The fact that Goldman Sachs re released their book, one year after it’s original copyright date of Sept of 2008, in response to conspiracy theories, proves that the theories have some validity. It’s suspicious enough that the book, a 100 years in the making, was released just one month before the stock market crash. Yes, in the newly revised “Introduction” chapter, Goldman Sachs uses the word conspiracy. I am thrilled that the few of us that wrote on the subject had such an impact that Goldman Sachs found it nesscecary to re release their book.
They also added a new last chapter entitled “A Perfect Storm” of course after they could see how Paulson’s inspired plot to crash the markets, and then loot the US Treasury for 7 large played out. This new last chapter is preceeded by a chapter entitled “Before the Storm.” How cute is that? “Before the Storm” and a “Perfect Storm.” Well get this.
The 1st version came out one month before the stock market crash: so them using the title “Before the Storm” many months before the crash, makes Goldman look a hell of a lot smarter than anyone else and essentially calling the crash. And the fact that they used the word “Before” in the heading of the last chapter of the book, insinuates that they were planning a re release of their book after the crash?
The new version (paper back) only cost $20 versus $49 for the hard back version released one month before the crash. Goldman really wants everyone to have a copy of their version of history.
“The Partnership,” 1st version, released months before the market crash, is Goldman Sachs attempt to rewrite history, and to prime us on what to believe about the, back then, upcoming crash(2008), and lastly to paint a fabulous picture of the last 100 years of Wall Street with Goldman Sachs as King.
One only needs to read the chapter “Paulson’s Disciplines” to get a feeling of how this man could of went to the White House to be Treasury under Bush with a pre meditated plan to loot America for $7 large.
Or read the following chapter “Before the Storm,”on Lloyd Blankflien, Paulson’s successor, where he confess profits of 3 billion dollars betting against sub prime in 2007, while ex CEO Paulson is at the White House, acting like he "didn’t see the real estate thing coming? " I guess if sub prime loans, were to be the biggest scapegoat of all times, might as well get their side of the story out in print first.
I personally became a conspiracy believer when I read the first edition in November looking for answers. It was their biography, written by them, that flipped the switch in my head one day in late November last year. Specifically it was the chapter on Paulson that left me shaking in my boots as I dropped the book to the ground.
I had already surmised that AIG Financial Products Unit, which was created by people at JP Morgan, was created for the sole purpose of taking the counter party position to every bank on Wall Street. Just by the sheer size ($180 billion) in losses, it is obvious that AIG never had any intention of paying out on these bets. It was a front, and a crucial piece of the conspiracy. Wall St would not have be able to sell these empty boxes of mortgages, if they couldn't pitch the bogas insurance that came along with the box.
But after reading the chapter on Paulson, I was throughly convinced that Paulson went to White House with a pre meditated bailout plan deceitfully named TARP, to loot the Treasury for the Club of Rome, and secure Goldman’s position as king of the universe. Goldman Sachs just volunteered itself to be the punching bag so the people never see the whole picture. We now know better that there are multiply banks known as the "Club of Rome" colluding together to manipulate all the markets.
What I didn’t know was the inner workings and structure and history of a vast international network of slimy business units, not reporting to each other, all under the umbrella on a finance company better known as “Goldman Sachs.” Nor did I know how they profited 3 billion dollars betting against sub prime real estate market in 2007, when ex CEO, Hank Paulson was in the White House saying “he didn’t see it coming.”
Goldman planned the crash right before the election. They knew that they had the White House bought and paid for with a 90 million investment in Obama. Obama could have won just on the war issue, but Goldman Sachs needed a 100% guarantee for their investment, so they planned the crash just months before the election for two reasons.
1. Paulson knew he could get Bush to sign off on the fraud, as he was exiting anyway in a few months.
2. Guarantee Obama would win the election. Obama would look the other way while the looting continues. Wall Street ushers in a trojan horse called “Financial Reform.”
The public has been duped into thinking that “Change” was on the way, because there was a change of parties at the White House. Since both parties ultimately report to the bankers, there really is only one party.
The reason I believe that Goldman Sachs crashed the markets last year, working with the “Club of Rome,” is that there are plenty of motives (profits) and the tools (CDS contracts, corrupt exchanges and gov. officials) and the people (overly paid professionals) to accomplish such a task are there. It was long ago discovered that a derivative can be used to manipulate the actual market it is trying to minic.
More importantly, the Black Swan arguement is BULLSHIT. Maybe if you looked at it as a flock of Black Swans, that I could buy, but not just one measley sBlack Swan in the subprime market and here is why. When you have, concurrent epic failures across many sectors, such as rating agencies, (Moody's , S&P) regulatory agencies, (CFTC, SEC) mortgage standards, Freddie Mac & Fannie Mae, (the current scape goat) and AIG, not to mention the Black Swan in Subprime ; all at the same time?
That my friends is conspiracy. Yes, everyone's hand might of been in the toxic cookie jar at the end, but there definitely was an overhead, overreaching organized voice , that told people to put their hand in that cookie jar. Encouraged them, bribed them, and even told them "Don't worry about it-- AIG's gottcha covered. That organized force was Goldman Sachs with it's 30 independent slimy business units not reporting to each other, other than to talk Trade Ideas.
But the first one out of that cookie jar, was Goldman Sachs, and apparently with the biggest bag of cookies. So many cookies in fact that the bags split and left cookie trail crumbs all leading back to the Cayman Islands, where it is rumored that mountains of cookies all belonging to Goldman Sachs and clients and partners, many of which are washing away with the tide.
Additionally the Black Swan arguement was already used 10 years ago with the LTCM (Long Term Capital Management) fiasco. The same derivatives problem, and the same players/bankers, but the pot was only 100 million dollars back then. The players decided to bail themselves out and save the idea of a government bailout for another time with the stakes would be much higher. Do any of you Bloombergers remember this incident? That fact it happened again shows double epic failure of the system and the bankers.
The motivation was simple. Elimination of most of the non “Club of Rome” banks on Wall Street. Also the corrupt FDIC would be happy to break up the smaller banks for a small fee, and maybe a fee for being forced to take their tiny slice of TARP. (tiny compared to the Wall St banks, who aren't really banks at all) Next, very profitable trades existed if the market was crashing, or was extremely volatile. The "insiders" are profiting on the up as well as the way down.
It was figured out many years ago that the derivative of a market could be used to manipulate that underlying market. That's why they have limits on the number of contracts that an individual can own at one time.
But the Wall Street banks figured out to work together, spread the trades out over many clients, exchanges, countries and all of sudden, it would be impossible to show that the markets are fixed and manipulated. With one bubble (real estate) infecting another bubble (stock market) and another bubble (oil market) .
The last motivation was to consolidate, the ever expanding Credit Default Swap market.
The “Club of Rome” knew that there would have to been some sort of reconciliation with the 100 trillion dollar credit default swap market, so why not take the inivative. Cause a bubble in the housing market, the peasants realize some wealth, which they then are encouraged to invest in the stock and oil markets creating bubbles in these markets. The peasants would also be encouraged to re invest back into real estate, even on their American Express cards.
After the Club pops the real estate bubble and watches the other bubbles blow up at the same time. They are all tied to credit in some way. Besides just taking the peasants money, the added bonus this time was the Club was able to bankrupt the non Club members overnight making for a double bounty. To add insult to injury, we know have to listen to this garbage about financial reform is on the way. Enough out of me for now. Lets jump into "The Partnership: The Making of Goldman Sachs."
I will cover verbatim 3 chapters of this book, or 4 if you include the Introduction chapter. It is rather long so please feel free to skip to another chapter. The chapters break down like this:
Introduction -- Goldman responds to conspiracy theorists in this "new" chapter.
Before The Storm -- Goldman's attempt to brainwash us on upcoming crash.
Paulson's Disciplines -- A glimpse into the mind Hank Paulson as he prepares to loot the White House for 7 large.
The Perfect Storm -- Goldman re releases the book 1 year later with this new chapter trying to get the last say and brainwash us again into their version of history. Most of the proof lies in this chapter. The auther presents a ridiculous list of reasons for the cause of the credit crisis, but fails to mention sub prime mortgages any where. Of all my comments, the most damaging are found in this chapter. Please start with this chapter if you are under time constrants.
My thoughts and comments are in the blue italisized text.
Introduction:
When everything is going well and everyone is prospering, we cheer the achievers and are fascinated by the glitter and glamour. But the cheering stops and we look for “Who did this?” when financial markets plummet and the economy is thrown into a crisis, when major companies falter or fail, when many people lose their jobs and many more worry about losing theirs, and when the government has to incur huge debts to rescue organizations that are seen by the public as central participants in the creation of the disaster they are experiencing so personally. In the topsy-turvy world of public perceptions, Goldman Sachs got flipped in late 2008 and 2009 from being one of the most admired financial organizations in the world with a long tradition of leadership in philanthropy and public service to being questioned as a potentially malign conspiracy with far too much influence.
Suspicion, anger, distrust, hostility, indignation, and a gaggle of rude epithets were thrown at Wall Street and its major firms and their leaders as people all over the world realized the magnitude of harm and destruction coming from the awful experience so gently termed “the global financial crisis.” At the very center of that perfect storm was Goldman Sachs.
What was so fucking “perfect” about the storm? Another then being perfectly “planned.” And yes people, all over the world were fucking pissed that their governments and banks were hookwinkded by Wall Street firms like Goldman Sachs. And yes it is true the because Wall Street banks created a bubble in the real estate market, there was glitter and glamour golare. So much in fact that, these newly wealthy baby-boomers would invest the proceeds in the stock market creating another bubble, and also many times buy another house even on an American Express. And yes the cheering stops when stock markets crash (gee I wonder why) and yes when the economy and other large companies and jobs get sucked down the toliet with, yes people are going to be pissed and wanna know “Who did this?” Not to mention the fact they forced the government to bail these men out, nor to mention the fact that the men who created the crisis, are getting bailed out and receiving record bonuses. And thank you so much for using the word “conspiracy” above. It motivated me to get off my ass and write my 2nd take. After all, it’s been a year since I last wrote on the subject, (apparentently the same time Goldman was going through some “topsy-turvy” public preception issues), but became pretty enraged when I noticed Goldman re-release the book, as if trying to get the last say.
(skip paragraph)
Conspiracy theorists seemed to enjoy pointing out how many people from Goldman Sachs were in influential government positions (just Hank Paulson if you want toget specific) and how important to Goldman Sachs various decisions were: letting Lehman Brothers ---a major competitor—go bankrupt; (just Hank Paulson's decision alone) bailing out AIG----a major counterparty; (and install a Goldman as new CEO to burn the records) and investing $10 billion of federal money in Goldman Sachs. (Just to add confusion to the overly "perfect storm") Gee, if we must get started with the most 3 gigantic facts. Yes, we are a little suspicious of Hank Paulson being at the center of all these.)
(skip paragraph)
Of the thirty thousand people of Goldman Sachs, fewer than half of one percent (actually fewer then that) are even mentioned in this book, but the great story of Goldman Sachs is really their story (how special is that?)---- and that of the many thousands who joined the firm before them and enabled it to become today’s Goldman Sachs. Goldman Sachs is a partnership. The legal fact that after more than a hundred years it became a public corporation may matter to lawyers and investors, but the dominating reality is that Goldman Sachs is a true partnership in the way people at the firm work together, in the way alumni feel about the firm and each other, and in the powerful spiritual bonds.
Goldman Sachs is truely a partnership in the way that they lure in other corporations and foriegn governments to buy into the ponza scheme of a massive hedge fund. The fact that it is a legal entity only was pointed out by their lawyers of using there own stock as a way to embezzle illiciet profits. In fact, they may go "private" here soon, just to forever close the books on those trades of 2008. And yes the brain washing techniques of the White Head Principals have "spiritual bonded" the employees of Goldman Sachs to silence and good deeds.
Before The Storm (ch 36 page 666)
While some of his partners still saw balancing Goldman Sach’s agancy business with its principal investing as a worrisome choice, Lloyd Blankfein was sure it was instead a momentous strategic opportunity. At an internal meeting in London in 2005 he laid out his argument. It was a powerful extension of the strategic thinking that had origionated with Friedman and ubin and gathered force under Paulson—and could be traced all the way back to Gus Levy’s business in arbitrage and block trading. For many years, Goldman Sachs had been able to do both---act on behalf of clients and invest aggressively for its own account--- and keep them in acceptable balance. It accomplished that by emphasizing, particularly to clients and in publc, the still-dominant agancy business, particularly investment banking for corporations, research-based stockbrokerage, and investment management. The coexistence of agency and proprietary businesses had been feasible because proprietary activities were relatively small and incidental, and not in conflict most of the time with agency work for clients. So the choice between proprietary and agency had been deferrable, and deferring a choice had been profit-maximizing.
Deferring a choice had been profit maximizing. Please. They still have not made a choice, as Lyold Blainkfein decided why not do both? Hell, no one has nailed us yet, so why not do both? Advise our clients on where to invest and then bet against them if it should be profitable.
But both kinds of business were changing. No agency business had rising profit margins, most were requiring more capital and more risk-taking just to maintain market share. Brokerage commissions were being squeezed harder and harder by institutional investors, particularly mutual funds and pensionfunds, where managers argued that both fiduciary duties and competitive necessity compelled them to negotiate lower rates. Commercial banks were increasingly competing with loans they then securitized and sold to investors, and cutting underwritings, particularly debt underwritings. The adverse trends and been developing for some years and could no longert be offset by increasing volume. Anything to survive? Is that the point being above? I think Wall St did more than survive. With finance reaching an all time high of 24% of GDP last year, Wall Street has become a parasite on the really economy. Constantly re inventing new ways to spread it's casinos and push newer and newer bets. Not to mention a brain drain on our colleges, where many maybe doctors or lawywers become investment bankers. Not to mention a drain on available capital for legitimate businesses.
Meanwhile, principal businesses were growing, and profit margins were high and holding up because only a relatively few firms could seriously compete—and all major competitors were smart enough not to ruin the party by competing on price. (Isn't that called price fixing which is highly illegal?) Real estate, a hugh market, had moved away from a business of negotiated private deals into a business of transactions on both private and public markets. Thanks too Wall ST inventing "securitization" and "collaterization" and after sending 5 men to DC to break down Glass-Stegall. That played to Goldman Sach’s dual strengths in both private-transactions and public-market transactions. Private transactions could be either principal deals employing the firm’s own capital or controlled deals for big funds the firm managed with capital raised from individual and institutional clients. Either way, the profit margins were much wider, competition was much less keen, and the scale of operation was now much larger thanks to Goldman Sach’s going public. So Goldman has figured out how to use its own stock as a way to embezzle illiceit profiuts. Hide the cash flow in private transactions and show the gain in public transactions. (Like their stock price going up.)
Goldman Sach’s competitors, notably the giant “universal” banks like Citigroup, JP Morgan Chase, Deutsche Bank, and UB S, (watch how the author tries to throw in Citibank , a pimped out commercial bank in with a list of Club of members, who are not Goldmans competitors. Any thing to add to the confusion. Citibank was so pimnped out, it almost makes you think was Rubim sent their to bloat it out with subprime? increasingly used their balance sheets not only to extend credit but also to underwrite stock and bond offerings, and they used their credit relationships as leverage to get M&A mandates. Blankfein felt Goldman Sachs would either make a definite choice to go its own chosen way in this new world or it would lose the freedom to make its own choiceand sooner or later—probably sooner—would have a clearly inferior choice imposed upon it. “How can Goldman Sachs survive in a world of big balance-sheet firms of Citigroup and JPMorgan Chase?” was the question analysts asked years after year. Few believed Goldman Sachs could succeed as a stand-alone investment bank basing its business strategy on agency business of giving advice.
Not only did the firm need to make a serious choice, it needed to make that choice soon. Given the pace of change in the world of finance, if Goldman Sachs was going to make that choice from a position of strenght, it was probably now or never.
Blankfein made his case: Goldma Sach's strategic opportunity-- and, as he saw it, the firm's strategic imperiative-- was to integrate the roles of advisor, financier, and investor: giving astute advice and committing capital.
The investment banking industry was reconverging after the repeal of Glass-Steagall: The merchant banking model of J. Pierpont Morgan, based on integrating lending advice, was coming back. Goldman Sachs had the best advisory franchise in the world, but giving advice was not enough. Clients increasingly expected investment banks to help finance the transactions they recommended. The firm now had to be more willing to use its own capital on behalf of client transactions and for its own account.
As Blankfein assereted that day in London, Goldman Sachs had come of age and was no longer dependent on anyone or anything. With its worldwide operations plus its diversity of businesses plus knowledge of economics, industries, companies, and markets plus its clients relationships plus its capacity to embrace risk, the firm had developed for itself a unique strategic position. Each of those stengths was unequaled, and in aggreagate they were unbeatable and unmatchable. Goldman Sachs was now free to capitalize on all the years of hard work and steady business develpomemt done by predecessors.
But it could all be lost.
Of course, it would be lost if the firm squandered its reputation or failed to anticipate, understand, and manage the many potential conflicts or failed to excel in its important agency business. It could be lost if the firm made the easy, obvious, familiar strategic blunder of designing its future strategy to replay old movies of its past success and staying too committed to the old agency business like stockbrokerage. Even Goldman Sachs could stabilize, stiffen, and lose bit by bit its vitality and its most valuable asset, the freedom to choose its own course. Shrinking profit margins would translate into inability to continue being Wall Street’s most rewarding employer.
And over time that would mean losing the unmatched ability to attract and keep the very best people. Already, the firm was losing a few star performers to hedge funds and private-equity firms. Everyone knew that Goldman Sachs did great recruiting and excellent training, so it was every recruiter’s favorite fishing ground—and not every great employee would love forever the long hours band intensity of working at Goldman Sachs, Take away the remarkable rewards and then have two or three so-so years—or worse—and the war for talent would be in full force against Goldman Sachs.
But that bleak future needn’t come to pass, Blankfein told his colleagues. There was an alternative—a better, more profitable alternative. “We have the capital and investment prowess; we have one of the fastest growing asset management operations in the world; we have the risk-management skills; we have the proprietary research; we have the originating deal-flow through our thousands of corporate relationships and our dozens of major relationships with private-equity firms; we have the knowledge of all the major financial; markets around the world; we have the creative, driven people; and so we have every opportunity to reorient our business around both the needs of our clients and the traditional strenghts of our firm.” The proposition had one if—and really only one: If trhe firm had the wit to recognize that the strategic choice was not agency or principal. The best choice was and would be agency and principalcombined in an unbeatable whole. Notice how much text the auther uses to convince us that it is OK to do both on this issue of Principal Vs Agancy business. It is really important for them to push this idea, and as we shall see many times in the book, it being described again and again. There diffentely is something smelly lying under this rock.
As Blankfein explained, “We definitely need to continue nuturing major relationships with corporations, central banks, funds, and investors because they provide us with more and better deal-flow than anyone else, and we always need to preserve and build that great strenght as much as possible. It is vital to our ability to be profitable and attract outstandingpeople from Goldman Sachs. Agency relationships are crucial to the firm. But never forget: When combined with being a principal, this strategy of being an advisor, financier, and co-investor allows us to recruit and keep the best people and keep building our reputation as the preeminent investment bank in the world. But if we insist on anchoring our firm only to the pure agency service strategy of the past, we will surely, gradually at first but inevitably with acceleration, cease to be leaders and even lose our relevance.”
The crucial differentiating advantage of Goldman Sachs would be one that outsiders might find surprising: Its complex variety of many businesses was sure to have lots of conflicts. Goldman Sachs, Blankfein said, should embrace the challenge of those conflicts. (Jailtime time keeps criminals from competing with those criminals that areot in jail. ) Like market risk, the risk of conflicts would keep competitors away—but by engaging actively with clients, Goldman Sachs would understand these conflicts better and could manage them better. Blankfein ( who spends a significant amout of time managing real or perceived conflicts) said, " If major clients -- governments, institional investors, corporations and wealthly families -- believe they can trust our judgement, we can invite them to partner with us and share in their success. This here sounds like a call for world domination. Come rule the world with us, if you can trust our judgement. "Partner with us, to share in their success" What kind of crap is this? Gee, thanks for giving me permission to share in what's mine. I am convinced Goldman Sachs is more like mold, than squid as described by Matt Taibbi in Rolling Stone. Growing ever expansively and geometricically outward, saliaries increasing 20% a year forever, sales force of 30,000, inventing ways to steal from us. With finance reaching an all time high of 24% last year, Goldman Sachs existes just to feed itself. They don't exist to provide a service a client might be asking for. They exist to tell their partners or clients, you need this, or you need that, then trade against them, and robbing them, and robbing everyone in the process. Hence the ever increasing salaries needed to pay off and keep silent the traders and lawyers.
The difference between a "real" conflict and a "perceived" conflict is just a function of how much the public has discovered. So, it sound like he is inviting everyone in the world (except the poor and middle class) to join in this "partnership." Foriegn governments, foriegn companies, and foriegn families. Just bring alot of money to the table.
By the time he gave this speech, Blankfein was well on his way to the top of Goldman Sachs. It had been a long, circuitous journey. Coming out of Harvard Law Schoolin 1978 after Harvard College—both on scholarship, since his father was a Brooklyn postal clerk—he had tried for a job at Goldman Sachs but was turned down. He worked for a while at Donovan & Leisure but left that law firm (where his supervising partner said he was the only departing associate he truly missed) when a headhunter called him up and suggested he might be a fit with J. Aron. Blankfein wanted great success and was already perceiving that even with two Harvard degrees, his career in corporate law would be constrained and would probably never create a fortune.
He wanted to manage a business……
When J. Aron was acquired, Blankfeinn got into Goldman Sachs by the back door--- and just barely. Fortunately, Mark Winkelman decided not to include him in major layoffs and, and against Bob Rubin's advice, encouraged Blankfein to switch from sales to trading. J. Aron expanded into into risk-embracing trading currencies as well as in oil and other commodites, and Blankfein flourished and rode the expansion to inreasing authority.
page 672
Risk is complex and deceptive. There are known riskd and unknown risks. And risk is not entirely quantitative. At the margin, managing risk is closer to an art than to a science and depends on experience and judgement. That's why the original J.P. Morgan so wisely emphasized character
as the basis for extending credit.
Modern finance is based on one great simplifying assumption-- that markets are efficient and that market prices reflect almost all that is known or knowable. So, if diversified to absorb market imperfections , the aggregate portfolio will be "market efficent." Of course foe every rule there will be exceptions--exceptions that prove the rule--so when dealing with new or unusual securities, investors should diversify even more widely, adding a margin of saftey so their portfolios will be protected against risks---except for the unusual unexpected anomalies calles black swans.
Those with substantail experience knew that analytical models like (Var), however widely celebrated as the latest thing in risk controls, would catch all the normal risks, but not the killer risks-----the toxic black swans that reside in the six-sigma "fat tails" of a normal bell -curve distribtion of propbable events.
(Ah, but Goldmam was able to spot these "black swans?" I thought the book about black swans came out just recently, yet this author is throwing it around like its been around awhile. Hmm, I wonder why? Oh, because in the next paragraph he describes how Goldman made billions shorting sub prime. The "Black Swan" sounds like a great story, but the real reason is Goldman shorted the ABX index.)
Almost every element of risk ----toxic or rewarding was on display in the mortgage crisis that rocked the United States and the world in 2007. At Goldman Sachs, the structured-products group of sixteen traders is responsible for making a market for clients trading a variety of securities based on residential mortagages. Simultaneously but quite separtely, members of this group trade or invest the firms own capital or take the other side of a client's transaction, either because they a good opportunity or to fulfill their role as a market maker. Because those businesses are separate, (but they aren't really separate in you have the CFO giving a command to sell 10% ) it's well understood by all parties that Goldman Sachs has no obligation to tell trading clients what it is doing in its propreitary activities----even when it is handling buy orders for client's accounts and selling for its own account, as was the situation in 2007.
A year eariler, in yet another line of business, Goldman Sachs had been a major underwriter of securities backed by sub prime mortgages. Because subprime mortgage-backed bonds traded only occasionally and only privately, a new family of indexes, called ABX, was created to reflect these bonds' values based on instruments called credit-default-swaps. These are derivatives that pay the buyer if borrower default on their mortagages and the mortgage backed securties fall in price. The derivatives actually trade more often than the bonds themselves, with their prices rising and falling as investors' views of the risk of subprime defaults rise and fall. As expected, withen the firm's mortgage department, the introduction of the ABX was great for traders. The firm made $1 million on the first day, but volume was thin and the firm had to use its own capital on most trades.
In December 2006, David Viniar, the firm's highly respected, long serving, and unflappable CFO, pressed for a more negative posture (nice way of putting it) on subprime mortgages. (Yet Paulson is at the Tresasury saying everything is fine in real estate!) He wanted the firm to offset its long position in collateralized debt obligations (CDO's) and other arcane securities that it had underwritten and was holding in inventory to trade for customers, and to do so by shorting parts of the ABX or buying credit-default swaps. When traders complained they did not know how to price their portfolios, Blankfein (above they say it was Viniar) it ordered them to sell 10 percent of every position. (That should get the avalanch started in the stock market).
page 675
While Global Alpha and its investors suffered major losses, and investors in securities underwritten by the firm experienced seriously disappointing performance, the firm and its own investors enjoyed a substantial profits Goldman Sachs produced by taking an astute and almost unique short position in the sub prime market. While some would question whether the firm did not have an overarching fiduciary responsibility to all clients and customers to share its expertise across all three areas,(like telling the US government of impending doom?) senior management was is clear: Each business unit is responsible and accountable for doing its best to complete the mission of that particular business----period. No business is its brother's keeper. Each tub on its bottom. Except when Blankfein tells the real estate desk to sell 10%. Organized like any good cult from the top down. Nobody is anybodies keeper. So, most people that work at Goldman, have no idea what the "management committee" is up to! That makes total sense. That would explain why there is this large disperison between what the employees thinking they are a "force of good" and what the public thinks.
Chapter 35 - Paulson's Disciplines (page 662 )
In May 2006, Henry M. Paulson got a call, not the first, from the White House to discuss his becoming Secretary of the Treasury. He told partners he wasn't going to take the job, and John Whitehead advised against considering it: "This is a failed administration. You will have a hard time getting anything accomplished."
A bluff, Paulson acts like its a burden or he really doesn't want it; when in fact he has direct orders from the Club of Rome. "I am NOT going to take the job. " Sounds like "I am NOT going to merge with JP Morgan" 15 years ago, and I am NOT going to loan Semgroup the money for their margin call after I said I would. Of course this is a failed administration and the stock market market should be crashing in October , just-in-time for the election..
On Saturday, May 20 , Paulson meet more than once with White House chief of staff Josh Bolton--------who had worked at Goldman Sachs ---to discuss the bias upon which Paulson would agree to serve. Bolten had begun the conversation: "Let's discuss for a minutes what you would want to know this job was going to be-----on the hypothetical assumption that you had accepted because those understandings were you wanted to work." The two men worked out an e-mail memorandum of understandings that would include "regular, direct access to the president; equal stature with Defense and State; (SOUNDS LIKE A MAN WHO KNOWS WHAT HE WANTS, AND WHAT HE IS AFTER) principal spokesman on all economic and fiscal policies---even those not normally reporting to Treasury; chair the economic policy luncheons in the White House, and ability to choose his own staff." With that understanding, Paulson went into a meeting with the President. Their conversation centered on family---Paulson's family and Bush's family-----(Bilderberg Group, NWO, usually stuff, OK maybe some dog talk) and on other personal matters before turning to what Paulson calls "philosophies and objectives" and agreement on having regular, direct access, chairing the weekly policy luncheon, and being spokesman for the administration on all fiscal matters. As the conversation continues into the next hour, the president invited Paulson to join the cabinet. Knowing that "no agreement means anything unless real trust is earned, "Paulson would sleep on it. Next morning , he called to accept. (Paulson sure likes to sleep on it. But NOT when it came to his TARP plan.)
When he left, Goldman Sachs was recognized as the premier "solutions provider." It had the best working relationships with the largest number of major corporations, governments, institutional investors, banks and private-equity investors; the best knowledge and understanding of companies, industries, economies, and markets; the largest appetite and capacity for risk of all sorts, with ability to commit substantial capital; the strongest recruiting program; the highest compensation----and a well-accepted overall strategy for the future. (all the contacts and means to infiltrate the US government and position itself as the bank of the universe.)
While it would not have changed his decision to serve his nation (tears ) and risk his reputation (what's it to lose a reputation but to gain the world. A master of risk knows this) by joining the Bush Administration , the irony, as some saw it, was that the financial benefit to Paulson of accepting the call to duty is surely greater than that enjoyed by any other public servant in U.S. history. Goldman Sachs has long had a policy that all deferred compensation becomes payable promptly, to any partner that accepts a senior position in the federal government. Congress passed a law a quarter-century ago that people taking senior appointed federal positions who convert their investments into either an index fund or a blind trust can do so upon assuming office with zero capital until such investments are later sold. If Paulson took advantage of these provisions, (Paulson will be vested in Goldman for life.His propbably there right now trying to put out PR fires) they enabled him to sell his shares in Goldman Sachs without raising any public questions and without tax and to diversify his large personal investments in a single stroke. For just over two years' of service, the savings in Paulson's personal income taxes could have been as large as $ 200 million. Paulson had no interest in diversifying his investments and has never sold a share of Goldman Sachs stock. So these "benefits" were purely hypothetical.
There is another large irony. Paulson, who had encouraged others to diversify and stay at the firm, and never previously sold a share of Goldmans Sachs stock. He sold his shares at $150, a price that he believed deeply------and accurately ----was low because 2006 was a very strong year, and he estimates that the timing of the sale cost him $200 million. He also had to liquidate his large private-equity holdings---- including a substanial position in the Industrial and Commercial Bank of China, (Paulson owns Chinese Banks. He only made over 60 trips to China while CEO of Goldman for eight years. I am sure there is nothing to see here. Maybe that's why he failed to see the banking crisis. He was in China buying banks.)
The Bank which has since multiplied fourfold. (looks like he saw something in banking) The tax break was no great boon to Paulson: He plans to give most of his wealth to his charitable foundation. (more tears) Tax breaks/ non-breaks are no different than bonus / non - bonus. There just a bunch of side shows, to distract the media/public from the REAL crimes of treason, racketeering, and theft of what's left of the money system.
page 653
Paulson was determined to estalish a major busniess for Goldman Sachs in private equity and real estate-----not as agent , but as principal investor.
During an era in which other banking firms were dropping out of private-equity investing and saying , "We don't want to compete with our clients," Paulson went the other way. Paulson states: We are going to do both principal investing for our own account- often, we hope co-investing with you as partners--- and, as advisers, helping you accomplish your objectives. We believe we know how to manage the differences and avoid direct conflicts of interest. We want to understand and certainly hope you will understand that from time to time, we are going to be investing for our own account, regularly and in size." There was no need to say that Goldman Sachs would not be asking for permission.
(from time to time......please...how about every single day Goldmant trades 7 X more often then their clients. The NYSE has become just Goldman trading with Goldman. The last 2 chiefs of the NYSE were from Goldman. Over half the daily volume at the exchange is Goldman Sachs.)
Paulson's drive met resistance within Goldman Sachs as well as outside. Senior Goldman Sachs people---- particularly partners who had gone limited-----would go to Paulson and say, "Hank, you're destroying the culture of Goldman Sachs," and follow up with an explanation like, "We cannot compete with our clients!" Paulson wasn't buying it. "What they really mean is they don't know how or are unwilling to adapt to change. The facts are that our clients' expectations for capital commitments and sharing the risks are forcing us to be principals. The business is changing because our clients want us to change. If you don't or won't change, you will wind up with less than the best strategies, practices, and plans. The market---the---world does change, and as intermediaries, we must change." (CHANGE is here, compliments of the Bilderberg Group)
Paulson with help from John McNulty, Peter Sacerdote, and other partners---- moved the firm to a new strategic proposition: it was committed to being both explicitly principal and agent. No longer could or should the clients expect the firm to be just an agent or to expect it to subordinate its interests in the principal investments that it might make on its own account with its own capital, expertise, and access to information. (In NO other industry is this allowed!. Being both Principal and Agent. Completely unthical and scandalous.)
The change in strategic positioning would involve educating clients about the meaning of being a client...(what other industry can you get away with this)
page 647
The concept of leadership at Goldman Sachs has changed completely overthe past fifty years. Sidney Weinberg was a leader, but in many ways his firm was a propritorship. While Gus Levy insistently expected many people to do all they could to build the business, there was no question that he was the leader----in overall pace and direction and on dozens of transactions every day. White and Weinberg pushed decision responsibility and accountability out to the unit heads. Rubin and Friedman matched even more widely distributed authority and resposibility with centralized accountability to the management comittee. (Blame-shifting) Paulson continued the multiplication of decision-making leaders (expanded the cult) and increased the coordination of operating units through centralized disciplines: risk controls, business planning, and performance measurement at increasing numbers of smaller and smaller, more agile units that were closer to particular markets. (Dividing up the world)
"When I joined Goldman Sachs's senior management team," says Paulson. "John Whitehead told me that me that the most important thing we do as senior management is recruiting. If we had high-quality people , then all the senior management needed to do was figure out the firms strategy and put dollars behind resources appropriately." (Any cult needs, good brain washing, the (recruitment firm) and mega salaries also help. As Paulson, states in the book, "No one is to a brother's keeper. Meaning deparment heads were NOT to talk to other deparment heads!)
The number of leaders needed rose by a factor of ten in the years between Sidney Weinberg and the two Johns; then by another factor of ten under Rubin and Friedman; and on upward by yet another factor of ten under Corzine and Paulson (growth rate equal to any modern day cult through brain washing with White Head Principals) as the firm and its business became increasingly competitive and specialized. The firm had grown from 300 to 30,000 and the need for leadership had grown more rapidly with the distribution of authority that comes with rapidly advancing technology, multipling geographic and customer market segmentation, increasing competition, and the firm's own intensifying determination to prevail.
page 637
Some of the most difficult and important decisions for individuals and for leaders of organizations are "not" decisions. .........So it was for Hank Paulson and his decision not to combine with J.P..... At the the time of decision, Paulson was classically alone at the top.............
Later, after Goldman went public in 1999, the firm gave serious consideration to combining with J.P Morgan. The prevailing view was that all the leading investment banking firms would have to have big balance sheets to succeed -------or even survive. (After months of meetings with dozens of people from each side, and everyone thinking the deal was done, Paulson once again reneges after he got the information he was looking for. The hostility that ensued would make the front page of the Wall Street Journal)
Looking back, Paulson says, "only a few people on the management committee were not bulls on J.P. Morgan." But as the years passed and J.P. Morgan merged with Chase Manhattan Bank, each observer, including Warner, came around to the conclusion that Paulson's decision had probably been right for Goldman Sachs. Balance-sheets assets, which would have been huge in the Goldman-Sachs-Morgan merger, are a powerful store of value; they show the strenght of past achievements and can be used to create new revenues and absorb risk and losses. But the real strenght of a modern-day financal intermediary is not balance-sheet capital nearly so much as it is reliable, ready, large-volume access to the capital markets. (Just eariler in the chapter they were saying how big balance sheets were the only way to survive. That seems to change HERE) And that depends on the creativity(new crimes) and connectedness (politicans) of people with superior talent, drive, and strategic dynamism. These assests at Goldman were far greater and were increasing. (And Paulson didn't know this before meeting with JP for 2 months?) With the discipline and focus that Paulson had always lived by as a leader and talent finder, Goldman Sachs was almost certain to continue accumlating and compounding its competitive advantage. The firm's access to open capital markets of the world meant that it could obtain assets and lay off risks at times of its own choosing. (What does this mean? "LAY OFF RISKS AT ITS OWN CHOOSING. " To me it sounds like if they can choose when to realize risk: then there really is no risk at all!) It did not need to own hugh balance-sheet assets because it could always find institutions that would rent to the firm. Meanwhile, the firm's own capital comparative advantages----usually talented, motivated individuals interconnected through shared values, team work, and White Head Principals and the high financial rewards of effectiveness ----would lift Goldman Sachs to higher and higher levels of profit and power.
page 655
Paulson had been a believer in technology and its impact on the securities business since the seventies, when he first saw continuously updated bond prices displayed on a computer screen at a clients office. Goldman Sachs was certaintly no technology leader in the eariler years. Senior management got its first briefing on the impact of the internet in 1996, including answers to the basic question: What is the Internet?
That changed alot. Paulson believed the firm was in a race to expliot the revolution in digital technology...........
After the firm spent $5 billion in five years, by the middle of the decade proprietary trading alogrithms handles twenty thousand derivative trades a day and 70 percent of the firm's Treasury bond trades -----updating prices two hundred times a second and executing all trades up to $100 million automatically......."Paulson's strategy was to cover all the bases, enabling the firm to keep in close touch with changing technology and able to move quickly in any direction as developments clarified. "We have two dozen electronic trading ventures going on, and they're a sideshow compared to what we're doinf in-house." Hull Group, for example which traded derivatives through complex quantitative pricing models and alogrithms, was acquired for $550 million and promptly expanded into equity-options trading.
The greater the market volatility, the more Hull's trading speed and precise pricing increased profitability and market share. (As I state in my blog, the MORE volatile a market is, the more money Goldman makes. Depsite that BS they thought us in college, that derivatives decrease volatility.GS has fiqured out how to use futures contracts to control the underlying "cash" market in any market. In Tokoyo, Hull's know-how resulted in its controlling nearly half of all options trading. (sounds alot like what they have done in America)
Paulson pursued the same general goals through difficult times as a director of the New York Stock Exchange. In 2003, he was told by the exchange's CEO, Richard Grasso, "My compensation package is not on the agenda," so Paulson felt no need to change his plan to go birding in Argentina and missed the cruical meeting on Grasso's outsize compenstation package. "He lied to you, Hank," advised an experienced senior colleague, "so you can and should resign with a clear conscious." So Paulson, at considerable cost to himself, (tears) stayed on and worked through the problems. (And looked at every "book" in the place) It was good for the exchange that he did stay. Over the next few years, the old, obsolete business model of the NYSE was revolutionized by the central limit order book, (maybe Limited to Goldmnan's Eyes) which consolidated limit orders received from all sources, and the merger with the Archipelago electronic stock exchange, which transformed operations and produced major gains in valuation for both sides.
SO we have Paulson the head of the NYSE for a couple years, updating the systems and what not, doing public service years ago! hmm.. So Paulson starts out doing "public service" under Nixon in the 70's as some aid to the Treasuary. Then goes to Goldman. Then some "public service" at NYSE, then back to Goldman, then on to Treasuary under Bush!
The Perfect Storm (37) page 680
On Sunday, March 15, 2008, Lyoyd Blankfein and David Viniar, both at home, were conversing on the phone while watching the business news on television. They had been concerned that Bear Stearns was having increasing problems getting fundingh for its balance sheet. The firm had appeared to both men to be on the brink of a high-profile failure, a failure that could be seriously disruptive to the markets and so could potentiially cause problems for every global financial institution, including Goldman Sachs.
So they were pleased to see the announcement that Bear Stearns--with a $25 billion commiment from the US Government ---was being absorbed by JP Morgan Chase, moving the badly destablized firm into strong hands: Morgan CEO Jamie Dimon ran a smart bank, strong bank. For half a minute, both men agreed that Monday would see a robust market based on relief that Bear Stearns would not cause major problems.
Are we reall expected to believe that Lyold Blainkfein and David Viniar get there information from a fucking TV? I don't think so. These men knew over a year ago that Bear Stearns would be sold to JP Morgan for pennies on th dollar. They knew because with only 8 merchant banks dealing in this swine shit, it isn't difficult to figure out who the counter parties are. There is no centralized and regulated exhange for this swine shit. In fact, it is even quite possible that Goldman Sachs and JPMorgan had teamed up to walk Bear Stearns into the mouth of a lion. So the biggest bank in the world, JP Morgan, gobbled up one of its rivals for pennies on the dollar giving roots to the idea that this was all a set up. When a couple banks get twice as strong and a couple banks disappear, it was planned and mediated. GoldmanSachs knew who the counter parties were.
Then the price came on the TV screen: $2 a share.“No!” one of them exclaimed. “This has to be a mistake. It must be $20.” Then the low price was confirmed. “Wow! It really is just $2.” Six months before, Bear Stearns shares had traded at over $100. Some Sunday!
Sounds like a fucking garage sale, and garage sales are also on Sunday. Ya, some Sunday!
Dimon had been ready to pay $10, but Treasury secretary Hank Paulson—starting at $1—had insisted on $2 to prevent “moral hazard,” the concept that that risk-taking must not be made risk free. Later, in the hands of JP Morgan and after Bear Stearn’s executives—who were also major shareholders—revolted, the price was reset at $10.
The fact that the price is either $1 or $10 goes to show it’s junk. The worlds 3rd largest investment bank sold for pennies on the dollar to the worlds largest bank, JP Morgan. How could one bank have it so wrong while another bank had it so right? Unless…..One bank walked the other bank into a series of diasterous investments and then took out a insurance policy on their demise. Back in 2008, that was as easy as buying an insurance policy from AIG. Seems like many of these polices were bought, AIG selling $120 billion alone. But yet on main street, it is illegal for a man to buy fire insurance on his neighbor’s home! Gee, I wonder why? So, AIG’s counter-parties are simply banks that bought insurance that other banks would burn down. Is it possible that they helped burn them down? In order to get paid on their insurance?
The following Tuesday, Goldman Sachs and Lehman Brothers both reported their quarterly earnings. Encouragingly, both reports were slightly ahead of expectations. The markets ralled nicely. From March to June, the markets were firm and quiet. The credit markets particularly seemed to be opening up with good volumes of activity.
It is amazing that Lehman would be vaporized 3 months later, while Goldman would be twice as strong, are here grouped together reporting earnings “slightly ahead of expectations.”
Then suddenly, in the summer, credit markets seized up seized up and virtually stopped operating, the problems beginning in London. “There were no particular events,” recalls Viniar. “The markets just stopped.” With so many past assurances by CEOs giving way so swiftly to massive losses, the consenus in Wall Street and around the financial world suddenly became We can’t trust any banks.
What about the particular event of the oil market starting it’s nose dive July 4th? The particular event of the stock market beginning its decent at the same time? How are these markets tied to the credit markets? The fact is, every asset class, that has a derivatives contract on it, would crash last year as the money men in London, decided the game was up, and it was time to pull in the markers. That is why you have the oil market, which has nothing to do with subprime crashing along with the stock markets around the world.
What about the particular event of a $55o billion drawdown at the Fed window on September 11, 2008? Never even made the evening news. Just used to scare the politicians and to get the avalanch started in the credit markets.
Rumors started to circulate about individual firms having difficulties with liquidity. The rumors concentrated on Lehman Brothers, followed by Merrill Lynch and then Morgan Stanley and---well after those three---Goldman Sachs.
Goldman Sachs, organizes the biggest hedge fund expo’s. on a yearly basis. Is it hard to imagine Goldman spreading these rumors to hedge funds that they instruct at their expo’s. Why didn’t the rumor include if the bank was actually net short real estate, as was the case with Goldman. Or net long, that was the case with Lehman Brothers? Then we could have had just experienced a partial “bank raid” instead a raid on all the banks. The fact is, it would have been to obvious that Goldman is at the center of this conspiracy. Goldman cared less that their stock price was crashing, because it would get bid back up by their clients, to double the price, as soon as the smoke cleared.
Every major securities firm is deliberately exposed to many and varied risks taken to grow its business and meet the needs of its clients. But as risk premimums narrowed unprecendentedly, more and more investors were in search of yeild. As the business shifted more and more to risk-taking on behalf of clients---most dealers were leveraged 25 or 30 to 1 on their balance sheets. So the importance of risk management had grown rapidly. The acknowledged leader in risk management is Goldman Sachs.
Notice how the author is insinuating that Goldman Sachs is mainly a “securities” firm when that is only 8% of their business. Then throws the word “dealer” in the mix as if Goldman Sachs itself wasn’t a dealer by being leveraged 22 to 1. Lastly the word “investor” is misused to mean hedge funds. Don’t get lost in the misuse of loose words. Goldman Sachs is the world’s largest hedge fund in the world. When the author states “as business shifted more and more to risk-taking on behalf of clients—“ he really means to say Goldman Sachs’ business shifted to (as they say throughout many chapters of the book) to “principal” based transaction versus “agency”. Goldman Sachs is the only one doing it. Yet the author is trying to spin it as if the “industry” or “business” had changed. Please, can I puke now? The above passage would better described like, as Goldmans ‘s ability to profit from the difference between the price what they sell or buy something (risk-premiums) , Goldman Sashs itself, not some average investor, decidied we need to get into “principal” based transactions where they can advise their clients one thing while trading against them at the same time, if it’s profitable of course. An easy example of the above, is Goldman advising some major bank or us government to buy real estate when they are selling the hell out of it through the use of standardized Credit-Default-Swaps.
One of the tools used is Value at Risk, or VaR, which is designed for and works well for all but the most unusual market events. But it does not work when markets behave extremely unusually—the now famous black swan—although this is when management is most needed. The unlikely events at the farthest reaches of estimated probability—the unexpected risks—can and do happen much more frequently than indicated by the classic bell curve, and those are the risks that and those are the risk that need most monitoring. At most banks, the risk that the measurement of risk might be inadequate got forgotten---or was never learned---by those senior executives who were not traders and so did have deep personal experience with realities of market risk. At Goldman Sachs, many senior executives had up through trading.
True at most banks,
“the risk that the measurement of risk might be inadequate got forgotten---or was never learned---by those senior executives who were not traders” that is because commercial banks were suppose to be separted from investment banks. But once Wall Street figured out that they could “commoditize” real estate by “securitzation” and “colaterizatizing” of people’s mortgages, and create the biggest bubble of all time, it was the time to send the the team of boys to DC, to get the law Glass-Stegall repealed. That team would consist of ______,Summers,Paulson, and Bernake.
Yes it is also true, that the commerical banks, the mom and pops down the street holding our mortgage, had no idea how to measure the the nasty-ness of the swine shit that the 8 merchant banks were peddaling to all the other banks. All they knew is that they used to hold on to their mortgages, but now a days, they put those mortgages into a box, and send them to Wall ST in return for some quick cash. Wall ST repackages them and starts selling them all over the world, and some of these, small banks starting buiying them. Then everybody starts wondering if there are any mortages even in the box, or have we been hook-winked, again for a box of swine shit? So, saying these small banks didn’t have the ”risk-measurement policies” in place is a polit way of saying they got suckered by the big 8 merchant banks. These banks also encouraged these small banks to make loans that smelled like swine shit, because they could just put it in this box, and sell it to a sucker bank in China!
Next why wasn’t the idea of the Black Swan made famous 20 years ago with the bailout of LTCM. It was the same players, the same derivatives mess, although the pot was only a 100 million dollars. Small enough for the players to ante up the baiout money, and save the idea of a government bailout for another day, maybe when the pot is $700 billion. Yet, today still NO talk on dervatives being the center and central cause for these kinds of dispruptions. Yes, all the senior executives at Goldman came up through trading, yet another reason they should be considered a giant hedge fund. Only traders know how to package and resell swine shit.
The other tool was strong institutional training and judgement---almost instinct---and was almost apparent in September 2006. The decisions taken then would further help position Goldman Sachs to later navigate the financial crisis. When rivals Merrill Lynch and Morgan Stanley were boldly acquiring mortgage lenders, Viniar had told analysts why Goldman was hesitant to follow: “We have two primary concerns. One is a timing concern: It it the right time in the cycle to do it? And the second is a retail concern, Goldman Sachs is largely an instiutional business.”
When Viniar states “is it the right time in the cycle to buy mortgage lenders,” he is really trying to say “We have been advising all these brokers to sell this swine shit, and everyone has been buying it for the last 5 years, do we really want to buy all this swine shit back? I mean buildings full of boxes of this swine shit. When we all already unloading our boxes of swine shit as we speak!” It’s a no brainer that the “cycle” is about to end.
Secondly, I agree with the auther that Goldman is “largely an instiutional businsss.” They cut out of the retail business, when “brioler-room” operations were becoming unpopular in the 80’s. Around the time when Charles Schwab would roll out their super bowl commercial ripping on a stock broker preying on a senior citizen female. “Miss, Jane I have an invesment opportunity for you today? Now a days Goldman knows how to partner up with world governments and institutions, no need to deal with peasants, unless of course they are wealthy. Of course they would just encourage other mortgage brokers to push these sub prime loans on the “retail” market.
Three months later, Viniar, having observed that the U.S. housing market was weakening, met with Goldman Sach’s mortgage-trading department to advise that they offset their trading-inventory holdings of mortgage-backed collateralized-debt obligations and related securities. The firm developed a substantial hedge position against subprime products by buying up credit default swaps and other securities throughout 2007. Goldman Sachs won twice. First, unlike its major rivals that had large exposures to subprime mortgage-backed securities and took heavy losses, the firm largely avoided that level of exposure. Second, Goldman Sachs benefitted from its well-timed hedge.
Why would the Viniar, Goldman’s Chief Financial Officer be the man who noticed the the US real estate market was weakening? Why wouldn’t it be the group of 16 mortgage traders for Goldman, (the rocket-scientists, genius quants) who he would tell “sell 10 percent” across the board, telling the him or theCEO, “hey listen, we need to dump this swine shit. Instead it is a top level down decision. And since “risk management” was done by Vinair himself on behalf of all 30 departments at Goldman Sach, when would he have had the time to notice what was going on in real estate? He must of seen it on the TV news.
So Goldman would win twice. Of course there level of real estate CDO’s is going to be nil at the same time they are shorting subprime. So, its not really a hedge at all. They dumped their subprime holdings (CDO’s), and then shorted that same subprime, (with CDS’s) making it a NET NET short real estate bet, getting the avalanch in the credit markets blazing full steam ahead. Once again Goldman shows God like powers on when a bubble will end. Or were they the ones to end it? And you take into consideration that at the same time we have the 2nd biggest bubble of all time in the oil market which I am sure Goldman profited from, just squezzing out Semgroup was a billion dollar trade. We have the 2 biggest bubbles of all time and Goldman calls the tops perfectly. And we still suppose to believe that the markets are not be manipulated.
Lloyd Blankfein, who jokes easily about his unimposing appearance (“I look better over the phone”), is a remarkably engaging, a fanatical worker, and quick to make decisions. Comfortfable while poking fun at his himself and at his colleagues, he has great respect for the value of a team, recalling “Viniar said no on subprime. Personally I was excited about the trading opportunities, but David said no, and we were team. So no it was. (once again, trying to blame shift on whos call it was on sunprime. Viniar was told from the Club of Rome, it was time and that was that!
Identifying the exzact origin of the global crisis is as hopeless and pointless (so give it up already you conspiracists) as defining the precise origin of Victoria Falls or Niagara Falls. Both are hugh, powerfu, unrelenting forces of nature. But just as obscure rivulets become named streams which join into small, only locally known rivers that flow together to make large rivers that are more widely known, the same combining took place in the contributing factors of the global crisis—but with crucial differences. Water is water, but the financial factors were varied by politics, by technology, and by contractual characteristics. Hardly anybody saw that they would come together in new, interactive combinations that were unpredictably toxic; that the global networks that fed them were often dominated by inexperience, profit-hungry participants that the scale to which some of the new combinations were growing would transform them from dangerously difficult to what Warren Buffet aptly called “financial weapons of mass destruction.”
Like Niagara and Victoria Falls, the global financial crisis fell on the financial world with great force. The millions of micro-level personal pains were acute: sudden loss of job, loss of income, surprising obligation to pay down credit card debt. Companies—even gigantic corporations like GE—could not borrow as they always had to fianance current operations or make routine investments. State and municipal governments, with revenues down and expenses surging, faced large deficits. As individuals, families, companies, corporations, and governments tried to brace themselves for hard times, gnawing questions included: How it had gone so badly wrong? Why had so few realized what fearsome troubles were brewing? What had caused this conflagration?
The obvious cause was subprime mortgages, but as H.L. Mencken warned many years ago, “There is always an easy solution to every human problem--- neat, plausible, and wrong.” Subprime mortgages were central to the conflagration, but other factors were central too, and by the time an inventory was taken it would seem that almost everybody was guilty of having had a hand in the toxic cookie jar. Indeed, the crisis was the culmination of brilliant innovations and calamitous mistakes streching back over five decades.
The author states that “sub prime mortgages” were the main cause for the credit crisis, but within the same sentence states that answer is “neat, plausible, and wrong.” Which one is it? It was was “neat” because it was “planned.” It was very “plausible” because the use of derivatives allows for manipulating any market. (Real Estate just being the new come.r) And is was “wrong” because the author pathically attempts to follow up with 7 more “causes” in the following paragraphs. I say pathically wrong because no where does he mention one time “derivatives” as one of the main causes to the credit crisis. In fact, he starts of the ridiculous list blaming the author Ayn Rand, as we shall see in the following paragraph. He ends the last paragraph with the statement that “everyone had there hand in the toxic cookie jar and it was 5o years in the making. Maybe Ayn Rand was around 50 years ago, but you need only to go back 20 years to see the start of this conspiracy.
One of the origins was a series of seminars led by Ayn Rand, autor of Atlas Shrugged and other paeans to empowering individuals. One of her devotees was Alan Greenspan, who, as chairman of the Federal Reserve many years late, would champion deregulation of financial services.
I find it amazing that Ayn Rand could be blamed for the credit crisis, but they might as well blame a author who is dead and is not here to defend herself. As much as I don’t like Ayn Rand myself, it is a “strech” to blame it on her. But Alan Greenspan was most diffentently one of the main “causes” of the credit crisis. Because he was fucking in on it, just like Bernake is fucking in on it. Wall Street needed a Fed chief or two to keep the cash register draw open for 20-30 years while while Wall Street, with the FEDs help, could loot what was left of America. Alan Greenspan reminds me of the movie “Usual Suspects” with Kevin Spacey playing the crippled-gimp, who we find out is the master mind of the entire plot. Alan Greenspan was difentently in on the conspiracy. With all that “econo blabber” coming out of his mouth, his most famous words being “the markets are irrational exuberlent” said over 5 years ago?
In the 1960’s, a ”skunk works” of intense, creative mathematicians working in the bowels of J.P. Morgan & Co. developed a series of innovative derivatives. One was a form of insurance against bad things happening to bank loans. They became known as credit default swaps, in which a small annual premium is paid for a guarantee that if the borrower ever defaults, the writer of the guarantee will make good on whatever was in default. The obvious guarantor was AIG, America’s most creative and entrepreneurial insurance company, so consistently the innovator in a generally sleepy industry that it had grown rapidly over the years to become the world’s largest company. AIG saw an opportunity to create a highly specialized, niche market business with almost monopoly pricing power and near monopoly rofit margins. Ultiomately, while only eleven industrial companies in the whole world havd a AAA credit ratings, 611,000 structured investment vehicles with credit default swaps got AAA ratings.
In fact, yes it was JP Morgan that invented the credit-default-swap, that pays out in full when a bank burns to the ground. Next important fact is that JP Morgan apporached AIG, a sleepy insurance company at the time, and convinced them to open a new department called the Finincial Products Unit. This is why AIG, would overnight become a billion dollar company. It was this one unit that made so much money and caused AIG to be to big to fail. Fact, when we have one company, AIG that is the counter party to 5-8 different banks, that all long real estate, it almost seems as AIG never had any intention of paying out on any of those claims. So, yes of course they had “monopolistic” pricing powers. The question that never seems to come up is why is it illegal for me to buy fire insurance on my neigbhors home? The obvious answer is because I might be encouraged to burn it down. But on Wall Street, banks are allowed to buy insurance against other bank (why not, if you just sold them a bunch of bogas investments.) And it is not like filling out a policy, paying an annual premium, etc as the auhtor states above. It is nothing like a regular insurance policy. No paper work to fill out or insurance agent to dealer with. It is as easy as buying or selling stock. One phone call, to the broker, name the bank and whether you are buying or selling the Credit Default Swap. These contracts are standardized. One last way it is very misleading to call it insurance is this: What other insurance does every holder make a claim at the same time and get paid in full. It would be the equvalent of the city of New Orleans getting built in a day, after the hurricane Katrina. Or even being built at all? This was more like a “bet” on some ones failure, than “buying” insurance to protect yourself from someones failure. If banks were worried, that another banks were endanger of failing, then why not just unload those potentially bad investments in that bank?
In 1966, DataCard Corporation perfected the mechanics required for bank credit cards, anf by 1970 the predecessors of Visa and MasterCard had been formed. In 1971, two professors at the University of Chicago, Myron Scholes and Fischer Black, figured out the Black-Scholes options pricing model. In 1973, the Chicago Board of Trade launched the Chicago Board Options Exchange to trade standardized listed options. In 1975, interest rate futures and Ginnie Mae futures began trading. In 1977, Professor Richard Sandor developed Treasury futures contracts. The tools were now available to hedge and manage financial risk. Derivatives mutated and proliferated in many, many ways and some, taken to extremes, would become the primary engines driving the global crisis years later.
The author tries to comingle a few events that have little relation to each other, let alone the creidt crisis. First being the invention of the credit cards. That is like a drug addict blaming his addiction on the invention of ATM machine. Yes, standardized options started trading in Chicago in 1973. Yes, these were the first on many, many and some mutated derivatives contracts to come out over the years, but the author fails to mention that sub prime derivatives were the “primary engines driving the global crisis years later.”
When the author states that “The tools were now available to hedge and manage financial risk” he really means the tools to manipulate markets and cause bubbles were now available. In fact, any time you here the word “hedge” in this book, think of the word “bet.” Even real estate market, known for safty, and security and consistent payouts was now capable of being being manipulated into a bubble thanks to the invention of “Collataralization” and “securitization.”
In the late 1980’s the early Market Masters –later called Bloombergs—were the tech sensation of Wall Street. Almost miraculously, they could provide all the software and hardware needed to price and clear derivatives. About the same time, hedge funds began to proliferate. They---and the leading dealers on Wall Street ---hired, advertised, and relied upon their “genus quants” with their amazing proprietary alogrithmic computer models and their Bloombergs to create a seemingly perpetual explosion in creativity and innovation. As more and more market participants gained experience and skills in using these innovative financial instruments, their volume expanded geometrically. Credit default swaps were one of the fastest growing innovations. Ultimately, their total market value was estimated by the Wall Street Journal at $270 trillion.
Why were credit default swaps one of the fastest growing innovcations of all the derivatives that would trade over the last 30 years? Credit Default Swaps meaning a bet by one bank that another bank will fail. Yes it is true as the author states that the Market Masters and Bloombergers were throwing around their “genus quants” with their amazing proprietary alogrithmic computer models back then as they do today. Back then they called it “techincal anaylsis” and back then Wall Street suckered in retail investors to play the options and stock markets. Today, Wall Street suckers in institutions and governments by using games like “dark pools” instead the old crusty technical analysis. And as far as Fundamental anaylsis, that has become worthless since the markets are fixed and the media is there doing the hyping. One only needs to look at the oil market of last year. Yes it is true that technology would and will forever change the landsacpe of trading, and Wall Street. Yes, these new men armed with a Bloomberg terminal might feel pretty smart indeed, but the modern day hedge fund is no smarter than the “technical” investor of the 80’s. Goldman Sachs sponsers an annual hedge fund extravaganza for all the hedge fund managers. Goldman itself is the world’s largest hedge fund. With Goldman doing over 77,000 transactions per minute, who do you fucking think has a slight advantage? With Goldman being in a “trade” on average for a few minutes, they are the fucking king of the hedge fund industry. And the hedge fund managers are no brighter than the herd of “technical anaylsis” group on investors of the 80’s.
AIG’s corporate general counsel made an enquiry to the superintendent of New York State Insurance Department, Neil Levin: Did he want to regulate AIG Financial Products? Levin said no. While his successor Eric Dinello has said, “I don’t agree with his answer,” it’s not possible to learn now why Levin made his decision—he was at the top of the World Trade Center on 9/11. If Levin had answered as Dinello says he would have, most of the global financial crisis might have been avoided.
Oh well, I am very pleased to see the author throw in this piece about Neil Levin saying no lets not regulate this new department in AIG called the Finincial Products Unit and yet we will never know why because he he died in 911. Another dead end in unfolding hollywood-isk Wall Street story. Some other interesting “pieces” of information: Goldman Sachs with 30,000 employees did not lose one person in 911. Also Goldman Sachs was already breaking ground on it’s own twin tower when the twin towers collasped. With a price tag of 3 billion dollars, this new world head quarters just opened. Convienently Goldman Sachs made 3 billion dollars betting against subprime, to cover the cost of the construction.
A broader stab at regulating came in Washington in 1998. The head of the federal Commodity Futures Trading Commnission, Brooksley Born, sought to overturn a thirty-five-year-old ruling of the commission that exempted from regulation of complex over-the-counter derivatives that were tailored between two parties; the theory was that sophisticated traders would take care of themselves. Her initiative was thwarted when she hit a stone wall of resistance by the top financial officals of the Clinton administration: Treasury unersecretary Lawrence Summers; and Fed chairman Greenspan, who Born says once admonished her: “I guess you and I will never agree about fraud…..You probably will always believe there should be laws against fraud, while I don’t think there is any need for a law against fraud.”
I love how the author says “ a broader stab at regulation” came in 1998, by by Brooksley Born, when in fact it was the one and only attempt to stop this fraud dead in it’s tracks, but that poor woman, head of the CFTC, just doing her job, was as the author says “stone walled” by a group of five dudes, many of which where in the same group of five dudes that went to DC to have Oxney_Barnes(law keeping commercial banks separate from Wall Street banks) overturned. So we have Alan Greenspan keeping the cash register draw open over here and over there he is “thrawting” the CFTC from enacting laws against fraud, for what they believe to be fraud? Hmmm. Now I am surely convinced Alan Greenspan was in on it. In fact, the Federal Reserve Itself is in on the conspiracy, helping the “Club of Rome” maintain position as they crash markets and gobble up the “sopisticated investors.”
And from it’s inception, the Federal Reserve has been there doing things that Woodwil Wilson warned us about 80 years ago. Infact his gravest concern, that and that alone, the idea of having some other instution create and coin our money supply.
Next, these contracts (credit default swaps) were not between two parties, any more or any less than you buying stock in a company being a 2 party transcation. These were standarized contracts that traded over the counter (OTC). The two parties I guess would mean the name of the bank you want to bet against and your name. In fact the New York Times would publish dozens of articles over the years explaining how this unregulated market had balloned to 90 trillion dollars and in many cases it wasn’t clear who the counter party was incase a payout was demanded. In another article in Washington Times Geithner is quoted as saying that these trades many times were just jotted down with paper and pencil in a notebook.
About all that was lackingto feed the trading frenzy in derivatives was the imprimatur of the bond-rating companies. The basis for that was provided by David X. Li, a Canadian-educated Chinese actuary working for the RiskMetrics Group at JP Morgan Chase. In 2003 Li published a seminal paper on the correlation of default risk—how default of one bond linked to default of another bond. It was a key element in the conversion of risk to tradable factor.
On August 10, 2004, Moody’s incorporated Li’s formula on default risk into its ratings and substantially reduced its previous requirement that collateralized bebt obligations (CDO’s) meet a portfolio diversification hurdle. Standard & Poor’s promptly followed. The number of AAA-rated CDO’s exploded, and they were sold all over the world. But the models used by the rating agencies were not nearly as reliable as CDO investors assumed. Cheap money, volume-driven transactions, and anomalously rising house prices were all different than they had been in the prior decade when the models were constructed. David Li was about to become unintentionally the most powerful actuary in history.
Li was an employee of JP Morgan, and his formula was a bunch of bogas math that JP Morgan instructed him to create, in order to drop the "portfolio diversication hurdle" to their empty box of mortgages. Sure enough the bogas math didn't work (just as it didn't at AIG) because the models were different now, that Wall Street was "collarterizing" and "securitizing" boxes of bogas mortgages. Who would of thought that prices for houses would rise all at the same time, even though Goldman Sachs was a national bank selling these bogas mortagages coast to coast. And yes money has been cheap the last 30 years, the years that Alan Greenspan was in charge of the FED.
In Congress, conservative Republicans and liberal Democrats found common cause for wholly different reasons to expand access to mortgage credit for marginal borrowers. Conservative Republicans wanted less regulation and freer markets, so they worked to reduce regulatory controls over the terms of mortgages and other kinds of consumer loans. At the same time, liberal Demoracts pressed for fewer restrictions so mortgageswould be easier to get and the middle-class benefits of home ownership would be extended to more families.
The stage was set for a perfect storm. You don’t fucking say? It was perfect cause it was planned. Wall Street had inflitrated both parties with Chris Dodd and Barney Frank being the easiest "sell outs" to spot. Yes it was the republican party that changed the law to allow for Wall Street banks to prey on commercial banks. It was the Democrat party that pimped out Freddie Mac and Fannie Mae. But dont be fooled by the recent media hype trying to spin this as Freddie and Fannis Mae were the casue of the credit crisis. They are just a conspired piece, just as AIG is a piece of the conspiracy. One thing for certain is the Wall Street bankers are above the two party system. In this case they colluded together to deliver on Wall Streets demands'.
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