Friday, April 16, 2010

Goldman Sachs Gets Theirs

Ah, lovely! The S.E.C. is finally suing those meretricious smart bastards at Goldman, Sachs for selling their customers the same bonds they were shorting in the market. And which were, furthermore, structured to fail and to make Goldman a ton of money.

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.

And guess what? The bonds were insured through AIG! Which means the American taxpayers were left holding the bag.


When you buy a bond from an investment bank, you have to ask yourself: "Why is this bank selling this bond? If it's so good, why don't they keep it and make a big profit? After all, aren't they in business to make money?"

Which isn't to say that the bank may not, out of a spirit of perfect disinterested public spirit and good will, be denying itself scads of money in order to help your portfolio stagger into the black--- after all, they just may have hired Mr. Deeds, as played by Jimmy Stewart, as their fund manager--- I'm just saying you want to ask yourself, and your broker, this crucial question.

Because if you don't--- or if, as in this case, you ask the question and what comes back is a big fat lie--- you could end up on the short end of the stick while the bank sings all the way to the, um, bank. (Mixed metaphors come naturally to me on a Friday.)


Because, y'know, an S.E.C. lawsuit will punish the bank by fining it a smallish percentage of their ill-gotten gains, but it's not going to help you. You'll have to sue on your own, and that will cost you all the money that you've already lost.

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5 Comments:

Blogger Lance Larka said...

I'm wondering if this is a carefully timed ploy to prod a few...ok, one Republican Senator to allow the financial regulation bill onto the floor for debate. If so, it's been orchestrated awfully well. You've got the SEC suing in civil court, the president saying he'll veto any bill that doesn't regulate the derivative market, and next week Goldman is set to release a record earnings statement.

Of course it could just be coincidence...

I really hope it isn't.

5:35 PM  
Blogger John said...

Gregory Craig, Obama's recently former as of January, White House Counsel is now representing Goldman Sachs.

Yes, the Goldman Sachs that is Obama's number two contributor at just under $1 million. It's only April and Goldman has already donated over $700K to Dems so far this year.

Obama and the Progressive Dems are going to make Tammany Hall look like a knitting circle when all is said and done.

Lance, the interesting coincidence is that last Friday the SEC Inspector General published a report on the SEC's performance for the last 13 years.

7:34 PM  
Blogger dubjay said...

John, you seem to have overlooked the signal fact that Obama took Goldman's money and SUED THEM ANYWAY! At the same time he is sponsoring legislation that drove their stock into the toilet.

As Molly Ivins said of the Texas Legislature, "If you can't take their money, fuck their women, and vote against them anyway, you have no business being here."

But you are right that government is a revolving door for Goldman Sachs employees--- as are other banks.

Bush's bailout was crafted by his treasury secretary, Henry Paulson, who was a former Goldman CEO: he gave money to Robert Rubin, former Goldmanite now head of Citi, and also to John Thain, a Goldmanite who headed Merrill Lynch. Also in the Bush administration were Joshua Bolten, Bush's chief of staff during the bailout, and Ed Liddy, the former Goldman director whom Paulson put in charge of bailed-out insurance giant AIG, which forked over $13 billion to Goldman after Liddy came on board.

Obama's treasury secretary never worked for any of the banks, but Mark Patterson, the current Treasury chief of staff, was a Goldman lobbyist through 2008.

Indeed these are interesting times.

10:29 PM  
Blogger John said...

The reality is Government Sachs got in the door under Clinton and hasn't let go since.

Clinton was a grubby opportunist.

GW was a negligent and preoccupied dunce.

Obama is turning out to be just a plain old crook at best and a National Socialist at worst.

By the way Obama's Financial reform bill will "regulate" Wall Street by giving the "Chicago" Mercantile Exchange the Monopoly on Derivative Management in the US. Which means the 100's of Billions of Business done in NYC will be moved to Chicago along with at least $30 Billion in local tax revenue.

Looks like Obama is planning on retiring back to his hometown after all.

1:01 PM  
Blogger dubjay said...

Y'know, John, it really doesn't impress me when you call Obama a Nazi. Nor does it impress me when Obama is called a socialist, communist, or racist.

Because it's so fucking obviously a lie, and a stupid lie at that. It just shows that you don't know what a Nazi, socialist, communist, or racist actually is. Or you don't give a fuck, because it's just a term you can use to smear someone.

Nor can I find any reference online to this alleged plan to allow Chicago Mercantile a monopoly on derivatives. There =is= a plan to force them to be publically traded on exchanges, which strikes me as sensible, because it meanst the transactions are transparent.

But this other thing, I can't find it.

7:18 PM  

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