I do believe that we have the makings of a little scandal for our 3rd world President et al.
It goes like this:
The bank is accused by America’s financial watchdog, the Securities and Exchange Commission, of not disclosing the full facts about the CDO, which was named ABACUS 2007-AC1. Investors bought the CDO on the basis that the mortgages which made up the underlying investment would continue to perform — that people would make their monthly payments.
While some investors were buying the CDO, Goldman also had a client which was selling it — or shorting it. That was Paulson & Co, a New York-based hedge fund, which took a gloomy view of America’s housing market and therefore expected home owners to default.
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The fact that Paulson was shorting the CDO is not contentious. What the SEC hopes to prove is that Paulson significantly enhanced its chances of being right by helping to select which mortgages that went into ABACUS 2007-AC1. The SEC believes Paulson got a large chunk of poor quality mortgages put into the CDO. It points out that six months after the deal was concluded, 83 per cent of the underlying mortgage assets had been downgraded by the ratings agencies.
So, the first action from Goldman Sachs is to run away from the employee :
April 21 (Bloomberg) — Goldman Sachs Group Inc. said the U.S. fraud case against the firm hinges on the actions of the employee it placed on paid leave this week.
Fabrice Tourre, the 31-year-old Goldman Sachs executive director who was accused of misleading investors about a mortgage-linked investment in 2007, will also be de-registered from the Financial Services Authority, a spokeswoman at the firm in London said yesterday.
“It’s all going to be a factual dispute about what he remembers and what the other folks remember on the other side,” Greg Palm, Goldman Sachs’s co-general counsel, said in a call with reporters yesterday, without naming Tourre. “If we had evidence that someone here was trying to mislead someone, that’s not something we’d condone at all and we’d be the first one to take action.”
By characterizing the case as a dispute involving a single employee, Goldman Sachs may be taking its first steps to publically distance itself from Tourre in the case, some lawyers said. That could reduce bad publicity and ultimately make it easier for the company to settle the case.
Goldman Sachs may also want to separate itself from Tourre if it’s concerned he will cooperate with the SEC or implicate more senior employees, said Onnig Dombalagian, a professor at Tulane University Law School in New Orleans and former attorney fellow at the SEC.
Byron Georgiou, a member of a U.S. panel that’s investigating the financial crisis, said he doubts Goldman Sachs could make a convincing case that Tourre acted alone and without the full support of his superiors.
“It’s hard to imagine that there wasn’t some supervision of a 27-year-old, at that time, trader structuring a billion- dollar transaction on which Goldman made a $15 million fee,” Georgiou, who serves on the Financial Crisis Inquiry Commission, said in a Bloomberg Television interview.
OK, is everyone with me? Goldman Sachs had this cat put together a hand picked synthetic CDO, hand picked by the Paulson Company that intended to short the same CDO. It like fixing a fight, they picked THE WORST performing loans and rolled them up into a nice tidy CDO and sold it on the market as good paper, all the while Paulson & Co had inside baseball that it would fail mightily and that they would win their bet that it would fail. (John Paulson is not relation to ex-Goldman Sachs CEO and current Treasury Secretary Henry Paulson, as an aside, two of the last three Treasury Secretaries were from Goldman Sachs. So while our Treasury Secretary was running Goldman Sachs, he managed to get the SEC to lift the Net Capital Rule that” No broker or dealer, other than one that elects the provisions of paragraph (a)(1)(ii) of this section, shall permit its aggregate indebtedness to all other persons to exceed 1500 percent of its net capital (or 800 percent of its net capital for 12 months after commencing business as a broker or dealer).”
Enter the CRASH: ..”.because the sub-prime mortgage market had become so huge. By 2005 and in that year alone, about half a trillion dollars of subprime mortgages were being packaged up into bonds. The SEC is focusing on a single CDO. All of Wall Street and the City know that there could be many more cases where investors who have lost money from this market could accuse the investment banks who arranges these deals of misdemeanours.
The other major reason why the Goldman case is such a big deal is that it is highly political. The investors on the wrong side of these trades in many cases were large pension funds or insurance companies investing ordinary people’s savings. Politicians, especially in an election year, do not like to see ordinary investors allegedly ripped off by sophisticated banks.
The issue is also political because of the global financial bailout.
While Goldman and others made money arranging these deals, some financial institutions also lost out because they too invested in subprime mortgages. The SEC says the UK’s Royal Bank of Scotland and Germany’s IKB were the two biggest losers in ABACUS 2007 -AC1. RBS lost $841 million while IKB lost $150 million. Both have subsequently been bailed out by taxpayers, with the British government having to pump £45 billion into RBS, leaving it with an 84 per cent stake.
With taxpayers in Britain and Germany having essentially paid almost $1 billion to Paulson via Goldman, politicians are very interested in how it could have happened. Gordon Brown has called for an immediate investigation.”
So, just in time for the financial reform debate we get this:
“Rep. Darrell Issa, the top Republican on the House Oversight committee, is demanding a slew of documents from the Securities and Exchange Commission, asserting that the timing of civil charges against Goldman Sachs raises “serious questions about the commission’s independence and impartiality.”
Issa’s letter, addressed to SEC Chairwoman Mary Schapiro and signed by eight other House Republicans, asks whether the commission had any contact about the case, prior to its public release, with White House aides, Democratic Party committee officials, or members of Congress or their staff.
“[W]e are concerned that politics have unduly influenced the decision and timing of the commission’s controversial enforcement action against Goldman,” Issa writes.
Issa implied that the timing was a bit too convenient, saying President Barack Obama’s push on Wall Street reform “neatly coincided with the commission’s announcement of the suit.”
The letter is also signed by Republican Reps. Jim Jordan of Ohio, Jason Chaffetz of Utah, Patrick McHenry of North Carolina, Dan Burton of Indiana, John Mica of Florida, Blaine Luetkemeyer of Missouri, Aaron Schock of Illinois and Anh “Joseph” Cao of Louisiana.”
U.S. Senate candidate Alexi Giannoulias pushed his Republican opponent in Illinois to give back donations from Goldman Sachs Group Inc. without saying whether President Barack Obama should return almost $1 million that bank employees contributed to his White House bid.
Obama, a political mentor and basketball buddy to Giannoulias, received the money from employees and their family members, making Goldman Sachs second only to the University of California as his biggest single source for donors in 2007 and 2008, according to the Center for Responsive Politics.
Mark Kirk, the congressman competing against Giannoulias for the seat once held by Obama, ranks sixth for donations from Goldman employees, the center’s data shows. The top five are Democratic Congressman Michael McMahon of New York, Republican Senator Richard Shelby of Alabama, and three other New York Democrats: Senator Kirsten Gillibrand, Representative Scott Murphy and Senator Charles Schumer (my inclusion: Senate Finance Committee and Banking, Housing and Urban Affairs Committee .)
“This would be a lot more interesting if Wall Street banks, joined by Mark Kirk, weren’t fighting tooth and nail against the needed reforms the administration is advocating,” Hari Sevugan, Democratic National Committee spokesman, said in a statement.
Goldman Sachs and its employees and family members gave $5.9 million to candidates in the 2007-2008 election cycle, the Washington-based center’s data shows. Three-quarters of that went to Democrats, the non-partisan group said.
Sevugan may be right, it would be much more interesting if Wall Street weren’t fighting the reforms…but something seems very strange about all of these disjointed events. Are we led to believe that all of that Goldman Sachs money given to the Dems wont affect law, they can pass anything they want without Republican input. Or did Goldman get fleeced by our Third World Dictator President? Were the donators at Goldman that stupid to trust this guy? Honestly, did we just witness an African Dictator, Third World Strongman style shake-down?
Something does not smell right here…I cant put my finger on it, yet.
Tags: Democrats, Federal Reserve, Goldman Sachs
