SEC Lawsuit against Goldman Sachs

April 18, 2010

By Padmini Arhant

The Securities and Exchange Commission filed lawsuit against Goldman Sachs on the toxic derivatives camouflaged with the internationally renowned investment firm, authenticating the risky mortgage securities sold to trusting investors in the domestic and global financial market.

Goldman Sachs is engaged in Investment Banking, Trading and Principal Investments, and Asset Management and Securities Services.

Needless to state that sub-prime mortgage is synonymous to the ‘speed boat’ designed for a fatal crash due to the deliberate sabotage. Sure enough, it had a negative impact on the financial and housing market that contributed to a precipitous economic decline worldwide.

The savvy designers protected their own investment with ‘insurance’ on the ‘abyss’ through yet another global conglomerate ‘AIG,’ technically partners in the ingenious profit oriented craft.

Why?

Because, the insurance companies grill the ‘regular folks’ when applying for any insurance to minimize risk exposure.

Even the trivial finding in the applicant’s background is used as the grounds for rejection or the cause for high premium – e.g. the health insurance industry.

It’s noteworthy that both Goldman Sachs and AIG were swiftly bailed out with taxpayers’ funds on the “Too Big to fail,” concept.

As a result, the fire starters were salvaged by the taxpayers.

The fire sale was organized for the Treasury to buy the damaged goods at the taxpayers’ expense from the banks on the brink of collapse.

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Goldman Sachs reportedly,

Wikipedia.org – Thank you.

“Goldman also received $10 billion preferred stock investment from the U.S. Treasury in October 2008, as part of the Troubled Asset Relief Program (TARP).

In June 2009, Goldman Sachs repaid the U.S. Treasury’s TARP investment, with 23% interest (in the form of $318 million in preferred dividend payments and $1.418 billion in warrant redemptions).

New York Attorney General Andrew Cuomo questioned Goldman’s decision to pay 1556 employees bonuses of at least $1 million after it received TARP funds in 2008.

In December 2009, Goldman announced their top 30 executives will be paid year-end bonuses in restricted stock, with clawback provisions, that must go unsold for five years.”

It’s essential to emphasize that Goldman Sachs is not new to controversy.

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Source: Wikipedia.org – Thank you.

Controversies

In 1986, David Brown was convicted of passing inside information to Ivan Boesky on a takeover deal.
Robert Freeman, who was a senior Partner, who was the Head of Risk Arbitrage, and,

Who was a protégé of Robert Rubin, was also convicted of insider trading, for his own account and for the firm’s account.

On November 11, 2008, the Los Angeles Times reported that Goldman Sachs, which earned $25M from underwriting California bonds, had advised other clients to “short” those bonds.

Shorting is essentially betting that the state will default on the bonds, which serves to drive up the cost of the issue to the state.

During 2008 Goldman Sachs came under criticism for an apparent revolving-door relationship in which its employees and consultants have moved in and out of high level US Government positions, where there may exist the potential for a conflict of interest.

Former Treasury Secretary Hank Paulson was a former CEO of Goldman Sachs.

Additional controversy attended the selection of former Goldman Sachs lobbyist Mark Patterson as chief of staff to Treasury Secretary Geithner, despite President Barack Obama’s campaign promise that he would limit the influence of lobbyists in his administration.

During 2010, Goldman Sachs has been accused for its involvement in the 2010 European sovereign debt crisis.

Goldman Sachs between the years 1998-2009 has been reported to systematically helped the Greek government to mask its national true debt facts.

In September 2009 though, Goldman Sachs among others, created a special Credit Default Swap (CDS) index for the cover of high risk national debt of Greece.[66] This led the interest-rates of Greek national bonds to a very high level, leading the Greek economy very close to bankruptcy in March 2010.”
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Actions in the 2007–2008 subprime mortgage crisis:

Despite the 2007 subprime mortgage crisis, Goldman was able to profit from the collapse in subprime mortgage bonds in the summer of 2007 by selling subprime mortgage-backed securities short.

Two Goldman traders, Michael Swenson and Josh Birnbaum, are credited with bearing responsibility for the firm’s large profits during America’s sub-prime mortgage crisis.

The pair, who are part of Goldman’s structured products group in New York, made a profit of $4 billion by “betting” on a collapse in the sub-prime market, and shorting mortgage-related securities.

By summer of 2007, they persuaded colleagues to see their point of view and talked around skeptical risk management executives.

The firm initially avoided large subprime writedowns, and achieved a net profit due to significant losses on non-prime securitized loans being offset by gains on short mortgage positions.

Its sizable profits made during the initial subprime mortgage crisis led the New York Times to proclaim that Goldman Sachs is without peer in the world of finances.

The firm’s viability was later called into question as the crisis intensified in September 2008.

Allan Sloane of Forbes, a financial writer of reputation, wrote a referenced article on 15 October 2007, at the time the crisis had begun to unravel.

It appeared on CNN’s website: “So let’s reduce this macro story to human scale.

Meet GSAMP Trust 2006-S3, a $494 million drop in the junk-mortgage bucket, part of the more than half-a-trillion dollars of mortgage-backed securities issued last year.

We found this issue by asking mortgage mavens to pick the worst deal they knew of that had been floated by a top-tier firm – and this one’s pretty bad.

“It was sold by Goldman Sachs (Charts, Fortune 500) – GSAMP originally stood for Goldman Sachs Alternative Mortgage Products but now has become a name itself, like AT&T and 3M.

“This issue, which is backed by ultra-risky second-mortgage loans, contains all the elements that facilitated the housing bubble and bust.

It’s got speculators searching for quick gains in hot housing markets;

It’s got loans that seem to have been made with little or no serious analysis by lenders; and finally,

It’s got Wall Street, which churned out mortgage “product” because buyers wanted it.

As they say on the Street, ‘When the ducks quack, feed them.'”

Weeks of chaos that sent Lehman Brothers into bankruptcy and led to the rushed sale of Merrill Lynch & Co. to Bank of America Corp.

According to a 2009 Brand Asset Valuator survey taken of 17,000 people nationwide, the firm’s reputation suffered in 2008 and 2009, and rival Morgan Stanley was respected more than Goldman Sachs, a reversal of the sentiment in 2006.

Goldman refused to comment on the findings.
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2. According to http://www.wsws.org/articles/2008/sep2008/paul-s23.shtml – Thank you.

Published by the International Committee of the Fourth International (ICFI)

Who is Henry Paulson?

By Tom Eley, 23 September 2008

Henry Paulson rose through the ranks of Goldman Sachs, becoming a partner in 1982, co-head of investment banking in 1990, chief operating officer in 1994.

In 1998, he forced out his co-chairman Jon Corzine “in what amounted to a coup,” according to New York Times economics correspondent Floyd Norris, and took over the post of CEO.

Goldman Sachs is perhaps the single best-connected Wall Street firm.

Its executives routinely go in and out of top government posts.

Corzine went on to become US senator from New Jersey and is now the state’s governor.

Corzine’s predecessor, Stephen Friedman, served in the Bush administration as assistant to the president for economic policy and as chairman of the National Economic Council (NEC).

Friedman’s predecessor as Goldman Sachs CEO, Robert Rubin, served as chairman of the NEC and later treasury secretary under Bill Clinton.

Agence France Press, in a 2006 article on Paulson’s appointment,

“Has Goldman Sachs Taken Over the Bush Administration?” noted that, in addition to Paulson,

“[t]he president’s chief of staff, Josh Bolten, and the chairman of the Commodity Futures Trading Commission, Jeffery Reuben, are Goldman alumni.”

Prior to being selected as treasury secretary, Paulson was a major individual campaign contributor to Republican candidates, giving over $336,000 of his own money between 1998 and 2006.

Since taking office, Paulson has overseen the destruction of three of Goldman Sachs’ rivals.

In March, Paulson helped arrange the fire sale of Bear Stearns to JPMorgan Chase.

Then, a little more than a week ago, he allowed Lehman Brothers to collapse,

While simultaneously organizing the absorption of Merrill Lynch by Bank of America.

This left only Goldman Sachs and Morgan Stanley as major investment banks,

Both of which were converted on Sunday into bank holding companies, a move that effectively ended the existence of the investment bank as a distinct economic form.

Paulson bears a considerable amount of personal responsibility for the crisis.

Paulson, according to a celebratory 2006 Business Week article entitled –

“Mr. Risk Goes to Washington,” was “one of the key architects of a more daring Wall Street, where securities firms are taking greater and greater chances in their pursuit of profits.”

Under Paulson’s watch, that meant “taking on more debt: $100 billion in long-term debt in 2005, compared with about $20 billion in 1999.

It means placing big bets on all sorts of exotic derivatives and other securities.”

According to the International Herald Tribune,

Paulson “was one of the first Wall Street leaders to recognize how drastically investment banks could enhance their profitability by betting with their own capital instead of acting as mere intermediaries.”

Paulson “stubbornly assert[ed] Goldman’s right to invest in, advise on and finance deals, regardless of potential conflicts.”

Paulson then handsomely benefited from the speculative boom.

This wealth was based on financial manipulation and did nothing to create real value in the economy.
On the contrary, the extraordinary enrichment of individuals like Paulson was the corollary to:

The dismantling of the real economy,

The bankrupting of the government and,

The impoverishment of masses the world over.

Paulson was compensated to the tune of $30 million in 2004 and took home $37 million in 2005.

In his career at Goldman Sachs he built up a personal net worth of over $700 million, according to estimates.
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3. By Jackie Calmes – Published: Monday, November 24, 2008 – Thank you.

Obama’s economic team shows influence of Robert Rubin – with a difference

WASHINGTON — It is testament to the star power of former Treasury Secretary Robert Rubin among many Democrats that as Barack Obama fills out his economic team, a virtual Rubin constellation is taking shape.

The president-elect used the announcement Monday that he was appointing two Rubin protégés,

Timothy Geithner as Treasury secretary and Lawrence Summers as senior White House economic adviser,

To underscore his determination to step aggressively into a economic leadership vacuum in Washington while also maintaining continuity with the Bush administration before the transition of power Jan. 20.

Obama is expected to soon announce the appointment of another Rubin protégé, Peter Orszag, as White House budget director.

And even the headhunters for Obama have Rubin ties: Michael Froman, who was Rubin’s chief of staff in the Treasury Department and followed him to Citigroup, and James Rubin, Robert Rubin’s son.

Geithner, Summers and Orszag have all been followers of the economic formula that came to be called Rubinomics: balanced budgets, free trade and financial deregulation.

The combination was credited with fueling the prosperity of the 1990s.

But times have changed since then.

On Wall Street, Rubin is facing questions about his role as director of Citigroup, given the bank’s current troubles, and during the weekend held several discussions with Treasury Secretary Henry Paulson as a government rescue of Citigroup was organized.”

“What worries me is there is not one person in the senior group who is the outsider to this club.

And that’s particularly ironic, given Barack Obama’s bias toward copying Lincoln’s ‘team of rivals,”‘ said Robert Kuttner, a colleague of Bernstein’s at the liberal Economic Policy Institute who has written a book, “Obama’s Challenge,” on free-spending, pro-regulatory approaches to the economic crisis.

“Where is the diversity of opinion in this economic team?” he said.
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Thank you.

Padmini Arhant

Written by Padmini Arhant · Filed Under Business 

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