Is Goldman Sachs' Goose Cooked?
Apr 19, 2010 - 10:16 AM
ARTICLE SOURCE: Market Oracle.co.uk
Oh what a tangled web we weaveÖ The bottom line is that the SEC is sending a message to the financial community that business as usual will not be tolerated going forward and I urge you to read through Samís entire post on the subject as itís a very good overview of the legal issue GS faces. The other big issue around GS is that the MSM seems to have a lot of trouble explaining what they did wrong.
Mostly they keep referring to a "defective car" model, comparing GS and Paulson to people who purposely sold a defective vehicle and then bet that the people who bought it would crash. Sure thatís evil enough but what they actually did was worse and you need to understand the timeline (which the media is very confused on) to understand the "alleged" crime:
It's all very simple, really:
1. Step 1 - Paulson comes to Goldman and says "I want to bet that sub-prime mortgages will fail."
2. Step 2 - Goldman says "Sure, weíll do anything for money! Let us help you for a big fee."
3. Step 3 - Goldman designs a vehicle in which they can slap an A rating on a crappy portfolio that Paulson can short AND Goldman will market it to suckers for even more fees.
4. Step 4 - Thatís not good enough for Paulson and he wantís to SELECT the crap that goes into the portfolio AND GOLDMAN LETS HIM!
5. Step 5 - Goldman markets the portfolio to pension funds and other investors looking for relatively SAFE investments and fails to mention (because no one would buy it if they did) that Paulson picked the securities and bet $1Bn on them failing. GS argues that they did mention Paulson was an investor - just not that he was a SHORT investor. Surprisingly, some of the other investors (and the SEC) find that to be misleading.
This is very much like a brokerís big client going to a dozen hospitals and picking the 97 most terminal patients under 40 he can find plus 1 healthy newborn, one healthy teenager and one healthy adult and then the broker sells you on investing in life insurance for their big clientís 100-person group that ranges from 0-40 and presenting the 3 healthy people as a "typical" insurance pool. The broker then gets you invest on the basis of insuring that the people in the insurance pool will live average lives while the big client, who paid the broker a fee to structure an instrument to fail, is never mentioned to you at all or is mentioned as a "co-investor". When people start dying, you get hit for a million here and a million there and another million and another million until you are broke and the client is rich(er) and they call it a "black swan event" that no one could have seen coming. Thatís what happened - itís not complicated!
Goldman Sachs is a rigged gambling house:
QUOTE, by Michael Lewis, author of "THE BIG SHORT":
[Heard on CNN, April 20]
"One really obvious thing that needs to be addressed: Why on earth should a Wall Street firm be making bets for itself on bonds it can advise its customers to buy and sell? The problem in the middle of this is that once they can make money by creating things that explode, they are gonna create things that explode."