Goldman Sachs: Preying on its Clients
(& Taxpayers, too)
[Note to Readers: No, this hasn’t become the “anti-Goldman Sachs rant” blog. It’s just that: a) the firm’s conduct is/was so outrageous; b) the economic harm it caused so far-reaching; and c) authorities’ response to the firm’s conduct so feeble (if you can call it that). Perhaps most significantly, there are a number of new stories — like the one below — documenting many previously unknown details about the firm’s behavior. Back to “regularly scheduled” real estate posts soon . . . promise!]
“The simultaneous selling of securities to customers and shorting them because they believed they were going to default is the most cynical use of credit information that I have ever seen,” said Sylvain R. Raynes, an expert in structured finance. “When you buy protection against an event that you have a hand in causing, you are buying fire insurance on someone else’s house and then committing arson.”
–“Banks Bundled Debt, Bet Against It and Won“; The New York Times (12/23/09)
So . . . the accusation is that Goldman Sachs screwed its customers, big-time.
Specifically, Goldman Sachs made billions selling its customers garbage.
Then, it made even more billions betting against (“shorting”) the garbage.
“It’s Not My Dog”
What does Goldman Sachs say in its defense?
A. It told its customers that they were buying garbage, i.e., it disclosed all the risks.
B. It told its customers that it was betting against them (again, via disclosures).
C. Other Wall Street firms sold their customers garbage and bet against it/them, too.
D. Goldman Sachs’ customers were big, institutional investors (“big boys”) capable of assessing the risks for themselves. (Legal translation: Goldman’s clients didn’t — or shouldn’t have — relied on Goldman’s representations.)
E. It sold its customers garbage because . . . its customers asked them to! (it was only responding to demand; if Goldman Sachs hadn’t sold the garbage securities . . . their competitors would have).
F. Even though Goldman Sachs made tens of billions overall betting against the garbage, some of its bets lost money, too.
G. Goldman Sachs didn’t really bet against the garbage, because those bets were merely designed to offset other bets the firm made (contradicted by “F.”).
Answer: all of the above.
Connoisseurs of lawyer jokes will recognize the above as a variant of the “it’s not my dog” defense.
When the lawyer’s neighbor charges that the lawyer’s dog viciously attacked him, the lawyer gives the following, layered defense:
First, he denies that there even was an attack.
When neighbors step forward to say they witnessed the attack, the lawyer says the victim wasn’t really hurt.
When the victim presents the lawyer with graphic photos and a copy of the hospital bill, the lawyer argues that his dog attacked in self defense.
When the neighbor produces affidavits from witnesses testifying that the attack was unprovoked, the lawyer protests that . . . it’s not his dog!
If Goldman Sachs’ official spokesman is trotting out the “it’s not my dog” defense, what do the actual principals — current and former employees — have to say for themselves? How about other Wall Street firms alleged to have done the same thing?
According to the NY Times article:
–Michael DuVally, a Goldman Sachs spokesman, declined to make [trader] Jonathan Egol available for comment.
–Henry Paulson declined to comment (Paulson runs a hedge fund that made more than $15 billion betting against the housing market).
–[Goldman trader] Tetsuya Ishikawa, who now works for another financial firm in London, declined to comment on his work at Goldman.
–Deutsche Bank . . . declined to comment (on a smaller scale, Deutsche Bank is alleged to have done the same thing to its customers that Goldman Sachs did).
–Michael Barnes, the co-head of Tricadia . . . declined to comment.
–Lewis Sachs, Mariner’s vice chairman . . . declined to comment.
Detect a theme here??
I know a way to make people talk (that doesn’t involve Mafioso tactics): give a handful of these guys limited immunity, so they can’t invoke their 5th Amendment right against self-incrimination, then compel them under oath to rat out their colleagues.
As distasteful as it is to let a few of these rats off the hook to get at the rest . . . it’s a lot less distasteful than giving Wall Street trillions in taxpayer loans, guaranties, and free money (courtesy of the Federal Reserve)!