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Under-Fire Goldman Sachs Reveals 90% Jump in Profits
Wall Street bank raises spectre of multimillion dollar bonuses at height of battle over regulatory reform and in spite of accusations of dishonesty
The under-fire Wall Street bank Goldman Sachs faced a fresh barrage of public and political outcry today as it revealed a 90% leap in profits in spite of accusations of dishonesty in its dealing with clients, raising the spectre of multimillion dollar bonuses at the height of a battle in Washington over regulatory reform.
Just days after US regulators began a $1bn (£650m) fraud action against the firm, Goldman revealed a leap in quarterly profits from $1.8bn to $3.5bn and disclosed that it was setting aside $5.49bn to pay its employees. A top lawyer at the bank rebutted the Securities and Exchange Commission's prosecution, insisting Goldman had not misled its clients and describing the case as a "he says, she says" dispute.
Goldman's figures were given short shrift by the White House, which is preparing for a fresh push on Wall Street on Thursday when Barack Obama will visit New York to deliver a speech pressing the case for a crackdown on the financial industry.
A senior economic adviser to the White House, Austan Goolsbee, suggested banks such as Goldman should admit that their soaring profits had been aided by the US government "stepping up and preventing them all from falling off a cliff".
Goolsbee said: "Before they all pat themselves on the back for the great job they did and get a big bonus based on their profits, somebody ought to recognise that a great deal of their profit came from financial interventions from the government to save their bacon."
In Britain, the Financial Services Authority escalated its scrutiny of Goldman to a formal investigation, joining the SEC's probe into a mortgage-related security overseen in 2007 by a London-based Goldman banker, Patrice Tourre, which was allegedly packed deliberately with toxic homeloans, yielding a huge profit for a hedge fund that bet on its failure.
On the election trail, the chancellor, Alistair Darling, weighed in, remarking that the accusations "almost beggar belief". But Darling rejected calls from the Conservatives for an immediate block on any government work with Goldman, saying: "I don't think you can stop doing business with a firm because an individual is accused of doing something."
At the core of the case against Goldman is an allegation that a hedge fund, Paulson & Co, played a key role in selecting the mortgages packed into a collateralised debt obligation named Abacus, which was then sold to clients by the bank. Because Paulson intended to take a "short" position, it had a vested interest in choosing mortgages likely to default. Within nine months, 99% of the homeloans in the package had indeed been downgraded, leaving Royal Bank of Scotland, which insured the deal against failure, with an $840m bill.
Goldman's co-general counsel, Gregory Palm, insisted that Paulson did not choose the mortgages in the package but merely made "suggestions" to financial consulting firm ACA Management, which became a big investor in Abacus.
"Paulson did not select the portfolio, ACA did," said Palm, who repeatedly denied any wrongdoing. "If we had evidence that someone was trying to mislead someone, that's not something we'd condone at all. We'd take action."
Quizzed by media on a conference call, Palm characterised the lawsuit as a "factual dispute" revolving around different individuals' recollection of events: "When you go to the core of the SEC case and look at it, it revolves a little around 'he says, she says'."
The prosecution of Goldman is quickly becoming a contentious political issue in the US. The SEC has taken action just as the Obama administration tries to force a tightening of Wall Street regulation through Congress in spite of Republican objections.
In a sign of a partisan split, it emerged today that the five-member governing board of the SEC voted 3-2 in favour of action against Goldman, with two Democrats favouring prosecution but the SEC's two Bush-appointed Republican commissioners voting against. The SEC's chairman, Mary Schapiro, a political independent, provided the casting vote.
Keen to mount the most aggressive possible defence, Goldman has hired a heavy hitting former White House counsel, Gregory Craig, to provide legal advice. Craig worked for the Obama administration until November, and during the 1990s he served as special counsel defending Bill Clinton against impeachment.
Goldman's profits were not sufficient to stem a steady decline in its share price, which dropped 1% in early trading on Wall Street. Jacob Frenkel, a former SEC lawyer now in private practice, said most cases of the type facing Goldman were quietly settled but that the regulator seemed determined to deliver a powerful enforcement message at a politically sensitive time, leaving Goldman with no choice but to fight: "At this point, there's no downside for Goldman in jumping in the ring and going at it for a few rounds."
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24 Comments so far
Show AllWe should be confiscating everything under RICO and sending them all to Guantanamo. They have done far more damage than any terrorist.
But I doubt Goldman Sachs will suffer any meaningful consequences. Corporations like GS have written the laws. They are far too savvy, to use Obama's fawning adjective.
Joe
"We should be confiscating everything under RICO and sending them all to Guantanamo. They have done far more damage than any terrorist."
Agreed - and WE still can. Just gotta put the existing office holders out on the streets where they belong (and will get their measure due of street justice) and the ball gets rolling when more and more people realize that the monopoly in charge (and disguised as a duopoly called democracy) needs to be replaced.
And ... the administration(as well as the past administrations) and Congress are filled with revolving door corrupt Wall Streeters and revolving door corrupt corporate lackies all wooing and cooing the revolving door lobbysists ... and what keeps this great revolving door machine going ... perfecting its tricks and schemes and thievery with each successive year ... MONEY and POWER.
None of problems we face will ever come close to solutions until the revolving door(government <-> corporate <-> lobby) is locked shut ... dismantled. Short of that ... the problems(economy, war-making, privatization, destruction of middle-class and the destruction of the economic ladder for the working-class, the working poor and poor, plutocracy, etc...) will grow and devour all in its path.
Goldman Sachs can flaunt their egregious behavior all they want to since they contributed more money to Obama's 2008 campaign than any other entity. They know that Obama will spew a little anti-bankster rhetoric while giving them at least 110% of everything they want.
If you vote for any Democratic Party or Republican Party candidate you are contributing to this problem and against the solution.
There are NO PROFITS at Goldman.
Goldman, along with all the other Wall Street Casinos are using bogus accounting to hide their INSOLVENCY.
From William K. Black, Bank Reguator:
"...First, banks have not recovered. It is essential to remember that the banks used their political clout last year to induce Congress to extort the Financial Accounting Standards Board (FASB) to change the accounting rules such that banks no longer have to recognize losses on their bad assets unless and until they sell them. Absent this massive accounting abuse, hiding over a trillion dollars in losses, banks would (overall) not be reporting these fictional "profits" and would not be permitted to award the exceptional executive bonuses that they have paid out."...
Full and unedited:
http://neweconomicperspectives.blogspot.com/2010/03/what-do-our-nations-biggest-banks-owe.html
** Repeat: There are no bank profits, the entire system is insolvent and there is no economic recovery.
Someone who knows once explained to me that these worthless bundles are put on the books as assets at their supposed face value, not just once, but over and over again in each company as they are sold up the line.
Here is a simplified example: when there is a default on a bad loan that was originally worth $100, the losses will cascade. If it has been sold 8 times, $800 of accounted assets will disappear from the books and from the economy. The accounting is very very shady and defies common sense as well as what used to be professional standards and practices. That is - money doesn't breed in accounting books - for every plus, there has to be a minus.
It should now be clear to the public (from the Abacus example) that these situations were not honest mistakes. The banksters knew these loans were bad from the beginning. They did not care, as long as they could collect bonuses and fees and get rid of the hot potato.
You can see the futility of giving more to the banks and brokers, of throwing our money down this black hole. In order to lessen the pain for the public, all we can do is search for the good stuff, which is sequestered in partners' accounts and other places, and sieze it to repay the ourselves for losses from the fraud that was perpetrated on partners' watch. The underlings that did these things with the knowledge and approval of the executives.
Joe
Since Goldman and the other banksters own Obama, Bernanke and Congress they don't care what we know or think. Obama, Bernanke and Congress will be gunning for the banksters all the way.
But I care what we know and think. And you probably do too.
When the collapse hit, most people I know, most newspapers and commenters were saying it could not have been predicted, it was part of the cycles of capitalism and so on. In the post-election aftermath, most liberals were saying that Obama was doing all he could to remedy the tough situation, and to give him a chance. After all, he had entrusted the best and brightest, such as Summers, Geithner, and Bernacke to lead the recovery.
We may not have the power of Summers, Geithner, Bernacke, or the help of Obama, but at least we should clearly understand that we are being taken for a ride. We should understand the absolutely criminal nature of the financial world and the cowardice of their suck-ups in politics.
If we do not know their nature, then we will keep being stung. For instance, we should keep a sharp eye out for who is participating in the latest developments with the mortgage assistance efforts. The activities and players around this latest pool of government money should not be allowed to go unexamined based on our naivete and unwarranted trust. It is another opportunity for fraud, dressed up as a remedy for fraud. We should start asking right now - where is the money going, where is the accounting. Same with the privatization of public schools. The profiteers are coming out of the woodwork.
There are lots of us, but we are paralyzed by false hopes, by waiting for someone else to save us, by not asking for receipts, so to speak. Getting rid of our illusions is necessary or else there can be no fight for our interests and a true economy.
Joe
Well put Joe, and I am in 100% agreement with your post.
All the economists the mainstream media choose to spout 'acceptable' tripe for the common people and all the politicians and all the Wall Street gangsters and all the talking heads want the common people to think that bubbles and busts are all part of capitalism. Well ... it ain't so! The bubbles and busts are created. They are purposefully created for the elite, the wealthy and the powerful to further their eltism, their wealth and their power. For anyone to actually believe bubbles and busts are the nature of capitalism have to get in touch with reality.
What goes on on Wall Street has nothing to do with the real economy on a day to day basis or generally speaking but when one of their bubble turns to bust then it does. And then real damage to the real economy occurs especially in the more technologically monitored and controlled Wall Street, foreign stock markets and commodities markets that we have today.
Nothing on Wall Street is uncontrolled. Nothing exists in the U.S. that isn't controlled by Wall Street. and ... that's just my opinion.
there is a good article in nytimes today
apparently all these derivatives are , are bets against which way a stock will go
trick is finding some one on the other side to take the bet, that would be their clients for the most part
then you can purchase "insurance" against losing the bet, that way you can't lose
especially if henry paulson makes sure an insolvent aig "pays off" 100% on the dollar, those bad bets, using of course taxpayer money
so goldman sachs wins if they bet the right way on the stock, and they win if they bet the wrong way on the stock by cashing in the insurance policy
heres the worst part, making that bet requires no investment in the actual things that they are betting on, so they have no reason to have any concern on whether the things they are "betting" on are actually successful or not
so we paid of a bunch of gamblers to the tune of 100s of billions of dollars to make sure they didn't lose any money on their bets
these bets provide nothing for society, just redistributes more wealth to the wealthy.....taking that wealth from the rest of us
Better late than never.
Joe
Cygnus-X1-isaHole,
Important info!
Thanks
Good link, Cygnus. From an insider, it confirms what so many non-insider financial gurus are clearly alarmed about. New "extend and pretend" accounting changes the game rules (as regulations were gutted before them) for the exclusive welfare of elite, connected players (the very essence of cronyism). It allows banksters to literally make up the values of their assets and "freely massage" (fix) their profits with zero-interest Fed money. One might justify, as Volcker did some time ago, a very temporary, disciplined suspension of rules, but this has clearly grown into a racket without even token effort at reform. (Even the new and improved CPA (IF) will be a joke housed right in the fox den under Fed 'proven supervision'. This time, when the music stops, there will be a desperate scramble for even fewer chairs.
Correct. But the real profits come from fleecing the American taxpayers with the Great Big Banks Bailout orchestrated by both political parties. They're cashing in on their nice fat bonuses and using the fraudulently inflated value of their stock options as credit lines to purchase real wealth assets while most every one else on Main Street tries to make do with less. These sociopaths are far more harmful to the future of the U.S. than anything Al-Qaeda could ever dream of pulling off.
Maybe the Brits have the balls to attack these thieves.
Then again, maybe Goldman has bribed the British lawmakers just as they bribed the Americans. One can only hope that jail awaits for these "savvy guys".
vampire squid overlords
hiding in clouds of ink
slimy sucker handshakes with presidents
move everything towards the central mouth
suck it in squirt it out
justice is a barnacle
nothing stops the tide
This fine article and other new public information has far greater importance than to SEC v Goldman case alone because it proves what most of us already deduced and may finally force the MSM to acknowedge: that awareness of the bubble within the financial industry was MUCH broader than indicated by hollow claims of 'mere' incompetence, negligence, and ignorance---the usual "nobody could have foreseen...; mistakes were made; fundamentally flawed worldview, etc." ---highly implausible weasel defenses against rampant fraud and looting.
It will also make increasingly clear that the broader extraction of wealth over decades and finally directly from the American treasury itself by the financial elite is blatant criminal looting and piracy---perpetrated at a scale that dwarfs the lies and fraud CDOs alone in one company. It reveals the wider glistening web of crimes including legalized usury, tax cheating, corporate welfare, gambling and non-liability, war-profiteering, common resource privatization, and rigged trade by gunbarrel that have been supposedly 'sanctified' by bribed regulators, officials, judges, and courts. These are self-evident crimes against the people and the commonweal that can no longer be papered over by illegitimate legislators.
I agree with others here; it is well past time to prosecute. In "Where's RICO?" James Howard Kunstler takes a penetrating stab at the beast we confront:
> "I don't see how President Obama can keep Robert Rubin at his elbow or the hosts of other Goldman Sachs alumni in their federal jobs. The whole episode is disgusting in the purest sense of the word. If Obama doesn't shake these people loose, and if he doesn't pick up the phone and direct his attorney general to execute the laws -- including the RICO law -- then all the moonbeams issuing from his renowned smile will not avail to keep him in office, or keep the financial underpinning of the USA from collapse."
Link worth reading: http://kunstler.com/blog/2010/04/wheres-rico.html
For many years, the Overlords, the Robber Barons, stayed in the shadows, quietly buying politicians, media, judges and running the country through them. This has culminated in the outrages of the last two decades or so.
Now, they feel they have enough power to come out of the shadows and thumb their noses at us. That less than 2% who own or control 98% of the wealth used to leave 2% of the wealth for the 98% of us to fight over, thereby keeping us unable to unite and curb their excesses.
Now that they are powerful enough to come out into the open, they want that last 2% as well. We the Serfs no longer count except as a hungry, sick, homeless labor pool, willing to work for anything in hopes of feeding our families.
Also, when times are hard and unemployment is up, it is easier for the government to get cannon fodder to man its wars. Look at the current enlistment stats.
"In a sign of a partisan split, it emerged today that the five-member governing board of the SEC voted 3-2 in favour of action against Goldman, with two Democrats favouring prosecution but the SEC's two Bush-appointed Republican commissioners voting against. The SEC's chairman, Mary Schapiro, a political independent, provided the casting vote."
First of all, it would be nice to know who the "Bush-appointed Repulican commissioners" are. Secondly, could it be that they are voting against action against Goldman Sachs because Republicans were "in charge" when Goldman, Lehman Bros. and the rest of the frauds on Wall Street were hemorrhaging under their watch as they turned their heads away from all the criminals on Wall Street with the exception of scape-goat, Bernie Madoff?
Isn't that why Republicans are now asserting that regulators' failure to prevent Lehman's collapse is proof that Obama's proposed financial reforms won't work? Have Republicans conveniently forgotten that all this $hit was fermenting when the they were in control of Congress and the White House? History tells us they were. And of course, the proverbial "financial bailout bull$hit" hit the fan under George W. Bush. Let's not forget about that little detail!
Personally, I think that they should all go to jail. In jail, they might have an opportunity to learn to actually make something...like license plates,or brooms, or perhaps learn to cook or work in the laundry. They would learn that "laundering" has more than one meaning.
Although, it might be a good idea to keep Gitmo open. It could become a model manufacturing place of green building parts for Habitat for Humanity. All of those homeless homeowners would have shelter again. Just imagine what those "invisible hands" of Wall St. could do with a lot of time on their hands. They could actually learn a skill and perhaps, at a much later date, learn to become PRODUCTIVE members of society
Goolsbee complains about Goldman Sachs' use of TARP funds to pay bonuses. However, it was the Bush-Obama White House in the first place that agreed to hand over billions of taxpayer dollars - without preconditions - to bail out the banksters.
So, given that history, I find it rather disingenuous for Obama's senior economic advisor to utter such rousing populist sentiment. Who's the fool?
Next thing you know, you'll have Goolsbee playing the role of Captain Renault in Casablanca.
"I'm shocked, shocked to find that gambling is going on in here!" Goolsbee might say.
"Your winnings, sir," says Goldman. After all, Goldman Sachs was Obama's top campaign contributor. Does anyone expect Obama to bite the hand that feeds him? Sure, Goldman is funding the Repugs this year, but you don't punish the corporations. They feed the duopoly (the Dems and Repugs). It's all part of the game.
-TIA
Maybe putting our savings under our pillows again would help change things a bit..?
When will the gun-toting tea-baggers see fit to take their anger and their sidearms (and bazookas, and pitchforks) and go after the ones who took their homes, their lifesavings, their jobs, etc., and jail them? The MSM keeps talking about another Oklahoma City event or a civil war. The next war should be a corporate war. Almost every problem in the country today can be tied to corporations screwing the average American.