26Nov The Goldman Gang
It’s the stuff that Hollywood movies are made of; a greedy heartless mega-conglomerate that controls our lives in some significant way, either our pharmaceutical industry, our military-industrial complex, or maybe even our government. It is always a shadowy and nefarious entity, one that that can only be exposed through seemingly chance meetings in seedy neighborhood bars, where unidentified people talk in hushed whispers.
And so it is with this story. I’m not even sure why I’m writing about this. I don’t have answers yet, only questions and the vague ramblings of paranoid industry insiders, who invariably introduce themselves and then admonish me to forget their names, to throw away their business cards.
I’ve been in New York City now for the past four weeks, a world so far removed from Oklahoma that as I lie awake writing these words late at night, I’m not even certain that what I’m about to say is relevant in Middle America. With the disconnect between Wall Street and Main Street, the stock market and futures market seems about as meaningful to Oklahomans as igloos and Eskimos.
But yet here we are, facing what will eventually be remembered as the worst economic meltdown in the history of our country. And the rubble on Wall Street is directly affecting even the most unaware worker in the smallest town in the Midwest.
As I’ve spoken to those on the street (and by “street” I mean Wall Street), I’ve come to realize that there is one clear villain in this economic global crisis, a villain that even those in the industry are hesitant to talk about. Goldman Sachs. It was a name that came up time and again in conversations, but unfortunately, those conversations were always “off the record” and without attribution.
First, a trader who literally wandered by on the street spoke of “The Goldman Gang”, but was hesitant to share details, admonishing me that he still had to deal with people on Wall Street. Then, in a random late evening stop at a dingy neighborhood bar in Soho, another trader slid onto the bar stool next to mine. We talked for a few minutes, and I’m not even sure how it happened, but the subject quickly turned to Wall Street and the recent events of our economy. Somehow we began to discuss naked short selling and the manipulation of the stock market, and he quickly tied that in to his area of expertise, trading the futures markets.
And then he asked me a simple question: Did I know who had ruined the oil futures market, who had singlehandedly manipulated the market and driven up prices to almost double their value of just months earlier? Because I knew that Goldman Sachs and Morgan Stanley were the two biggest speculators in the oil futures market, I ventured their names as a guess. He narrowed it down to a single company: Goldman Sachs.
I knew they had infiltrated the federal government, from Treasury Secretary and former Goldman CEO Henry Paulsen to Goldman board of directors member Gordon M. Liddy (named by Paulsen to take over AIG after their $85 billion bailout), and from former Goldman executive Joshua Bolton (now Bush’s chief of staff) to former Goldman chairman Stephen Friedman, now chairman of the New York Fed. Paulsen also brought in former low level Goldman banker Neel Kashkari to oversee the distribution of the $700 billion bailout. Other Paulsen treasury insiders include former Goldman Sachs executives Dan Jester, Steve Shafran, Kendrick R. Wilson III, Edward C. Forst, and Robert Steele.
And if that isn’t enough, former Clinton Treasury secretary Roboert Rubin was an ex-chairman at Goldman as well, and he in turn promoted former Goldman executive TImothy Geithner to the Treasury as well, and Geithner eventually became head of the New York Fed.
Is the Goldman Gang looking out only for the interests of Wall Street? Probably, even if only because they have a myopic viewpoint of what needs to happen to fix what they themselves broke. They undoubtedly believe that what’s best for Wall Street is best for America, so even if their motivation is sincere, their actions are slanted strongly in favor of Wall Street.
But there is without a doubt more to it that just a government top heavy with ex-Goldman cronies. It is a fact that they are (along with Morgan Stanley) the largest oil futures trader in the world, and it is absolutely true that they are the largest hedge fund operator in the world. Their influence in the market and on our economic policies is undeniable, and even their competitors are hesitant to rock the boat when it comes to exposing the amount of manipulation that originates with Goldman Sachs.
As the next few weeks pass by, I hope that responsible journalists will continue to ask questions about Goldman’s activities, and shed some light on pain that is being felt all the way from Wall Street to Main Street. We can never have reform in our markets without accountability, and pulling back the curtain on the Goldman Sachs Gang is as good a place as any to begin the process.
And that, as always, is the Faulking Truth.
(Mark Faulk’s first book is entitled The Naked Truth: Investing in the Stock Play of a Lifetime, and is now available at www.thenakedtruthbook.com. Tune in with Mark and Paul Faulk every Saturday from 1-2 PM CST on The Faulking Truth X2 Show at www.toginet.com
December 31st, 2008 at 8:30 am
Mark,
While you were on Wall Sreet, I read blogs and came to the exact same conclusion. Goldman Sachs is behind most of the problems that we see today. Michael Lewis wrote an article in Portfolio, wherein he states that GS and DBS were counterfeiting bonds and buying CDS against them. It was a double down bet.
Is this true? Every policy decision that has been made since the panic supports a short position in bonds. Paulson was afraid. I don’t think that he was afraid of what he was going to do to the economy. The way the administration and the Treasury approached this was as if they wanted a meltdown. They screamed fire and locked up the fire extinguishers.
There were tools available. Three extinguishers, ban on naked short-selling, uptick rule, fair market evaluation of assets rather than M2M, were the first line of defense. Cox has now stated that he protected the financials from shorting on insistence from Paulson and Bernanke. We know who was making all the decisions and that Congress was heavily lobbied by Paulson yelling fire.
1. First look at the timing of events. Until shortly before the election, the boys gave out a false message of everything was ok and did nothing to stop the illegal short-selling in the market. Their message changed about the time that it was apparent that there would be a change of government. Read the story at http://www.velvetrevolution.us. This time the elections were under close surveillance and any irregularities would have been brought to the public.
2. Counterfeit bonds.
There was ample evidence of naked shorting in Treasuries that couldn’t be delivered.
HUD was short collateral of 59 billion in 1999, likely having sold more bonds than assets to back them up. This was all swept under the rug in the 9/11 attack when the HUD accountants were killed at tje WTC. No investigation in this to date. Catherine Austin Fitts was at HUD and when she was able to determine that assets and statements there did not allign, she was run out and her computers and programs were stolen by the government.
3. Changing mark to market would have helped bondholders and the insurers, but would have been bad for those short the bonds and long the CDS.
4. Money was given to AIG to keep them solvent so that they could pay the CDS bets. Maurice Greenberg is now making statements about the conflict of interest in taking over AIG.
5. When first introduced, the TARP was supposed to collect the bad paper. Would there have been duplicates that might be recognized?
6. In the latest efforts, the Treasury now wants to lend money to hedge funds to buy up this paper. This would disperse the paper and duplication would be less likely to be uncovered.
7. If every loan held by the FRE and FNM went bad and there were only a 50% recovery, the loss would be 750 billion. The GSE’s hold 13% of the 12 Trillion dollar housing debt, having sold another 30%.
8. Rewrites to 40 or 50 years is an option that relieves the pressure on home prices. It would keep people in their homes. Instead, there is an effort to make the bondholders take a haircut commensurate with the decline in home values. This would be an immediate profit to the counterfeiter. Rewriting the loans would pay off principal on the original bond and would recoup some of the money for the bondholders. Counterfeiters would have to come up with the same amount.
9. Rewrites are not happening fast enough. The money at the banks to keep them solvent because they have written down assets M2M isn’t going out in loans because they are hoarding cash.
10. Who was in charge of Goldman while the timbers were being pulled out from underneath the house? Who lobbied the SEC for more leverage? Who set up Mark-it and expanded the ability of short-sellers to manipulate the bond market just as the OMM exemption was used to manipulate stock prices.
11. Goldman wouldn’t trade with Madoff?
One former Goldman partner said: “I remember the guys came back baffled. Madoff refused to let them do any due diligence on the funds and when they asked about the firm’s investment strategy they couldn’t understand it. Goldman not only black-listed Madoff in the asset management division but banned the brokering side from trading with the firm too.”
Surely, a major WS firm who smelled a rat and cared about the market’s integrity would blow the whistle. It didn’t happen. Scrutiny of any kind would probably have unveiled a lot more than they were willing to risk.
12. Paulson knew it was all coming down and managed to escape Goldman without paying taxes.
13. This is nothing but a huge margin call where the survivors are absorbing the assets of the weaker players and the survivors made all the rules to facilitate the margin call.
14. Paulson is now doing spin, saying that there were no laws in place to save MER. They had plenty of emergency orders when they wanted them. I don’t buy it. After BS and MER were raided, Paulson got Cox to issue the bank protection order. It was ok to let competitors to Morgan and GS go down, but they had to protect themselves from market cannibalism.