Category Archives: Finance

NYT: A Difficult Path in Goldman Case (according to big bank lawyers)

The Goldman fraud suit continues to dominate the media cycle. After the initial shock of the US government actually doing something to hold Wall Street accountable, the business press — led by Goldman Sachs and their lawyers at Sullivan and Cromwell — has turned to questions about the merits of the suit. Today, the New York Times gave A1 real estate to a piece headlined “A Difficult Path In Goldman Case.”

The article opens by saying that the SEC is “pursuing an unusual claim that could be difficult to prove in court” according to legal experts. But the article only quotes one legal expert clearly criticizing the substance of the case: Allen Ferrell, a professor at Harvard Law School. According to his CV, Ferrell has been engaged as an “expert for large financial institution involving subprime-related litigation (details confidential).”

This is clearly a potential conflict, but the entire article appears to be based around Ferrell’s lone, critical quote. This is irresponsible journalism, especially considering the landmark significance of the Goldman suit. So I wrote the following letter to the Times ombudsman to alert him to the conflict and request a proper correction/disclosure:

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Obama Packs Debt Commission with Social Security Looters

LittleSis is expanding its investigation into the networks of money and influence behind efforts to gut Social Security. Join the Social Security Looters research group if you want to get involved.

The most generous bank bailout in history has amplified Wall Street’s considerable political influence, and the economic implications of this democratic calamity go well beyond bloated bonuses. Over the past year, the financial propaganda machine has set its sights on Social Security, launching a massive assault on one of the nation’s most important economic programs. But rather than push back against the flawed economic assumptions of the nation’s financial elite, President Barack Obama appears to be advancing their arguments, and is now poised to repeat George W. Bush’s politically perilous efforts to gut Social Security.

A decade of wars, tax cuts for the wealthy, and the fallout from Wall Street’s housing bubble have almost tripled U.S. public debt since 2001, from $5 trillion to $14 trillion. Big, scary numbers like this, along with carefully timed downgrade warnings from Wall Street’s obedient rating agencies and continuing worries about the financial collapse of Greece, Portugal and other nations have changed the political climate in Washington, breathing new life into decades-old schemes to slash Social Security and Medicare entitlements.

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September 11, 1989

It wasn’t my intention, launching LittleSis with Kevin in January 2009, to be so consistently absent from our blog. Early on we made the decision to divide up our growing organizational responsibilities, with Kevin taking on research, writing, and outreach — the activity that keeps LittleSis fresh — while I focused on adding to our website’s features and fixing bugs. Division of labor is a notoriously double-edged sword, and while it’s arguably helped our productivity it’s made it hard for me to write anything but PHP and SQL. Now that our urgent web development needs have dwindled, I’m feeling ready for a return the mean streets of sentences and paragraphs.

Today politics nerds have been scrambling to outdo each other digging up old archival videos now available on C-SPAN’s new Video Library. Naturally I went fishing for a juicy Larry Summers clip, and quickly found one from September 11, 1989 called The Politics of Message: Economics, part of a conference of Democratic Party leaders. The purpose of this event, as far as I can tell, was to gather key corporate Democrats — including Summers, Robert Rubin, Roger Altman, and Laura Tyson — to present economic talking points for the re-branded business-friendly party that Clinton brought back to power three years later, landing Summers, Rubin, Altman, and Tyson with top-level positions in the administration, where they put their theories to practice. Their collective influence in economic policy remains huge in the Obama administration. (Not that they don’t have some conflicting views or interests.)

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Dodd’s Decision to Retire Likely Doomed Financial Reform Bill

When Sen. Chris Dodd (D-Connecticut) announced last January that he would not seek reelection, some media outlets declared that Dodd’s retirement would actually increase the chances that robust financial regulatory reform would be enacted (for example, see articles by The Washington Post and BusinessWeek). Such analyses demonstrate a near total ignorance of the processes of lobbying and campaign financing that dominate Congress. In reality, Dodd’s announcement likely signaled that the aggressive reform of the finance industry widely called for at the height of the crisis will not become law; at least not while Dodd remains Chairman of the Senate Banking Committee.

The notion that the decision to retire “freed” Dodd from political pressure, allowing him to concentrate on drafting legislation that would become his legacy, greatly underestimates the strength of the ties between Wall Street and Senators like Dodd.  During his many years in the Senate, Dodd cultivated his ties to Wall Street and the industry’s K Street lobbyists to the extent that he essentially has two constituencies: the citizens of Connecticut, and the finance industry. Having freed himself from accountability to the former, he can now focus on serving the latter.

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Following Transparency Speech, Goldman Refuses to Disclose Greek CDS Holdings

In remarks before a UK parliamentary committee yesterday, Goldman Sachs executive Gerald Corrigan addressed the controversy surrounding the swap deals that his bank arranged on behalf of Greece, saying “standards of transparency could have been and probably should have been higher.”

On the heels of this transparency speech, however, Goldman Sachs has made it quite clear that it will continue to exploit regulatory loopholes to keep the public in the dark about what, exactly, it is doing in the Greek debt markets and elsewhere.

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Newly-named Greek Speculators Have Strong Ties to Goldman, New York Fed

Following my writing on the rumors swirling around Goldman Sachs, John Paulson, and their role in speculative attacks on Greece, the New York Times has written about the rumors, and today reports that Greece’s National Intelligence Service has named several other investors who are shorting Greek debt: Brevan Howard, Fidelity International, and Moore Capital, in addition to Paulson & Co. The Greek daily EYP is also reporting that the agency named PIMCO, as well.

That the names of potential speculators are only identified after the Greek National Intelligence Service begins investigating them points to just how corrupt this system is; the complete lack of transparency in this “free market” forces us to rely on a *government spy agency* for information about who is making these trades. Brevan Howard, Paulson, and Moore were accused by Spain’s intelligence agency last week.  How bizarre.

Brevan Howard has since released a letter to investors saying it is not shorting Greek debt, and Fidelity has commented that it only shorts debt for hedging purposes, according to Reuters. Moore Capital, PIMCO, and Paulson have not commented.

The alleged speculators share some fascinating connections, including strong ties to Goldman Sachs and the New York Fed.

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Rumors Heat Up in Europe that Goldman Sachs and John Paulson Are Waging Attacks on Greece

The rumors of a possible partnership by John Paulson and Goldman Sachs in the speculative attacks on Greece, which I first reported on last week, are now heating up in Europe to the point where one French journalist has multiple sources corroborating them.  No one can point to hard evidence, just yet, because these are opaque, unregulated markets.  But the news is quickly rising above the status of rumor.

The French financial newspaper Les Echos picked up on my post on John Paulson and Greece yesterday. Here is my (rough) translation:

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A New Chapter in the Greek Saga: Goldman “Fooled” (Defrauded?) Investors

There is a new chapter in the Greek saga today, with news from Bloomberg that Goldman Sachs failed to disclose currency swap deals in Greek bond deals:

Goldman Sachs Group Inc. managed $15 billion of bond sales for Greece after arranging a currency swap that allowed the government to hide the extent of its deficit.

No mention was made of the swap in sales documents for the securities in at least six of the 10 sales the bank arranged for Greece since the transaction, according to a review of the prospectuses by Bloomberg. The New York-based firm helped Greece raise $1 billion of off-balance-sheet funding in 2002 through the swap, which European Union regulators said they knew nothing about until recent days.

With this bit of additional detail in the mix, Goldman’s defenders (is that you, Lloyd?) will now have a harder time making the case that the bank was acting properly in its dealings with Greece and the EU.  These arguments weren’t particularly strong, to begin with; as is usually the case, those that have risen to Goldman’s defense (John Carney chief among them) have been making broad-brush arguments about standard Wall Street practices (revelation: banks hedge their bets) rather than engaging the details of this particular story or taking into account everything we know about Goldman’s past behavior.

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Goldman-John Paulson CDO scheme stinks of fraud

There were, essentially, two superstars of the subprime meltdown — investors that not only won big on bets that the subprime market would crash, but got a lot of media attention for it: John Paulson and Goldman Sachs. Of course, plenty of other investors bet that the market would crash, but none of the trades were as big, and, for whatever reason, they didn’t get as much media attention as Paulson and Goldman.

But while it is frequently noted in the press that Paulson and Goldman profited from the subprime crash, the revelation that they worked together to place these bets has gotten basically zero attention. See this McClatchy series, for instance, which mentions both Goldman and Paulson, but not the fact that Goldman helped Paulson place his bets. The partnership between Goldman and Paulson was first reported in Gregory Zuckerman’s book on Paulson, as I noted yesterday, but the author basically ignores (or fails to recognize) the implications of this news, and it’s gone nowhere.

When the book first came out, however, David Fiderer explored the implications of the Goldman-Paulson partnership in an excellent post on The Moral Compass Missing from the Greatest Trade Ever.  Paulson, Fiderer writes, “was dissatisfied. The marketplace had not satiated his appetite for placing bets against subprime mortgage securities.  So he cooked up a scheme to issue billions more in new securities designed by him to fail.”

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What is John Paulson doing in Greece?

Goldman Sachs’s Greek adventure got an in-depth look from the New York Times yesterday. The article extends on last week’s Spiegel piece, which reported that the bank helped Greece hide the true extent of its debt through the use of specialized derivative products.  We first reported on the parallels between AIG and Greece in a post last week, following the lead of Zero Hedge.  Entry into the paper of record means the story now has legs this side of the pond, and MIT economist Simon Johnson is arguing that Goldman Sachs is set to be blacklisted in Europe.

One question looming over this story:  did Goldman position itself to profit from the Greek fiasco?  Did it use its special knowledge of Greek’s hidden debt to build profitable bets on its future downfall and rescue? If the bank’s past behavior is any guide, the answer is yes.  Ignoring the impending catastrophe (obvious from their vantage point), and failing to properly “hedge” (extract massive profits), would have been “irresponsible” (insufficiently greedy/corrupt) on the part of senior management.

Considering this, hedge fund king John Paulson’s role in Greece deserves far more scrutiny. I wrote about this last week, pointing out that they shared the same vulture flight pattern in Greece, but at the time did not realize that Paulson and Goldman actually partnered in executing massive and profitable bets against the subprime market. Are they doing the same with Greece?

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