Monday, April 19, 2010

Goldman Sachs, Simply

What they did:

A client (Abacus) came to them with an idea. They wanted to take a pile of bad mortgages and bundle them into a bigger pile. Packaged, and with the reputation of a major investment banker (Goldman) behind them, They wanted to sell them to investors and bet their own money that they would fail.

Playing with loaded dice makes it Wall Street, not Vegas.

The mortgages were selected to fail with Goldman's help. Goldman was brought in to both help in the selecting of the bad stuff, and to make the sales to the unwitting -- people who felt that Goldman was acting as a fair broker -- as a  "Banking Investment Firm."

After Goldman et. al. found the worst of the worst, they bundled them into a package, then sold the package to investors. And, this is key, when the package was sold, there was no mention to the investors of the certainty they would lose all of their money.

And when the mortgages failed, the client would collect the insurance money (CDO's and shorts.)
That's the money shot of the thing – the collecting of the insurance money for the client, all else just the  incidental mechanics of a scam.

So -- Three months after the sales, the package failed and the investments became worthless – just as planned. The people who bought them lost all their money. The client who set the scam up with Goldman collected the insurance money.

Goldman made its money from the fee it charged to set this up. It was a big fee.

So, fraud? scam? business as usual?

It's also interesting to note that the big ratings agency, Moody's, gave a triple A rating to the package. No one would have bought the package if the rating wasn't high. Rating agency's evaluate risk -- that's their job. And remember -- this package's value went to zero shortly after it was sold and rated. (What a scum bag job they did -- I mean, how awful can you be and still be in business kind of scum bag job?)

Put another way:

I want a house built for the purpose of it burning up as soon as possible. I arrange for a contractor to build it -- using full gas cans for the framing, and then painting it with a colored napalm. The contractor charges me for the building costs -- he's a good contractor, with a great reputation, so he charges a lot. I then take out an insurance policy that will pay me when the house burns down. 

I sell it to a person after I build it -- but keep the insurance in my name. The house burns down a week after I sell it. I get my money when the insurance pays out. 

The difference is:

What I did is a pretty straightforward crime. I would go to jail, and the contractor would go there as well. No one would argue that the person who bought my house should have known better and it would not be a case where I could say  that they did not do due diligence. I framed the fucking house with gas cans.

"We didn't set the fire," they say.

What Goldman did is now being argued on Business TV. Hours of excuses are being forwarded – “Yes, what they did might have been TECHNICALLY wrong, but not LEGALLY,” and, “It’s business, and the people who bought the big pile should have known better,” and, “Goldman was just doing what was best for their client and there is no crime in that,” and, "They (democrats -- but you knew that, didn't you?) are trying to demonize and destroy America's financial industry."

If the  crime is not clear – what they did is. Goldman  is considered to be the best of the investment banks. They have a written code of ethics that is a model of the industry – everyone says so. They roared  out of the last recession like no other. They did it for their investors and for their bonuses -- not for the good of anyone or anything else. (For how -- see the link below)

Used car salesmen have more ethics, and they certainly have more regulation. Maybe car dealers just  need to get a better lobby, or they need to give more money to their regulators.

Most of the TV talking heads, and all of the experts they bring on, say that what Goldman did is the common practice.

Wow, who would have thought -- wealthy people using their money to manipulate the system by buying smart people without internal ethics, and politicians that are seeking to keep themselves in office at any cost. Huh --Wealthy people gutting the system that tries to regulate them by buying the people who set the regulations, or, using their own in house help to write the damn things if they have to (lobbyist's are very helpful to overworked congressional staff.)

As if we didn't know. 

For more, and more complete, information about how they have done this, read Matt Taibbi’s Rolling Stone article, (below.) It's about Goldman Sachs’ and their business practices. When this article first came out, it was poo-pooed by the mainstream media, but now, just a few months later, it's almost scary real in how accurate it shows things.

And, never forget, eat the rich.

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