLION, another $33 billion really isn’t all that much. After all, last year, Goldman Sachs, the most profitable firm Wall Street history, only paid 1% in taxes, so what’s another $33 billion kickback among friends?

 

Let’s be clear about this latest $33 billion of which the US tax system is being robbed. What could we do with $33 billion?

 

For one, we could put over one million unemployed people back to work and pay them the average national median wage for the next year. Add the record-breaking $150 billion in bonuses (our tax money) that Wall Street handed out this past year to the $33 billion and guess what? We can now put over six million people back to work making the average annual wage! Do you think that would stimulate the economy? Green shots galore.

 

But why do that? Jamie Dimon needs another new 40,000 square foot mansion and Goldman Sachs needs to upgrade their fleet of luxury jets filled with the finest wine, champagne, cigars and hot tubs.

 

Maybe we could use that $33 billion to save some of the hundreds of schools that are being forced to close this year due to devastating State budget deficits. Or maybe pay the thousands of teachers who just found out that their jobs have been cut. How about using that money to feed the 50% of US children who need to use food stamps during their childhood to eat? How about using it to give a raise to the 15 million US workers who work 40 hours or more a week and still fall below the poverty line.

 

Wait, I know, how about helping the millions of Americans who have been foreclosed upon due to JP Morgan’s predatory lending schemes and illegal subprime “liar’s loans.”

 

And don’t even get me started again on how we can better use the $14 TRILLION that Wall Street made off with.

 

People of the United States to Obama: Hello! This is happening on your watch!

 

Change We Can Believe In!

 

Oh, but wait… it gets even better. This just in from the Roosevelt Institute:

 

De facto bailout for Freddie and Frannie

 

Did the Fed and the Treasury orchestrate a de facto bailout of Fannie Mae and Freddie Mac — at public expense and sans Congressional approval? John Hussman thinks so. He provides a detailed account of just how 1.5 trillion dollars got diverted to Freddie and Fannie — money that we can all kiss goodbye. American taxpayers, it seems, have gotten the middle finger once again.

 

And then in comes this little known, highly underreported news item: U.S. Taxpayers on Hook for $5 Trillion of Fannie, Freddie Debt

 

“After years of winks and nods, there’s no doubt that Fannie and Freddie now enjoy an explicit guarantee, according to most observers. The U.S. government placed Fannie Mae and Freddie Mac in conservatorship in September 2008: ‘This means that the U.S. Taxpayer now stands behind $5 trillion of GSE debt,’ according to the Congressional Research Service.”

 

Hank “Pentagon-Sachs” Paulson’s right-hand man Tim Geithner, now Obama’s hand-picked Treasury Secretary and point man for the continued looting, recently assured his friends on the Financial Services Committee: “We will do everything necessary to ensure these institutions have the capital they need to meet their commitments.” Geithner then acknowledged that US taxpayers will take “very substantial” losses on this bailout.

 

Yep, Obama’s Chief-of-Theft, Rahm “Freddie Mac Daddy” Emanuel’s former company now has unlimited ability to rob taxpayer money and is making off with $5 TRILLION. And I thought Cheney’s Halliburton was as bad as it could get.

 

Yes We Can… Get Robbed Even More!

 

But don’t worry, if you thought the past two years were bad, the history books will recall them as a walk in the park compared to what is coming our way. You don’t have trillions looted from the economy and continue to just keep going about your life business as usual. I wish I was wrong, and I wish this was just my opinion, but facts are facts and every societal and economic indicator says things are going to get worse, MUCH WORSE.

[Moss]

I like Matt Taiibi saying that Goldman Sachs is: "A Vampire squid wrapped around the face of humanity and relentlessy sticking it's blood funnel into anything that smells of money".

 

They are certainly guilty and it's nice to see this but it will amount to some minor slap on the wrist in the end.

[Artifice]

Stewart made me laugh about it last night on TDS, even citing that Taibbi quote, but that's not enough.

 

We're never going to see justice for the fraud these f@#king guys perpetrated, and instead must console ourselves with a reform bill that most of us don't understand and that will be as hard or harder than the healthcare bill to push through.

 

It's tough to be a citizen most days. Makes you wanna just throw your hands up in despair. I can't even self medicate/check out, I have kids I gotta be there for.

[Good Old Neon]

Depressing just isn’t a strong enough word to describe the shit we’re in, and how ineffectual and powerless we are in the face of such staggering malfeasance.

[IATTBYB]

If Kubrick and Sellers were still around, I think they would be making Dr. Strangebucks, or How I Learned to Stop Worrying and Love the Banks. After all, all this dispair and helplessness is strangely similar to the public's attitude toward nuclear anhilation back in the early 60's.

[futureage1]

Goldman's White House connections raise eyebrows

 

WASHINGTON — While Goldman Sachs' lawyers negotiated with the Securities and Exchange Commission over potentially explosive civil fraud charges, Goldman's chief executive visited the White House at least four times.

 

White House logs show that Chief Executive Lloyd Blankfein traveled to Washington for at least two events with President Barack Obama, whose 2008 presidential campaign received $994,795 in donations from Goldman's political action committee, its employees and their relatives. He also met twice with Obama's top economic adviser, Larry Summers.

 

Read more: http://www.mcclatchydc.com/2010/04/21/92637/goldmans-connections-to-white.html#ixzz0lq2hS9Cd

Goldman figure Paulson hosted Romney, Steele last week

 

"Republicans Mitt Romney and Michael Steele headlined a Republican National Committee fundraiser six days ago at the home of the hedge fund titan at the center of the Security and Exchange Committee's fraud charges against Goldman Sachs.

 

A spokesman for the RNC confirmed the Tuesday evening event at the Manhattan home of John Paulson, who made a fortune betting against the housing market, and whom Goldman is accused of working to structure products sold to unwitting investors."

 

http://www.politico.com/blogs/bensmith/0410/Goldman_figure_Paulson_hosted_Romney_Steele_last_week.html?showall

[futureage1]

U.S. suspects Goldman tip-off on Buffett deal: WSJ

 

http://www.marketwatch.com/story/us-suspects-goldman-tip-off-on-buffett-deal-wsj-2010-04-23-032240

LOS ANGELES (MarketWatch) -- The U.S. government is investigating whether Goldman Sachs Group Inc. (GS 159.78, +0.73, +0.46%) director Rajat Gupta informed the head of the the Galleon Group hedge fund about a pending $5 billion investment in the brokerage by Warren Buffett's Berkshire Hathaway Inc. (BRK.A 118,400, +120.00, +0.10%) (BRK.B 78.89, +0.21, +0.27%) in 2008, according to a Wall Street Journal report Friday. The report cited a government filing alleging that Gupta told Raj Rajaratnam of the deal. Rajaratnam is currently under indictment on charges of insider trading. The report cited an unnamed source as saying Gupta himself told authorities about the tip-off to Rajaratnam. Gupta has not been charged in the case and is slated to resign his position with Goldman Sachs next month.

 

 

SEC Porn Probe: Staffers Watched Porn As Economy Crashed

 

http://www.huffingtonpost.com/2010/04/23/sec-porn-probe-staffers-w_n_548931.html

 

WASHINGTON — Senior staffers at the Securities and Exchange Commission spent hours surfing pornographic websites on government-issued computers while they were being paid to police the financial system, an agency watchdog says.

 

The SEC's inspector general conducted 33 probes of employees looking at explicit images in the past five years, according to a memo obtained by The Associated Press.

 

The memo says 31 of those probes occurred in the 2 1/2 years since the financial system teetered and nearly crashed.

 

The staffers' behavior violated government-wide ethics rules, it says.

 

It was written by SEC Inspector General David Kotz in response to a request from Sen. Charles Grassley, R-Iowa.

 

The memo was first reported Thursday evening by ABC News. It summarizes past inspector general probes and reports some shocking findings:

 

_ A senior attorney at the SEC's Washington headquarters spent up to eight hours a day looking at and downloading pornography. When he ran out of hard drive space, he burned the files to CDs or DVDs, which he kept in boxes around his office. He agreed to resign, an earlier watchdog report said.

 

_ An accountant was blocked more than 16,000 times in a month from visiting websites classified as "Sex" or "Pornography." Yet he still managed to amass a collection of "very graphic" material on his hard drive by using Google images to bypass the SEC's internal filter, according to an earlier report from the inspector general. The accountant refused to testify in his defense, and received a 14-day suspension.

 

_ Seventeen of the employees were "at a senior level," earning salaries of up to $222,418.

 

_ The number of cases jumped from two in 2007 to 16 in 2008. The cracks in the financial system emerged in mid-2007 and spread into full-blown panic by the fall of 2008.