Posts Tagged ‘goldman sachs’

In The Mood For A Flutter

December 5, 2012

Goldman Sachs, with the interest of the general public at heart, informs us that due to an improving economy, the rise in the price of gold is now over.

Except that, personally, I am in the mood for a flutter. And this is exactly the signal I was waiting for.

http://www.businessinsider.com/goldman-calls-the-end-of-the-gold-bull-market-2012-12

We’ll check back a few years down the line.

Can you see the concentration of profits?

January 29, 2011

http://ca.news.yahoo.com/goldman-sachs-triples-salaries-ceo-4-other-execs-20110128-154524-875.html

This is the direct and inevitable result of a debt based fiat monetary system. When the inflationary tide withdraws, profit concentrates in the financial industry till it concentrates in the entities one step removed from the creator of the currency (Goldman Sachs is also in the enviable position of being both: a member of the entity that creates the money as well as a Primary Dealer which is the entity one step removed from the creator of the currency).

… and Bob’s your uncle…

 

Fraud

October 15, 2010

Talk of fraud is now going main stream. Even previously willfully blind media companies like CNBS are now at the very least mentioning the word. Spitzer, Ratigan, the NYT, and a handful of other media companies appear, at least momentarily, to be joining the chorus too.

The trigger this time is what is now known as Foreclosure Gate. But it could have easily been any of a plethora of other things that triggered the sudden realization that fraud is a deliberate tool of the authorities.

But Foreclosure Gate, or the deliberate choice to allow banks to disregard accounting compliance, or government giving public funds to select private companies or any of a list of other actions that are blatantly and factually illegal are only symptoms of a dynamic that is well known and that leads to a logical conclusion that, too, is known. We know why this is happening and we know how it ends.

How do we know?

Because it has happened before; several times in fact. And every time it ended the same way.

So, absolutely, let’s make a big deal of Foreclosure Gate. It is right we should and hopefully someone will get indicted.

But Foreclosure Gate is only a symptom. What we need is for someone with clout to take up the matter of the monetary system. The monetary system is THE ultimate cause of this all too predictable and politically mandated debacle.

 

 

 

Wall Street Pay: a record $144Billion

October 14, 2010

What is lost in the soul searching and hand-wringing (or hand rubbing depending on who you are), is that this is not a surprise. It is not and should not be a surprise.

In a debt based fiat monetary system, as the dynamic of debt based currency develops, the system must gradually but necessarily become more statist. The logic of debt based money must necessarily lead to the state becoming progressively more intrusive as it gradually and by necessity becomes the largest actor in the economy.

By implication, this means two things – first: at the outset, nominal and intrinsic value are closely related but as the fiat money dynamic develops nominal value decouples from intrinsic value at increasing speed (financial value decouples from intrinsic value) – second: as financial value runs away from intrinsic, profit gradually concentrates in fewer and fewer sectors till towards the end only the financial sector enjoys any profit. This is because the financial sector is first in line to make use of the currency thus it benefits most and, as the currency implodes, it benefits last too.

http://online.wsj.com/article/SB10001424052748704518104575546542463746562.html

Excerpts and comments:

Profits, which were depressed by losses in the past two years, have bounced back from the 2008 crisis.

Profits have bounced back due to government direct and indirect intervention. Direct intervention took the form of the various support programs like TARP that gave public funds outright to banks and financial corporations. Indirect intervention takes the form of preferential and exclusive accounting treatment of financial institutions that are allowed to disregard losses. Indirect intervention is in fact much more insidious and destructive because as government allows banks to appear solvent, banks can attract institutional money from pension and insurance funds for example. Thus, the public is robbed twice. The first time it is done overtly if by coercion but the second time it is done by stealth without the express knowledge of the public.

The pay numbers show that firms, benefiting from low interest rates and strong international markets, continue to base their pay on economic and market conditions rather than the level of pressure coming from regulators in Washington and overseas.

Economic conditions!? Usage of food stamps is at an all time high and increasing, unemployment as counted by U6 is at an all time high and increasing, the currency markets are in disarray, there is gross industrial overcapacity and waning demand globally, Credit Default Swaps on sovereign debt are increasing … and bank bonuses reflect market conditions???? Can you imagine what bonuses would be like if the economy was actually doing well?

Goldman’s revenue is expected to decline by 13.5% this year to $39.1 billion from $45.2 billion in 2009. Compensation remains projected higher than last year, up 3.7% to $16.8 billion, from $16.2 billion in 2009, according to the Journal survey.

Compensation is taken out of total revenue. When government allows banks to appear solvent, banks can attract institutional money thus enhancing total revenue. Do you understand how the gig works?

 

The main stream media as investment timing tool (or contrary indicator)

September 1, 2010

You all know I am invested in gold and have advised friends and clients over the past eight years to invest in gold too if only a part of their savings.

You all know that for the first time in 8 years I became very cautious on gold investments about two weeks ago when Goldman Sachs produced a nine page piece of “research” exhorting all and sundry to invest in gold.

Today, Business Week front page leads with gold:

http://www.businessweek.com/magazine/content/10_36/b4193058839907.htm

And then there is also this:

http://www.businessweek.com/news/2010-08-31/gold-rallying-to-1-500-as-soros-s-bubble-inflates.html

…… things that make you go “hmmmm”!!!

In the above chart you can see the gold bull market began around 2000. In the two smaller charts below the main chart, you can see the evolution of the S&P 500 and of the 30 year US Treasury Bond priced in gold bullion.

The main stream media coming out at this juncture to tell everyone that gold is a good investment is not at all timely. Not by a country mile.

I am, generally speaking, still bullish on gold for the long term; that would be for the next five to ten years. But I am also mindful that when a mainstream publication finally catches on to an investment trend and talks about it, it is usually time to start taking some profits and bide your time. The clincher, in my humble opinion, is of course the fact that Goldman Sachs should be waxing lyrical about investing in gold. The rationale here is that generally speaking, since banks have been allowed to run proprietary trading desks, trading can only be profitable if someone buys an investment from you at a higher price than what you paid for it. And since banks’ trading desks have been fabulously profitable for the past few years,  that tells me that in the short term (the short term could be some weeks and/or months) GS needs to unload a bunch of positions and they will be unloading them on the people their report was aimed at.

The moral of the story is this. I am still long bullion and some mining company shares. However, I have significantly cut back on mining company shares in the past ten days and have a good chunk of cash on hand.

If I am right, I think I will be doing what Goldman Sachs is planning on doing. That is, sell a bunch of positions at the high, run them down to lower levels and get back in.

Then again, I may just be outsmarting myself here… time will tell….

More charts here: http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3585763

Prosecution of fraud… cont.

May 23, 2010

In an earlier post, I wondered what might be the rationale for investigating and, eventually, prosecuting entities that, with government tacit consent and collusion, are clearly at the heart of the current crisis and have obviously not acted in the best interest of society at large. As I had no answers then, I still have no answers today. Except that today we know that no criminal charges will be brought against any AIG executives… ??? …

I would like to say this was a foregone conclusion for it is unrealistic to expect the chief enabler to investigate and prosecute its own gang. AIG now being a ward of the state, it is unrealistic to expect the state to indict itself.

So, is it all a dog-and-pony show? Is it just a way to throw the seething masses a bone? It certainly looks that way. Not that we are surprised of course but it is disconcerting nonetheless and I doubt it will serve to assuage the anger that is mounting at street level.

Here is another take from Naked Capitalism with more detail and more in depth information on indirect though equally suspect relationships as well as a good point I was not aware of concerning “secondary liability”.

http://www.nakedcapitalism.com/2010/05/no-criminal-charges-against-aig-execs.html

The next World War

October 19, 2009

This is not a catchy title aimed at getting your attention. This is what our governments are planning if not by choice then by necessity.

(NB) Some of you have complained that the first iteration of this post was too disjointed. I am now altering it to highlight some of the relationships that have been discussed in previous posts in an attempt to connect the dots for those that have not followed my posts previously.

Mike Shedlock puts out a great summary of the illegal shenanigans our governments are tolerating and or colluding in and outlines the basis for what should be public outrage but is not… yet. Mike Shedlock does not go as far as predicting a global conflict. I do. Here’s why:

The defining characteristic of fiat money is inflation. One of the characteristics of inflation is that it brings forward and compresses in time the demand and production cycles.

Thus towards the end of the inflationary dynamic, you have excessive industrial capacity thus low pricing power.

Keep that in mind.

The only reason the West will engineer a war is because the coffers are empty. I know that alarmists have been jumping up and down for decades claiming that the coffers are empty. But they have been and still are empty. The difference is that for as long as a government is able to generate inflation, then you can borrow and spend thus maintaining the appearance of solvency (think of the pension trust fund that has been spent for example). However, inflation has a mathematical limit. Essentially, when interest rates are approaching zero and your entire issue of government securities goes towards servicing the debt, you no longer can borrow.

Printing money is a solution IF the money circulates. But if it doesn’t, then all you are doing is destroying the currency.

http://research.stlouisfed.org/fred2/series/MULT

Keep that in mind too.

Now!

One of the more insidious characteristics of deflationary recessions is that as unemployment rises, social costs go through the roof. However, government tax revenue drops dramatically (because of forced liquidation of which more later).

So, governments have to cut back on social expenditure just at the time that unemployment is rising.The other characteristic of deflation is that it forces a liquidation of assets thereby decreasing nominal earnings and the nominal value of balance sheets. The direct result is that all pyramid schemes and illegal finance arrangements are blown out of the water.

Therefore, we will have rising unemployment and a reduction of social expenditure at a time when many politicians and select members of the business elite will be implicated in scandal after scandal; and trust me, we are not done finding out about illegal or criminal practices. I know this because as the beneficial effect of inflation pumping wanes, government has a vested interest in aiding, abetting and colluding in criminal action (Fannie Mae… Goldman Sachs).

http://globaleconomicanalysis.blogspot.com/2009/10/where-hell-is-outrage.html

http://market-ticker.org/archives/1514-Tying-It-Together-Massive,-Pernicious-Fraud.html

The unemployed, the retired and the students will not take well to the new juncture and civil disorder will follow in short order.Civil disorder means that governments will fall.Politicians in the West are not about to relinquish power and they are certainly not about to admit that they are no better than your garden variety Mugabe.

Before enough unemployed will be roaming the streets looking for some politician to lynch, we’ll have us a world war.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a6QpSf.s4NaA

It’s been done before for exactly the same reasons. There is absolutely no reason why it should not be done again.

We don’t need resources. We need to destroy plenty of infrastructure so that we may restart the inflation dynamic. No inflation = government default

Forward this post to anyone and everyone on your mailing list. You are the only ones that can prevent the next world war by forcing accountability and legal consequences on our politicians.

– ADDENDUM MARCH 11TH, 2012 –

As I go over posts written over the past few years, I realize that till very recently I have made use of the words “inflation” and “deflation” in erroneous thus ambiguous ways.

Inflation of course, is the expansion of the monetary base and credit. Deflation is the contrary.

Till very recently, whenever I mentioned “inflation” I meant the expansion of the monetary base and credit. So that is correct. However, whenever I mentioned “deflation” I meant the nominal decrease in asset prices thus in balance sheet.

You will forgive me as I am new at this writing stuff.

Below is the link to as well as the entire text of Mike Shedlock’s post

http://globaleconomicanalysis.blogspot.com/2009/10/where-hell-is-outrage.html

Where The Hell Is The Outrage?

The number of articles and opinions on Goldman Sachs earnings, bonuses, and influence pedaling over the past several days is quite stunning.

Many have pointed out the problems; few have expressed outrage over what is happening in general, not just at Goldman Sachs. Let’s take a look.

My take is at the end.

Letting The Dice Roll

Rolfe Winkler at Contingent Capital is writing Letting Goldman Roll The Dice.

Is Goldman really such an indispensable financial intermediary? One look at the firm’s revenue breakdown shows that it’s more casino than anything else, and some of the markets it makes still put the economy in danger.

Goldman, in other words, generates most of its revenue trading its own money and earning vigorish on customer transactions. It’s a hybrid hedge fund and bookie, with an investment bank and asset management business thrown in for good measure.

With that in mind, one is left to wonder whether Goldman was really worth saving last year. What have taxpayers received for the $50 billion worth of cash and guarantees, for giving Goldman access to the Federal Reserve as its lender of last resort?

Saving Goldman was largely about saving the derivatives market, which is so big and unstable that the death of one counterparty could mean the death of all. With big commercial banks like JPMorgan Chase in deep, saving the derivatives business was as much about protecting depositors and maintaining the integrity of the payment system as it was derivatives themselves.

To Goldman’s credit, they’ve rebuilt their capital levels faster than anyone. Their leverage ratio has fallen from 35 to 16 in less than two years, despite pressure from equity analysts to juice returns by deploying “excess capital”. But at $50 billion, the bank’s mark-to-myth, or level 3, assets remain as high as its tangible common equity, the cushion it has to absorb losses.

Wall Street and its protectors at the Fed and Treasury tell us the bailout was necessary to protect the financial system, to protect Main Street. That may be. But Main Street still owns much of the risk while Wall Street gets all of the profit.

Geithner’s Appointment Book

The New York Times is taking A Look Inside Geithner’s Appointment Book

As Treasury secretary in the aftermath of last fall’s Wall Street meltdown, Timothy F. Geithner needs to keep in touch with the nation’s top bankers. But it seems that he connects with some financial chiefs much more often than others.

An analysis of Mr. Geithner’s calendars, which the Associated Press obtained through the Freedom of Information Act, shows that Mr. Geithner had contact with top executives at Citigroup, Goldman Sachs and JPMorgan Chase more than 80 times during his first seven months at Treasury — while the heads of Bank of America and Morgan Stanley appeared on his calendars a total of just six times.

The Associated Press describes one spring evening when Mr. Geithner had a series of particularly high-powered calls:

After one hectic week in May in which the nation faced the looming bankruptcy of General Motors and the prospect that the government would take over the automaker, Mr. Geithner wrapped up his night with a series of phone calls.

First he called Lloyd Blankfein, the chairman and C.E.O. at Goldman. Then he called Jamie Dimon, the boss at JPMorgan. Obama called next, and as soon as they hung up, Mr. Geithner was back on the phone with Mr. Dimon.

Gee what might those calls have been about? Derivative bets on GM by any chance?

How Goldman Sachs Leveraged $70 Billion In Government Money

Jesse’s Café Américain is reporting How Goldman Sachs Leveraged $70 Billion In Government Money.

Guess which two Wall Street banks were acting as informal agents of the government in order to support the bond and stock markets and reinflate them?

Two big banks that are showing record trading profits, and a small group of enablers and assistants.

Exchange Stabilization Fund – wise, its a near layup when the US fronts you the money and then works with you to take the markets higher. Especially when it is on thin volumes based on ‘news’ which you help to create and control via frequent calls to young Tim who is your coordinator, in addition to all your other well-placed backchannel sources. You get a heads up, you use the futures to prop the markets. You need some good news, some can be arranged. Just like the good old days when Timmy was riding herd on the NY Fed desk.

All for the good of the country. And if you happen to make a billion per month in trading profits, well, that is the price of freedom for a job well done.

Max Keiser On Fraud

Robert Parsons: Is this froth and no substance or is there something to this?

Max Keiser: The word is not froth the word is fraud. JPMorgan, Goldman Sachs, Citigroup, are all engaged in accounting fraud. They are not realizing losses on trillions of dollars worth of bad debts on their books, giving themselves big bonuses this year, deferring losses to next year ….”

Part One

Part Two

The Goldman Tithe

Joe Peyronnin at The Huffington Post is writing Tithe Goldman Tithe

So Goldman Sachs is now concerned its company has a perception problem? They are even going to undertake a huge public relations offensive to turn things around? Well they sure have plenty of money to throw at this problem.

For sure, Goldman Sachs bankers work hard at creating value for their customers and shareholders. And their success should be rewarded. But a report that the firm had set aside about $20 billion for employee bonuses has caused a backlash. Critics say that Goldman Sachs is just back to its old money making ways.

Sadly Goldman Sachs doesn’t really care what Main Street thinks. Rather they are concerned what Congress or the U.S. Government might do.

The projected 2009 Goldman Sachs bonus pool will be around $20 billion, a near record amount. Therefore the average pay out per employee could be more than the $661,490 given in 2007. Memo to Goldman Sachs: most Americans don’t make that much in a lifetime of working.

This year Goldman Sachs should tithe. Take 10% right off the top of the bonus pool, or $2 billion, and donate it to rebuilding New Orleans and the Gulf Coast of Mississippi and Alabama. Tap into their own brainpower to develop a plan to target the money on specific worthwhile projects so it does not get diverted to corrupt contractors and politicians. For starters, money could be used to rebuild the 9th ward of New Orleans, and devastated sections of Biloxi and Bay St. Louis, Mississippi.

Subsequently, Goldman Sachs should donate 10% of their bonus pool each year to a particular cause, helping injured and needy US military veterans, underwriting national after school programs designed to keep kids off the streets and out of trouble, curing diseases and the list goes on.

The US taxpayers supported the financial community when its collapse was imminent. Now it is time for financial institutions to help their country in its time of need.

Goldman’s Public Relations Bind

The New York Times says Bonuses Put Goldman in Public Relations Bind

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Goldman executives are perplexed by the resentment directed at their bank and contend the criticism is unjustified. But they find themselves in the uncomfortable position of defending Goldman’s blowout profits and the outsize paydays that are the hallmark of its success.

For Goldman employees, it is almost as if the financial crisis never happened. Only months after paying back billions of taxpayer dollars, Goldman Sachs is on pace to pay annual bonuses that will rival the record payouts that it made in 2007, at the height of the bubble. In the last nine months, the bank set aside about $16.7 billion for compensation — on track to pay each of its 31,700 employees close to $700,000 this year. Top producers are expecting multimillion-dollar paydays.

Goldman employees reaped rewards that most people can only dream about. Goldman paid out $4.82 billion in bonuses last year, awarding 953 employees at least $1 million each and 78 executives $5 million or more. The rewards for 2009 will be far greater.

Goldman executives know they have a public opinion problem, and they are trying to figure out what to do about it — as long as it does not involve actually cutting pay.

Another Goldman Executive Named To Key Government Post

Glenn Greewald writing for Salon notes Another Goldman executive named to key government post as its profits skyrocket.

Apparently, the U.S. government didn’t have enough Goldman Sachs executives in key financial and regulatory positions so Goldman Exec Named First COO of SEC Enforcement.
In October of last year, a Goldman Sachs Vice President, Neel Kashkari, was named by former Goldman CEO and then-Treasury Secretary Hank Pauslon to oversee the$700 billion TARP bailout. In January of this year, Tim Geithner hired a former Goldman Sachs lobbyist, Mark Patterson, to be his top aide and Chief of Staff. In March, President Obama nominated Goldman Sachs executive Gary Gensler to head the Commodity Futures Trading Commission, which regulates futures markets, even though (or “because”) Gensler confessed to lax regulation during the Clinton administration over the very derivative instruments that caused the financial crisis. In April, Goldman hired as its top lobbyist Michael Paese, the top aide to Rep. Barney Frank on the House Financial Services Committee which Frank chairs.

According to ABC News in October, 2008, Goldman “spent more than $43 million dollars on lobbying and campaign contributions to cultivate friends and buy influence in Washington, D.C. since 1989” and their “bankers have been the country’s top political campaign contributors this year.” “They are almost in a class by themselves,” said Sheila Krumholz, the executive director for the Center for Responsive Politics. As Michael Moore has been pointing out, Goldman was the number one source of funding for the Obama 2008 presidential campaign. The bailout of AIG — which resulted in massive federal government monies to Goldman — was engineered at a meeting between Paulson, Geithner and Goldman CEO Lloyd Blankfein. Last year, Goldman paid top Obama economics adviser Larry Summers $135,000 for a one-day visit to Goldman.

That the administration continues, so brazenly, to place Goldman Sachs executives in the very government positions with the greatest power over the financial industry illustrates how little effort is devoted to hiding what is really taking place.

Adam Storch COO of the SEC

The Business Insider has posted an image and qualifications of Adam Storch, 29-Year-Old Goldman Guy Who Is Now COO Of The SEC

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Storch graduated from SUNY Buffalo. During college he did a stint as a summer intern at Neuberger Berman and worked at Deloitte & Touche for two years after graduating.

Storch then went to NYU’s Stern School of Business. This lead to a job at Goldman, where he worked for the last five years.

Derivatives Bill’s Loophole May Exempt Most Firms

Gary Gensler, Chairman of the Commodity Futures Trading Commission says Derivatives Bill’s Loophole May Exempt Most Firms.

Legislation by Representative Barney Frank to tighten derivatives regulation contains an exemption that may let most financial firms escape new collateral and disclosure rules, the head of the Commodity Futures Trading Commission said.

A plan offered by the Obama administration would subject all swaps dealers and “major market participants” to new regulations for capital, business conduct, record-keeping and reporting. Frank’s version would exempt corporations from that definition if they use derivatives for “risk management” purposes.

“It is clearly the weakest of all the proposals I’ve seen to date,” said Christopher Whalen, managing director of Institutional Risk Analytics in Torrance, California, in an interview before the hearing. Whalen, who has testified before Congress on derivatives regulation, is an independent bank analyst. “Frank’s committee seems to be intent on gutting any meaningful reform.”

The draft would ease trading and clearing requirements for derivatives dealers such as Morgan Stanley and Goldman Sachs Group Inc., compared with the administration’s proposal.

The Rich Have Stolen the Economy

Paul Craig Roberts, writing for CounterPunch says From Offshoring Jobs to Bailing Out Bankers The Rich Have Stolen the Economy.

Bloomberg reports that Treasury Secretary Timothy Geithner’s closest aides earned millions of dollars a year working for Goldman Sachs, Citigroup and other Wall Street firms. Bloomberg adds that none of these aides faced Senate confirmation. Yet, they are overseeing the handout of hundreds of billions of dollars of taxpayer funds to their former employers.

The gifts of billions of dollars of taxpayers’ money provided the banks with an abundance of low cost capital that has boosted the banks’ profits, while the taxpayers who provided the capital are increasingly unemployed and homeless.

Except for the banksters and the offshoring CEOs, there is no source of consumer demand to drive the US economy.

The political system is unresponsive to the American people. It is monopolized by a few powerful interest groups that control campaign contributions. Interest groups have exercised their power to monopolize the economy for the benefit of themselves, the American people be damned.

Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. He is coauthor of The Tyranny of Good Intentions.

Tenacious Goldman

Here is one more article, from July, courtesy of New York Magazine: Tenacious G

On the weekend of September 12, 2008, as the financial system shuddered and appeared to be on the verge of lurching to a halt, two Goldman Sachs men, former CEO Hank Paulson and current CEO Lloyd Blankfein, huddled with other banking heads at the Federal Reserve Bank of New York to consider how to stave off disaster. Bear Stearns was dead. Merrill Lynch, run by another former Goldman man, John Thain, was in desperate need of a savior. And now Lehman Brothers was on the brink. As secretary of the Treasury, Paulson asked the banks to come up with a private-funding solution for Lehman before it imploded from lack of cash. But all the banks had been scrambling for cash reserves or strategic mergers to buffer against a rapid freeze in lending. No one was able, or willing, to help. And Paulson, a free-market purist, had made one thing clear up front: The government would not bail out the firm. Lehman Brothers, a longtime Goldman rival, prepared to declare bankruptcy, ending its 158-year run on Wall Street.

By Sunday night, Paulson realized he had an even bigger problem: the insurance giant AIG. AIG had sold billions in credit-default swaps to several major banks, what amounted to unregulated insurance on risky subprime-mortgage investments, the very ones that were bringing down the economy.

Hank Paulson and then–New York Fed chief Tim Geithner called an emergency meeting for the following Monday morning at the Federal Reserve Bank, ostensibly to discuss whether a private banking syndicate could be established to save AIG—one in which Goldman Sachs and JPMorgan Chase, two of the ailing insurance giant’s clients, would play prominent roles.

At the meeting, it was hard to discern where concerns over AIG’s collapse ended and concern for Goldman Sachs began: Among the 40 or so people in attendance, Goldman Sachs was on every side of the large conference table, with “triple” the number of representatives as other banks, says another person who was there. The entourage was led by the bank’s top brass: CEO Blankfein, co-chief operating officer Jon Winkelried, investment-banking head David Solomon, and its top merchant-banking executive Richard Friedman—all of whom had worked closely with Hank Paulson two years prior. By contrast, JPMorgan CEO Jamie Dimon did not attend.

The Goldman domination of the meetings might not have raised eyebrows if a private solution had been forthcoming. But on Tuesday, Paulson reversed course and announced that the government would step in and save AIG, spending $85 billion in government money to buy a majority stake.

Of the $52 billion paid to AIG’s counterparties, Goldman Sachs was the biggest recipient: $13 billion, the entire balance of its claim. The amount was surprising: Banks like Merrill Lynch that had bought credit-default swaps from failed insurers other than AIG were paid 13 cents on the dollar in deals moderated by New York’s insurance regulator. Eric Dinallo, the former New York State insurance commissioner, who was at the AIG meetings, characterizes the decision this way: AIG’s counterparties, Goldman being the most prominent, “got to collect on an insurance policy without having the loss.”

Somehow not recognizing (or perhaps not caring about) the brewing backlash, Paulson continued to appoint Goldman Sachs alumni to positions of power after the AIG decision—he named Edward C. Forst, a former head of Goldman’s investment-management division, to help draft the $700 billion Toxic Asset Relief Program (of which $10 billion went to Goldman Sachs), and then Neel Kashkari, a former Goldman V.P., as the TARP manager. And of course Edward Liddy, former Goldman board member, was already serving as the new CEO of AIG. Suddenly, everywhere you looked, men who had passed through the Goldman gauntlet of loyalty and rewards were now in key positions overseeing the rescue of the financial system. The company was earning its nickname: “Government Sachs.”

Both Rogers and Paulson (who’s publishing a book this fall that will presumably attempt to justify his decisions and save his damaged legacy) have argued that the AIG decision was about saving the system as a whole, not Goldman in particular.

Similarly, they say, when it came to AIG, the firm was “prudent” in hedging its bets, buying credit-default swaps from Bank of America, JPMorgan, Société Générale and other banks in case AIG failed to pay the money it owed Goldman—in effect, hedging its hedge against the mortgage market. Goldman Sachs had no “material exposure” to AIG, they argue. One senior executive goes so far as to suggest the firm might even have benefited from AIG’s demise. “We might have done very well,” he says, “but I wouldn’t be so presumptuous as to say that. Who knows?”

Not a single Wall Street executive I spoke with, including several Goldman Sachs alumni, believe those hedges would have survived an overall collapse of the financial system. A large loss would have been inevitable as lending evaporated, and Goldman Sachs would have struggled to shrink the company to a fraction of its size overnight. But the most glaring argument against Goldman is Goldman’s own: If AIG’s biggest and most important bank customer was hedged against losses in AIG, as it claims, why did the government need to pay Goldman Sachs the full $13 billion?

Lost in the haze of Goldman’s recent record profits is the fact that the firm nearly went under even after the AIG bailout last fall. As the market continued to plunge and Goldman’s stock price nose-dived, people inside the firm “were freaking out,” says a former Goldman executive who maintains close ties to the company.

Salvation came on November 25, a few days after Goldman’s stock price plunged to $52 a share, down from the year’s high of $200 and the lowest price the company had seen since it went public. Again, the white knight was the government. It turned out that Goldman’s conversion to a garden-variety bank-holding company offered an amazing advantage: Goldman now had access to incredibly cheap money. Exploiting its new status, Goldman became the first financial institution to sell $5 billion in government-backed bonds through the Federal Deposit Insurance Corporation, which allowed Goldman to start doing deals when the markets were at a near standstill.

Those FDIC notes they got were lifesaving because they couldn’t issue any debt. If it had gone on another week or two, Goldman would have failed, they would have gone the way of Lehman, and you’d be talking about Lloyd the way you talk about [Lehman CEO] Dick Fuld.”

Even Goldman alumni were struck by the company’s shameless posture in ramping up the leverage again so soon after the government bailouts. “It’s a statement of arrogance,” says one former executive.

Goldman claims that there is a Chinese Wall between the advisory business and the trading business. “There are rules and laws regarding information sharing, and we scrupulously follow them,” says a company spokesman.

But two former clients told me they had observed firsthand how Goldman traded against their interests to improve its own bottom line—one who didn’t like it, the other accepting it with a shrug and saying, admiringly, that Goldman’s ability to convince the world that it is a “client-oriented” business was its most masterful PR coup.

Goldman’s profiting from this ethical gray area was exemplified by the real-estate market and the subprime-mortgage collapse: Goldman Sachs sold subprime-mortgage investments to its clients for years, but then in 2006 began trading against subprime on its own balance sheet without informing its clients, a hedge that ultimately let it profit when the real-estate market cratered. For some, this was a prescient call; for others, a glaring conflict of interest and inherently dishonest, since the firm let its clients take the fall.

Earlier this month, Goldman had an ex-employee arrested for allegedly stealing computer codes that could be used, as the prosecutor noted, “to manipulate markets in unfair ways.” Some hedge-fund traders and financial bloggers have speculated that Goldman itself could have been using the codes for the same purpose.

Now attention is turning to Goldman’s dominance of trading on the New York Stock Exchange—as the exchange’s biggest high-speed program trader as well as a provider of liquidity to other traders—and whether that ubiquity has afforded the firm undue advantage. If Goldman’s database knows nearly every trade that is about to be made, sophisticated computer codes could, theoretically, instantly execute fail-safe trades on Goldman’s behalf milliseconds beforehand. This, some are insisting, is where the company is manipulating the markets and making hundreds of millions of dollars a day.

The New York Magazine article is 8 pages long and well worth a read in entirety.

My Take

As long as the playing field is level, corporations are entitled to make what they can and do with the profits what they want, and that includes granting whatever bonuses a corporation wants.

Let’s see how level the playing field was and still is.

AIG

Goldman Sachs makes the case that it was hedged so it deserved not to lose anything. However, as the New York magazine points out, the odds are high that those hedges were worthless because of the sheer amount of leverage and counterparty risk. Yet, Goldman received $13 billion, the entire balance of its claim on AIG while “Banks like Merrill Lynch that bought credit-default swaps from failed insurers other than AIG were paid 13 cents on the dollar.

Every financial institution involved should return every cent of that money because they all would have failed without government (taxpayer) handouts.

GM

It is incredibly peculiar that in “one hectic week in May in which the nation faced the looming bankruptcy of General Motors and the prospect that the government would take over the automaker, Mr. Geithner wrapped up his night with a series of phone calls” to JPMorgan and Goldman Sachs.

I suspect those calls were in regards to concerns over the derivative books of JPMorgan and Goldman Sachs. It is no secret that more credit default swaps were bet on GM than there were underlying bonds.

Of course, the realm of possibilities says those calls may have been to arrange last-minute details for a group fly fishing trip to Paulson’s private island off the coat of Georgia. However, the realm of probabilities is much narrower.

Is it too much to ask the precise nature of those calls? I suppose it is.

The SEC Appointment

Is Storch really the most qualified candidate? Will a Goldman appointee overlook or squelch investigation into the practices at Goldman in favor of investigating Aunt Martha or some firms that Goldman just might want to step on?

Regardless, It sure does not hurt when you have someone at the SEC who will turn a blind eye to anything Goldman might have done wrong or is still doing wrong or alleged to be doing wrong.

There are a lot of allegations against Goldman about front running trades, naked shorting, high-speed program trading, and the sheer volume of program trading at Goldman Sachs. What are the odds any of this gets investigated, or that if is investigated any wrong-doing will be found?

Derivatives Legislation

Think any derivatives legislation will be passed that is not specifically beneficial to Goldman Sachs and JPMorgan? Think again.

Influence Pedaling

All hail “Government Sachs” the king of kings and master of the universe of influence pedaling. Salon.Com details position after position of ex-Goldman Sachs employees in positions of influence.

Yes, there is some public anger about Goldman Sachs. Sadly, much of it is misdirected towards the bonuses. The real outrage should be over the favoritism, influence pedaling, and business as usual environment in which Goldman Sachs can do what it wants, when it wants, while in a position to know in advance (and potentially trade off that knowledge) of what the government is about to do.

Where’s The Outrage?

I don’t know about you, but I am outraged.

I am outraged and not just about Goldman Sachs, but about a process that allows, even encourages political pandering, by time and time again rewarding leveraged riverboat gamblers and failed institutions and at taxpayer expense.

I am outraged that real people are suffering massively while the influence peddlers have stolen the country for their own personal benefit.

I am outraged at a political system that is totally unresponsive to the American people.

I am outraged by campaign contribution and lobbying processes that allows corporations to buy votes with donations.

I am outraged how legislators ignored the wishes of the people who clearly did not want these bailouts in the first place.

I am outraged that very little of this is in mainstream media. Why is this stuff not on the frontpage of every newspaper in the country or at least in the editorial pages?

I am outraged that the average US citizen is not aware of any of this, instead depending on CNBC, or “The View” for their interpretation of the world.

I am outraged how special interest groups have exercised their power to monopolize the economy for the benefit of themselves, US citizens be damned.

I am outraged that all these bailout programs are doing nothing to alleviate the massive consumer debt problems. Every program, virtually every program was designed to bailout lending institutions, not consumers.

I am outraged at fees charged by banks receiving bailouts.

I am outraged over government pension plans and government pay scales massively out of line with the private sector.

I am outraged that Congress and this administration thinks the solution to massive budget deficits are still higher budget deficits in excess of a trillion dollars.

I am outraged about indictments. Paulson Admitted Coercion to force a shotgun wedding between Bank of America and Merrill Lynch yet no indictments were handed out. Let the Criminal Indictments Begin: Paulson, Bernanke, Lewis.

I am outraged that US citizens are not concerned enough and not educated enough to demand change.

I am outraged that the two party system has failed. Neither party has delivered meaningful change on budgets, on taxes, on social security, on deficit spending, on the size of government, on military spending, or fighting needless wars.

I am outraged that the Obama Administration promised changed and did not deliver. “Yes We Can” was a lie. The reality is “It’s Business As Usual, Only Worse, With Higher Deficits”.

I am outraged there is not enough outrage over this.

Where the hell is the outrage?

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

A change in sentiment?

October 17, 2009

It would appear that the main stream media is in the process of becoming somewhat more critical of government action and may be willing to take a stand against what are flagrant and obvious illegal if not criminal practices.

Here is a clip by MSNBC’s Dylan Ratigan whom along with a number of other commentators I cannot recall ever questioning the actions of our “leaders” and monetary “authorities”.

I don’t know what is causing the change in sentiment in the main stream press and, for the time being, I reserve judgment.

The information provided in the video clip is factual if greatly watered down. I suspect the watering down is necessary to make it intelligible to the greatest number of people. For example, it is true Goldman Sachs have taken public money and have made a killing by acquiring assets at distressed prices at the height of the financial panic. What is not explained is how Goldman Sachs should know which assets to acquire. That, is a much more complex concept that relates to far more criminal behavior than taking public money and retaining all the profits. If you browse any of the blog sources you find on my blog such as Karl Denninger or the team at Zero Hedge or search for High Frequency Trading on my blog (HFT) you will realize that criminal behavior runs deep and involves government collusion. HFT is not the only illegal action undertaken by GS or the government. There are dozen of other instances of criminal collusion and contravention to the letter of the law. Things like the suspension of mark-to-market rules for example. How about taking over Fannie Mae and Freddy Mac two clearly private enterprises that have never been government sponsored entities? Or the riding roughshod over GM bondholders but unilaterally and arbitrarily sparing bank bondholders. How about the information black-out imposed by government on who got TARP money and how much?

The list of acts of fiduciary negligence and criminal activity is fairly long and was heralded by numerous red flags along the way.

However, what seems to escape most people is what might have caused this latest crisis. Indeed, is there one overarching action or decision or dynamic that can be highlighted and pointed at that would explain what is happening today?

If you’ve read any of my posts, I think there is.

In my opinion, this is nothing but the logical conclusion of the dynamic brought about by our monetary system. That is, what is happening today is nothing but the direct and logical consequence of the use of an unchecked fiat monetary system.

Incidentally, I wish everyone to realize that although we live in societies that are presumably steeped in economic and personal freedom, no government anywhere in the “free” West has ever asked ratification for their unilateral and arbitrary choice of monetary system.  Even worse, in our presumed economically free capitalist societies, government retains the power to set interest rates.

Once the government of a democratic society awards itself the right to impose the monetary system and manipulate interest rates, the one logical and inescapable outcome is the gradual erosion of the purchasing power of the unit of currency i.e. inflation.

Inflation is a dynamic that is both exponential in nature and, therefore, limited mathematically. Being exponential, inflation has a number of preordained and inevitable effects on society and the economy. One of the inescapable ramifications of inflation is that by artificially, pervasively and aggressively inducing inflation into a monetary system, government induces a rise in price level hence a rise in GDP. However, as GDP progression becomes ever more dependent on generating more inflation, the intrinsic wealth structure of society is progressively impaired. As the dynamic progresses, financial value runs away from intrinsic value at ever greater speed until the only way to induce more inflation requires ever greater degrees of government collusion in carrying out actions that eventually become criminal. This causes government to become an ever greater actor in the economy and eventually the existence of the political structure becomes dependent on generating ever more inflation.

But since expanding government can only subsist if it is financed by increasing tax revenue, then the generation of ever greater inflation becomes a goal unto itself.

The problem is that the logical conclusion of a fiat monetary system is known and inevitable. It has happened before. We know how it ends. Government intervention can at best stretch out the time line but cannot avoid the conclusion. In the process, government becomes a progressively larger actor in the economy. But as government is a non profit construct, its existence is predicated on increasing tax revenue thus progressively sapping the life blood of the economy.

The point at which the economy no longer generates enough revenue to service debt, that is the point at which financial value spurred on by leverage and gimmickry (i.e. hedonic adjustments, CPI manipulation, absurd leverage of 80 t0 1 )  is the most distant from intrinsic value. At that point, due to the yawning gap between what assets are worth on the market and the amount of debt that needs to be extinguished, returning to equilibrium causes social and economic devastation in the form of rising unemployment and a reduction of social services expenditure (road maintenance, mail delivery, social medicine, teacher salaries, civil servant salaries, food stamps… pensions… ).

Historically, similar junctures have resulted in world wars. We can only hope that this time will be different. But hope, as you know, is not a sound strategy.

http://www.msnbc.msn.com/id/31510813/ns/msnbc_tv-morning_meeting/#33346455

(look for “Ratigan: Goldman Sachs magic trick”)