Goldman comes to town:
The CEO of Goldman Sachs and other executives from the Wall Street powerhouse are coming before Congress 10 days after the government accused the firm of fraud. The Senate panel hearing their testimony Tuesday alleges that Goldman used a strategy that allowed it profit from the housing meltdown and reap billions at the expense of clients.
Goldman executives misled investors in complex mortgage securities that turned toxic, investigators for the Senate subcommittee say. They point to a trove of some 2 million e-mails and other Goldman documents obtained in an 18-month investigation. Excerpts from the documents were released Monday, a day before the hearing bringing CEO Lloyd Blankfein and the others before the Senate Permanent Subcommittee on Investigations.
Blankfein says in his prepared testimony that Goldman didn’t bet against its clients and can’t survive without their trust.
Also appearing Tuesday: Fabrice Tourre, a Goldman trading executive who, federal regulators say, marketed an investment designed to lose value. Tourre who famously called himself in a January 2007 e-mail “The fabulous Fab … standing in the middle of all these complex, … exotic trades he created.”
I saw this initially on my FB feed, and it teased: “Goldman Sachs executives will come before Congress today, 10 days after the government accused the firm of fraud. What questions would you like to hear answered?”
My immediate response was “firing squad or lethal injection,” so I think it is safe to say that I am now to the point I can no longer even think about Goldman rationally.
jeffreyw
BJ’s Wholesale Club? I love the internets.
cleek
they’re gonna skate.
Paul in KY
I would prefer the hangman’s noose (in a perfect world).
Unfortunately, cleek is probably right.
arguingwithsignposts
Don’t they have to take an oath before they testify?
someguy
I’d like to see Levin put Blankfein on the spot with a series of questions exposing what derivatives actually are – you take one position, then you take out insurance, you hedge against the risk, in case that first position disintegrates. Everybody who trades in commodities does it but exposing how derivatives (including Buffett’s beloved commodities futures) should horrify moron voters, who will only hear that Goldman bet that the housing market would crash. This will make Republican opposition to whatever the Dems want to do untenable. It’s pretty normal risk arbitrage but it should be outlawed. Plus it makes a nifty talking point.
In the alternative, anything that makes Blankfein’s wife cry will be fine with me. It’s really not a tough hearing until the wife is crying in the gallery.
Calvin Jones and the 13th Apostle
@Paul in KY: You know, you can still die by firing squad in Utah. In fact, there is a guy on Death Row that wants to do just that. It was in the news last week.
Luthe
I’m hoping for some questions that will bolster the SEC’s case. Preferably a criminal one, though I will accept anything that strengthens the civil one. Oh, and all those share-holder lawsuits that you know are coming.
General Egali Tarian Stuck
Mr. Banker – Look, what is it that you require of us?
Mr. Tax Payer- What we, uh, “re-quire” is that you get your god-damn asses up in them woods.
asiangrrlMN
Cole, your response is a rational one after what these guys have done. Or does that make me irrational, too? I gotta, sadly, agree with cleek, though. Nothing more than a tap on the wrist (not even a slap) for the lowliest of low minions for this whole debacle.
Ash Can
I’m hoping it goes at least as well as a certain Chicago City Council session back about 20 years ago, when the owners of all the pro sports teams wanted the City to add a surcharge to all tickets to sporting events to do something flatly ridiculous like subsidize the owners’ legal funds. Now, this was back in the days when the Bears were going nowhere, the Bulls were pre-Michael Jordan, the White Sox weren’t shit, Bill Wirtz had all but run the Blackhawks into the ground, and the Cubs had just let Greg Maddux go. Combine this with the fact that Chicago aldermen are sports fans too, and aren’t into the glad-handing and protocol that DC politicians do, and…well, let’s just say that not only did the owners not get their surcharge, they never attempted this tactic again.
Punchy
Complete and utter Canine and Equine Show….
flukebucket
@arguingwithsignposts:
Your point being?
General Egali Tarian Stuck
It will be interesting what the Fabrice Tourre dude has to say. With a name like that, he might break down and sing for us.
Punchy
Something doesn’t quite compute:
Jordan was with the Bulls by ’85 (’84?). Maddux was let go at the end of the ’92 season. Wirtz hadn’t fully run the Hawks down by then, cuz they were in the Stanley Cup Finals in ’92. But yeah, the WSox sucked, the Bears were nearly-post Ditka (fired in ’93), post-Payton….
Paul in KY
@Calvin Jones and the 13th Apostle: Good point, Calvin. Gotta have some respect for a person who is taking the fast/painful way out (I’d be a Lethal Injection weenie).
That said, I’d prefer the noose for Blankfein & his cronies.
Ash Can
@Punchy: I stand corrected, but only to a certain extent. I was obviously wrong about the Bulls; they were the one winning team in the bunch at that point. And Maddux was definitely gone, because the aldermen
threw it in their facesbrought it up in the session. So this was probably in ’93 or ’94, by which time the Hawks’ ’92 success was seen as the anomaly it was (the Hawks did well in the post-season that year mainly because they miraculously discovered an ability to avoid stupid penalties).At any rate, though, thanks for all that. It set me straight and brought back memories to boot. (And I edited this to correct my mistaken memory regarding the Bulls.)
arguingwithsignposts
@flukebucket:
You are right. I would assume they would *believe* in and *adhere* to that oath.
Legalize
I’d give them 3 options:
1. Jump you fuckers
2. Swing from lamp post
3. Impaled on pitchfork
Personally, I’d like to watch them all jump.
sparky
a walk in the park for GS, unless one of them loses his cool while being questioned by an oaf. anyone really think a congresscritter is going to outtalk the Chairman of Goldman Sachs?
edit: after all, the rejoinder at the end of the day from GS is: “hey, YOU made the rules, not us.” or more precisely, “yeah, WE wrote the rules, but YOU passed them.”
Joel
I’m predicting that the GS execs will paint themselves as wise, benevolent, old leaders just out for our best interests dontcha know, while Fabby Fab will be hung out to dry.
flukebucket
@arguingwithsignposts:
Cleek nailed it in the second comment. They’re gonna skate. All of the rest of this shit is just theater. The circus portion of bread and circuses.
burnspbesq
JC:
At least you’re willing to admit it.
burnspbesq
@someguy:
I’d reallllllllllllly like to hear you make the case for that. Take your time, I’ve got plenty of popcorn.
J. Michael Neal
@arguingwithsignposts: They’ll go with a simple affirmation. Remember, they burst into flame if they put their hands on a Bible.
kay
They should have a little fun with him. Use his nickname.
“Mr. Fabulous Fab, is it true…” Feign confusion if he objects. Start shuffling paper.
Xenos
My college classmate Mike Swenson is going to be testifying for Goldman. This is brilliant on their part, as he was a bond trader brought in late in the game, who, according to the story, convinced the Goldmanites that they needed to short the mortgage market. I am not sure if his story exonerates Goldman as a whole in this matter, but it should explain and dismiss the whole “betting against the American Dream’ schtick that some Democratic Senators have been pushing.
burnspbesq
Unfortunately, the title of this post has given me an earworm – MIchael Buffer saying “The Committee … will come to order.”
fourmorewars
I’m pretty outraged to see you going after GS after watching Matt Lauer bravely defend them this morning, total bulldog as he rightly hectored Claire McKaskill. Apparently, nobody knows if they did anything wrong, and if they did nobody knows if there was a rule against it, and what are those things called newspapers again?
qkslvrwolf
Personally, even if we can’t get them this time, I’d like to pass a law that says if you ruin the country financially, even if you don’t do it on purpose, you can be tried and convicted for treason. Which would be punishable by death by firing squad or by hanging.
If we can’t get them this time, let’s get them next time.
Peter VE
I vote for “the Widow” (aka the guillotine). The sight of blood dripping from a severed head might be instructive.
ThatLeftTurnInABQ
@fourmorewars:
My tween-age kids have started mocking Matt Lauer on a regular basis as a pathetic and hopeless tool of corporate interests. I’m so proud! My little ones are getting all grown up [sniff].
EconWatcher
Should Obama have done financial reform last year? Or is this perfect timing, forcing the GOP into a corner right before mid-terms (an example of 11D chess)?
Talk amongst yourselves (said in Linda Richman accent).
ThatLeftTurnInABQ
@EconWatcher:
IMHO the timing issue is economic rather than political. Any financial reform worthy of the name is going to force FIRE to shrink as a fraction of the overall economy, in the long run by at least 50 percent and perhaps more than that (i.e. the FIRE sector grew to x2 or x3 its long term sustainable size over the last two decades). That means a lot of jobs which up till now have been temporarily preserved as a result of the bailouts are going to be lost permanently. The right time to do this is when we have a new avenue for economic growth teed up and ready to go to replace those lost jobs. I think green energy manufacturing is the sector that Obama is looking to grow to replace the lost jobs from FIRE. The right time for root and branch reform of FIRE is thus when the green energy sector is prep’d for growth. Hopefully we are there now.
Xenos
@EconWatcher: I don’t think this was a matter of 11D chess, as it has not been clear until fairly recently that the GOP would take the obstructionist role even with finreg. In any case, there is still so much we do not know about what has happened that it is barely time to start working on long term reforms as it it. Some vigorous short-term reforms would have been nice, though.
PeakVT
My tween-age kids have started mocking Matt Lauer on a regular basis
Parenting – ur doin it rite, akshully. :þ
russell
I’ll expand on cleek’s comment at (2).
Members of the Senate will each get a few minutes to wax wroth for the benefit of the folks back home.
And then GS will skate.
There’s a growing need for folks skilled in collecting scrap cardboard and prepping it for shipment to China, so they can use it to box up all the stuff they make and ship back here for us to buy.
pat kelly
Their lawyers will cite the congressional hearings as a reason why a trial cannot be fair. I think this is what we used to call a “show trial.”
Shinobi
Wow I’m watching these and it’s like the senator asks a question, and then the goldman guy says something vaguely related to what the Senator just asked. It is only slightly better than “I don’t recall.”
LanceThruster
The banks that want to invest in high risk vehicles should not be insured by the govt (i.e. the public) but by private insurers not connected with the bank in any fashion. Insurance company bulldogs get to reject a policy claim if any illegality took place. Depositors will know which banks aren’t FDIC insured.
Since corporations have personhood status per the SCOTUS, the corporate boards are *all* liable for criminal sanctions as well as upper management. Determine which middle management are also liable based on a formula that calculates the ratio between the highest paid and lowest paid employees and scoops up more management in the net the greater that gap is.
Assume any financial meltdown will cause great hardship, suffering, and potential loss of life from suicide, addiction, stress, risky behaviors, health deterioration, etc., and prosecute as capital crimes. Instances of incompetence will be prosecuted as criminal negligence, and penalties will be increased based on how badly the Peter Principle was violated.
Assets of corporate officers/spouses/children/associates will be frozen/seized and the all encompassing forfeiture laws will apply. Guilty pleas claiming sole responsibility will not prevent full investigations to determine how far the rot has spread. Procedures for special and independent prosecutors and investigators will kick in the moment that govt regulatory failings, misdeeds, and collusion is uncovered.
Corporations/companies found guilty that are not disbanded outright will be taxed for a considerable time at an astronomically higher rate, as will be their employees (whistleblowers will have their tax burden reduced at a similar rate).
The protection against cruel and unusual punishments shall not apply in that the extent that these people were willing to ratf*ck the rest of us, public humiliations, being thrown in the stocks in public squares and pelted with garbage, spat upon, pissed on, thrown to wild dogs, caged wild animals, and defrauded retirees shall seem neither cruel, unjust, or unusual.
.
Xenos
@LanceThruster:
None of these CDOs are marketable without insurance… this gets to my grand unifying theory of the whole derivatives mess, that AIG is at the core of it. What makes everybody, from seller to market-maker to buyer complicit is that AIG held pretty much no reserves for all the insurance it sold, and publically evaded nearly all regulatory oversight.
1/2 an hour of due diligence would have demonstrated that the whole CDO market was predicated on a false assumption that the insurance policies would have paid off if more than a few of these derivatives had failed. But nobody seems to have asked that question, and I have to wonder why.
liberal
@Xenos:
Not really true. We know, for example, that allowing people to write insurance policies (aka “CDSs”) that don’t have the same capital requirements as real insurance leads to a massive proliferation of counterparty risk and an underestimate of credit risk.
Not to mention another big culprit, the misalignment of incentives up and down the FIRE sector (mortgage brokers with no fiduciary responsibility; investment bankers paid for short term performance).
So, yes, we don’t know everything, but we know quite a bit.
liberal
@Xenos:
IMHO, here’s the best take on this—it doesn’t just apply to CDSs:
[garbage inserted due to blockquote paragraph fail]
debbie
@Xenos:
AIG got out of that market back in 2005 when it realized the impossibility of the situation it had put itself in (through its own ignorance of what it was insuring). Investment banks were happy to take up the slack, not because they understood the nature of CDSs any better than AIG had, but because visions of dollar signs were dancing in their heads. They continued to issue them until late 2007, when it became obvious how bogus they were, and then scrambled to unload them onto other suckers.
Goldman Sachs isn’t the only one to screw its customers; every single other bank in that business did the very same thing, and then tried to screw each other to save their own skins at the very end.
I just finished reading Michael Lewis’s The Big Short last night. It’s appalling how stupid all these people were about this market. It’s even more dispiriting that there were a few investors who saw the danger and, other than a half-hearted attempt to speak to an underling at the SEC, chose to make a mint instead of blowing the whistle.
I’m no fan of GS, but there are much worse offenders out there (ie, Howie Hubler at Morgan Stanley, a trader who lost $9 billion). I hope they all get called to testify.
burnspbesq
@Xenos:
Folks like AIGFP thought they were managing their CDS risk prudently because they beliieved the risks they were taking on were uncorrelated. When that turned out to be false, everything that followed was pretty much inevitable.
And the very reason why CDSs were the preferred “risk management” tool is that they weren’t treated as insurance by the insurance regulators, so there was no reserve requirement. You could load up without limit, and collect fees from here to eternity, so long as the strange-looking guys on the 17th floor with the Ph.D’s in disciplines having nothing to do with finance were right about the risks being uncorrelated.
someguy
@ pburnsesq”
Simple. An investment bank or holding company that has been responsible for putting people’s money in one particular investment, should not be permitted to bet with its own money that the investment will lose value. It’s an inherent conflict of interest.
burnspbesq
@someguy:
That’s simple, all right. It also is completely counter to, and inconsistent with, the entire structure of US securities law for the last 80 years.
Our securities laws are based on the fundamental principle that so long as all material facts are disclosed, Investors are entitled to make their own decisions about what and when to buy and sell, and that counter-parties are not required to be guarantors. You can argue that there has been less than the optimal amount of enforcement over the years, and I might agree with you. But other than that, with all due respect, your proposed cure is far worse than the disease.
LanceThruster
@Xenos:
My understanding is that a “credit default swap” *sounded* as if it were ‘insurance’ but was most specifically NOT insurance as that would require meeting certain regulatory standards.
I’m sure much of my concept was not well thought out, but clearly the comingling of funds is somewhere at the heart of the matter. Insured deposits used for high risk speculation in a too big to fail enterprise is a prescription for disaster.
Visceral
I’m thinking a French Revolution theme would be most appropriate. Set up a guillotine in Times Square, and bring them in on rickety open horsecarts through streets lined with We the People howling for blood and throwing trash at them. March them up to the scaffold and then read out their crimes. Hold up their severed heads to the cheers of the crowd, then toss them onto the waiting pikes. Roll the body right off the bench into a cheaply built coffin, and bring on the next banker so they can see the corpse. Keep it going for hours, days, weeks, months, and years until all of Wall Street is dead … and then move on to the insurance companies.
The Brits might prefer to resurrect their own tradition of the “Tyburn tree”, and hang London bankers 20 at a time and 30 feet up – and hang them the old slow way: with lots of twitching. That could (and was in its day) be just as big a spectacle.
Oh, and televise it live around the world. Get the UN to buy a TV for even the poorest villages so that all of humanity can share in the end of oppression and exploitation.
Allan
Shitty Deal! Shitty Deal! Shitty Deal!
burnspbesq
@Visceral:
“Get the UN to buy a TV for even the poorest villages so that all of humanity can share in the end of oppression and exploitation. ”
So lynching a few affluent white guys in the streets of New York would lead inexorably to “the end of oppression and exploitation” all around the Third World?
You’re a laff riot.
someguy
Fixed.
Batocchio
@Legalize:
I vote for them jumping from a height, landing impaled on pitchforks. Win-win.
grumpy realist
Actually, those of us in those professions that use a lot of numbers and statistics who looked at all of this way, way back kept howling about how Stocks Are Not Gas Molecules but nobody listened….
I still can’t believe that I almost got hired by Moody’s to put together CDO ratings back in 2003.