The Death of Goldman Sachs

[Serpo]

One post to enjoy............


The Death of Goldman Sachs

I saw something die today. It didn't die accidentally either. It was killed.

This was a very painful event to watch, not just because death is tragic and not because this death was intentional rather than accidental.

It was very painful to watch because the thing being killed didn't even know it was dying... and it didn't know it was actually participating in its own death. It didn't know it was helping the hangman not just put the noose around its neck but helping the hangman open the trap door under its feet.

What died today was Goldman Sachs. It has existed for 140 years. But today all that ended, as the head of Goldman Sachs, Lloyd Blankfein, in his prepared remarks before the Senate Governmental Affairs Subcommittee on Investigations, said "We have been a client-centered firm for 140 years and if our clients believe that we don't deserve their trust, we cannot survive."

That was Lloyd Blankfein putting the noose around Goldman Sachs' neck.

And then - in his opening exchange with Subcommittee chair Senator Carl Levin - Lloyd Blankfein proved that Goldman Sachs absolutely, positively does not deserve the trust of its clients.

That was Lloyd Blankfein helping open the door under Goldman Sachs' feet.

In his Senate appearance, Lloyd Blankfein participated in the death of his own company. It was really a stunning thing to watch.

I expect Goldman Sachs to be out of business by the end of this year and maybe before the November election. That's just my opinion, of course. But I'll justify it in a moment.

I will post C-Span's coverage of this testimony as soon as it's available. I predict it will be viewed for years to come by students of business ethics but also by students of famous moments in the civic life of America. I believe this moment will be seen on par with the famous incident in which Senator McCarthy was brought down with the simple question "Have you no sense of decency?"

Senator Carl Levin's simple question - the one that killed Goldman Sachs - was "Do you think it's proper for Goldman Sachs to bet against the security it is selling to a client without telling that client that it is making that bet?"

(I will check the transcript later, to make sure I have the wording of this question correct.)

Mr. Blankfein said over and over again that it was proper for Goldman Sachs to do what they had done. He even said at one point that the minute Goldman Sachs sells something to its customer, it no longer owns that security and has "the opposite interest" to its client regarding that security. This was just one of many breathtaking moments, as I could tell that Mr. Blankfein had no idea what he was doing to his firm.

In late 2001, the collapse of ENRON led to the death of the legendary accounting firm Arthur Andersen.

Arthur Anderson's reputation was unmatched in the field; but, in 2002, Arthur Andersen was found guilty of criminal charges related to its auditing of ENRON and gave up its license to practice accounting.

Criminal behavior. No trust. Reputation destroyed. No customers. Firm dead

Welcome to the Arthur Andersen reality, Goldman Sachs.

Civil charges of fraud brought, and there may be more coming. No trust. Reputation destroyed. No customers. Firm dead.

What a fascinating time we are living in. If things really do play out the way they did with ENRON and Arthur Andersen - and I think they will - I guess we'll be able to say that there is such a thing as white-collar justice in America.
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UPDATES:

1:45am Eastern on Thursday -

The NY Times has just published an article titled "Goldman and Its Lobbyists Spurned in Finance Fight" which demonstrates how toxic Goldman Sachs has become in the halls of Congress. This evidence supports my thesis that Goldman's business - in this case in a political context - is disappearing. A sample quote from the article:


And the events of recent weeks are clearly hurting the access of a company once renowned in Washington for sending its executives to senior posts at the Treasury Department. For instance, Senator Blanche Lincoln, the Arkansas Democrat who wrote the provision that would ban banks like Goldman Sachs from trading in derivatives, had discussed having a fund-raiser at the firm's New York offices this month, but she scuttled the possible event after the S.E.C. filed its lawsuit.

Ms. Lincoln said she would no longer take political contributions from the firm, which has been one of the most prolific contributors to campaigns.

9:45am Eastern on Wednesday -

Reuters reports on Mr. Blankfein's testimony here. In their report, they suggest Goldman's reputation has taken a big hit. Remember, a company can go down if its reputation falls to junk status. It would be a fitting "final act" if the company that had no problem selling "crap" (the term Sen. Levin used) were to go out of business because its reputation was now seen as "crap" as well. From the Reuters report:

Blankfein was frequently interrupted, told to answer the question and stick to the point. He often squinted as if puzzled by the questions and sometimes gave hesitant answers.

He said, as a market maker, it was not Goldman's responsibility to tell customers how to trade or invest.

Clients "are not coming to us to represent what our views are, they probably wouldn't care what our views are. They shouldn't care."

The hearing came less than two weeks after the U.S. Securities and Exchange Commission filed a civil fraud suit against Goldman, charging that it hid vital information from investors about a mortgage-related security.

Edward Rogers, CEO of Tokyo-based hedge fund advisor Rogers Investment Advisors said Goldman's difficulties could hurt its ability to retain talent.

"The government hates you. Your friends throw tomatoes at you. You are evil now. You are not the smart guy in the room -- you are the evil, twisted greedy crook guy," said Rogers.


1:00 am Eastern on Wednesday -

Lloyd Blankfein's testimony is now available on C-Span's video page. Go to that page to read the transcript, which you can scroll through. For now, it is a somewhat incomplete transcript, because C-Span took if off of the closed captioning that was done in real time during the testimony. The NY Times has a "live blog" partial transcript / partial analysis I recommend you read to get an additional take on how Mr. Blankfein's testimony went.

Assuming I can find a really complete transcript, I will add it as another update.
Senator Levin's questioning starts after Mr. Blankfein's opening testimony. But there is additional questioning by Senator Levin towards the end as well. (That is where the issue of Mr. Blankfein never thinking about whether Goldman Sachs might have clients that require especially conservative, AAA rated investments to protect assets that help them serve a public interest.)

8:30pm Eastern on Tuesday -

Lloyd Blankfein just admitted to Sen. Levin that he never thought about the fact that there are certain investors (such as Universities and other institutions) that can only invest in Triple A Rated securities. This is in a discussion of Goldman's desire for rating agencies to make sure more securities are rated Triple A than any other rating. By creating a Triple A rating where such a rating is not deserved, the rating agencies - and Goldman by then selling them - put those institutions that must invest conservatively (because their investments go to supporting things like education) at risk.

This is further proof that clients cannot trust Goldman Sachs. The head of Goldman Sachs has admitted that he never knew that some of his company's clients have to be protected from investing in risky investments. As a result, he did not make sure that Goldman Sachs did not sell risky investments that look like Triple A rated investments without actually being Triple A.

link for clip............

http://www.huffingtonpost.com/steven-g-brant/the-death-of-goldman-sach_b_554371.html

[FreeEnergy]

Don't worry about financials.

All the money they stole has been recirculated into economy as "private equity" or "private investment firms". They had such a fountain of billions (possibly trillions) and a buying spree of such huge proprtions it boggles your mind, anyone even with untrained eye would be asking where the money come from.

The truth is they've been anticipating the collapse of the banking sector. In fiat economy, they build banks on fraud, and they milk it until it collapses. And they buy industries with profits. This should be a classic case of fraud, largest "private equity" firms investigated too. But it won't, because just a collapse of few banks that were paper giants will give you enough things to chew on.

Classical securities fraud:
1. create a bank, make money out of thin air
2. funnel profits into a separate corporation. (i.e. you send liabilities to the bank, and assets to corporation) - classic fraud schema
3. buy off industries using separate corporation and call it some fancy words like "private equity" "leverage buyout".
4. bankrupt the bank, successfully getting rid of liabilities

Wash, rinse, repeat. Year after year, country after country.

[FreeEnergy]

I agree.

It is a classic Monopoly game, when the Bank is also playing against everyone. Of course at the end of a normal game there's one winner. But if the Bank plays, at the end of ANY game there's always one winner too - the BANK. All business is dead.

[Shami-Amourae]

Verizon, Wal-Mart, Kraft Foods, Home Depot and McDonald's?


Dunno if you've been paying attention to the food police in California, but McDonald's days may be limited too...

They can't even have toys with the Kid's Meal anymore.

[Shami-Amourae]

http://dealbook.blogs.nytimes.com/2010/04/28/whitman-on-hot-seat-over-time-at-goldman/

Goldman Sachs is the new political bad word....oh this is so beautiful!


Whitman on Hot Seat Over Time at Goldman

Meg Whitman, the former eBay chief executive, said Tuesday she regrets taking part in a now-banned stock sale practice at Goldman Sachs and said she left the investment bank’s board in 2002 after 15 months because she “wasn’t a good fit.�

The Republican front-runner in the California governor’s race sought to defuse criticism about her connections to the firm, which have put her on the defensive in the GOP primary, The Associated Press reported.

“The lesson learned about it is you have to be extra vigilant about seeing any actual or perceived conflict of interest,� she said in an interview with the news service. “I missed the signposts here.�

Goldman Sachs paid Whitman $475,000 for her board service, but she left in 2002 after questions were raised about whether Goldman gave her preferential access to stocks that were flipped quickly for huge profits in exchange for eBay Inc.’s investment banking business.

“As I look back on it, would I do it again? No,� Ms. Whitman said.

Meanwhile, Reuters reports that Ms. Whitman caught a glimpse of what could be her biggest enemy in the California governor’s race � organized labor � when unions on Monday unveiled a campaign linking her to Goldman and Wall Street “greed.�

Promising their biggest fight in a governor’s race with 25,000 union members calling and going door-to-door, the 2.1 million member California Labor Federation unveiled a Web site, www.wallstreetwhitman.com, which paints the former eBay chief executive and Goldman Sachs director as a creature of Wall Street.

Source (http://dealbook.blogs.nytimes.com/2010/04/28/whitman-on-hot-seat-over-time-at-goldman/)

[Phenix Pawn]

A complete "dog and pony" show.

If you think that Gold-Man Cracks didn't swindle us for billions, just wait, as they will produce the next CBS Movie of the Week, "Goldman Crack, yo, Ya Never Gives Back."

Watch as amazing things, such as "bailout bucks", and "paper trails" will just magically disappear! Along with any HARD CRIMINAL CAHARGES. Amazing?

Just wait till you find out that 1/2 of Goldmans Crack now sits in the Hebrew Bank of Goyim Bucks. How did that happen?

Ahebrew would never steal...they are our real good friends.

We MUST TRUST Them choosy ones, right?

"Because it has what plants crave. It has ElectroLights. Everybody knows that from that ad. Don't you watch TV, stupid?" (from a day in the life)

or was it

"Because it is Gubberment Motors. It has Union. Everybody knows from FOX that it is too big to fail. Don't you watch TV, stupid?" (from a day in thier life)

"UPGREYEDD."

[Serpo]

rense.com

Seize And Liquidate Goldman Sachs
By Webster G. Tarpley
Tarpley.net
4-29-10


Today's Senate hearings, carried on CNBC, Bloomberg, and C-SPAN, represent the first major exposure of the American people to the scandalous frauds of the derivatives casino, including synthetic collateralized debt obligations (synthetic CDOs or CDO2). These are things most people have heard very little about. They begin to open up the shocking reality behind such shopworn euphemisms like "toxic assets," "exotic instruments," and "troubled assets." Reactionaries in general and Republicans in particular have done everything possible to hide the role of derivatives, which must be considered the main cause of the financial panic of September 2008 which brought down Lehman Brothers, Merrill Lynch, and AIG, after felling Bear Stearns in March of the same year. The reactionary legend, repeated yesterday on the Senate floor by financier minion GOP Sen. Gregg of New Hampshire, is that the crisis was caused by poor people taking out subprime mortgages and then defaulting, bringing down the entire Anglo-American banking system and triggering the bailouts. Either that, or too much government spending was too blame.

A mass of kited derivatives blew up in September 2008

This Big Lie has come from such propaganda sources as the Limbaugh Institute of Retarded Reactionary Ranting. But the $1.5 trillion in subprime mortgages were dwarfed by the $15 trillion US residential real estate market, to say nothing of the $1.5 thousand trillion world derivatives bubble. But, starting with Bush-Goldman Sachs Treasury Secretary Henry Paulson, the talk has been of a "housing correction," not a derivatives panic. It must be pointed out that derivatives are nothing but wagers, bets placed from a distance on securities which themselves are often not mortgages, but rather other derivatives. The bettor buying a synthetic CDO or CDO2 does not own the underlying mortgages or mortgage-backed securities, any more than someone who bets on a racehorse owns part of the horse. Blankfein and others tried to portray derivatives as a service to hedgers and end-users, but it's clear that the vast majority of derivatives involve neither hedgers nor users, but only bettors on both side of the transaction. It is in any case this mass of kited derivatives which blew up in 2008, bringing on the present world economic depression.

Goldman Sachs executives are babbling cretins

The mystique of Goldman Sachs is based in large part on their reputation as the smartest financiers on Wall Street. After today's hearings, this mystique has permanently dissipated. The Goldman executives babbled. They sounded dumb. They stalled and stammered and went into contortions to avoid giving straight answers to simple questions. They were mendacious and evasive when they did speak. Financial powers around the world will note carefully the refusal of three out of four Goldman executives on one panel to state that they had a duty to defend the interests of their clients. Who will want to do business with such a gang? Goldman Sachs got $10 billion of taxpayer money in low-interest loans under the Bush-Paulson TARP. Part of that money went to pay for obscene bonuses for Goldman executives like the ones on display today. The argument for bonuses is that they must be paid to retain the highly talented personnel, virtual geniuses, who are indispensable for Wall Street speculative success. But these are no geniuses, they are imbeciles. No more bonuses should be paid by banks saved through public money.

Don't buy any used cars from Lloyd Blankfein

Sleaziest of all was Goldman's risk-monger in chief, Lloyd Blankfein, who pretended not to know that derivatives are often kept hidden off balance sheet. The morally insane Blankfein testified that his role was to provide the firm's clients with "the risk they wanted." Other GS witnesses represented the firm's role as "distributing risk." But it turned out that they were manufacturing risk through the very existence and activities of Goldman Sachs, which had the result of pyramiding the total risk of the US financial system into intergalactic space. It is time to regulate much of that unbearable risk out of existence with appropriate regulatory legislation. In the meantime, no sane person would buy a used car from Blankfein. Nor should they believe his assurance that the "recession" has ended.

But when at the end of the day Blankfein finally suggested to Sen. Tester that synthetic CDOs might be outlawed, we should accept his proposal immediately.

Today's hearings reveal the Goldman Sachs gunslingers and whiz kids as ignorant gangsters and con artists, notable only for their ability to practice massive fraud with impudence. These sleazy mediocrities do not deserve bonuses paid for by taxpayers. Rather, it is time to shut them down and put them in the dock.

If Goldman Sachs had cared about is clients, it would have urgently warned them to unload their subprime risk by late 2006 or thereabouts. Instead, Goldman was busily increasing its clients' risk by selling them more toxic CDOs out of its own inventory warehouse.
Goldman Sachs: bookies who stack the deck and fix the games

As the philandering Sen. Ensign pointed out, comparing Wall Street to Las Vegas is a slander on the croupiers of Las Vegas, where everyone knows or should know that the game is rigged so that the house always wins. To use the comparison introduced by Sen. McCaskill, Goldman Sachs was operating as the gambling house, or the bookie. At the same time, Goldman was betting for their own account. But much worse was the fact that Goldman was stacking the decks, loading the dice, fixing the games on which the bets were placed, and bribing the umpires.

As Ensign put it in a rare moment of lucidity, the subprime mortgage was bad. But the collapse of subprime would not have had anything like its actual destructive effect on the US economy if it had not been compounded by the mass of synthetic derivatives that were piled on top of subprime.

No national or social purpose served by Goldman Sachs and toxic derivatives bets

The broader issue raised by today's hearing is: what human purpose is served by the existence of Goldman Sachs, which concocts toxic synthetic CDOs for the purpose of allowing speculators, who are often lied to and duped, to bet for or against them. Goldman Sachs can only be described as a speculative parasite which promotes the activities of other speculative parasites, such as the John Paulson hedge fund at the expense of the public and of its other clients. It was a crime to inject $10 billion of Treasury money into Goldman Sachs. It was another crime for the Fed to lend Goldman untold billions (just how many billions Bernanke still refuses to disclose) to keep them afloat and enable more predatory profits. These crimes must stop, and the public money must be clawed back. Most important, it is time to shut down the derivatives rackets.

Goldman got $12.5 billion from taxpayers for AIG credit default swaps

Useful questions from GOP Sen. Coburn pointed to another kind of derivative: the infamous credit default swap (CDS). These CDS are what brought down AIG, whose London hedge fund had issues $3 trillion in derivatives. When the government bailed out AIG, part of that $180 billion of taxpayer money was used for payouts to the CDS counterparties of AIG, biggest among them Goldman, which got $12.5 billion from the US taxpayer. That was 100 cents on the dollar on a mass of toxic CDS. Coburn wanted to know why Goldman got all their money back, while GM bondholders took a bath as GM went bankrupt. That was, of course, a matter of Goldman's political clout through GS alum Henry Paulson and Obama Car Czar Steve "The Rat" Rattner, backed up by the historic preponderance of finance capital over industrial capital in this country since Andrew Carnegie sold out to JP Morgan over a century ago.

Derivatives and zombie banks: the toll

Thanks to Goldman Sachs, the other Wall Street zombie banks, and their derivatives, the financial panic of 2008 has turned into a world economic depression of unimaginable proportions. The unemployed and underemployed in the US alone are surely in excess of 20 million. Five to six million home foreclosures are already done or in the pipeline, throwing tens of millions of Americans out of their homes. World trade has been seriously impacted. The budgets of California, New York, Illinois, and many other states are in crisis, with massive layoffs of teachers and other state employees. An entire generation is being destroyed. Now, Greek bonds are trading at junk levels under the attack of speculative predators including Soros, Greenlight Capital, SAC, and the protagonists of today's hearings ÂÂ* Paulson and Co and Goldman Sachs itself. The attack on Greece and the euro represents the leading edge of the second wave of the depression, which is now arriving in much the same way that the second wave of the 1930s depression was unleashed by the Vienna Kreditanstalt bankruptcy in May of 1931, about 79 years ago and just a year and a half into that depression.

The goal of the Republicans is to portray themselves as stern judges of Wall Street, even as they line up in a unanimous phalanx to protect the finance jackals from any meaningful regulation whatsoever - as seen in yesterday's vote to block cloture on derivatives re-regulation and reform. The goal of the Democrats is to expose the sociopathic evil of Goldman Sachs and the rest of Wall Street while preening themselves as defenders of the public interest, without however banning credit default swaps, banning synthetic CDOs, and imposing a Wall Street sales tax on all remaining derivatives and asset transactions.

To this degree, today's hearings are being conducted in bad faith by both major parties. However, the dynamic of the resulting spectacle has the result of educating and mobilizing public opinion against the predatory practices which are the essence of Wall Street, even a year and a half after the banking panic of September 2008 and the monster bailout of zombie banks which soon followed. What is required is a new edition of the anti-banker sentiment set off by the Senate Banking Committee hearings conducted from January 1933 to May 1934 by committee counsel Ferdinand Pecora, which unmasked the corruption of Wall Street. Persons of good will need to get active now to push this process as far as possible while these social dynamics are working. It is time to hit the zombie banks, the hedge funds, and their derivatives as hard as possible, before the second wave of the depression hits. The program necessary to fight the depression and break the strangle-hold of Wall Street on the US economy and political system is given on my web site.
Mitch McConnell on the bailout: "Harry, I think we need to do this, we should try to do this, and we can do this."

During a break the senators filed out, and the GOP reactionary lockstep once again blocked cloture for a final debate on the Wall Street reform bill, weak as it is. Many activists of the Tea Party naively believe that they have been fighting for a year and a half that they have been fighting to take back the Republican Party. If that is what they believe, today's second cloture vote proves that they have gotten nowhere in their efforts. Despite their charades, the GOP are the bodyguards of the Wall Street predators. Tea baggers who think they can break the Wall Street grip on the Republicans are pathetic dupes, and they need to wake up, pronto.

When Paulson went to the leaders of Congress to demand a $700 billion bailout for Goldman and his Wall Street cronies, GOP Senate majority leader Mitch McConnell was "deeply frightened" by the apocalyptic briefing delivered by Paulson and Bernanke. When Democratic Majority Leader Harry Reid started talking about how difficult it would be to get so much money in a hurry, McConnell urged an immediate bailout, saying: "Harry, I think we need to do this, we should try to do this, and we can do this." (Andrew Ross Sorkin, Too Big to Fail [New York: Viking, 2009], p. 442) The GOP was the original party of the bailout, and they have not repented, as best seen through the continuance of McConnell, one of the key midwives of the bailout, as Republican Senate Majority Leader. This is the same McConnell who went to Wall Street recently to meet with zombie bankers and hedge fund hyenas, pledging to block derivatives reforms in exchange for big bucks contributed to the GOP's campaign coffers. Tea baggers who think the GOP has changed or is moving to their side are sadly deluded.

Today, the market fetishism of the crackpot Austrian school has taken a severe blow. Now that Blankfein's public image has been soiled by Goldman's scurrilous and scatological emails, the time is ripe for the radical reform of derivatives and the zombie banks. This is a matter of national survival.

Now that Goldman Sachs is masquerading as a bank holding company, it is subject to FDIC rules. If Goldman's derivative hoard is marked to market, it is bankrupt. The FDIC should therefore seize Goldman and liquidate it under chapter 7 of the US Code. Sheila Bair should not wait for Friday.


http://tarpley.net/2010/04/27/seize-and-liquidate-goldman-sachs/

http://www.rense.com/general90/seize.htm

[FreeEnergy]

Bubbling idiot he's not, he's playing. It is GUARANTEED.

Seize and liquidate....So who are they going to give Goldman Sachs assets then? Let's play a game here:
To Rothschild-controlled JP Morgan
To CIA-controlled Bank of America?
To Rockfeller-controlled Citi?
Or maybe to Wells Fargo + Wachovia (Wells Fargo is drug money laundering through Amex Travelers Cheques)?
Or maybe...hmmm or maybe to Morgan Stanley?

Because there are no other large banks left.

[keehah]

Death or morph?

Global Research [2009] : Does Goldman Sachs run the government? (http://www.globalresearch.ca/index.php?context=va&aid=13440)

Goldman Sachs new logo:
http://t1.gstatic.com/images?q=tbn:G3pNVcqtntsDWM:http://upload.wikimedia.org/wikipedia/commons/thumb/d/d9/Military_Flag_of_the_United_States.svg/800px-Military_Flag_of_the_United_States.svg.png

[FreeEnergy]

Good thinking keehah, if they announced they'd merge with JP Morgan or BoA, it would be an outcry and a anti-monopoly investigation. Now that they put this dog and pony show and announce themselves "insolvent", they can merge with whoever they like (or whoever they'll tell the FDIC to announce since they probably control FDIC too).

That Carl Levin "senator" guy is a khazarian fraud.

[FreeEnergy]

On related note, looks like they are consolidating most banks into one giant MONOPOLY:

Dodd Bill Covertly Eliminates Already Passed Audit the Fed Bill (http://gold-silver.us/forum/index.php?topic=2846.0)

[Neuro]

I think it is to early to count Goldman Sachs as dead. I think they will be with us to the end days, which may not be that far away. To me 2010 seems like they manage to get through. Sometime during 2011-12 is more likely for the ultimate crash and the end of western civilization/corruption...

[Awoke]

Nothing happens in these circles without the approval of TPTB. This is a sideshow circus that will serve to distract the "somewhat-awakening" blue-pillers, and serve as a fall guy.

Don't doubt for one second that this has been well planned out from the start. I speculate that this shitstorm will help to usher in new whole new era of policies, laws and powers that will be enve more NWO-enabling.

GS may fall, but the phoenix will rise from the ashes as always.

From GATA:



Criminal probe looks into Goldman Sachs trading

Submitted by cpowell on 06:23PM ET Thursday, April 29, 2010.
Section: Daily Dispatches
By Susan Pulliam and Evan Perez
The Wall Street Journal
Thursday, April 29, 2010

http://online.wsj.com/article/SB1000142405274870357250457521465299834887...

Federal prosecutors are conducting a criminal investigation into whether Goldman Sachs Group Inc. or its employees committed securities fraud in connection with its mortgage trading, people familiar with the probe say.

The investigation from the Manhattan U.S. Attorney's Office, which is at a preliminary stage, stemmed from a referral from the Securities and Exchange Commission, these people say. The SEC recently filed civil securities-fraud charges against the big Wall Street firm and a trader in its mortgage group. Goldman and the trader say they have done nothing wrong and are fighting the civil charges.

Prosecutors haven't determined whether they will bring charges in the case, say the people familiar with the matter. Many criminal investigations are launched that never result in any charges.

The criminal probe raises the stakes for Goldman, Wall Street's most powerful firm. The investigation is centered on different evidence than the SEC's civil case, the people say. It couldn't be determined which Goldman deals are being scrutinized in the criminal investigation.

A spokesperson for the Manhattan U.S. Attorney's office declined to comment. Goldman declined comment.

The development comes amid public calls for more Wall Street accountability for the industry's role in the financial crisis. Though there are multiple ongoing criminal and civil investigations, no Wall Street executives connected with the meltdown have been convicted of criminal charges. During congressional hearings this week into Goldman's role in the crisis, legislators grilled Goldman executives for nearly 11 hours.

The SEC and Justice Department often coordinate their actions on investigations. The probe underscores heightened efforts by the Manhattan U.S. Attorney's office in prosecuting white-collar and Wall Street crime. It is in the midst of pursuing the largest insider-trading case in a generation, charging 21 individuals and negotiating 11 guilty pleas in that matter.

But the Goldman probe presents a significant challenge for the government. Prosecutors in the Brooklyn office of the U.S. Attorney last year lost a high-profile fraud case against two former Bear Stearns Cos. executives, in the first major criminal case linked to the financial meltdown.

Prosecutors had accused the Bear Stearns employees of lying to investors in 2007 about the health of two funds that eventually collapsed. The case centered on what the government viewed as incriminating emails indicating the traders knew the mortgage market would fall but didn't disclose that view to investors.

To bring any criminal charges in the Goldman matter, prosecutors would need to believe they had gathered evidence that showed that the firm or its employees knowingly committed fraud in their mortgage business. Proving such intent to break the law typically is the toughest hurdle for prosecutors to clear.

Another stumbling block: Such financial cases can be highly complex. Few outside of Wall Street understand arcane products such as collateralized debt obligations, the pools of mortgage-related holdings at the heart of the SEC civil case against Goldman.

On April 16, the SEC charged Goldman and an employee, Fabrice Tourre, with securities fraud in a civil suit relating to a mortgage transaction, known as Abacus 2007-AC1, a deal the government said was designed to fail. The SEC alleged that Goldman duped its clients by failing to disclose that hedge fund Paulson & Co. not only helped select the mortgages included in the deal but also bet against the transaction. Both Goldman and Mr. Tourre have denied wrongdoing.

Even the SEC's case, which is subject to a lesser standard of proof than a criminal case, is viewed as a challenge for regulators. The SEC's commissioners were split 3-2 along party lines on whether the agency should bring a case.

In battling the SEC charges, Goldman says its investors were sophisticated and knew the underlying securities they were buying. Goldman says it wasn't required to disclose who provided input into the deal or the views of its clients in the transaction.

The congressional hearing involved numerous other mortgage deals Goldman arranged in 2006 and 2007. Lawmakers criticized Goldman and its executives for allegedly stacking the deck against clients during the market meltdown in 2007.

Some of the emails released by regulators, lawmakers and Goldman suggest a callous attitude among Goldman employees toward the risks involved in some of the Goldman mortgage deals, including one in which a Goldman employee referred to a mortgage transaction the firm sold to investors as a "sh---y" deal.

Over the years, the government has been reluctant to criminally charge financial firms with wrongdoing because the charge itself can cause a business to implode. Some investing clients can't or won't trade with a firm facing such a taint.

Indeed, in the more than two-century history of the U.S. financial markets, no major financial firm has survived criminal charges. Securities firms E.F. Hutton & Co. and Drexel Burnham Lambert Inc. crumbled after being indicted in the 1980s. In 2002 Arthur Andersen LLP went bankrupt after it was convicted of obstruction of justice for its role in covering up an investigation into Enron Corp. The conviction was later overturned by the Supreme Court.

In recent years, some financial firms have agreed to "deferred prosecutions," in which they agree to a probationary period for which they won't commit any future wrongdoing.

That's what Prudential Securities Inc. famously did in 1994 when that securities firm faced criminal charges that it misled investors about the risks and rewards of limited-partnership investments. Prudential agreed to a three-year deferred prosecution, as well as fines and restitution, to end a criminal securities-fraud investigation.

[MNeagle]

'Buy' means 'sell' in Goldman's world

NEW YORK (MarketWatch) -- Watching Goldman Sachs Group Inc. officials testify before a Senate subcommittee, I couldn't help thinking of George Orwell.

He, of course, was the great English writer of "Animal Farm" and "1984," which we all read in school.

Orwell understood better than anyone the pernicious language of euphemism. You might remember the phrases "doublethink," "war is peace; freedom is slavery," and "Big Brother is watching you," which chillingly captured the obfuscations of totalitarian regimes in the early days of the Cold War.

But a less-well-known essay of his, "Politics and the English Language," kept running through my mind as I watched witnesses go before the cameras Tuesday. It was striking how few of the present and former traders and executives grilled by senators for more than ten hours could give direct answers to simple questions.


"The great enemy of clear language is insincerity," Orwell wrote in that essay. "When there is a gap between one's real and one's declared aims, one turns as it were instinctively to long words and exhausted idioms, like a cuttlefish spurting out ink."

And there were buckets and buckets of black ink spurted out in the hearing room Tuesday as the Senate Permanent Subcommittee on Investigations interviewed Goldman /quotes/comstock/13*!gs/quotes/nls/gs (GS 145.20, -15.04, -9.39%) Chief Executive Lloyd Blankfein; Chief Financial Officer David Viniar, and several present and former denizens of Goldman's mortgage desk, ground zero of the controversy that has shaken the firm to its roots.

At times it seemed like inquisitors and witnesses lived on two planets, speaking two different tongues.

The Goldman executives spoke the rarefied language of Wall Street as they tried unsuccessfully to explain their business model to an audience that must have been scratching their heads when they weren't reaching for their remotes. They clung to a thin reed of a defense, that they were above-it-all "market makers" whose only responsibility was to give clients the best price on any deal.

The self-righteous senators tried to cloak themselves in the language of Main Street, using down-to-earth idioms and even salty language -- quoted from internal Goldman emails -- that would have gotten Howard Stern thrown off the air a few years ago.

The whole exercise proved how removed Goldman and Wall Street are from the most basic standards by which the rest of us to do business, and how unaware they seemed to be of it. Except occasionally for Blankfein and Viniar, Goldman's witnesses couldn't say whether what they were doing was right or wrong, or whether they were obliged to tell the truth to clients about deals they were selling them.

That became very clear from early in the hearings, when four present or former mortgage traders and salesmen gave their testimony.

These were the people in the trenches who actually did the deals. They included Daniel Sparks, who headed up the mortgage desk for nearly two years before resigning in 2008; former trader Joshua Birnbaum; managing director Michael Swenson, and of course Fabrice "Fabulous Fab" Tourre, whom the Securities and Exchange Commission named as a defendant along with Goldman in the civil case it filed a couple of weeks ago.

Both Goldman and Tourre have repeatedly denied wrongdoing and have vowed to fight the SEC's charges in court.

All four young men were lawyered up to their ears and rarely departed from their scripts. At times some appeared to have utter contempt for the proceeding and the elected officials who ran it. In this hearing room, at least, they seemed possessed of an icy brilliance, lacking the testosterone-fueled animal spirits that prompted Tom Wolfe's Masters of the Universe to go "braying for money" in the bond pits. But that was 20 years ago.

Senator Susan Collins (R-Maine) asked all four the same question:

"Could you give me a 'yes' or 'no' to whether you considered yourself to have a duty to act in the best interest of your clients?"

Only Birnbaum, who appeared to fancy himself a latter-day Hank Rearden from Ayn Rand's "Atlas Shrugged," said: "Not only do I believe that we do; I believe that we did."

Here's Sparks: "I believe we have a duty to serve our clients well."

And Swenson: "I believe it is our responsibility as market makers to provide a market-level bid and offer to our clients and to serve our clients in helping them transact at levels that are fair market prices and help meet their needs."

Finally, Fabulous Fab: "I believe we have a duty to serve our clients and with respect to our role as market makers to show prices to our clients and to offer them liquidity. I do not believe we were acting as investment advisers."

In other words, don't blame us; we're just the market makers.

"I felt that they evaded a lot of the questions and were not very straightforward," Sen. Collins told Matt Lauer on Wednesday's Today /quotes/comstock/13*!ge/quotes/nls/ge (GE 18.86, -0.63, -3.23%) show. "They were truthful in a sense and they also avoided answering whenever they could, and most of all, I was struck by the fact that they did not take responsibility for their actions, nor did they acknowledge their conflicts of interests."

Again and again the subcommittee chairman, Senator Carl Levin (D-Mich.), asked the same question: "Don't you also have a duty to disclose an adverse interest to your client?" In other words, did Goldman owe it to clients to tell them it or other clients were short on instruments it was selling them?

He never got a direct answer to that question, because it's obvious what that would have been: no.

The hearings showed clearly that Goldman and other big Wall Street firms are wearing so many hats -- market maker, underwriter, money manager, investment advisor -- and are now handling financial instruments so complex that it has become impossible to sort out their most basic conflicts of interests and their most fundamental obligations to customers.

As I wrote last week, Wall Street now has become more transactional- and less relationship-oriented, and more geared to helping hedge funds than traditional institutions. Read "Goldman case shows Wall Street's true colors."

Tourre captured that perfectly in an e-mail read at the hearing. Tourre and Goldman, remember, have based much of their defense on the claim that their clients were all "sophisticated" institutions that knew what they wanted.

But his Dec. 28, 2006 e-mail said the firm should not focus on "sophisticated hedge funds" as potential customers, because "a. most of the time they will be on the same side of the trade as we will, and b. they know exactly how things work and will not let us work for too much money vs. buy-and-hold, ratings-based buyers."

"This sounds like a deliberate attempt to sell [complex] products to less sophisticated clients who would not understand the products as well, so that you could make more money," Sen. Collins said.

Or, as George Orwell might have put it: All clients are equal, but some clients are more equal than others.

http://www.marketwatch.com/story/buy-means-sell-in-goldmans-world-2010-05-01?pagenumber=2

[Serpo]

I think it is to early to count Goldman Sachs as dead. I think they will be with us to the end days, which may not be that far away. To me 2010 seems like they manage to get through. Sometime during 2011-12 is more likely for the ultimate crash and the end of western civilization/corruption...


On life support then

Remember when they became a bank as well,it just may be their undoing.