Goldman's execs (including Fabulous Fab and Lloyd "Just Doing God's Work" Blankfein) are about to grapple with Carl Levin and the Senate, live on Bloomberg channel 502 on Sky. 3 falls or a submission. Should be a cracker!
The Goldman Sachs crew are looking as evasive, shady and guilty as the mafia gangsters did in the gambling and organised crime senate hearings in 1963.
The problem with all of this is that PROVIDED GS were selling ONLY to professional investors (which RBS and IKB undoubtedly are) and PROVIDED that no lies were told then these were transactions between consenting adults (in that sense caveat emptor should apply) - they are evidently way beyond the comprehension of these goons in the Senate.
You can't dissect internal e-mails about transactions with professional clients (and bragging about the profit of those deals from GS's perspective) and use them as evidence that they were shafting their clients - if they were dealing with retail investors or if they were actually lying (not just not dicslosing info) to their clients the matter would be entirely different.
Yes. But if Goldman Sachs had a house view that a particular product was very risky, and took steps to limit their exposure to that risk, and then actively tried to sell that product to its clients without informing those clients how risky Goldman Sachs thought that product was, then that is no better than lying to the client.
I just looked up Caveat Emptor on wikki;
'Under the doctrine of caveat emptor, the buyer could not recover from the seller for defects on the property that rendered the property unfit for ordinary purposes. The only exception was if the seller actively concealed latent defects or otherwise made material misrepresentations amounting to fraud.'
It seems to me that Goldman Sachs are guilty of (amongst many other things) 'actively concealing latent defects'.
Financial regulators require different standards of care and thereby establish different levels of fiduciary duty to clients depending upon the nature of the clients. If the clients are Professionals (i.e. sophisticated or market participants) then they are (rightly) deemed to be able to form their own view of the risk of a product, in terms of structure and market and counterparty exposure.
GS may have held a view that the mortgage market was increasingly risky but RBS & IKB had their own views (or should have had or, critically, would be considered by the regulators to be responsible for forming their own views) and presumably considered that the propsective return on these investments was sufficient reward for the risk they were assuming. If they were lied to about facts (not opinions) then it would be different - if they were retial investors it would be very different.
I am no lover of Goldman Sachs but this is truly a farce. Some of these goons in the Senate are just trying to pin the whole mortgage debacle on GS. Of course many people were to blame, including investment banks but also including Bill Clinton who as President demanded that the banks provide mortgages on easier terms to low income housebuyers.
Bill Clinton simply wanted to make access to home loans easier for lower income groups. He cannot be blamed for the way the banks subsequently packaged those loans with other products to make them seem less risky and therefore 'sellable' which in turn allowed them to make enormous amounts of money for themselves and ultimately precipitated the banking crisis.
[cite]Posted By: Red_in_SE8[/cite]Bill Clinton simply wanted to make access to home loans easier for lower income groups. He cannot be blamed for the way the banks subsequently packaged those loans with other products to make them less risky and therefore 'sellable' which in turn allowed them to make enormous amounts of money for themselves and ultimately precipitated the banking crisis.
Not blaming him for that but there was a political move to expand home ownership under Clinton (not saying that was wrong per se) which was one of many factors in the blowing up of this particular bubble, aided and abetted by Greenspan repeatedly pumping excessive liquidity into the system every time the markets took a tumble (again understandable at the time but in hindsight helping to pump up the bubble).
I'n my view, for what it is worth, the biggest culprits in the case that the Senate is examining today are the ratings agencies. Frequently investors would consider an investment OK if it was given a Aaa rating and may not do their own due dilligence (even though it was their responsibility to do so). It is obvious now that the models used by the ratings agencies to grade these securities were deeply flawed - hence garbage in garbage out. Problem, this market grew so large while the Fed kept pumping in liqudity that by the time the bubble burst the carnage was catastrophic.
Many people to blame but dumb politicians on a scapegoating mission, wrestling with middle grade investment banking executives on subjects that they can't get their heads around is not an edifying sight - at least they're not wearing leotards.
Well, after 10 hours Levin delivers a conclusion essentially identical to his opening guilty verdict on Goldmans oblivious to the fact that in between all that has been established is that:
1. All that Goldmans is “guilty” of (other than a deeply unpleasant arrogance) was being smart enough to steer their business cleverly and legally through the market collapse of 2007. Levin actually expressly condemned them for being the only Wall St firm to make money in a year when all others made losses and some went bust (Blankfein got a harder grilling by this committee than Dick Fuld of Lehmans had previously). Making money on Wall St is now a crime apparently.
2. The shocking scale of financial illiteracy of the US Senate. Having pre-determined that Goldmans was guilty they were incapable of asking more than a handful of intelligible questions on Goldmans business. Not that discovering the truth was high on their agenda – this was a disgraceful piece of political grandstanding
Yet it is these politicians and their predecessors that, along with many other parties, have blood on their hands. They were responsible for oversight of the regulatory system which is still incompetent and was asleep at the wheel (in respect of for example of the Madoff and Stanford scandals, perpetrated under their noses for years) and for the federal guarantee mortgage system (i.e. Fannie Mae and Freddie Mac) which US politicians of all persuasions encouraged and which was a significant component in the creation of US housing bubble.
3. Far from establishing Goldmans’ guilt, one important piece of new evidence did finally emerge from the hearings. The “independent “ selection agent (ACA) that Goldman’s is accused by the SEC of permitting Paulson to “influence” in the selection of the mortgages underlying the Abacus transaction and against the interests of the investors was itself a purchaser of around 90% of the securities (IKB of Germany buying the remainder) and that ACA was one of the largest players in the synthetic CDO market. In other words, this was indeed a deal between consenting adults (professionals) and it is not remotely illegal or immoral or problematic that the seller of the mortgage exposure (Paulson) got together beforehand with the main buyer (ACA) to agree the basket that they would trade. Precisely what was said to IKB by Goldmans remains open to question but nothing which emerged in this hearing suggested that there is a smoking gun here. By the end of the hearing, it was finally began to dawn on one or two of the Senators (though clearly not Levin) what this means.
It means that, prima facie, the SEC’s case against Goldmans is dead in the water.
Whatever the outcome of the hearings I think they have served a very important purpose. They have clearly shown the motivations and mentality of pure self-interest that pervades institutions like Goldman Sachs. Goldman Sachs may once have served a useful primary purpose in helping businesses finance growth and mitigate risks. What Main Street America can now clearly see is that Goldman Sachs’ primary purpose today is to increase the wealth of its employees and shareholders. Goldman Sachs, and other such institutions, no longer serve any useful function in business.
Obama is trying to introduce legislation to curb the obscene self-interest activities of these institutions and is currently being blocked by Republicans and millions of dollars spent by the investment banks lobbying against the legislation. These hearings will make it harder for those Republicans up for mid-term elections to justify their actions in blocking the new legislation.
The other good thing to come out of these hearings is that it is going to cost the Goldman Sachs employees and shareholders dearly. The CEO talked about how important their reputation and the trust of their clients have been in their 140 year history. That reputation is now in tatters no matter what the outcome of these hearings. If Goldman Sachs ever gets that trust back it will cost them billions.
[cite]Posted By: Red_in_SE8[/cite] What Main Street America can now clearly see is that Goldman Sachs’ primary purpose today is to increase the wealth of its employees and shareholders. Goldman Sachs, and other such institutions, no longer serve any useful function in business.
Interesting to bat the thing to and fro with you Red_in_SE8 (even if no one else finds it interesting!) and I've no doubt that, in the court of public opinion, you are absolutely right to say that Goldman's and Wall Street's reputation has been severely damaged. For that reason, actually they and Wall St want to be seen to be supportive of regulatory reform, of course of the kind that they consider constructive (and no doubt serving their own interests - of course).
We see the role of government differently but, to be fair, the legal duty of employees and directors of any company is to its shareholders (what pay the employees get is [theoretically] sanctioned by the shareholders). So, unless we were to have a nationalised financial services industry, it isn't the express purpose of any bank or investment bank (or any other company for that matter) to do anything other than act in the interests of its shareholders, providing that it must do so lawfully of course and it would be advisable for it to do so with the good reputation of the company foremost in mind.
In itself, that doesn't stop them still playing an important role in the economy in assisting the relatively efficient allocation of resources. Of course, not all of their activities do that or work to the benefit of their clients but I wouldn’t write them off entirely in that role.
Of course they (and I am certain that that includes Goldmans) don't always act lawfully or appropriately but notwithstanding the damage to its public image there was nothing that I heard yesterday that legitimately demonstrated malpractice in this particular case. It was indeed all about the mid-term elections.
Comments
She certainly brightens up the crop reports.
Ding ding...round 1
You can't dissect internal e-mails about transactions with professional clients (and bragging about the profit of those deals from GS's perspective) and use them as evidence that they were shafting their clients - if they were dealing with retail investors or if they were actually lying (not just not dicslosing info) to their clients the matter would be entirely different.
I just looked up Caveat Emptor on wikki;
'Under the doctrine of caveat emptor, the buyer could not recover from the seller for defects on the property that rendered the property unfit for ordinary purposes. The only exception was if the seller actively concealed latent defects or otherwise made material misrepresentations amounting to fraud.'
It seems to me that Goldman Sachs are guilty of (amongst many other things) 'actively concealing latent defects'.
GS may have held a view that the mortgage market was increasingly risky but RBS & IKB had their own views (or should have had or, critically, would be considered by the regulators to be responsible for forming their own views) and presumably considered that the propsective return on these investments was sufficient reward for the risk they were assuming. If they were lied to about facts (not opinions) then it would be different - if they were retial investors it would be very different.
I am no lover of Goldman Sachs but this is truly a farce. Some of these goons in the Senate are just trying to pin the whole mortgage debacle on GS. Of course many people were to blame, including investment banks but also including Bill Clinton who as President demanded that the banks provide mortgages on easier terms to low income housebuyers.
Not blaming him for that but there was a political move to expand home ownership under Clinton (not saying that was wrong per se) which was one of many factors in the blowing up of this particular bubble, aided and abetted by Greenspan repeatedly pumping excessive liquidity into the system every time the markets took a tumble (again understandable at the time but in hindsight helping to pump up the bubble).
I'n my view, for what it is worth, the biggest culprits in the case that the Senate is examining today are the ratings agencies. Frequently investors would consider an investment OK if it was given a Aaa rating and may not do their own due dilligence (even though it was their responsibility to do so). It is obvious now that the models used by the ratings agencies to grade these securities were deeply flawed - hence garbage in garbage out. Problem, this market grew so large while the Fed kept pumping in liqudity that by the time the bubble burst the carnage was catastrophic.
Many people to blame but dumb politicians on a scapegoating mission, wrestling with middle grade investment banking executives on subjects that they can't get their heads around is not an edifying sight - at least they're not wearing leotards.
1. All that Goldmans is “guilty” of (other than a deeply unpleasant arrogance) was being smart enough to steer their business cleverly and legally through the market collapse of 2007. Levin actually expressly condemned them for being the only Wall St firm to make money in a year when all others made losses and some went bust (Blankfein got a harder grilling by this committee than Dick Fuld of Lehmans had previously). Making money on Wall St is now a crime apparently.
2. The shocking scale of financial illiteracy of the US Senate. Having pre-determined that Goldmans was guilty they were incapable of asking more than a handful of intelligible questions on Goldmans business. Not that discovering the truth was high on their agenda – this was a disgraceful piece of political grandstanding
Yet it is these politicians and their predecessors that, along with many other parties, have blood on their hands. They were responsible for oversight of the regulatory system which is still incompetent and was asleep at the wheel (in respect of for example of the Madoff and Stanford scandals, perpetrated under their noses for years) and for the federal guarantee mortgage system (i.e. Fannie Mae and Freddie Mac) which US politicians of all persuasions encouraged and which was a significant component in the creation of US housing bubble.
3. Far from establishing Goldmans’ guilt, one important piece of new evidence did finally emerge from the hearings. The “independent “ selection agent (ACA) that Goldman’s is accused by the SEC of permitting Paulson to “influence” in the selection of the mortgages underlying the Abacus transaction and against the interests of the investors was itself a purchaser of around 90% of the securities (IKB of Germany buying the remainder) and that ACA was one of the largest players in the synthetic CDO market. In other words, this was indeed a deal between consenting adults (professionals) and it is not remotely illegal or immoral or problematic that the seller of the mortgage exposure (Paulson) got together beforehand with the main buyer (ACA) to agree the basket that they would trade. Precisely what was said to IKB by Goldmans remains open to question but nothing which emerged in this hearing suggested that there is a smoking gun here. By the end of the hearing, it was finally began to dawn on one or two of the Senators (though clearly not Levin) what this means.
It means that, prima facie, the SEC’s case against Goldmans is dead in the water.
What a farce.
Obama is trying to introduce legislation to curb the obscene self-interest activities of these institutions and is currently being blocked by Republicans and millions of dollars spent by the investment banks lobbying against the legislation. These hearings will make it harder for those Republicans up for mid-term elections to justify their actions in blocking the new legislation.
The other good thing to come out of these hearings is that it is going to cost the Goldman Sachs employees and shareholders dearly. The CEO talked about how important their reputation and the trust of their clients have been in their 140 year history. That reputation is now in tatters no matter what the outcome of these hearings. If Goldman Sachs ever gets that trust back it will cost them billions.
Interesting to bat the thing to and fro with you Red_in_SE8 (even if no one else finds it interesting!) and I've no doubt that, in the court of public opinion, you are absolutely right to say that Goldman's and Wall Street's reputation has been severely damaged. For that reason, actually they and Wall St want to be seen to be supportive of regulatory reform, of course of the kind that they consider constructive (and no doubt serving their own interests - of course).
We see the role of government differently but, to be fair, the legal duty of employees and directors of any company is to its shareholders (what pay the employees get is [theoretically] sanctioned by the shareholders). So, unless we were to have a nationalised financial services industry, it isn't the express purpose of any bank or investment bank (or any other company for that matter) to do anything other than act in the interests of its shareholders, providing that it must do so lawfully of course and it would be advisable for it to do so with the good reputation of the company foremost in mind.
In itself, that doesn't stop them still playing an important role in the economy in assisting the relatively efficient allocation of resources. Of course, not all of their activities do that or work to the benefit of their clients but I wouldn’t write them off entirely in that role.
Of course they (and I am certain that that includes Goldmans) don't always act lawfully or appropriately but notwithstanding the damage to its public image there was nothing that I heard yesterday that legitimately demonstrated malpractice in this particular case. It was indeed all about the mid-term elections.