Kill The Squid

[kalm]

Goldman Sachs has been implicated in taking down Greece, securities fraud that paid a billion to a hedge fund backed by the bailout, and now paying bonuses of $5 billion for the first quarter - the most profitable in company history. Economic crises are evidently good for business. If corporations share our rights, they should also be eligible for the death penalty. GS would be a fine start.

Published on Monday, April 19, 2010 by The Guardian/UK
Squashing the Goldman Vampire Squid
Allegations against Goldman Sachs highlight the pressing need to break up big banks and introduce strict financial regulation
by Dean Baker

In the past few months we have learned a number of things about Goldman Sachs.

In February, we found out that it played a central role in helping Greece to hide its government budget deficit from the European Union, the financial markets, and the public at large. Goldman sold complex swaps to Greece in which it paid the Greek government for future revenue streams on items like airport landing fees. This was in effect a loan, but the swap allowed the Greek government to avoid entering the borrowed money on its books as a loan, which would have raised its budget deficit above the euro zone limits. Today of course Greece's financial meltdown is threatening the stability of the euro.

Then, just last month, Goldman was sued for sex discrimination by a former vice-president who claims that she was put on the "mommy track" after taking a maternity leave. She was fired as she was about to start a second leave. (In fairness to Goldman, Wall Street is still for the most part an all-boys club.)

But the big news is Goldman's indictment for putting together a collaterised debt obligation (CDO) from mortgage-backed securities that were expected to fail and then marketing it to its clients as a good investment. The central allegation is that in early 2007, hedge fund manager John Paulson recognised that the housing bubble was starting to collapse.

This meant that many mortgages would go bad. The subprime mortgages, in which homeowners had little or no real collateral, and were facing resets to higher interest rates, were especially vulnerable. Paulson worked out a deal with Goldman in which he would pick the mortgage-backed securities that were put into the CDO. Paulson would then bet that the CDO would go bad, by taking out credit default swaps (CDS) on the CDO. A credit default swap is effectively an insurance policy where the issuer makes up a loss if an asset goes bad.

Goldman was left with the other side of Paulson's deal, finding suckers to buy this huge piece of junk. It would have been hard to find buyers for this CDO if investors knew that Paulson had deliberately constructed it as a piece of junk to short. Therefore, according to the SEC charges, Goldman concealed Paulson's role in constructing the CDO. Goldman allegedly told investors that the CDO was constructed by neutral parties, rather than letting them know that the assets were picked by a hedge fund manager who was taking a short position.

Of course Paulson won his bet, the CDO he put together really was trash. He made nearly $1bn on this particular bet, which involved buying CDS from an insurer, which was backed up by a major European bank. This deal helped to transmit the fallout from the housing crash to Europe, leading to financial crisis there.

In similar deals constructed by Goldman, the insurer was AIG. Of course AIG was unable to pay off its side of the bet, so Paulson or other short speculators on Goldman's CDOs got their money courtesy of the taxpayers, when the government stepped in to bail out AIG. Goldman was also buying CDS to bet against the CDOs it was putting together, although it is not clear that it had bet against this particular CDO. In any case, it clearly profited from the issue since Paulson paid Goldman $15m for its services.

Goldman's conduct in this deal can be framed using an analogy from Phil Angelides, the head of the Financial Crisis Inquiry Commission. Angelides noted that Goldman has bought CDS on the CDOs that it had issued and sold. He compared this to selling a car with bad brakes and then buying insurance on the car. In fact, it looks like Goldman effectively cut the brake lines, sold the car to unsuspecting customers, and then bought the insurance policy.

In fairness to Goldman, there is no reason to believe that they are any less ethical than any of the other big Wall Street actors, just more effective.

All of this should drive home the urgency of both breaking up the big banks and some serious financial reform. The folks who should have been clamping down on this behaviour included then treasury secretary Henry Paulson, who had just left his position as Goldman CEO to take the job.

Even if we put in place a better regulatory structure, as long as financial regulation is just a conversation between friends, it will not be serious. Last year, Rolling Stone columnist Matt Taibbi described Goldman Sachs as "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money". It turns out that Mr Taibbi was far too generous in his assessment of the huge investment bank. We need to kill the Goldman vampire squid along with the rest of the species, only when we have reduced these monsters to a manageable size can we be confident that they will be effectively regulated.

© Guardian News and Media Limited 2010
Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer ( http://www.conservativenannystate.org" onclick="window.open(this.href);return false;) and the more recently published Plunder and Blunder: The Rise and Fall of The Bubble Economy. He also has a blog, "Beat the Press," where he discusses the media's coverage of economic issues. You can find it at the American Prospect's web site.

[polsongrizz]

Agree, say what you want about china they take care of this shit the way it should be.

Your Co makes bad milk we kill your top two men.

You help with the financial downfall of the world and our country we kill you.

It is a great incentive that needs to be adopted here at home. I mean rarely does anyone involved in any financial theft of any amount have anything bad happen because of it. Jail time is negligent and a fine paid from money that wasn't theirs in the first place.

I really think this would be a great start with the financial overhaul they are attempting right now.

Add to that when a Co knowingly builds a piece of crap that kills people and then covers it up. Say goodbye CEO.

[GannonFan]

Eh - I'm not anti Goldman Sachs on this one. Yeah, they knew Paulson was betting against the CDO and expecting sub primes to crater, but it's not like that was such a crazy bet - other people should've and did see the housing market collapse coming. All Goldman did here was to basically be like Las Vegas - they established a line on a game and they took bets from both sides. Do we castigate Vegas when they let people bet on crappy teams? There's always someone betting that for the Mets to win in baseball - just because they don't a lot of times doesn't mean that Vegas is at fault for taking the bet to begin with. If you make a bad bet, it's your fault. There was plenty of information going around that sub primes were in trouble, and if people doing the investing couldn't take the time to look into what they were investing in then too bad for them.

[Baldy]

I guess that's why the Obama administration is littered with former Goldman Sachs employees.

[Chizzang]

I guess that's why the Obama administration is littered with former Goldman Sachs employees.

Henry Paulson, the former US Treasury Secretary appointed by George Bush served as the Chairman and Chief Executive Officer of Goldman Sachs.... prior to his appointment by Bush

The guy that ran Goldman Sachs (Paulson) is great buddies and dear friends with Bush and was hired by Bush...

Baldy can you even smell the crap that's in your own diapers..?

[Ivytalk]

Cleets, change your Depends, man. The current GS chief, my Winthrop House cuz Lloyd Blankfein, is as Harvard as I am -- and much wealthier -- and more Harvard than you are. You get my drift. Peace.

[Baldy]

Cleets, change your Depends, man. The current GS chief, my Winthrop House cuz Lloyd Blankfein, is as Harvard as I am -- and much wealthier -- and more Harvard than you are. You get my drift. Peace.

Not to mention Blankfein is a HUGE Obama supporter, which is probably why Obama looked the other way when he and fellow Obamabot Jamie Dimon at JP Morgan took home over $26,000,000 in bonuses last year.

[Ivytalk]

Cleets, change your Depends, man. The current GS chief, my Winthrop House cuz Lloyd Blankfein, is as Harvard as I am -- and much wealthier -- and more Harvard than you are. You get my drift. Peace.

Not to mention Blankfein is a HUGE Obama supporter, which is probably why Obama looked the other way when he and fellow Obamabot Jamie Dimon at JP Morgan took home over $26,000,000 in bonuses last year.

Blankfein was a poor Jewish kid from NYC who worked his way up the ladder. He was a year ahead of me, and he was a nice guy. Shame about the Obama thing. Now he'll be paying his lawyers and cursing the day he fell for that empty suit.

[Baldy]

Henry Paulson, the former US Treasury Secretary appointed by George Bush served as the Chairman and Chief Executive Officer of Goldman Sachs.... prior to his appointment by Bush

The guy that ran Goldman Sachs (Paulson) is great buddies and dear friends with Bush and was hired by Bush...

Baldy can you even smell the crap that's in your own diapers..?

Paulson???

Poor Cleets has no idea how to follow the dots.

[SuperHornet]

Whoever wrote that headline oughta get canned. The first thing that popped into my mind was that somebody wanted to murder a Sailor. "Squid" is Marine-ese for a Sailor.

BTW, the Lost Wages reference just misses the mark, IMO. In theory, someone could bet a buck on the Mets and get a couple grand back if they actuall do pull it off. People do that on a lark all the time. Only dummies would blow life savings on a bet like that. Most people in the stock market, however, are dealing with their life savings and have been sweet-talked by a snake-oil salesman. That's what's so insidious about exchange scandals.

[Chizzang]

Henry Paulson, the former US Treasury Secretary appointed by George Bush served as the Chairman and Chief Executive Officer of Goldman Sachs.... prior to his appointment by Bush

The guy that ran Goldman Sachs (Paulson) is great buddies and dear friends with Bush and was hired by Bush...

Baldy can you even smell the crap that's in your own diapers..?

Paulson???

Poor Cleets has no idea how to follow the dots.

Please eduma-cate me.. because the last time I checked we haven't had a president that wasn't in bed with wall street (and the Fed) since Reagan...

[kalm]

Paulson???

Poor Cleets has no idea how to follow the dots.

Please eduma-cate me.. because the last time I checked we haven't had a president that wasn't in bed with wall street (and the Fed) since Reagan...

Spare me the Obama appointments and Clinton connections, I've covered that many times. Goldman Sach's ties to the money transcend party. Cleets is owning you guys.

[kalm]

Eh - I'm not anti Goldman Sachs on this one. Yeah, they knew Paulson was betting against the CDO and expecting sub primes to crater, but it's not like that was such a crazy bet - other people should've and did see the housing market collapse coming. All Goldman did here was to basically be like Las Vegas - they established a line on a game and they took bets from both sides. Do we castigate Vegas when they let people bet on crappy teams? There's always someone betting that for the Mets to win in baseball - just because they don't a lot of times doesn't mean that Vegas is at fault for taking the bet to begin with. If you make a bad bet, it's your fault. There was plenty of information going around that sub primes were in trouble, and if people doing the investing couldn't take the time to look into what they were investing in then too bad for them.

Then you are clearly not tea party/republican material as stealing is wrong.

But your Vegas analogy is a good one, and I think Wall Street gaming should be just as closely regulated as Vegas gaming.

[Gil Dobie]

Please eduma-cate me.. because the last time I checked we haven't had a president that wasn't in bed with wall street (and the Fed) since Reagan...

Spare me the Obama appointments and Clinton connections, I've covered that many times. Goldman Sach's ties to the money transcend party. Cleets is owning you guys.

Obama=Bush

[GannonFan]

Eh - I'm not anti Goldman Sachs on this one. Yeah, they knew Paulson was betting against the CDO and expecting sub primes to crater, but it's not like that was such a crazy bet - other people should've and did see the housing market collapse coming. All Goldman did here was to basically be like Las Vegas - they established a line on a game and they took bets from both sides. Do we castigate Vegas when they let people bet on crappy teams? There's always someone betting that for the Mets to win in baseball - just because they don't a lot of times doesn't mean that Vegas is at fault for taking the bet to begin with. If you make a bad bet, it's your fault. There was plenty of information going around that sub primes were in trouble, and if people doing the investing couldn't take the time to look into what they were investing in then too bad for them.

Then you are clearly not tea party/republican material as stealing is wrong.

But your Vegas analogy is a good one, and I think Wall Street gaming should be just as closely regulated as Vegas gaming.

What makes you think it isn't as closely regulated??

[Baldy]

Please eduma-cate me.. because the last time I checked we haven't had a president that wasn't in bed with wall street (and the Fed) since Reagan...

There's a difference between a wink and a nod with a roll in the hay back in the day, and the blatant out in the open takin' it up the pooper collusion between this administration and Goldman, and Wall Street in general.

[danefan]

Then you are clearly not tea party/republican material as stealing is wrong.

But your Vegas analogy is a good one, and I think Wall Street gaming should be just as closely regulated as Vegas gaming.

What makes you think it isn't as closely regulated??

What meaningful regulations apply to hedge funds other than the net worth and/or annual income minimums?

[Chizzang]

Please eduma-cate me.. because the last time I checked we haven't had a president that wasn't in bed with wall street (and the Fed) since Reagan...

There's a difference between a wink and a nod with a roll in the hay back in the day, and the blatant out in the open takin' it up the pooper collusion between this administration and Goldman, and Wall Street in general.

Baldy,
You've opened my eyes on a few things on this forum... and seriously I am interested in what you "know" about this. As I understand it the previous administration hired directly out of Goldman for cabinet positions... how is that a wink and not completely being owned by - ?

I'm open to the data: and I believe Obama is absolutely way over influenced by Goldman and the street - but how so is it more than what we've been seeing for the past decade..?

And as far as Ivy's point goes: I have a Harvard MBA buddy of mine here in Redmond who's a PM at Microsoft who didn't even know Harvard has a Materials Science or Applied Physics departments... He says to me: "Why didn't you just go to MIT, for christs sake it's just across the street..."

I wanted to punch him... so I always ask him "Why didn't you go to Cornell, Harvard is a Law school..?"

But my Dad will tell you Harvard is actually a Medical School that dabbles in Law and business and then ultimately dicks around with some science

The agony

[kalm]

Baldy's right about Obama's ties, and you can go back to Clinton, or even further back. But Bush was certainly as involved:

The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled-dry American empire, reads like a Who's Who of Goldman Sachs graduates.

By now, most of us know the major players. As George Bush's last Treasury secretary, former Goldman CEO Henry Paulson was the architect of the bailout, a suspiciously self-serving plan to funnel trillions of Your Dollars to a handful of his old friends on Wall Street. Robert Rubin, Bill Clinton's former Treasury secretary, spent 26 years at Goldman before becoming chairman of Citi-group - which in turn got a $300 billion taxpayer bailout from Paulson. There's John Thain, the asshole chief of Merrill Lynch who bought an $87,000 area rug for his office as his company was imploding; a former GoIdman banker, Thain enjoyed a multibillion-dollar handout from Paulson, who used billions in taxpayer funds to help Bank of America rescue Thain's sorry company. And Robert Steel, the former Goldmanite head of Wachovia, scored himself and his fellow executives $225 million in golden-parachute payments as his bank was self-destructing. There's Joshua Bolten, Bush's chief of staff during the bailout, and Mark Patterson, the current Treasury chief of staff, who was a Goldman lobbyist just a year ago, 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. The heads ofthe Canadian and Italian national banks are Goldman alums, as is the head of the World Bank, the head of the New York Stock Exchange. the last two heads of the Federal Reserve Bank ofNew York - which, incidentally, is now in charge of overseeing Goldman - not to mention ...

But then, any attempt to construct a narrative around all the former Goldmanites in influential positions quickly becomes an absurd and pointless exercise, like trying to make a list of everything. What you need to know is the big picture: If America is circling the drain, Goldman Sachs has found a way to be that drain - an extremely unfortunate loophole in the system of Western democratic capitalism, which never foresaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy.


The bank's unprecedented reach and power have enabled it to turn all of America into a giant pump-and-dump scam, manipulating whole economic sectors for years at a time, moving the dice game as this or that market collapses, and all the time gorging itself on the unseen costs that are breaking families everywhere - high gas prices, rising consumer-credit rates, halfeaten pension funds, mass layoffs, future taxes to payoff hailouts. All that money that you're losing, it's going somewhere, and in both a literal and a figurative sense. Goldman Sachs is where it's going: The bank is a huge, highly sophisticated engine for converting the useful, deployed wealth of society into the least useful, most wasteful and insoluble substance on Earth - pure profit for rich individuals.

They achieve this using the same playbook over and over again. The formula is relatively simple: Goldman positions itself in the middle of a speculative bubble, selling investments they know are crap. Then they hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage. Finally, when it all goes bust, leaving millions of ordinary citizens broke and starving, they begin the entire process over again, riding in to rescue us all by lending us back our own money at interest, selling themselves as men above greed, just a bunch ofreally smart guys keeping the wheels greased. They've been pulling this same stunt over and over since the 1920s - and now they're preparing to do it again, creating what may be the biggest and most audacious bubble yet.

If you want to understand how we got into this financial crisis, you have to first understand where all the money went - and in order to understand that, you need to understand what Goldman has already gotten away with. It is a history exactly five bubbles long - including last year's strange and seemingly inexplicable spike in the price of oil. There were a lot of losers in each of those bubbles, and in the bailout that followed. But Goldman wasn't one of them....

http://sites.google.com/site/disclosuredelta/" onclick="window.open(this.href);return false;

[Captain Ahab]

Tha title ov this here thread caught me attention! Alas me an tha crew be disappointed.

[kalm]

Tha title ov this here thread caught me attention! Alas me an tha crew be disappointed.

[kalm]

Just heard on the news that former white house council for Clinton, Greg Craig, is defending G.S. in the fraud case, and Dick Gephardt is has been hired by G.S. as a lobbyist.

[JohnStOnge]

Allegations against Goldman Sachs highlight the pressing need to break up big banks and introduce strict financial regulation.

What? Obviously, GS has been charged under EXISTING law and regulation? How does this "highlight the need" for something different in terms of regulation? And why does that fact that officials in one "big bank" broke existing laws mean there is a need to "break up big banks?"

Does that fact that some men commit rape "highlight the need" to get rid of men? What is it about some people that makes them automatically knee jerk into this kind of thing?

[danefan]

Re: previous and current administration's ties to GS.

GS makes a concerted effort and pays top dollar to the best and brightest financial minds in the world. There's a reason that most of the top earners in the financial industry are within GS and are GS alumni.

That's also a pretty darn good reason to have them working in and for the government isn't it?

[Baldy]

Re: previous and current administration's ties to GS.

GS makes a concerted effort and pays top dollar to the best and brightest financial minds in the world. There's a reason that most of the top earners in the financial industry are within GS and are GS alumni.

That's also a pretty darn good reason to have them working in and for the government isn't it?

Even though there isn't a dime's bit of difference and he is very knowledgeable, would you want Bernie Madoff running the Social Security Administration?

The number of Goldman Sachs alumni working for this and past Presidents is rather disturbing. On the surface, it looks great, but when you look at the ugly underbelly of the relationship and where it's heading, it's pretty scary.
I haven't looked at Bush #1 too much, but Clinton, Dubya, and Obama has had the Oval Office stacked with GS alumni, and when you think about it...it is all starting to make more and more sense.