Re: Re: Playing Politics With Goldman

Look, if you’re going to bring hard facts into this discussion, Orrin Hatch will just take his ball and go home.

Thank you, Adam Sorenson, for not being nearly as lousy a reporter as Jay Newton Small.
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I mean, she really does a bad job.

I know these things take time but that also means that Goldman had ample opportunity to reach a behind the scenes settlementthat would have resulted in the charges, actions and settlement all being enacted at once, which commonly happens with the SEC.

For Goldman to have already responded to this and to let it go on for so long means that the bank is at the very least confident in its legal position. Not that Goldman can’t be wrong, of course, but it’s probably shorting other bank stocks as a hedge (kidding about that last part, they’re probably doing something more sophisticated than shorting).

Cliff, in her defense, she had to go without fresh sushi while trapped in England

This whole thing took me forever to understand, but I am glad Time brought it up.
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That said, this smells like a political hatchet job to me, and I will explain why.
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Firstly, we need to understand Goldman’s role here. They were pretty much a middle-man as far as I can figure, or “underwriter” if you prefer the technical term for what they were dealing with: a Synthetic Collateralized Debt Obligation (or Synthetic CDO). Which are totally legal.
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CDO’s are a form of asset backed security that has been in existence since 1987 (First used by Drexel, Burnham and Lambert). At the Senior level they generally offer a 2-3% better return that corporate bonds of the same rating. They are mark-to-market however, so they can cause massive wright-downs for your company if you buy the wrong one. Apparently Goldman did just that because they lost $90 million on this deal.
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CDO’s function like this: Some corporate entity (in this case the Paulson Hedge Fund) approaches an underwriter (Goldman in this case) to help them create a Special Purpose Entity (SPE) which holds a portfolio assets and sells the cash flows from them to investors (companies, banks, individuals). The SPE uses the revenue from these bond (CDO) sales to actually purchase the items in the portfolio wholesale (these items are usually mortgage-backed securities or commercial-real estate bonds).
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These sales are structured into tiers called “tranches” which come in Senior, Junior and Equity varieties. Senior CDO’s are paid by the cash flow from asses before the Junior ones, which are in turn paid before the Equity holdings. Losses and debt go the other way. Sort of a first in-first out thing.
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Now here’s the really important part about CDO’s: Risk and return to the investor are related to the tranches (assumptions about and methods used to determine the risk involved and what the return should be for each level) directly and are only indirectly related to the actual assets the CDO holds. This allows the creator of a CDO (Paulson in this case) to pass alont risk to others such as institutions (Goldman) or individual investors (you, me, banks the might buy these things etc). Hence, EVERY investor that is even thinking about getting into CDO’s has to carefully examine not only how they are constructed but how the risk for each tranche is calculated.
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The underwriter (Goldman) works to structure/arrange the CDO by working with the asset management company (Paulson) which has selected the portfolio for the CDO. The underwriter works with ratings agencies to structure the tranches and debt.
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Basically, what Goldman did here was structure these things in legal ways with the help of ratings agencies, while Paulson picked the assets for the portfolio. Goldman created a 200 page document on the risk etc, and managed to find two major buyers. A U.S. investment fund and a German bank to purchase these CDO’s, but they still had some small portion left over that they decided to hang on to.
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The end result: everyone was betting on this, just like at a card table.
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It may not be pleasant to think of but that’s what you do every time you buy or sell something. If you’re the buyer you are betting the product is what you want and will do what you want it to and that you’ll be satisfied with its performance at the price you agree to pay. If you’re selling you’re betting that the buyer will agree to all of the above. Look at cars. You’re BETTING the car won’t have problems serious enough to kill you like a Toyota might if you’re a buyer. Toyota is betting that enough people will buy the car at a given price to make money from it, and that it will have few enough safety problems that nothing seriously untoward will happen.
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Ultimately everyone sat down at a figurative card table with Paulson, and bet on a long buy, while he was betting on a short sell. He won that bet, they all lost including Goldman. This is like a bunch of people betting money on a real card game then whining they didn’t understand the rules when someone wins with a royal flush, yet they didn’t bother to read the rule book that was provided to them free of charge by the dealer.
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Paulson is the fraudster, for knowingly putting together a package of investments that he knew he could sell to morons. He bet on there being a housing bubble, everyone else bet the trend would only go up. He was right they were wrong, but he put together the package. So if anyone is guilty of fraud, it’s Paulson and his hedge fund.

They’ve got fish in Britain. They’ve got eel – they make pies out of the damn things. They’ve got cucumber and rice and cream cheese.
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Avocado is probably a little harder to come by, I’ll give her that.

So when can we expect the criminal indictments to be handed down?

@squatch- I don’t see anything in your rather long post that explains why ‘this’ (presumably the SEC investigation started under the Bush administration) is ‘a political hatchet job’. Your assertion seems to be that the SEC is going after the wrong bad guy. How is that political?

I’ll second that thank you, Adam. This is actually useful information.

You left out a key component: There was supposedly an independent portfolio selection agent: ACA.
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Basically, Goldman lied to ACA about Paulson’s positions. Had ACA known that Paulson was short the CDO and not an equity tranche investor, it never would have put its name on the CDO as the porfolio selection agent. It is no defense to say that ACA should have done better due diligence. The reality is that ACA would not have taken the job if they had known the truth about Paulson. And, perhaps more importantly, relying on the recommendations of an experienced, equity-tranche investor is part of their due diligence.
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Goldman then lied, again, to the investors by misrepresenting who picked the RMBS in the CDO.
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It is easy to say that, because the investors misunderstood the market so badly, they would have lost a ton of money regardless of what securities were in the CDO. Paulson and Goldman Sachs would have made money no matter what (Paulson could have gone short against other, existing CDOs and Goldman could have collected the fees on the CDS trades) But, for the purpose of the lawsuit, that is irrelevant.
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Paulson and Goldman wanted to make more money and they wanted to make it faster. So Paulson constructed a big pile of garbage. And then Goldman lied its ass off to sell the garbage. And then the SEC sued Goldman.
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To follow up on your car example, when you walk into a car dealership, there is an assumption that the car company and the dealer have a vested interest in selling you a car that won’t break down. After all, they will incur costs to repair the car if it breaks down under warranty.
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What if the manager of the plant where your car was made had purchased a CDS that would pay off if your car broke down before the warranty was up? Wouldn’t you have wanted that info before you bought the car? Even if the car had somehow passed an independent quality control inspection, wouldn’t you have wanted to know that the person who had overseen the construction of your car had a financial interest in it breaking down?
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Regardless of whether the SEC ultimately prevails, there is absolutely no evidence that this is a “political hatchet job.” The suggestion is ludicrous.

anon-

They’re going after an easy target, one that they’ve mentioned a million times before. How many times has Obama or anyone in Congress screamed about Hedge Funds that the general public can remember? Hence that “hatchet job” comment.

Square1-

Based on the law and the way these things were done it wasn’t Goldman’s position to do what you say they should have. Had ACA known it was a… is a BS way of reality because Goldman lost $90million on this, they made NOTHING in profit. Therefore, if Goldman had known they could have added $90 million to their profits at that time.
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Further, Goldman is HIGHLY profitable company when the are 100% legal. It serves them NO purpose to be dishonest. They have been highly profitable for a long time. They make BILLIONS on honest traffic. Why in the name of anything unholy would they risk BILLIONS to make money over the course of a year? That’s slitting their own throats in the long term and they are smart enough to know it.
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Your premise is based on the idea that Goldman is 1)Greedy, 2) Corrupt, 3)Smart enough to get away with being greedy and corrupt but 4) so greedy and stupid as to cut their own throat by creating the most elaborate and grand “legal” scheme ever and getting caught. So what are they? Out of this world smart, or out of this world dumb?
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Sorry, but that argument doesn’t hold water. Either they’re greedy and dumb enough to get caught or they’re greedy and not smart enough to get away with it without killing themselves, yet they make billions. So they must be smart, because either way that make billions. While $90 million is chump change to them the damage this sort of thing would do to them could be ruinous to their credibility, so they have a free market reason NOT to have gotten involved.
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Try again.
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“Regardless of whether the SEC ultimately prevails, there is absolutely no evidence that this is a “political hatchet job.” The suggestion is ludicrous”
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The way the SEC caught Bernie Madoff right away? Or the way they caught Sanders? That SEC? The one that drops the ball repeatedly and apparently never hand hold onto it? That SEC will ultimately prevail? It might, but saying it will right now is more than a joke.
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I predict the SEC loses this suit and falls further into looking like a joke of a regulatory agency.

“A U.S. investment fund and…”: that would be ACA. Too bad they didn’t bother to do their due diligence.
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Oh wait, they were willing to bet on a simple idea: the prices of houses will never stop going up.
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Not anyone fault’s but theirs that they can’t see these things called “cycles” in the market. NOTHING in the private sector gains value forever. NOTHING.
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The only difference between the housing bubble and the tech bubble of the 90′s was that a lot more people were dumb enough to believe in the housing bubble because they believed the age old saying “God’s not making any more land”.
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No ones fault but theirs that they’re morons, and no one should have to bail them out for being stupid.
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I look at the equations on sub prime lending and mortgage backed investments and I say that if I ran a company I would never have gotten involved. You might try to argue that’s 20/20 vision, but it’s not. If you walk into my office with a math equation I can’t understand without the help of a dozen experts I’m going to tell you take a walk.
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I don’t care how much money you can make me in the short term with your super mathematical system. There’s one basic fact to this: if ANYTHING goes wrong I can’t explain it to my stockholders. That’s the bare rocks of it. If something goes wrong, I have to answer questions, and I can’t. Nor can the math people. Investors don’t want a 45 minute speech on theoretical math, they want hard NUMBERS based on CASH. If I can’t provided those with what you offer, f**k off! (Go ahead and call me a FREAKING conservative for wanting some REAL numbers not pie in the sky!)
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All too often we seem to forget that this whole storm was ultimately caused by Fanny and Freddy who got super low interest loans because everyone expected them to be backed by the Feds… which is exactly what happened. How much money have we spent so far on them that they don’t have to pay back? Not that they ever could.
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Goldman didn’t lie to anyone. They were the middleman selling what Paulson packaged and was selling (they just figured out the specifics of how to do it). Every ratings agency (including the beloved SEC) drank the kool-aid and agreed it was worth buying. That’s not Goldmans fault. Stop looking for someone to blame just because you wanna blame someone for something.

“Had ACA known that Paulson was short the CDO and not an equity tranche investor, it never would have put its name on the CDO as the porfolio selection agent.”
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You mean if ACA had thought the housing bubble might burst they might not have bought it? Cause that’s the fact. Apparenly ACA didn’t think that, hence they bought it.
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Buyer beware.

Are these the new El Rushbo talking points, sasquatch? It is evident that you know little about securities fraud cases.
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A few things to keep in mind:
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1. “We’re too smart to break the law” is not a strong defense.
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2. “We make too much money legally to break the law” is not a strong defense.
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3. The fact that Goldman Sachs may have lost money on this deal is not a strong defense.
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4. It is undeniable that Goldman lied to its investors and lied to ACA. You admit that “They were … selling what Paulson packaged” Guess what? They didn’t tell the investors that. And they didn’t tell ACA that Paulson was betting against the very CDO that he was putting together. Goldman actively deceived both groups. Whether such lies were statements of material facts within the meaning of the securities laws is the question that will be resolved in this lawsuit.
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5. The idea that the Obama administration has it in for Goldman Sachs is laughable. You don’t deliberately stab your largest campaign contributors in the eye.
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6. The idea that the Obama administration could dictate the timing of a SEC suit even if it wanted to is also laughable.
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7. The SEC isn’t a rating agency. It doesn’t agree or disagree whether a particular security is “worth buying”.
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8. The Republicans have a narrow window to make gains in Congress in November. Their ability to do so is predicated upon their ability to make logical and accurate criticisms of legitimate problems with HCR. If, however, they choose to make the mid-term elections a referendum on financial reform and choose to take the side of Goldman Sachs, they will receive an unholy pounding at the polls.

“Of course it’s totally wrong for the SEC and the Administration to collude and if they did the perpetrators should be punished. But if this was two hands independently working (with arguably great or terrible timing depending who you’re talking to) towards the same goal – to force Wall Street into actually taking a little responsibility for its actions – does it matter which way we get there, through regulation or through the courts?”

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I am also still trying to digest this statement by our esteemed new TIME.com reporter, Adam Sorensen, from the previous thread. Adam does not seem to believe that whether the Administration was using Chicago-style strong arm thug practices on the independent SEC in order to score political points in this matter is not a big deal.
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Politico has a much more indepth analysis as well as points out the potential collusion of the Administration and the SEC in this matter. Politico states:
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“As supported by the Commission’s canons of ethics, and as frequently reiterated by you and other Commissioners, the unqualified independence of financial regulators is crucial to the health of the financial system and the U.S. economy.
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For this reason, doubts about whether the Commission has scrupulously guarded its independence from the Administration’s partisan political agenda and concerted efforts to manipulate Congressional action are very serious, and should be addressed with full transparency.”

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Yes Adam, crooks and liars need to be exposed and brought to justice. However, when the Administration does this only when it is favorable for them to do so is a crime in and of itself when that goal is not to protect investors from the “big Fat Cats on Wall Street”, but to shine the light on potentially illegal activities in order to drive their political agenda forward.
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This smells of rotten fish. Politico also has this great timeline of when information began to “leak out” which I find very interesting as well.
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“Nevertheless, the events of the past five days have fueled legitimate suspicion on the part of the American people that the Commission has attempted to assist the White House, the Democratic Party, and Congressional Democrats by timing the suit to coincide with the Senate’s consideration of financial regulatory legislation, or by providing Democrats with advance notice. In fact, the aggressive campaign by Democrats in support of the legislation neatly coincided with the Commission’s announcement of the suit. For example:
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–The Commission approved the Goldman suit in a vote that spit along party lines – a rare occurrence for approvals of enforcement litigation.
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–Before the Commission had released its announcement, the New York Times published on its website a story describing the suit.
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–Less than half an hour after the Times story’s publication, Organizing for America, the successor organization to Obama for America and now a project of the Democratic National Committee (“DNC”), sent millions of supporters an e-mail message from President Obama urging support for “Wall Street Reform.”
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–Within hours, the Democratic National Committee had purchased AdWords advertising from Google, Inc. The DNC’s Google campaign fundraising advertisement, headed “Fight Wall Street Greed,” appeared whenever a user ran a Google search for the phrase “Goldman Sachs SEC.” It read, “Help Pres. Obama Reform Wall Street and Create Jobs. Families First!” and included a link to http://www.BarackObama.com, the website of Organizing for America.
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–Democrats in Congress and the Administration have heralded the Commission’s suit against Goldman as a welcome boost to their case for the legislation.
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–Members of the media have already begun to question the timing of the Commission’s suit and the actions of the Democratic National Committee.”

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http://www.politico.com/news/stories/0410/36097_Page2.html
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Hopefully Rep Issa will get to the bottom of all this and the result is an SEC which remains independent from politics, and protects small investors in a TIMELY manner. You see Adam, many people could have lost MILLIONS of their hard earned investment and retirement dollars because the SEC was kept from doing it’s job for political purposes. You do not think that is a crime?

Note that this exchange with Goldman Sachs began in the Bush Years, The SEC was pretty benign then and Goldman Sachs could have sought a settlement with a slap on the wrist: par for the course in those days. But GS grew too arrogant. They man the Trasury and feel invincible. My guess: the WH gave the SEC a kick in the pants and asked for action. Goldman got it in the gonads. Sasquatch’s explanations (rationalisations?) don’t make for easy headlines. Giving it to Goldman does. People are simply fed up with Wall Street

Thank you for a bit of perspective on this. Honestly a welcome change from the previous thread on this subject.
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While it might not ‘scratch the itch’ of playing up a political drama, and stoking the flames, this article does a much better job of outlining the forces at play and the timelines and motivation involved than relying on some anonymous he-said she-said.
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-MBirchmeier
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(Note: I was going to reply to a previous comment by (gysgt?) stating pretty much the same thing but it disappeared.)

It may come as a shock, but Republicans aren’t entirely stupid. They realize the voter rage against Wall Street and that, despite their talking points and rhetoric, it appears that they are taking the side of the big banks that cheated ordinary Americans out of everything. They will howl and scream, but a deal will probably get done.

Now it’s up to Obama and the Dems to keep up the pressure and force McConnell and his friends to say or do something they will regret come November.

http://www.political-buzz.com/

You’re right. If Jay & Adam hadn’t been asleep at the switch, they would know that Bloomberg reported on April 17 about the SEC notification & that Goldman “didn’t disclose that it was warned nine months ago that investigators wanted to bring a case, people with direct knowledge of the talks said,” although “Companies typically disclose legal issues such as regulatory probes in their quarterly and annual financial reports.”

They’re just crooks (allegedly).

The Constant Weader at http://www.RealityChex.com

Dunno. Whether the Administration knew about it, or it’s just the natural end result of the prominence of Wall Street scrutiny and attention going in in Congress right now, I’m still thinking is somewhat irrelevant.

Or are you saying this is just a witch hunt against an innocent Goldman Sachs?

And yes, the implication that being against this charge makes you a lackey/cheerleader for Goldman Sachs is implied there.

It’s the same as saying the prominent rich guy in town shouldn’t have to go to court to defend charges of corruption, because he’s the prominent rich guy in town. And that the charges wouldn’t have been brought up if the townsfolk hadn’t elected a new major.

You realize just how bad that sounds, don’t you?

JC, did someone else’s comments get removed here?

What comment disappeared?

gunny had a long comment on the previous post. mbirchmeier may have thought it was on this one.

Thanks, Ivy. I saw Gunny’s comment but missed whatever got pulled here. It must’ve been bad.
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Adam, I posted a link at Stephen’s CC morning reads about Air Force air tanker update. That’s still an unresolved biz / political mess that would be another perfect CC / Swamp mix.
http://www.cnbc.com/id/15840232?video=1473801300&play=1
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…although TIME has been beaten to the scoop by Jane Wells at CNBC (by years, literally). But still, your two groups can dig up new stuff …in addition to finance reform, Goldman, getting swamp / cc teams on The Call™ (Kate and Barbara, you and Stephen, etc.) – in addition to literally dragging Amy and Joe there too. Thanks.

…yep, something’s missing / out of whack here, literally. The list and order are all messed up.

Looks as though a comment by Cliff got pulled, enabling you to respond to me before I posted!

Exactly- it was Cliff’s compliment of Adam (and rather pointed criticism of JNS) that got pulled. jc, Cliff, and I all replied (the old #2 post), and now somehow we’re all at 11.1. Nobody ever said that censorship would make a blog look pretty!

anon-
They’re going after an easy target, one that they’ve mentioned a million times before. How many times has Obama or anyone in Congress screamed about Hedge Funds that the general public can remember? Hence that “hatchet job” comment.

I’m still not with you- are you saying that this is an Obama-instigated investigation, in spite of Adam’s link proving that this was started under the previous administration? Or are you saying that the timing is the political aspect? If so, do you have anything other than the ‘smell’ as evidence that the SEC is colluding with the current administration in order to attack the administration’s single largest financial contributor (talk about strange definition of an ‘easy target’)?

@Deconstructiva: According to people with better memories than I, apparently it was Cliff’s comment at #1 that got moved down to #11 that got edited (and moved down) the list that I thought I was replying too. Although since it looks like it got edited.
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I also wonder how I ended up ‘in front’ if it, although some of the replies on 11 ended up being posted before 11. Which also explained why the avocado and eel comments looked familiar but not the original post.
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-MBirchmeier

@Ivy_B, anon76:
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It was Cliff’s commentary I was attempting to reply to. Oddly enough, after his comment got moved down to 11, not only did the timings change etc, but it appears that replies stopped getting numbered after #11. Not pretty indeed.
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-MBirchmeier

1. I never said that Goldman made that argument, stop putting words in my mouth.
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2. This is so stupid I won’t bother replying to it further.
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3. So they intentionally lied, knowingly broke the law and lost money all at the same time? Doubtful.
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4. Actually they did in a 200+ page report on the entire thing including exactly what was in the CDO.
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5. For this administration it seems in some cases political ease trumps common sense, it was the same for Bush.
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6. Yes they can, the major posts at the SEC are presidential appointments.
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7. I never said they were. I said the ratings agencies agreed the CDO was reasonable value and risk at the tranches Goldman proposed.
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8. Conversely, perhaps it’s the Democrats with a narrow window to do what they want until November. Further, I don’t support the GOP but from what I’ve seen they have a very reasoned argument that many in the country seem to be following; that this Congress seems out and out interested in only one thing expanding the power of the federal government and ignoring federalism. This whole line of argument is BS considering both parties are in bed with Wall Street to the hilt.
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9. “X isn’t a strong defense” isn’t an even remotely viable prosecution argument.

sasquatch08, you said in your posting it took you a long time to inderstand.

Lokks like you do not understand or choose to misled.

Bascially what Goldman Scahs did in layman’s language was propose to sell you a rotton car, but got yhe rating agency to rate it AAA.

No sane investor would knowingly invest billions of dollars oly to see it fail.

More so peopla who lost their entire savings based on representation by Galdman Sachs.

Thats the bottom line!

Sasquath08, please differentiate between gambling in the casino and Cheating by Golaman Sachs.

When you gamble in a casino, you are playing with a deck of cards against the house.

In the case of Goldman Sachs, they switch the whole deck of cards.

That is pure criminal!

Not that difficult to understand if you choose to!

Unless you are a Goldman employee os shareholder.