Pam Martens, Why a Criminal Case Against Goldman Sachs Matters and Why Charges Could Stick

The first Goldman Sachs panel to line up before Senator Carl Levin’s subcommittee on April 27 consisted of Daniel Sparks, Joshua Birnbaum, Michael Swenson and Fabrice Tourre. Mr. Sparks headed the Mortgage Department and supervised the other three who worked in the Structured Product Group at the time the SEC has alleged the securities fraud occurred.

To hear these four tell it, their jobs included trading for Goldman’s benefit (proprietary trading), originating investment products, selling the products to customers once they were created (distribution), and, in Mr. Tourre’s case, even speaking with the rating agency that would transform these subprime bets into AAA derivatives. And how did they sum up all of this as a job description? They testified, under oath I might add, that they were “market-makers.” In a sane world, a market maker is an entity that matches buyers with sellers and profits from capturing a portion of the spread (bid and ask) on the buy and sell price of securities.

To a lay jury, this might fly as legitimate conduct; something akin to a short order cook who shops for the groceries, whips up the omelets, throws a little parsley garnish on the plates, serves the diners, and tallies up his P&L at the end of the day. If he overbought on ground beef, he might have to have three days of specials like Shepherd’s Pie, Hungarian Goulash, and Spaghetti with Meat Sauce to “flatten” his position and “get closer to home.” Nothing criminal going on here; just good ole American know-how and innovative workouts.

The major problem with this analogy, and most others in defense of Goldman, is that the short order cook wasn’t trying to pass off E. coli beef for prime rib. Another problem for Goldman is that embedded in the heart of every securities law is the principle that the customer must be treated honestly and fairly and any mechanism or device to deceive, manipulate or defraud is patently illegal. Remember, securities laws grew out of the ingrained Wall Street corruption exposed in two years of Senate hearings in 1932 and 1933.

It is difficult to see how one can be engaging in proprietary trading for the benefit of the firm at one moment, acting in an agent capacity for the benefit of the customer the next moment, and creating investment products designed to fail on a latte break. Sparks, Birnbaum and Swenson all had principal licenses to engage in investment banking activities like underwriting as well as the Series 7 license to trade securities. Mr. Tourre had only the Series 7 and Series 63 licenses to trade securities. He had no principal license according to his regulatory file available online. That could be a big legal issue for Goldman as a firm, for Mr. Sparks who supervised him, and for the controlled-demolition investment product he assisted in creating without a principal license. Failure to supervise is one of the first areas security lawyers review in assessing a firm’s liability.

Mike Whitney, Goldman in the Dock

Counterpunch: Mike Whitney, The Interrogation of Lloyd Blankfein
Joanne Mariner, The Legality of Drone Warfare
Bruce E. Levine, The Astonishing Rise of Mental Illness in America: a Conversation with Robert Whitaker
John Ross, The Big Scam: How Washington Hooked Mexico on the Drug War

The Multiple Scams of Goldman Sachs By DEAN BAKER
Yes, It Can Get Even Worse

Counterpunch on Goldman Sachs

Pam Martens, The Death of a Salesman and Mike Whitney, Goldman Sachs' Bloody Nose

Paul Craig Roberts's last?

Good-Bye

The American corporate media does not serve the truth. It serves the government and the interest groups that empower the government.

America’s fate was sealed when the public and the anti-war movement bought the government’s 9/11 conspiracy theory. The government’s account of 9/11 is contradicted by much evidence. Nevertheless, this defining event of our time, which has launched the US on interminable wars of aggression and a domestic police state, is a taboo topic for investigation in the media. It is pointless to complain of war and a police state when one accepts the premise upon which they are based.

These trillion dollar wars have created financing problems for Washington’s deficits and threaten the U.S. dollar’s role as world reserve currency. The wars and the pressure that the budget deficits put on the dollar’s value have put Social Security and Medicare on the chopping block. Former Goldman Sachs chairman and U.S. Treasury Secretary Hank Paulson is after these protections for the elderly. Fed chairman Bernanke is also after them. The Republicans are after them as well. These protections are called “entitlements” as if they are some sort of welfare that people have not paid for in payroll taxes all their working lives.

With over 21 per cent unemployment as measured by the methodology of 1980, with American jobs, GDP, and technology having been given to China and India, with war being Washington’s greatest commitment, with the dollar over-burdened with debt, with civil liberty sacrificed to the “war on terror,” the liberty and prosperity of the American people have been thrown into the trash bin of history.

The militarism of the U.S. and Israeli states, and Wall Street and corporate greed, will now run their course. As the pen is censored and its might extinguished, I am signing off.

Mike Whitney, Why is Goldman Sachs So Scared of Mike Morgan?

Bill Bonner, The Broken Rungs of the Housing Ladder

The Broken Rungs of the Housing Ladder

Foreclosures in the yankee state are running three times last year's level. And losses are working their way up the socio-economic ladder. Goldman Sachs' (NYSE:GS) Trust 2006-S3 is a sophisticated investment instrument containing 8,274 mortgages. One out of every six of those mortgages is in default - only 18 months after the thing was put together. When that many people stop paying, it wipes out the entire capital value of the derivative. And since speculators usually take leveraged positions, the losses can go much further.

We don't know whose mortgage is going unpaid…or who invested in the trust…but according to former colleague Adrian Ash, after Goldman created the derivative and sold it to its customers, it then sold its own monster creation short in order to protect itself.

Goldman is a smart operator. The typical fellow has no obvious way to protect himself. His house falls in value…his earnings go down in value…his living costs go up…and he's out of luck. And not all the big players are as smart as Goldman. There always has to be someone on the other side of these trades. Also last week, two major financial companies - one in London, the other in Düsseldorf - defaulted on $7 billion worth of debt.

What is going on? Time will tell.

"It's funny because you can see it is a big problem," said our cousin yesterday. "People have bought these huge houses. They don't really need so much house, and they never intended to pay for it. They just figured that they'd stay in it for a few years…and then sell out at a big profit. The bigger the house, the more money they'd make. So they bought these McMansions, which really aren't very well built. Everybody thought the same thing, so everyone was buying more house than he needed. That's why the whole housing market went up…people were all pushing up to the next level.

"But now, no one is coming up. The pressure from the bottom has gone away. And these people are left with a lot more house than they can really afford, or that they even want. They have to keep it clean…and maintain it…and pay taxes on it. And property taxes are so high in Maryland now…especially for waterfront property…that you never really own your house; you just rent it from the government. I was going to build a house down on the bay…but the property taxes alone would have been between $15,000 and $20,000 per year. I said, 'Forget it'."

What will happen next? What happens when people say 'forget it' to new purchases? What happens when the bottom rung of the property ladder breaks? When happens to an economy that depends on consumer spending when consumers have no more money to spend?

We don't know, dear reader, but we don't think it'll be pretty. And if you'd like to spare yourself from the ugliness that will ensue, you might want to check out this report.

For the moment, time is keeping its mouth shut. We have our opinions, of course. You can probably guess what they are. But we'll keep our mouth shut too - at least until we get back from the ranch.

In the meantime, we pass along this from Julian H. Robertson, one of the smartest people in the hedge fund industry. The economy is headed for one "doozy of a recession," says he.

Colleague Steve Sarnoff adds his two cents on the latest market happenings, saying, "Stocks slipped sharply on Friday and this morning, as disappointment, worry, and fear over housing, credit, currency, recession, and inflation spread like southern California wildfire. The financial media fans investors' fear through the markets like Santa Ana winds funneling fire through dried out coastal sage and chaparral canyons.

"Prices move naturally from resistance to support and that is simply what is going on here. The pressure is on over the near-term, but watch how the news will change (sudden easing of fears) once technical support (demand) comes in."

We'll have to wait and see if what Steve says proves to be true…in the meantime, he's found an aluminum play for his Options Hotline subscribers - and for a limited time, we're offering an opportunity for new subscribers that you won't want to miss!

Until tomorrow, Tuesday, October 23 at midnight, you can get 6 months of one of the oldest, and most respected options trading services in America - free of charge. But you have to act fast:

Options Hotline - 6 Months FREE Until Midnight Tomorrow!

Here's our old Fed chief, Alan Greenspan, commenting on the effects of the credit bubble that he, more than anyone, created:

"The financial crisis that erupted on August 9 was an accident waiting to happen," Greenspan said in a speech yesterday. "Credit spreads across all global asset classes had become suppressed to clearly unsustainable levels.

"Something had to give."

Well, yes. Something has to give. We've said as much ourselves. Then again, we didn't control short-term interest rates during the long period in which pressure was building up. We weren't the ones with our hands on the credit throttle, shifting the lever to 'Full Speed Ahead' - even as the rivets began to pop. And we weren't the one who reassured the public that all would be well, either.

But Alan Greenspan is a marvel. We admire him. Who else would have the chutzpah…the gall…the cheek?

He continued: "If the crisis had not been triggered by a mispricing of securitized U.S. subprime mortgages, it would eventually have erupted in some other sector or market."

He makes it sound as though he played no part in it…as if it were an act of God when a credit expansion comes to an end. And then, he adds a warning:

"If the pernicious drift toward fiscal instability is not arrested and is compounded by a protectionist reversal of globalization, the current account adjustment could be quite painful for the United States and our trading partners."

That Greenspan! What a character! If the authorities don't get control of this thing, he says, it could hurt.

We've come to the ranch to count the cows. Unfortunately, the cows are spread over thousands of acres.

But let us back up and tell the new, dear readers how we got here.

Until we were nearly 50 years old, we scarcely ever left home. We lived only a mile or two from where we were born…and where our mother's family had lived since the 17th century. We assumed we would die there too.

But in our 48th year, we began to wonder. Our area had completely changed. Rural Maryland was not nearly as rural - or as nice - as we remembered it from our childhood. The landscape had changed; tobacco fields had been replaced with housing developments. The roads were full of commuters. The people changed too - gone were all the old families with their local accents and local customs. The new people spoke in different tongues and worshipped different gods.

It was not so much that we disliked this new world. It's just that we had no attachment to it. We had stayed put. But the world we knew and felt close to had left us. We looked around and realized that we weren't at home anymore.

So, we decided to leave too.