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Matt Taibbi Presents ‘The People vs. Goldman Sachs’

Posted by Larry Doyle on May 13, 2011 8:58 AM |

Lloyd Blankfein Lloyd Blankfein, chairman and CEO of The Goldman Sachs Group, hears from a lawyer while preparing to testify before the Senate Homeland Security and Governmental Affairs Investigations Subcommittee on Capitol Hill on April 27, 2010 in Washington, DC. The subcommittee is investigating the role of investment banks during the Wall Street financial crisis.(This is a long commentary, but if you have any interest whatsoever in Wall Street, our markets, our economy, and our national character it is a MUST READ. Rolling Stone’s Matt Taibbi lays out in voluminous detail why I have aggressively questioned the validity of a self-regulatory model for Wall Street and whether under that construct Wall Street violated the Racketeering Act. Read it and weep. Then for our national interest, please share this with your friends and colleagues. I thank the loyal Sense on Cents supporter who brought this story to my attention. LD)

On March 2, 2010, I was invited on CNBC’s Street Signs to discuss Goldman Sachs. I pulled no punches that day in cautioning people interested in Goldman Sachs that the greatest risk with Goldman was its’ ‘reputational risk’. For those who care to view that 4 minute Media Appearance on CNBC, my specific comments about GS’ reputation come in at about the 3-minute mark.

Over the last fourteen plus months, the Dow Jones Industrial Average is higher by approximately 20% and Goldman Sachs’ stock is lower by approximately 10%. 

After Goldman Sachs’ dramatic underperformance, why would the highly regarded bank analyst Dick Bove of Rochdale Securities just yesterday recommend investors SELL Goldman Sachs’s stock?

According to Bove, Goldman has become government’s “foil for the causation of the financial crisis,” and in his view Goldman hasn’t done enough to distance itself from this view.

“Until it does so or until the government exacts its penalties, this stock is a bad purchase,” Bove said. “It does not really matter who is right.”

Why might Goldman be the ‘foil for the causation of the financial crisis’? Rolling Stone’s Matt Taibbi presents ‘The People vs. Goldman Sachs‘:

They weren’t murderers or anything; they had merely stolen more money than most people can rationally conceive of, from their own customers, in a few blinks of an eye. But then they went one step further. They came to Washington, took an oath before Congress, and lied about it.

Thanks to an extraordinary investigative effort by a Senate subcommittee that unilaterally decided to take up the burden the criminal justice system has repeatedly refused to shoulder, we now know exactly what Goldman Sachs executives like Lloyd Blankfein and Daniel Sparks lied about. We know exactly how they and other top Goldman executives, including David Viniar and Thomas Montag, defrauded their clients. America has been waiting for a case to bring against Wall Street. Here it is, and the evidence has been gift-wrapped and left at the doorstep of federal prosecutors, evidence that doesn’t leave much doubt: Goldman Sachs should stand trial.

The great and powerful Oz of Wall Street was not the only target of Wall Street and the Financial Crisis: Anatomy of a Financial Collapse, the 650-page report just released by the Senate Subcommittee on Investigations, chaired by Democrat Carl Levin of Michigan, alongside Republican Tom Coburn of Oklahoma. Their unusually scathing bipartisan report also includes case studies of Washington Mutual and Deutsche Bank, providing a panoramic portrait of a bubble era that produced the most destructive crime spree in our history — “a million fraud cases a year” is how one former regulator puts it. But the mountain of evidence collected against Goldman by Levin’s small, 15-desk office of investigators — details of gross, baldfaced fraud delivered up in such quantities as to almost serve as a kind of sarcastic challenge to the curiously impassive Justice Department — stands as the most important symbol of Wall Street’s aristocratic impunity and prosecutorial immunity produced since the crash of 2008.

To date, there has been only one successful prosecution of a financial big fish from the mortgage bubble, and that was Lee Farkas, a Florida lender who was just convicted on a smorgasbord of fraud charges and now faces life in prison. But Farkas, sadly, is just an exception proving the rule: Like Bernie Madoff, his comically excessive crime spree (which involved such lunacies as kiting checks to his own bank and selling loans that didn’t exist) was almost completely unconnected to the systematic corruption that led to the crisis. What’s more, many of the earlier criminals in the chain of corruption — from subprime lenders like Countrywide, who herded old ladies and ghetto families into bad loans, to rapacious banks like Washington Mutual, who pawned off fraudulent mortgages on investors — wound up going belly up, sunk by their own greed.

But Goldman, as the Levin report makes clear, remains an ascendant company precisely because it used its canny perception of an upcoming disaster (one which it helped create, incidentally) as an opportunity to enrich itself, not only at the expense of clients but ultimately, through the bailouts and the collateral damage of the wrecked economy, at the expense of society. The bank seemed to count on the unwillingness or inability of federal regulators to stop them — and when called to Washington last year to explain their behavior, Goldman executives brazenly misled Congress, apparently confident that their perjury would carry no serious consequences. Thus, while much of the Levin report describes past history, the Goldman section describes an ongoing? crime — a powerful, well-connected firm, with the ear of the president and the Treasury, that appears to have conquered the entire regulatory structure and stands now on the precipice of officially getting away with one of the biggest financial crimes in history.

Taibbi presents in chilling detail and with colorful analogies why the inner workings of the Goldman Sachs mortgage and structured products operation must be investigated by the Department of Justice. I strongly encourage you to review the entirety of Taibbi’s work, The People vs Goldman Sachs.

After reading Taibbi’s work, I am left no other choice but to believe that Goldman CEO Lloyd Blankfein has got a major problem. Not unlike other Wall Street CEOs who have found themselves in the crosshairs of industry analysts, regulators, legislators, or federal attorneys, I think the day is fast approaching when Lloyd will be compelled to resign and will be sailing off into the sunset with his treasure chest full of $$$.

I highly doubt that the SEC or the DOJ will make a further case against Goldman, although they may. While I do not blindly accept every point raised here by Taibbi, I do commend him for aggressively pursuing real transparency in this case. The fact is the case could be brought against Wall Street in its entirety, including its self-regulatory agencies, for the predatory manner in which it feasted on global investors. America deserves to know and learn how selected business units on Wall Street really operated and perhaps still do.

Navigate accordingly.

Larry Doyle

Related Sense on Cents Commentary
Sense on Cents/Goldman Sachs

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • Sammy

    Goldman is certainly guilty in the court of public opinion.

  • Rob

    “Fantastic post.

    I hope there’s a special place in hell for people like Blankfein and his cronies where they spend eternity roasting on the burning piles of money they stole.”

  • Goldman certainly is the prime poster boy of CDO scamming, but unfortunately it has plenty of company.

    I recall a meeting with other bond executives (who shall remain nameless) in 2009 who had similar scams underway. The AAA, BBB, Junk tranches were being carefully stacked like Dagwood sandwiches, sold off to the “chumps,” shorted by the bank, and then reconfigured in the same manner described here by Tiabbi for further sucker punches to be leveled at the most “favored” clients. I recall that word, “favored,” and the muffled glee when the traders contemplated how easy it would be to hoodwink not only high end retail investors (that ever-eager cadre of believers) but also the institutional types who, along with their batteries of attorneys and accountants, should have seen the scam coming down the tracks like a flaming locomotive

    None of this behavior is likely to change until the public sees daily perp-walks on the front pages of the major news outlets. And herein lies one of the problems with the continual sucker-punching of the American public: Taibbi’s article is brilliant–and brilliantly complex. It is written for those who know the game and its endless stream of nuance. Mr. Tiabbi’s thoroughness, his artful prose, his marvelous attention to detail sails over the heads of most “ordinary” investors, alas.

    Not long ago, a reporter for a Long Island daily was asked why his publication didn’t do more to educate readers on a financial level. His reply: “We’re ‘word’ people, not number crunchers.” What a shame.

    In this regard, hats off to Larry Doyle who not only understands the lingo and the intricate twists and turns of the financial universe, but who can tell it in a way that even the so-called “chumps” will understand. This, to my mind, is more valuable to readers than all the pompous and phony noise tossed at the investing public by Internet experts, paid-to-lie economists, and talking heads of TV land.

    With that, I bow to Mr. Tiabbi and Mr. Doyle and hope you will sustain the energy necessary to continue telling the truth, even when it hurts.

  • RSM

    Suggesting a return of 60%? If in fact the client thought that was a possibility, the client himself has got issues but to think that pitch does not fall into hyping is also an issue which regulators have to address.

    Lots of issues here for the entire industry and investors. Perhaps the crisis elevated the issues and the magnitude of money made and lost but these things go on every day and have for decades.

  • Peter

    Just because they might be wearing a suit and tie does not mean that they cannot commit a highly organized theft and criminal activity? In fact, the suit and tie literally and figuratively merely provides a cover. the payoffs to their friends in Washington has also been a great cover for a long time as well.

    Why Rolling Stone and not the mainstream media both print and televised?

    This is a HUGE story.

  • Thomas

    Seriously, could this type of operation at Goldman have been established and operated in such a fashion without GS’ knowledge and appreciation that the ratings agencies and regulators were both in their hip pocket.

  • Peter S.

    The greatest threats alway come from within.

  • coe

    LD, what we have here is a chilling but logical extension of the destruction related to structured leverage and utter contempt of any moral code governing the relationship of a service provider to the client..and the more we learn, the more we discover that Goldman was at the head of the class – politically, economically, reputationally, and sadly, the most evil and venal of all..let’s get real – we all know that the guys pulling the strings at Goldman knew precisely what they were doing..and did it anyway..there is no such thing as reverse alchemy – turning lead into gold – simply by repackaging and retranching toxic waste..I am not an attorney so really am not able to speak to the legalities involved, but I do know the products and do know the operating climate at these Wall St firms – it is all about revenues, sticking the problems with some sucker further down the food chain, and having a contract where the optionality is always in favor of the smooth operator credited with managing the money making machine – with no regard for the well being of the client, nor the firm, nor the shareholders, and ultimately nor the taxpayer…btw, wasn’t Tom Montag hand-picked at some mythical compensation level to wander from Goldman to Bank of America/Merrill to spin the same gold? Did that firm’s Board expect his spots to really change? Really?

    If only clients would vote with their feet and boycott the misbehaving firms..oh, I forgot, there wouldn’t be many capital markets transactions then, would there?

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