Divine mandate, crappy deals
Monday, 3 May 2010
Fazal M. Kamal
THAT a mélange of hubris, power, money and avarice can be an awfully volatile brew has been known throughout human history. Yet, as is well-known by all, history keeps repeating itself, nauseatingly. The latest saga involving Goldman Sachs is yet one more instance of what can happen when people have partaken of that exhilarating brew. And certainly, the perpetrators will insist on claiming they are as innocent as the morning dew. That’s natural as well.
Given what Goldman Sachs — as well as some others — did in their frenzied rush to make more and more money, the Obama administration’s efforts to legislate regulations to bring some sense to Wall Street’s predatory inclinations haven’t come a moment too soon. Whether that legislation will in fact rein in the unbridled ways of the smart-suited, fast-talking moneybags and those who serve them, that is the likes of the “fabulous Fab,” (the Goldman trader at the heart of the deals that are under investigation by United States authorities) will continue to be the subject of debate till it’s tested sometime in the future.
The real, genuine, authentic attitude of the big financial institutions and of their top honchos are perfectly manifested in what one former trader said of what was happening on Wall Street and in what the big kahuna of the German operations of Goldman Sachs told a group of students. These quotes are most definitely illuminating at the very least. Said the former trader, “If running the economy off the cliff makes you money, you will do it, and you will do it every day of every week.” While in Germany, where too Goldman is having problems and has irked enough people, its chief declared that banks “do not have an obligation to promote the public good.”
What they’re being told is that you owe nothing to society — the society that nurtured you, the society that supported you — but only to the company where you should only think of making increasing amounts of money for the firm — of course you’ll be rewarded with huge bonuses — as also for the top executives who will in turn throw their weight around because they have all these powerful connections in politics, business, media and wherever else they need to connect to preserve their multimillion dollar lifestyle. And that’s how it’s been going on — till it all came down to going to the taxpayers with hat in hand. But that too didn’t alter the big players’ view of the world an iota.
The reality is, as Goldman Sachs and its executives made millions in profits and bonuses, US citizens were losing their homes by the hundreds of thousands and millions more were losing employment. But of course all those stuff don’t make any impression on the minds of those whose sole aim in life is to take in more and more money home. There’s no room whatsoever for anything as awkward as something called conscience since they “do not have an obligation to promote the public good” or anything akin to that.
Here’s one example of how things work in the rarefied world of high finance. In 2009, as The Wall Street Journal reported, German retail and travel group Arcandor went bust in that country’s biggest-ever corporate failure. Goldman, a long-time adviser to the company had earlier bought the group’s department stores, which it then leased back to Arcandor. Critics complained Goldman was playing the roles of adviser, investor and landlord, the WSJ story continued. But Goldman officials claimed they had no formal mandate to advise Arcandor at the time the firm bought the stores. After incidents like this should it be any surprise that the German head of Goldman has been called “Goldfinger” by the German media?
In the US it got even more interesting. The US Securities and Exchange Commission says that at the behest of one client, the hedge fund Paulson & Co., as Daniel Gross writes in Slate, Goldman cobbled together a CDO that it would then sell in pieces to other customers. Paulson wanted Goldman to create the CDO just so it could bet against it — Paulson thought the mortgages in the CDO would default at a high rate, thus rendering big chunks of it worthless. It’s kind of like a developer (Paulson) commissioning a construction firm (Goldman) to build a condominium tower while purchasing insurance that would pay off in case it fell down.
But the SEC complaint alleges the scheme went a step further, Gross continues. The SEC says that Goldman worked with Paulson and ACA, a “portfolio selection agent,” to ensure that the edifice was composed of defective and subpar materials. The SEC presents evidence that ACA, as Goldman watched, included in the CDO specific assets that Paulson had chosen. Goldman then proceeded to sell condos (slices of CDOs) to other Goldman clients without telling them of the hazardous design.
“In sum, GS&Co arranged a transaction at Paulson’s request in which Paulson heavily influenced the selection of the portfolio to suit its economic interests, but failed to disclose to investors, as part of the description of the portfolio selection process contained in the marketing materials used to promote the transaction, Paulson’s role in the portfolio selection process or its adverse economic interests,” reads the SEC suit. It worked exactly as intended, says Gross. Goldman collected a fat fee for building and peddling the wreck. One Goldman client (Paulson) made out like a bandit shorting it. And several other Goldman clients (the unfortunate banks who bought pieces of the CDO) got their faces ripped off.
According to the United States Senate investigators Goldman Sachs reaped “billions and billions of dollars” in profits by secretly betting in 2006 and 2007 that the US housing market would crash, a strategy that conflicted with the interests of its clients who were still buying the firm’s risky mortgage securities. “The evidence shows that Goldman repeatedly put its own interests and profits ahead of the interests of its clients… I think they’ve been misleading to the country,” the chairman of the Permanent Investigations Subcommittee of the Senate, Carl Levin, told the media before the Senate hearing into the scandal began last Tuesday.
McClatchy Newspapers reported the subcommittee’s findings bolstered reports by McClatchy last November and December that Goldman had marketed $57 billion in risky mortgage securities in a series of deals in 2006 and 2007, including $39 billion backed by mortgages that it bought from lenders without telling investors that it was secretly making bets on a housing downturn. Goldman also sold billions of dollars in offshore securities that included subprime mortgages. Securities experts told McClatchy at the time that the practice might have constituted fraud because investors might have opted not to buy the securities if they knew that Goldman was betting on their collapse.
Significantly, the ongoing investigations also highlighted the questionable role that was played by the well-publicized credit ratings agencies. Critics have said that thousands of flawed credit ratings on subprime mortgage debts helped inflate the housing bubble and then exacerbated the credit crisis in 2007 and 2008, when investors realized the ratings didn’t accurately reflect the risk of billions of dollars in securities, the World Street Journal reported. The Senate investigators have spent the past year and half looking into the actions of Moody’s Corp. and Standard and Poor’s (the two rating agencies that, interestingly, racked up much publicity in Bangladesh recently) leading up to the financial crisis. The Senate Subcommittee’s chairman said they had uncovered incidences where bankers pushed to remove analysts who “were not playing ball” by not giving a high rating. The agencies, on their part, rolled over for the banks. Stated Senator Levin, “They did it for the money.”
Sure, money makes the world go round. It also makes the heads of bank honchos go round and round till they are giddy with overachievement and flush with millions of dollars in various types of compensations. That is the nature of unrestrained capitalism. Neither morality nor ethics of any shade has a place in such circumstances, as has been made more than obvious by recent revelations of what went on in that gambling joint otherwise known as Wall Street. The other reality is that all the backslapping was going on while hundreds of thousands suffered immeasurable misery as they lost their homes and as millions underwent unfathomable agony as they lost their jobs.
Goldman Sachs chief Lloyd Blankfein — who along with his team has displayed a strange mixture of bravura and feigned befuddlement at the Senate hearings — had claimed once that investment banks like his that focus on serving their clients are simply doing “God’s work.” Clearly, they not only sell crap but they talk crap too.
................................................
e-mail : fmk222@gmail.com
THAT a mélange of hubris, power, money and avarice can be an awfully volatile brew has been known throughout human history. Yet, as is well-known by all, history keeps repeating itself, nauseatingly. The latest saga involving Goldman Sachs is yet one more instance of what can happen when people have partaken of that exhilarating brew. And certainly, the perpetrators will insist on claiming they are as innocent as the morning dew. That’s natural as well.
Given what Goldman Sachs — as well as some others — did in their frenzied rush to make more and more money, the Obama administration’s efforts to legislate regulations to bring some sense to Wall Street’s predatory inclinations haven’t come a moment too soon. Whether that legislation will in fact rein in the unbridled ways of the smart-suited, fast-talking moneybags and those who serve them, that is the likes of the “fabulous Fab,” (the Goldman trader at the heart of the deals that are under investigation by United States authorities) will continue to be the subject of debate till it’s tested sometime in the future.
The real, genuine, authentic attitude of the big financial institutions and of their top honchos are perfectly manifested in what one former trader said of what was happening on Wall Street and in what the big kahuna of the German operations of Goldman Sachs told a group of students. These quotes are most definitely illuminating at the very least. Said the former trader, “If running the economy off the cliff makes you money, you will do it, and you will do it every day of every week.” While in Germany, where too Goldman is having problems and has irked enough people, its chief declared that banks “do not have an obligation to promote the public good.”
What they’re being told is that you owe nothing to society — the society that nurtured you, the society that supported you — but only to the company where you should only think of making increasing amounts of money for the firm — of course you’ll be rewarded with huge bonuses — as also for the top executives who will in turn throw their weight around because they have all these powerful connections in politics, business, media and wherever else they need to connect to preserve their multimillion dollar lifestyle. And that’s how it’s been going on — till it all came down to going to the taxpayers with hat in hand. But that too didn’t alter the big players’ view of the world an iota.
The reality is, as Goldman Sachs and its executives made millions in profits and bonuses, US citizens were losing their homes by the hundreds of thousands and millions more were losing employment. But of course all those stuff don’t make any impression on the minds of those whose sole aim in life is to take in more and more money home. There’s no room whatsoever for anything as awkward as something called conscience since they “do not have an obligation to promote the public good” or anything akin to that.
Here’s one example of how things work in the rarefied world of high finance. In 2009, as The Wall Street Journal reported, German retail and travel group Arcandor went bust in that country’s biggest-ever corporate failure. Goldman, a long-time adviser to the company had earlier bought the group’s department stores, which it then leased back to Arcandor. Critics complained Goldman was playing the roles of adviser, investor and landlord, the WSJ story continued. But Goldman officials claimed they had no formal mandate to advise Arcandor at the time the firm bought the stores. After incidents like this should it be any surprise that the German head of Goldman has been called “Goldfinger” by the German media?
In the US it got even more interesting. The US Securities and Exchange Commission says that at the behest of one client, the hedge fund Paulson & Co., as Daniel Gross writes in Slate, Goldman cobbled together a CDO that it would then sell in pieces to other customers. Paulson wanted Goldman to create the CDO just so it could bet against it — Paulson thought the mortgages in the CDO would default at a high rate, thus rendering big chunks of it worthless. It’s kind of like a developer (Paulson) commissioning a construction firm (Goldman) to build a condominium tower while purchasing insurance that would pay off in case it fell down.
But the SEC complaint alleges the scheme went a step further, Gross continues. The SEC says that Goldman worked with Paulson and ACA, a “portfolio selection agent,” to ensure that the edifice was composed of defective and subpar materials. The SEC presents evidence that ACA, as Goldman watched, included in the CDO specific assets that Paulson had chosen. Goldman then proceeded to sell condos (slices of CDOs) to other Goldman clients without telling them of the hazardous design.
“In sum, GS&Co arranged a transaction at Paulson’s request in which Paulson heavily influenced the selection of the portfolio to suit its economic interests, but failed to disclose to investors, as part of the description of the portfolio selection process contained in the marketing materials used to promote the transaction, Paulson’s role in the portfolio selection process or its adverse economic interests,” reads the SEC suit. It worked exactly as intended, says Gross. Goldman collected a fat fee for building and peddling the wreck. One Goldman client (Paulson) made out like a bandit shorting it. And several other Goldman clients (the unfortunate banks who bought pieces of the CDO) got their faces ripped off.
According to the United States Senate investigators Goldman Sachs reaped “billions and billions of dollars” in profits by secretly betting in 2006 and 2007 that the US housing market would crash, a strategy that conflicted with the interests of its clients who were still buying the firm’s risky mortgage securities. “The evidence shows that Goldman repeatedly put its own interests and profits ahead of the interests of its clients… I think they’ve been misleading to the country,” the chairman of the Permanent Investigations Subcommittee of the Senate, Carl Levin, told the media before the Senate hearing into the scandal began last Tuesday.
McClatchy Newspapers reported the subcommittee’s findings bolstered reports by McClatchy last November and December that Goldman had marketed $57 billion in risky mortgage securities in a series of deals in 2006 and 2007, including $39 billion backed by mortgages that it bought from lenders without telling investors that it was secretly making bets on a housing downturn. Goldman also sold billions of dollars in offshore securities that included subprime mortgages. Securities experts told McClatchy at the time that the practice might have constituted fraud because investors might have opted not to buy the securities if they knew that Goldman was betting on their collapse.
Significantly, the ongoing investigations also highlighted the questionable role that was played by the well-publicized credit ratings agencies. Critics have said that thousands of flawed credit ratings on subprime mortgage debts helped inflate the housing bubble and then exacerbated the credit crisis in 2007 and 2008, when investors realized the ratings didn’t accurately reflect the risk of billions of dollars in securities, the World Street Journal reported. The Senate investigators have spent the past year and half looking into the actions of Moody’s Corp. and Standard and Poor’s (the two rating agencies that, interestingly, racked up much publicity in Bangladesh recently) leading up to the financial crisis. The Senate Subcommittee’s chairman said they had uncovered incidences where bankers pushed to remove analysts who “were not playing ball” by not giving a high rating. The agencies, on their part, rolled over for the banks. Stated Senator Levin, “They did it for the money.”
Sure, money makes the world go round. It also makes the heads of bank honchos go round and round till they are giddy with overachievement and flush with millions of dollars in various types of compensations. That is the nature of unrestrained capitalism. Neither morality nor ethics of any shade has a place in such circumstances, as has been made more than obvious by recent revelations of what went on in that gambling joint otherwise known as Wall Street. The other reality is that all the backslapping was going on while hundreds of thousands suffered immeasurable misery as they lost their homes and as millions underwent unfathomable agony as they lost their jobs.
Goldman Sachs chief Lloyd Blankfein — who along with his team has displayed a strange mixture of bravura and feigned befuddlement at the Senate hearings — had claimed once that investment banks like his that focus on serving their clients are simply doing “God’s work.” Clearly, they not only sell crap but they talk crap too.
................................................
e-mail : fmk222@gmail.com