Mission & Name
US Foreign Policy (Dr. El-Najjar's Articles)
Master of the Universe
By Stephen Lendman
Al-Jazeerah, ccun.org, May 3, 2010
The status applies to all Wall Street giants, none, however, the
equal of Goldman, the Grand Master. Like the fabled comic book Superman
-- faster than its competitors, thanks to its
proprietary software ability to front run markets (illegal, but no matter);
-- more powerful than the government it controls; and
to leap past competitors, given its special status.
Founded in 1869,
GS calls itself "a leading global investment banking, securities and
investment management firm that provides a wide range of services
Since going public in 1999, the same year Glass-Steagall
ended letting banks, insurers and securities companies combine, GS became a
giant hedge fund trading against the advice given clients with the full
faith and blessing of Washington - the same thing other Street giants did
and profited handsomely.
In his April 17 article headlined, "Goldman
Sachs Vampire Squid Gets Handcuffed," L. Randall Wray noted SEC laxity for
years, "managing to sleep through every bubble and bust in recent memory,"
and saying Goldman acts above the law "since it took over Washington during
the Clinton years." Their criminal behavior is nothing new. It's their
established business model, the reason it's been immersed in nearly all
financial scandals since the 19th century.
Wray notes that John
Kenneth Galbraith's famous 1954 book, "The Great Crash," had a chapter
titled "In Goldman We Trust" on its contribution to the Great Depression
through risky investment trusts (an early mutual fund cum Ponzi scheme) sold
to unwary buyers.
Goldman and other "whip(ped) up a speculative
fever in shares, reaping (highly leveraged) capital gains with other
people's money." They were fraudulent pyramid schemes, a "Charles Ponzi-Bernie
Madoff scam." Then and today, they collapsed, the way they always do when
insiders pull the plug at the same time, cashing out to let their customers
take the pain.
At the end of his Goldman chapter, Galbraith
recounted this years after the crash encounter before a Senate committee:
"Senator Couzens. Did Goldman, Sachs and Company organize the Goldman
Sachs Trading Corporation (to sell junk trusts to unwary buyers)?
Mr. Sachs. Yes, sir.
Senator Couzens. And it sold its stock to the
Mr. Sachs. A portion of it. The firm invested originally in
10 per cent of the entire issue for the sum of $10,000,000.
Couzens. And the other 90 per cent was sold to the public?
Sachs. Yes, sir.
Senator Couzens. At what price?
At 104. That is the old stock....the stock was split two for one.
Senator Couzens. And what is the price of the stock now?
Approximately 1 and 3/4.
Buyers then and now lost their shirt, not
knowing that betting against Goldman is a sure way to get fleeced. Yet even
sophisticated lambs volunteer to be slaughtered, thinking they're as smart,
will get out in time, then learning otherwise and discovering Goldman cheats
all its clients, even nation states like Greece by hiding its debt and
shorting it. Around a dozen US states as well, including California, the
same way. Wall Street's culture encourages this and rewards it greatly, the
price for getting caught usually fines too small to matter.
this time be different? No matter the cost to others, like Enron and Savings
and Loan crooks, don't ever bet against Goldman, especially given the SEC's
shoddy crime fighting record, picking off small fry but barely slowing big
ones, and hardly up to a serious tangle with the Grand Master, regardless of
the extent of its sleaze.
So what to make of April 16's breaking
news, headlined by New York Times writers Louise Story and Gretchen
Morgenson saying the "SEC Accuses Goldman of Fraud in Housing Deal."
The SEC filed civil, not criminal, suit named Fabrice Tourre, "the fabulous
Fab," (GS's 31-year old VP involved in creating junk investments), charging
fraud. GS, in turn, called the accusations "completely unfounded in law and
fact (and would) vigorously contest them and defend the firm and its
reputation" - indeed so with all the legal talent billions in ready assets
can buy, and no shortage of top tort attorneys willing to line up and take
Watch for more suits to follow, but is Goldman sacked? Don't
bet on it in what for sure will be long drawn out proceedings, including
appeals that will drag on for years.
Case in point, among others -
the notorious Exxon Valdez incident after the March 24, 1989 spill, ravaging
Alaska's Prince William Sound and Lower Cook Inlet, ruining the livelihoods
of area fishermen and residents. Lawsuits followed:
-- In September
1994, $287 million in compensatory damages and $5 billion in punitive ones
-- In December 2002, the Ninth US Circuit Court of
Appeals reduced the latter to $4 billion.
-- In December 2006,
after more appeals, the same court cut another $1.5 billion; and
In June 2008, the US Supreme Court reduced punitive damages to $500 million
- the equivalent of about 1.5 days profit from ExxonMobil's first quarter
2008 operations. No company executive went to jail for perhaps the worst
environmental crime in history. It was whitewashed for 10 cents on the
dollar after nearly 20 years of litigation.
April 16, the SEC:
"charged Goldman, Sachs & Co. and one of its vice
presidents for defrauding investors by misstating and omitting key facts
about a financial product tied to subprime mortgages as the US housing
market was beginning to falter."
Goldman Sachs structured and marketed a synthetic collateralized debt
obligation (CDO) that hinged on the performance of subprime residential
mortgage-backed securities (RMBS). Goldman Sachs failed to disclose to
investors vital information about the CDO, in particular the role that a
major hedge fund played in the portfolio selection process and the fact that
the hedge fund (Paulson & Co.) played in the portfolio selection process and
the fact that the hedge fund had taken a short position against the CDO" -
junk assets its president, John Paulson, made $4 billion on in 2007 by
correctly betting on the housing collapse he and GS helped initiate.
"The SEC's complaint charges Goldman Sachs and Touree with violations of
Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities
Exchange Act of 1934, and Exchange Act Rule 10b-5. The Commission seeks
injunctive relief, disgorgement of profits, prejudgment interest, and
Fabrice Touree was "principally responsible"
for the fraud and sent an email before they were sold saying:
whole building is about to collapse anytime now," calling himself the "Only
potential survivor, the fabulous Fab....standing in the middle of all these
complex, highly leveraged, exotic trades he created without necessarily
understanding all of the implications of those 'monstruosities!!!' "
According to the SEC, he wasn't alone as senior GS executives signed off on
them. Likely, but unnamed, they include CEO Lloyd Blankfein - profiled on
November 8, 2009 in the London Sunday Times saying "I'm doing 'God's work,'
" the height of audacity matching the firm's history of criminality and
getting away with it.
In their April 17, 2010 article headlined,
"Goldman Sachs Charged With Fraud," Wall Street Journal writers Gregory
Zukerman, Susanne Craig and Serena NG called GS Wall Street's most
profitable firm, "emerg(ing) as a symbol of excess, (having) paid out about
$16 billion in compensation to employees in 2009," the firm's most
profitable ever year.
In her April 18 article headlined, "Top
Goldman Leaders Said to Have Overseen Mortgage Unit," Louise Story said:
"....according to interviews with eight former Goldman employees,
senior bank executives played a pivotal role in overseeing the mortgage unit
just as the housing market began to go south. These people spoke on the
condition that they not be named so as not to jeopardize business
relationships or to anger executives at Goldman....
these people, executives up to and including Lloyd C. Blankfein, the
chairman and chief executive, took an active role in overseeing the mortgage
unit as the tremors in the housing market began to reverberate through the
A top level decision was made - short the market
at the same time advising clients to buy. Around 99% of the mortgage
securities sold went sour. In her April 18 articled headlined "Savage Truth:
Goldman Tarnished America," financial writer Terry Savage put it this way:
It was "as if the dealer in a card game had purposely handed all the
players the low cards, while dealing himself all the aces and picture cards
from the bottom of the deck. Those (in the game) were bound to get fleeced."
One of Goldman's board members, Rajat Gupta, is also being investigated
about whether he shared inside information with Galleon Group hedge fund
founder Raj Rajaratnam, he then used to initiate trades from June - October
2008. Thus far, no charges have been filed. Gupta said he did nothing wrong,
and Rajaratnam had no comment, despite last October being charged with
insider trading to which he pled not guilty. For years, Goldman executed
Galleon trades. The relationship is close, and Gupta and Rajartnam were
former business partners.
The Goldman suit involves an investment
vehicle called Abacus 2007-AC1, one of two dozen or more like it for the
firm and select clients to bet against the housing market.
scheme was to sell toxic asset-backed securities (ABSs) to unwary customers
(including foreign banks, pension funds, insurance companies and others),
then apparently use credit default swaps (CDSs) to profit when they
defaulted, or in other words the equivalent of buying life insurance on an
undisclosed terminally ill patient. More still, given Paulson & Co.'s role
in helping to structure and select assets, then buying CDSs to short them,
betting they'll decline. Paulson thus far faces no charges. Goldman's so far
are civil. If criminal ones are filed, prosecutors will have to prove
intent, perhaps coming given enough evidence to proceed.
19, Wall Street Journal writers Carrick Mollenkamp, Serena NG, Gregory
Zukerman, and Scott Patterson headlined, "SEC Investigating Other Soured
Besides Goldman, the SEC "is investigating whether
other mortgage deals arranged by some of Wall Street's biggest firms may
have crossed the line into misleading investors."
Black's Law Dictionary, 5th edition, 1979 defines fraud as
"All mutifarious means which human ingenuity can devise,
and which are resorted to by one individual to get an advantage over another
by false suggestions or suppression of the truth. It includes all surprises,
tricks, cunning or dissembling, and any unfair way which another is
The legal-dictionary.thefreedictionary.com/fraud calls it:
"A false representation of a matter of fact - whether by words or by
conduct, by false or misleading allegations, or by concealment of what
should have been disclosed - that deceives and is intended to deceive
another so that the individual will act upon it to her or his legal injury."
Criminal and civil frauds differ in the level of proof required - the
former needs a "preponderance of evidence;" the latter must prove intent and
be "beyond a reasonable doubt."
Times writers Story and Morgenson
call the SEC action "a sign (it may be) revitalized." Don't "bet" on it
given the agency's deplorable history of being a facilitator, not a
regulator, now run Mary Schapiro, a high level industry insider, revolving
door into her position before returning to another top spot.
being appointed, she was CEO of the Financial Industry Regulatory Authority
(FINRA), served as president of NASD Regulation (National Association of
Securities Dealers, then was NASD's chairman and CEO. Earlier she was an SEC
commissioner, and in 2008, George Bush appointed her to the newly
established President's Advisory Council on Financial Literacy, focusing on
economic empowerment issues. She was also chairperson of the IOSCO SRO
Consultative Committee under Bush, another body supposedly "promot(ing) high
standards of regulation in order to maintain just, efficient and sound
markets," the same ones manipulated to collapse, while the SEC and other
watchdogs stayed silent and watched.
Will SEC go the limit on
Goldman, add criminal to civil charges, lodge them against board members and
other top officials, then take on other guilty firms? Goldman is the most
prominent, but there's plenty of culpability to go around among the major
banks and their complicit hedge fund and other trading partners.
According to Karl Denninger:
"The real problem is with these
so-called 'complex securities' that are in fact nothing more than a gambling
contract designed and constructed in such a fashion as to make proper due
diligence impossible. Some of these synthetics had literally 100,000 pages
of referenced documentation related to them - how can anyone reasonably
expect to read and understand that sort of paperwork?"
they're "abusive (because) someone believes that the reference security or
securities in question will decline...."
In other words, they're
structured to fail - clear evidence of criminal intent by companies and
complicit employees, but will SEC officials charge it? Will the Justice
Department pursue RICO violations involving the largest financial fraud in
history with plenty of guilt to go around? Don't bet on it!
Power of Goldman
On October 17, 2008, New York Times writers Julie
Creswell and Ben White's article headlined, "The Guys from 'Government
Sachs,' " showing how embedded they are in Washington - so much so that
competitors call them "Government Sachs."
Long regarded as Wall
Street savviest firm, "The power and influence that Goldman wields at the
nexus of politics and finance is no accident." It has a history and culture
of "encouraging its partners to take leadership roles in public service,"
for the obvious benefit to the firm.
Among insiders, it's widely
acknowledged that "no matter how much money you pile up, you are not a true
Goldman star until you make your mark in the political sphere." According to
some, it's a conflict of interest, since the decisions they make directly
benefit the firm.
Former Treasury Secretary Henry Paulson was
appointed because of Joshua B. Bolten, former GS alum and GW Bush chief of
staff. "And if there is one thing Goldman has, it is an imposing army of
top-of-their-class, up-before-dawn uber-achievers."
Treasury stalwarts included:
-- Neel Kashkari - originally ran a
$700 billion fund buying toxic assets before becoming Interim Assistant
Treasury Secretary for Financial Stability under Paulson, his "right-hand
man," according to The Times, playing a major role in selling Bear Stearns
to JP Morgan;
-- Dan Jester, former GS strategic officer involved in
2008 Treasury initiatives, especially the Fannie and Freddie takeovers and
bailing out his former employer;
-- Steve Shafran, formerly a GS
Asian executive involved in Treasury's guarantee of money market funds among
-- Kendrick Wilson III, "a seasoned adviser to
chief executives of the nation's biggest banks;" unpaid, he worked on
apprising them of possible Treasury plans to get their reaction;
Edward Forst, a former Paulson adviser on setting up the bailout fund, then
returned to his position as Harvard executive vice president; and
Robert K. Steel, Goldman's former vice chairman, hired to shore up Fannie
Other prominent alumni include:
Rubin, former co-chairman and Treasury Secretary;
-- John Corzine,
former CEO and chairman, US senator and New Jersey governor;
Robert Zoellick, former managing director, Deputy Secretary of State and US
Trade Representative, and current World Bank president;
Reuben III, former European managing partner and Under Secretary of State;
-- Mark Patterson, former Goldman lobbyist and current Treasury chief
-- Ed Liddy, former GS board member and Paulson-appointed
-- Gene Sperling, former Goldman consultant and Deputy
Treasury Secretary under Robert Rubin;
-- Robert Hormats, former
vice chairman GS International and Under Secretary of State;
Stephen Friedman, former Bush National Economic Council director, New York
Fed board chairman, and Goldman chairman, now a Goldman board member;
-- George Herbert Walker IV, former Goldman managing director, current
mutual fund manager, and Bush family member;
-- John Thain, former
GS mortgage desk chief, CEO of the New York Stock Exchange, and Merrill
Lynch chairman and CEO;
-- and numerous other prominent GS alums
with ties to Washington, the New York Fed, and other institutions of power,
including currently under Treasury Secretary Geithner.
Risk Analytics managing partner Christopher Whalen called Goldman's ties to
the New York Fed "grotesque, (giving) the appearance of conflict of
interest....everywhere" - under Paulson, unconstrained as Treasury Secretary
to stack the agency with his cronies and run it like a GS subsidiary.
A Brief History of Goldman Sachs, Courtesy of the Wall Street Journal
-- founded by Marcus Goldman in 1869;
-- in 1906, became a major
player in the IPO (initial public offering) business;
-- in 1929,
Goldman involved in the market crash, suffers big losses like others on the
-- in 1930, Sidney Weinberg (aka "Mr. Wall Street") becomes
-- in 1956, GS is Ford's lead underwriter;
-- in 1969,
Gus Levy succeeds Weinberg;
-- in 1976, John Weinberg (Sidney's son)
-- in 1981, Goldman acquires J. Arons & Co., a
commodities trading firm;
-- in 1990, Robert Rubin and Stephen
Friedman succeed J. Weinberg, expanding the company globally;
1999, CEO and chairman Jon Corzine resigns as co-head, leaving Henry Paulson
-- in 2006, Paulson becomes Treasury Secretary; Blankfein
-- in 2008, Goldman becomes a bank holding company to
have easier access to liquidity and funding;
-- in 2009, Goldman has
its most profitable ever year;
civilly charged. Will criminal ones follow? One executive only was named.
The firm's loyalty to clients has before been questioned. It calls the
accusations "unfounded" and claims no responsibility for the credit crisis.
So far, its public image alone is tarnished as the symbol of popular
outrage, but its profits are the highest ever.
Will key top
executives be hung out to dry? Will those from other top firms follow? If
past is prologue, look for modest fines to be levied, appealed and lowered;
perhaps a few prosecutions below the top; pleas to be copped for light
(later reduced) sentences; and so-called "financial reform" to become law,
the kind this writer addressed in an article titled, "Bogus
Washington-Proposed Financial Reform," amounting to "show," but little
"dough" to assuage public anger.
It will leave business as usual
unchecked, so ordinary people will remain "sitting ducks to be scammed again
with the full faith and blessing of Washington" - where everything changes
but stays the same, and each party is as corrupt as the other.
Stephen Lendman lives in Chicago and can be reached at
Also visit his blog site at sjlendman.blogspot.com and listen to
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