While Goldman Sachs raked in profits, clients squirmed
Traders for Morgan Stanley gnashed their teeth for weeks in early 2008, watching helplessly as their $1.2 billion investment in an exotic offshore deal, which was marketed by Wall Street rival Goldman Sachs, began to shrivel.
With the housing market deteriorating rapidly, Morgan Stanley traders wanted to sell off hundreds of millions of dollars in securities positions that had been downgraded by credit ratings agencies and recover what money they could. But as the deal's liquidation manager, Goldman Sachs held sole control over the disposal of any of the securities contracts, and Goldman Sachs was resisting.
On Feb. 6, 2008, Morgan Stanley trader John Pearce wrote a colleague that he got so exasperated with a Goldman representative that "I broke my phone." A day later, he wrote to a Goldman Sachs counterpart: "One day I hope I get the real reason why you are doing this to me."
It turns out, Senate investigators revealed this week, that Goldman Sachs had plenty of reasons to delay a selloff. The investment banking giant had secretly wagered on the default of the securities around which the $2 billion deal was structured. The farther their value dropped, the bigger Goldman Sachs' profits.
Ultimately, a Morgan Stanley lawyer lodged a formal protest, charging that Goldman Sachs had breached its contractual duty to sell off downgraded securities, and that the delays had already cost Morgan Stanley $150 million.
Known as Hudson-Mezzanine-2006-1, the deal totally collapsed in November 2008, barely more than two years after its creation. Goldman Sachs reaped $1.35 billion. Morgan Stanley lost $930 million.
The story of the deal, which drew outrage from Democratic Sen. Carl Levin of Michigan at a news conference Wednesday, is unveiled among hundreds of newly disclosed documents released by his Senate Permanent Investigations Committee, culminating a two-year inquiry into the financial crisis.
It provides another close-up glimpse of how Goldman Sachs deftly scaled back its risks as the housing market crested in late 2006 and then, at the expense of its investor clients, earned billions of dollars from a full-scale blitz of secret bets that the value of home mortgage securities would crash. Goldman Sachs was the only major Wall Street firm to escape relatively unscathed from the nation's economic meltdown.
The subcommittee reported that Goldman Sachs packaged at least four offshore deals with total value of $4.5 billion that were rife with conflicts of interest, including one for which the firm paid $550 million in fines to Securities and Exchange Commission last summer to settle a civil fraud suit.
Levin charged that Goldman Sachs deceived investors on the Hudson deal by failing to disclose that it was betting the other way. And, he alleged, the company misled the subcommittee during a marathon hearing last year in which he repeatedly pressed Chief Executive Lloyd Blankfein and a half-dozen other current and former Goldman Sachs execs to acknowledge the firm bet massively on a housing downturn in 2006 and 2007.
A spokesman for Goldman Sachs, which says its executives testified truthfully, declined to comment on the Hudson deal.
Internal Goldman Sachs documents show that the firm's mortgage department came up with the idea for the Hudson deal to offset $1.2 billion in positive bets on dicey mortgage securities on a London-based exchange, known as the ABX Index. By late 2006, it grew hard to find buyers willing to pay good prices to bet that baskets of subprime loans to marginal homebuyers would perform well.
To "transfer the risks" of its ABX holdings to investors, Goldman Sachs traders and structured products specialists came up with the idea on Sept. 19, 2006, of creating a series of new bets, known as credit-default swaps, on 80 of the mortgage securities listed on the ABX, most barely investment grade or below. They even offered investors a discount to cover the $1.2 billion in risks. The firm also added $800 million in bets on other subprime securities.
Top-level executives, including Blankfein and Chief Operating Officer Gary Cohn, were apprised on Oct. 26, 2006, that the deal would reduce the mortgage department's housing risks, an internal document said.
The pressure was intense enough that marketing of another deal was bumped in favor of Hudson, and Goldman Sachs traders sent congratulatory messages when they'd peddled most of the deal to investors over the next month.
In their marketing booklet, the Goldman Sachs traders stated that the securities selected for the deal were "sourced from the street" and that Hudson "is not a balance sheet" deal. In Wall Street parlance, that meant that the securities were purchased from Wall Street dealers and that Goldman Sachs wasn't taking the "short" position, or wagering that the securities would default.
Neither was true, the investigators said, and Goldman Sachs was making "a proprietary investment ... in a direct, adverse position to the investors" - a position it declined to divulge even when a representative of another investor, National Australia Bank, directly asked.
Goldman Sachs also stressed to investors that it was investing in an equity piece, or one of the riskiest slices of the deal.
The committee found that Goldman Sachs invested $6 million in the equity slice. Meanwhile, Levin said, it bet "more than 300 times more" - $2 billion - against the deal.
Sylvain Raynes, an expert in structured products, said the Hudson deal was "full of conflicts of interest," including Goldman's dual role as liquidation agent.
"This deal should never have gone to market, due to the lack of transparency and the fact that Goldman was holding both ends of the deal," he said.
However, Goldman Sachs could mitigate liability due to standard language in the contract documents informing investors that it may initially take the short position and that it may have conflicts of interest.
For its role as liquidation agent, the subcommittee said, Goldman Sachs collected an additional $3.1 million in fees.
Read more: http://www.kansascity.com/2011/04/14/2800987/while-goldman-sachs-raked-in-profits.html#ixzz1JYucvU4F
How much more shit do I have to take from Terry?ReplyDelete
Fight back get a good wimmin lawyer I've paid enough.
Do have some folks coming in from Chicago heheheheh maybe they got some Obama money I am not paying for lunch and no I don't need Allen's advice.
Those Guillotines don't cost much to construct, do they?ReplyDelete
On further reflection, rope is cheaper . . . . . and, probaly more painful.
Greed and Avarice. And Stupidity.
They almost put the whole world into Depression. Make me "King for a Day," and Goldman would be nothing but a bitter memory. And, a bunch of those crooks would be rotting in jail for a long, long time.
And, no Quirk, I don't hate "rich" people. Just rich "Crooks."
All this chatter about price rise acceleration provided support to precious metals, seen by some as a good inflation hedge. Gold was up 1.2 per cent to $1,474 an ounce and silver was higher by 3.5 per cent to $42.07 an ounce – the first time it has cracked $42 in 30 years – as demand for the grey metal was seen expanding in India.ReplyDelete
But elsewhere in commodities the damage to broad market sentiment from inflation fretting and the eurozone troubles was having a negative affect. Brent crude was down 0.2 per cent to $122.59, having initially shown signs of putting the Goldman Sachs-induced sell-off from earlier in the week behind it.
In currency markets, the yen was trading at Y121.27 per euro from Y120.97 in late New York trade on Thursday. It weakened to Y83.70 per dollar from Y83.50.
Rate Rise Prospects
the people are getting pissedReplyDelete
THE POLITICIAL GRAVE TRAIN
show details 2:09 PM (8 hours ago)
THIS HAS TO BE SAID AND IT MAY NOT PLEASE YOU BUT WHAT IS HAPPENING TO OUR AMERICA IS NOT PLEASING TO ME EITHER.
LET ME TELL YOU THAT WHAT I GET IN SOCIAL SECURITY IS SOMETHING THAT I HAVE EARNED BY PAYING INTO THIS GOVERNMENT RUN SLUSH FUND; AND SLUSH FUND IT IS, THERE ARE MILLIONS OF ROTTEN SCUM BAG ILLEGAL IMPORTS THAT NEVER PAID ONE DIME INTO THAT SLUSH FUND BUT THOSE SPONGING BASTARDS HAVE THEIR HANDS IN THAT SLUSH FUND AND THOSE SENATORS AND CONGRESS PEOPLE NEVER PAID INTO THAT SLUSH FUND EITHER, BUT IS SO KIND AND GENTLE TO THOSE ILLEGAL IMPORTS WITH THEIR HANDS OUT AND OF COURSE THOSE ILLEGAL IMPORTS HAVE VOTES THAT IS NOW BOUGHT AND PAID FOR BY THOSE EAGER TO PLEASE POLITICIANS.
FOR TWO YEARS NOW SOCIAL SECURITY "BENEFITS" HAVE BEEN FROZEN BECAUSE THOSE SAME POLITICIANS THAT ARE SUPPOSED TO WORK FOR THE BENEFIT OF AMERICANS AND NOT THOSE MILLIONS OF CRIMINAL ILLEGAL IMPORTS ARE "RUNNING" OUT OF MONEY, BUT ONLY BECAUSE THEY HAVE ABUSED THE SYSTEM LIKE THAT ROTTEN JOHNSON WHO SAW A GREAT PILE OF MONEY AND SLAPPED HIS GREEDY DEMOCRAT HANDS ON THAT MONEY AND NOW IT IS AND HAS BEEN A PART OF THE GENERAL FUND WHERE IT WAS NEVER INTENDED TO BE BECAUSE THAT MONEY WAS A FORCED PAYMENT BY A COMMUNIST "DEMOCRAT" CALLED F.D.R. INTO THAT SLUSH FUND DISTRIBUTED BY A GOVERNMENT THAT IS TOTALLY OUT OF CONTROL.
THIS GOVERNMENT IS RUN BY A BUNCH OF FOOLS WITHOUT ANY REGARDS FOR THE MIDDLE CLASS WHO BUILT UP THIS COUNTRY SO ASS HOLES LIKE THOSE POLITICIANS CAN RIDE THAT GOVERNMENT "GRAVY TRAIN" TO THE END OF THE LINE WITH BENIFITS THAT MOST AMERICANS CAN ONLY DREAM ABOUT.
THIS LITTLE BIT OF ANGER WAS TYPED UP BY A VETERAN, AN AMERICAN CITIZEN BY BIRTH
AND NOW PISSED OFF BECAUSE OF THOSE ELECTED JERKS HAVE THE NERVE TO GIVE THEMSELVES GREAT COST OF LIVING RAISES WHILE WE ON THE BOTTOM THAT WORKED TO BUILD THAT FORCED PLATFORM FOR THOSE GREAT LEADERS CAN REST IN PEACE AND PLAY MONOPOLY WITH OUR MONEY THAT THEY NEVER EARNED.
MAY GOD GIVE EACH OF THEM THEIR WELL EARNED PLACE AT THE END.
DALE L. NEILL
Dale is my friendReplyDelete
Obama made a glancing reference to the 2012 presidential race, saying that some of his potential Republican rivals had signed onto the budget House republicans are advancing.ReplyDelete
Former Massachusetts Gov. Mitt Romney, one likely GOP candidate, issued a statement that said Obama had "dug deep into his liberal playbook for solutions highlighted by higher taxes."
Another, former Minnesota Gov. Tim Pawlenty, said that with his speech, the president showed a "lack of seriousness on deficit reduction."
Taxes On The Wealthy
And, no Quirk, I don't hate "rich" people.
I commented that you had knocked rich people for not paying their share of taxes.
Now that has turned into I implied you hate rich people?
So, tell me Deuce, and your mouse of cource, will you continue to evaporate my opinions while permitting the occompanying music? I will be happy to provide music that will make you appear both accomplished and effeminate.ReplyDelete
But a man who will not face the rapier is no better than a fisherman.
You and your gnome, whit, may delete my comments as you have been; however, those passing through will not miss the cowardice. "deuce" may mean no more than a pair of cherries. Prove me wrong if you dare. :-D
Now, deuce, you may pretend through censorship that anon. did not say "nigger" or "whore" or attack Jews. Do you think anon. looks like a fool or you?ReplyDelete
Did someone leave the door open last night?ReplyDelete
I did say "nigger" -- once, in a fit of disgust about the inner city. I have never attacked the Jews, in fact I have always celebrated them. As a group they are wonderful and I think our country should back Israel to nth degree. I love my daughter and am conspiring with her to get her a horse, a big thing between she and me. She has fought back from some stuff and when I think of her my heart goes soupy. I have wanted to put her and her horse - she don't own it yet - as my moniker but she has to do it for me, and allow it. Simple truth.ReplyDelete
AMEN to Dale L. Neil. Thanks for saying so eloquently & susenctently what so many Americans feel. I'm a disabled widow of a 100% disabled service connected Veteran who is trying to get by on my SS & the DIC from my husbands VA disability pension. After working over 35 years for one of the big three automotive companies, I watched the equity in my home, my only asset left dwindle to nothing while Washington DC & the rest of the US has taken pot shots at all autoworkers unfairly. No, they don't make $75.00 an hour, never did, it was taken out of context. Yes, most autoworkers pay for health care coverage, hasn't anyone ever heard of castropte caps, well whatever you do, don't get sick. The only one who came through was the US Army, they took care of my husband, but then they are the reason he died in his 50's, because he served his country. Yeah I'm angry when there haven't been increases in VA or SS benefits.ReplyDelete