Finally, Goldman Charged with Fraud

Posted by Ray on April 16, 2010 under Main | Be the First to Comment

It only took 2 years for the SEC to get off their butt and do something, but these charges are not telling the whole story. The complaint alleges that Paulson & Co. constructed a synthetic CDO through Goldman, Paulson picked the worst mortgages to bet against. Goldman, in turn, sold them to investors, they need someone long to buy what Paulson was short, they apparently pitched them as good investment products that were handpicked by a independent third party. They lied to investors, shocking. Paulson did nothing wrong that I can see, but since he is a big bad hedge fund we will see what will happen.

What is interesting is that this should not be the only charge against the firm. After reading several books it was clear that Goldman was long sub-prime until June, or so, of 2007 when the market started to crash. They in turn went short the market, buying CDS’s on the synthetic CDO’s they helped create. They are hiding their culpability by claiming, “we were only marking a market and had nothing to do with creating this mess.” That is pure bull. It was clear that the firm worked with the first person who created the CDS on sub-prime, Mike Burry in California. While they only brokered the deal between AIG and the hedge fund, Scion, Goldman did know that this guy picked the worst sub-prime to bet against. They let him handpick the worst of the lot to short. They knew the synthetic CDO’s were garbage.

Clearly, I only have public information and this is a complicated mess, but from what I have read I believe Goldman had a much larger role in creating and facilitating the problem that nearly collapsed the financial system as we know it. At first they brokered the deals and then they bet with the hedge funds that the market would collapse. However, the real issue is that Goldman and other firms, Goldman is not alone in this, knew that these managers were hand picking the worst mortgages of the group, they sent these guys a list of junk to pick from. Goldman had to then broker the deal to some other party, AIG was the biggest, obviously, so what did they tell AIG? Did they tell them that this guy picked the worst mortgages to bet against and insuring them is risky to you? I doubt it. What they did was fool the ratings agencies to give them a AAA rating and then told AIG to insure them because it is a riskless proposition.

That is the problem with Goldman, they knew what they were creating was bad, kept that information to themselves and then passed the risk on to other parties telling them whatever they wanted to tell them. Other firms will be brought in on charges as well, perhaps Morgan Stanley, Deutsche Bank and who knows who else. Obviously I have simplified what they did and added what I think they did, I have no proof other than what I have read, but it makes sense based on the info we all have. What will come out of these charges? Nothing. The SEC will offer a settlement fine and Goldman will accept it and not admit or deny responsibility. The SEC is corrupt.

Conspiracy Theories

Posted by Ray on July 28, 2009 under Main | Be the First to Comment

Twice this morning CNBC has said conspiracy theorists believe GLD and SLV do not own physical metals. They also poked fun at people who believe other things that are contrary to what “they” think or say is true.
I am not going to get into specifics, but what I will say is this, not everyone who disagrees with CNBC is a conspiracy theorist and CNBC does not, clearly, know everything. If they did they would not have cheer lead the markets false bull market from 2003-2007. From what I see it is obvious that the network is just going to discredit people who believe the contrary to what they hold true, which is all hope and good news versus reality.
For example, they say that conspiracy theorists say the bailout of AIG was for Goldman Sachs and they say that is a ridiculous thought. OK, so Goldman gets 100 cents on the dollar of their $13 billion versus pennies on the dollar for other firms. Well, how about how Blankenfeld was the only CEO to show up during the whole AIG bailout meeting at the NY Fed, then left after he realized it. How half the representatives were from Goldman Sachs. I guess I am a conspiracy theorist because I believe the biggest beneficiary was Goldman in the AIG bailout.
When the media calls people conspiracy theorists it is because they want to discredit people or ideas that hold a contrarian views from what they believe, or are told to believe. I find it disturbing that this is how CNBC chooses to do business and that they are pushing so hard to create conspiracy theorists where none exist. I am not a nut job or a conspiracy theorist, although I do like to read about them, I am just a guy who does his homework, unlike the network in question.

Welfare program for Wall Street insiders

Posted by Ray on July 20, 2009 under Main | 2 Comments to Read

Clearly when you have Goldmanites design a bailout program for financial institutions not only will they give them money upfront, but they also build the bailout so firms can profit for years to come. How you might ask?

Well, look at AIG for example, They got bailed out, with $13B going to Goldman Sachs and now Morgan Stanley is going to get a piece and Earnest and young. According to Bloomberg, Earnest and Young could recieve up to $60 million in fees from AIG for advice when the previous cap was set at $40 million in 2008.

Morgan Stanley will receive a $4 million retainer fee and an additional $2.5 million per quarter for advising AIG. The firm also could receive $72 millions if AIG lists its American International Assurance division on the Hong Kong exchange next year. All-in-all not a bad pay day for the financial sector at the expense of American tax payers, who says failure doesn’t pay?

This is one of those things that should make people question what is going on with these bailouts and TARP. With the expected cost of TARP reaching, potentially, $23 trillion a few million or even billion here and there is nothing, but these firms are not risking anything and they are receiving a nice payday.

Goldman and Morgan Stanley were both doomed to collapse last year before their bailouts and approval to become commercial banks. This begs the question, should they be compensated at all for advising a government owned entity when they would not be in business if it wasn’t for the government, a.k.a the US taxpayer?

This whole bailout was for the complete benefit of the financial institutions and not for the American people. It was payback for all the money funneled into Washington through lobbyists and campaign contributions, period. The taxpayer will not benefit from these bailouts. For example, have you received a dividend check yet from the firms who paid the Treasury interest on their TARP funds? Nope, well at least I have not gotten my check, so stop telling us we will profit from this, we won’t. Our taxes will not go down nor will our Social Security benefits increase, instead the money will be left in a slush fund indefinitely.

The only ones profiting are the same assholes who are responsible for the global meltdown, but no one says a word. Obama loves the banks, they gave him $23 million last year which is more than Hillary received, and will do nothing to stop this insanity. Instead firms will just collect funds when needed and pay out those funds to other investment banks in the form of advisory fees. The circle jerk continues at our expense.

If you are not outraged then you are not paying attention to anything that is going on.

AIG: More Credit Default Swap Trouble

Posted by Ray on June 30, 2009 under Main | Be the First to Comment

It appears that AIG has more credit default swap, CDS, trouble ahead. According to Bloomberg the firm has exposure to $192 Billion worth of European bank CDS which may prove to be a problem. This is a material problem because, according to Bloomberg and AIG statements, the valuation declines on credit-default swaps sold to European banks could have a “material adverse effect” on the company’s results. We all know what happened last fall with these things, but it is unclear what could happen this year.

Unfortunately, this plays into our estimates of a severe downturn in equities beginning now and lasting to the end of the year. However, the firm did say that, “The insurer said it doesn’t expect it will have to make payments under contractual agreements tied to the regulatory relief swaps. Most of the swaps will be terminated over the next 12 months, AIG said.”

We will see what happens, but it is clear that there could be major problems ahead. Just imagine $192 billion or even 20% of these contracts blowing up. We saw what $80 billion in bad bets did to the firm, drove it to bankruptcy and $180 billion had to be infused through the government. This has a lot of potential to do bad things to the firm and an already fragile market.

Devaluation of The Dollar

Posted by Ray on September 22, 2008 under Main | Be the First to Comment

This is why the bailout of the financial services industry is a problem. The dollar is down 3 cents against the Euro…that is a significant move. The sad part is that the bailout is not even official yet. While this could be traders jumping the gun, so to speak, it is possibly a sign of things to come.

As stated in our previous post, prices will sky rocket with the devaluation of the dollar. Oil was as high as $130 a barrel today, another unprecedented move, all of this stemming from the bailout package. Based on today’s price movement we can now see how the world views this bailout.

Two things have yet to happen:

1. The deal is not even inked yet and things are this bad.

2. We are not even half way through the real credit mess.

Has anyone else noticed that no one is mentioning the credit swaps yet? People are more apt to pay their mortgage before other debts like credit cards. Credit card debt is hedged with credit swaps, a big part of AIG’s business, which helps offset charge-offs if clients do not pay up. These instruments have yet to make serious headlines and are next to blow up.