Our Pecora Moment

By Simon Johnson

We have waited long and patiently for our Ferdinand Pecora moment – a modern equivalent of the episode when a tough prosecutor from New York seized the imagination of the country in the early 1930s and, over a series of congressional hearings: laid bare the wrong-doings of Wall Street in simple and vivid terms that everyone could understand, and created the groundswell of public support necessary for comprehensive reregulation.  On Friday, that moment finally arrived.

There is fraud at the heart of Wall Street, according to the Securities and Exchange Commission.  Pecora took on National City Bank and J.P. Morgan (the younger); these were the supposedly untouchable titans of their day.  The SEC is taking on Goldman Sachs; no firm is more powerful.

Pecora exposed the ways in which leading banks mistreated their customers – typically, retail investors.  The SEC alleges, with credible detail, that Goldman essentially set up some trusting clients and deliberately misled them – to the tune of effectively transferring $1 billion from them to a particular unscrupulous investor.

Pecora had the drama of the congressional hearing room and used his skills as an interrogator to batter the bastions of Wall Street, day-after-day, with gruesome and convincing detail.  We don’t know where and when, but the SEC action points in one direction only: Lloyd Blankfein (CEO of Goldman) in the witness box, while John Paulson (unindicted co-conspirator) waits in the on-deck circle.

Either Blankfein knew what was going on – and is therefore liable before the law – or he was clueless and therefore incompetent.  Either way, the much vaunted risk management and control systems of Goldman, i.e., what is supposed to prevent this kind of thing from happening, are exposed to be what we have long here claimed: bunk (as I argued with Gerry Corrigan, former head of the NY Fed and long-time Goldman executive, before the Senate Banking Committee when we both testified on the Volcker Rules in February).

 “Too big and complex to manage” is actually the best defense for Goldman’s executives and they should offer to break up the firm into smaller and more transparent pieces as a way to settle the firm’s liability with the SEC.  The current management of Goldman – along with the team that ran the firm under Hank Paulson – have destroyed the value of an illustrious franchise.  Goldman used to stand for something that customers felt they could trust; now it is just a sophisticated way of ripping them off.

John Paulson obviously knew what he was doing in helping to create the “designed to fail” securities – and the consequences this would have.  If he cannot be convicted of conspiracy to commit fraud, then the law in this regard needs to be tightened significantly.  The Financial Crisis Inquiry Commission, chaired by Phil Angelides, is probably already planning to grill John Paulson about his taxes – the point Pecora made in this regard with J.P. Morgan junior was most telling and gripped the nation; it turned out that Morgan hardly paid any tax.  I would respectfully suggest that the Angelides Commission also pull in Hank Paulson and pursue a similar line of questioning with him – when it focuses on how much money Hank Paulson made, and how little tax he paid, while building and overseeing an extortion scheme of grand proportions, America will scream.

We have something today that Pecora did not have – the pattern of behavior is already established, if not yet widely comprehended.  Senator Levin’s recent grilling of WaMu revealed another layer of deliberate mistreatment of consumers within the mortgage industry.  The Valukas report on the failure of Lehman exposed exactly how investors are misled by balance sheet manipulation in its most modern and insidious form.  And we have learned more than enough about Goldman misleading investors over Greek debt levels.

Brooksley Born was right, a very long time ago, to fear the “dark markets” of over-the-counter derivatives and what those would bring.

Senator Ted Kaufman was right.  Just a few weeks ago, he argued strongly from the Senate floor that there is fraud at the heart of Wall Street.  Even some people who are generally sympathetic to his critique of modern financial practices thought perhaps that this specific notion was pushing the frontier.  But now they get it – and today Ted Kaufman is more than mainstream; he is the public figure who made everything crystal clear.

When you deliberately withhold adverse material information from customers, that is fraud.  When you do this on a grand scale, the full weight of the law will come down on you and the people who supposedly supervised you.  And if the weight of that law is no longer sufficient to deal with – and to prevent going forward – the latest forms of very old and reprehensible crimes, then it is again time to change the law.

360 responses to “Our Pecora Moment

  1. Holm Bussler

    I wish this wass the morning of a new day in America. It has all the ingredients, but let’s be cautious: I lean more towards Mr. Kwak’s careful assessment that if Paulson’s role been stated properly in the marketing materials, there would be no complaint. Nonetheless, this is just the beginning. Through the smokescreen of tea, coffeee and other ‘parties’ the blade of the law shall cut. And I have a naive hope that some tentacles of the squid will be chopped off.

  2. Thanks to your relentless efforts, Propublica/NPR and finally the SEC it seems as if the momentum is beginning to shift on the public’s perception of Washington/Wall Street cabal.

    But where is the David Plouffe campaign that gets to the average citizen? That’s were the clean money is – $25 at a time. It worked for Obama and I for one felt empowered when I made my micro contributions.

    Nevertheless, it’s nice to know the third estate is actually working – with Krugman’s pounding on Healthcare and your commitment on TBTF. I’m hoping for real change.

    So, what’s stopping you guys from getting on FOX to rile up the TeaParty crowd?

    Also, how about a list of Senators/Representatives that are for/against TBTF and strong regulation? (i.e. what can the average person do to help?)

  3. So, you think the problem with the CDO/CDS racket is disclosure? That Goldman is a nest of criminals only because some flunky in the documents department failed to mention in an unintelligible prospectus that one particular CDO was prepared to the specifications of a short seller? Do you know that these prospectuses are not delivered until after the deals are finished? That nobody but Yves Smith has ever read one?

    This is not like indicting Al Capone for tax evasion; it is like indicting Al Capone for parking sixty-five minutes in a one hour zone.

    When are you guys going to realize that investment banks have become criminal enterprises and nothing else, that the existence of the CDS market is an unmanageable problem, that financial insurance must leave the taxpayer ultimately holding the bag, that it is impossible to evaluate instruments of any kind so long as trillions and trillions of OTC derivatives create unimaginable off balance sheet exposures?

    Incidentally, Pecora was a Rockefeller stooge, which is the reason he pulled JP Morgan’s nose during those hearings. The battle between Morgan and Rockefeller had been ongoing since about 1870. Thanks to his pal FDR, Rockefeller finally got the upper hand in the Thirties. Murry Rothbard tells the whole story in his Monetary Histroy of the United States.

  4. I hope something BIG comes of this, but, alas, I am more jaded and cynical than you.

    I think this is still part of the game of smoke and mirrors, lies and deception.

    I have ZERO confidence that there will be any teeth in this SEC action or in any reform.

  5. I watched you both on Moyers last night. Bravo.

    I would have liked for you to have backed out of the financial universe a bit and reframe what Goldman did in more general ethical terms, like you did with the example of insuring a house that you planned to burn down.

    Many people (Bill Maher, for example) glaze over when things just get a bit complex but those same people can understand buying a house, taking out insurance all with the knowledge that you plan to burn it down to collect the insurance. Or, making yourself the beneficiary of a life insurance policy as you plan to kill the person holding the policy.

    That’s what Goldman did. Paulson was the beneficiary.

    The problem is that the ethical issue crosses paths with the idea that it’s “the American way” to make money any which way you can, other people be damned. Many tea bagger types hold this kind of contradictory view:

    big government is bad

    I’m going to bleed the beast and get my social security and medicare

    We don’t just need financial regulation, we need a shock treatment to the ethical lobes in our brains. Maybe we all need to become a bit more “socialist” where we worry about the whole (country) as well as the parts (ourselves).

  6. Let us not overlook the fact that in 1933 Pecora took over the SECOND stage of hearings on 1929. By then, FDR was president. A FIRST stage of hearings had been held in 1932, with Hoover still in office. At these, one of the primary miscreants and “pyramid” flotation managers – these would have been the 1920s equivalent of today’s CDOs – was questioned: Goldman Sachs. Little public notice was taken. Only when Pecora took over a year later was there a fuss. Goldman was not brought back for this second round. It might matter that Goldman’s Sidney Weinberg was FDR’s largest Wall Street contributor.

  7. a culture man

    They need fire the executives, put someone who believes in the culture and principles of Goldman Sachs in charge and move back to being a partnership. Stop the prop trading and focus on the clients. Get back to being long term greedy.

    “if we serve our clients well, our own success will follow.”

  8. Jake, you are the man. Appreciate your wealth of info, critical skills and b-line tack. Thanks.

    The peeps are excited about ‘going after’ Goldman, but just can’t see Obama truly taking them down. It’s all post horse-leaving-the-barn if you ask me-and Obama saying he’ll veto anything without deriviatives ‘reform’ is way too similar to HC ‘reform’.

  9. Simon Johnson rightly concludes “If the weight of that law is no longer sufficient to deal with – and to prevent going forward – the latest forms of very old and reprehensible crimes, then it is again time to change the law.”

    As a member of the World Bank’s Audit Committee 2002-2004, time and again I repeated what I extract below from my Voice and Noise, 2006.

    “From what I have read and seen, I believe there is a clear possibility that much of the world’s financial markets are currently being dangerously overstretched through an exaggerated reliance on intrinsically weak financial models that are based on very short series of statistical evidence and very doubtful volatility assumptions”

    And so if I, a non-expert on financial markets, could have said that back in 2003-2004, then I can only conclude that a crime of negligence of monumental proportions was committed against humanity by an incredibly large number of professionals.

    And so even though I of course agree that if found guilty of fraud all those who pulled the triggers should go to prison, in that prison, for true justice to be served, they should also be accompanied by all those who kept mum because it was generally convenient for them to keep mum… and this could quite reasonably also include a Director of the Research Department of IMF named Simon Johnson.

    We must not let the intellectual mum-keepers go free! The world deserves more than some mea-culpa, the world deserves to find how to make the responsible speak up in time… if need be even by law. The largest moral hazard is not having banks-bailed out… it is not shaming enough the irresponsible silent and the plain lousy regulators.

  10. It’s a little off topic, but what was Valukas talking about when he wrote in the exec summary of his report that

    “The moment that repo counterparties were to lose confidence in Lehman and decline to roll over its daily funding, Lehman would be unable to fund itself and continue to operate. So too with the other investment banks, had they continued business as usual. It is no coincidence that no major investment bank still exists with that model.” Examiner’s Report, vol. 1 pg 3-4.

    The deal in question now is pre-Lehman but has the business really changed? And could these guys have included the shorting a synthetic CDOs in repos?

  11. not bad
    per

  12. Right. Wall St didn’t take these insane leveraged risks until they became public corprorations. Can you imagine the Lehman partners or Goldman partners taking those risks with their own money?

  13. The Bill Moyers appearance was awesome. Really great. It’s great to see two guys working to make America a better place. Two guys that still believe in the American dream. I think because you guys have refused to “drop the ball” or “take your eyes off the ball” is a large part of why we saw the SEC finally come after Goldman. There are a big part of us out here in “Joe six-pack land” that deeply deeply appreciate what you two men and also Mr. Boone are doing. Don’t ever stop.

  14. Exactly. This is a little show put on by the government and Goldman Sachs to pretend that GS is being punished. Any fines will be so small that they won’t lower the bonuses at GS. It’s all pre-arranged.

    If the Feds were serious they’d bring fraud charges against the top execs at GS for bribing Moodys and S&P to rate mortgage-backed-junk-bonds as AAA. That’s the real fraud — largest in US financial history. No charges will ever be brought because “campaign donations” (bribes) pay for the government’s silence.

  15. “[fFinance] Reform will provide crucial new oversight, give shareholders a say on salaries and bonuses, and create new tools to break up failing financial firms so that taxpayers aren’t forced into another unfair bailout. And reform will keep our economy secure by ensuring that no single firm can bring down the whole financial system. With so much at stake, it is not surprising that allies of the big banks and Wall Street lenders have already launched a multi-million-dollar ad campaign to fight these changes. Arm-twisting lobbyists are already storming Capitol Hill, seeking to undermine the strong bipartisan foundation of reform with loopholes and exemptions for the most egregious abusers of consumers.

    I won’t accept anything short of the full protection that our citizens deserve and our economy needs. It’s a fight worth having, and it is a fight we can win — if we stand up and speak out together. So I’m asking you to join me, starting today, by adding your name as a strong supporter of Wall Street reform: http://my.barackobama.com/StandForWallStreetReform Thank you, President Barack Obama”

    “I won’t accept anything short of the full protection that our citizens deserve and our economy needs” – funnier than Bill Mahr? “Government Sachs” or more lampoonish, if you like… “Goldman Sucks” tee shirts now available at your nearest public speaking engagement.

    Elizabeth Warren recently suggested that it would not be enough to just go and vote in November. What is needed, she argues, is for voters to be more engaged with their elected representatives on an ongoing basis, help frame the debate on financial reform in the proper manner and don’t just let it be about being “angry.”

  16. 1) this is good for the financial reform vote
    harder for repubs to just say no
    maybe we can get better regulations
    2) if democrats keep up the perp walk from now to november good for them in election
    3) tells the big banks to stop “F”ing with reform efforts or we are goping to cause trouble
    4 if some things in this aren’t against the law maybe they will
    5 helps the recovery effort. market rise causing commodities to rise and hence pressure on federal reserve to raise rates, also market rise increased governmet borrowing costs (treausuries)
    6 hopefully lots of jail time for lots of people in future, but 1-5 are reasons also
    7) may force goldman to give back some of their ill gotten aig gains
    8) clearly illustrates to all the problems with having financial supermarkets under one roof. market maker, prop desk, bond seller, person who puts the bond together. all potentials for doing real bad things under one roof. much harder to hide if a firm has only one piece of each.

  17. for those of you who aren’t market timers. the announcement happened at the apex of a long term asceding triangle formation on the s&P. so it was delivered exactly when you would expect the market drop (dollar was rising and commodites falling on risk aversion trade in europe and asia). the time of ths was done to deliver max effect to the markets.
    sorry i can’t image post the graph, but many months ago i said 120 s&p target for something to my blog group

  18. What exactly was illegal about what Goldman did (at least what it is accused of doing). By definition, a synthetic CDO has a buyer and a seller. By law, firms are not allowed to disclose the identity of either the buyer or the seller, as it would tip off the market anytime a Paulson or a Buffet breathed near an investment. The fact that Paulson may have selected the assets in the CDO and subsequently bet against it will undoutbedly add to Goldman’s reputational risk among the general public, but the general public isn’t the ones accessing the capital markets, asset management, or treasury services anyway.

    I’m sorry, I just don’t see anything illegal here.

  19. Does a prosecutor need a middle American example of the insane tax structure? I work only as a nurse, am a single parent, and needed to take out all of my IRA savings money …which had been taxed deferred…to lend [give?] to my daughter who was in real trouble. Thus, I paid $10,000.00 in taxes this year. I do not resent this…except the knowledge that others, whose REAL value to this country is questionable, and criminality is in-your-face, are making billions, getting away unscathed, paying relatively LITTLE taxes for the things we all need in this country, and will, no matter what never sacrifice or worry financially one minute of their greedy lives. Corportocracy America, here you are.

  20. Completely stunning how much damage these peeps on Wall Street and their cronies throughout the system have done to wreck quality of life for all. That this all has either been tacitly or passively (through inaction) been facilitated by the U.S. government and certain state governments is one hell of a sad statement about modern American life.

  21. Much of these was suggested in Michael Lewis’s book, THE BIG SHORT. If you have not read it, do so. Enlightening and frightening!

  22. OT, Where did GS get the money to pay the CDS’ they sold to Paulson? Was GS the counter party on the CDS’?

  23. Michael Seidel

    I am sure nothing will change materially despite all the ongoing investigations. But how can a single investor do a “Paulson” the next time? In 2006 and 2007 I tried to find a way to short the system which I knew was doomed and I now realize I would have needed a partner like Goldman. There is still time till the next melt-down, so is there a recipe for turning something like $ 100,000 into a billion, even if you are not so well-connected in Wallstreet?

  24. They might be less likely to take that kind of risk or they might not; Long Term Capital Management comes to mind. What many people seem to lose sight of is the psychology that exists when making these deals. When investing this kind of money (be it your own or a client’s) and have a thesis, you become less and less concious of risk the more success you have with that thesis. When housing prices go up at double the rate of GDP for half a decade, you create justification for why that can continue for some new reason that had never allowed for it before.

    If you are an expert scientist and see a potential new drug, you might invest everything you have (time, energy, money) into getting it to market. If it eventually fails, it will appear as though you took tons of risk, but at the time you saw an asset (not a liability).

  25. When the Supreme Court allowed unregulated contributions making the sky the limit for corporate contributions to unscrupulous politicians it made me realize that the rot goes right to the top..When the highest court in the land can be bribed coerced and corrupted with corporate money and influence.. then it is time to worry..

    I think the only solution is to take away the the corporate influence from the bottom to the top by showing them for the crooks that they are in Newspapers and on the Internet..Move your money is a good place to start..

    In a bank your money is protected by the government up to a certain amount (200,000 I think) so if you move your money to several banks and do not exceed this amount you are protected..The interest rate is not great but at least you know your money is protected and not being pissed away by the big banks..

  26. Faith Rendell

    I want to join the fight to legislate controls on the banks and wall street, and then further, to limit their size. How do we get together?

  27. jake chase said it right. i would say, if i murdered sumone then the cops gave me 2 years to clean up my own evidence, a wild technicality still happens to convict me for dumping the dirty water down the wrong sewer drain. i will take that over murder. why would obama & gang allow their wall street friends to b prosecuted? he wouldnt. the establishment wont allow it. there is more to the story. obama is trying to drum up support for reform that mr. johnson says doesnt fix the problems on wall street. the fix only protects them

  28. I’d love for Simon’s optimism to prove correct, but the whole trend of the evidence is that this is just a scam.

    The administration trots this out to coincide with the push for the Dems’ sham “reform” bill. By focusing on just one lower-level Goldman cadre they’re inviting Goldman to go for the “bad apple” defense.

    If so they make a deal. They scapegoat that guy, while the Goldman brass are implicitly exonerated. Goldman gets a slap on the wrist, while Obama gets to claim a phony victory and hope it washes politically.

    (But whether it’s a sham or is seriously intended, there’s always the likelihood that Obama will cave in. So I wouldn’t be surprised if there’s not even the wrist slap in the end.)

    Here’s my own piece on this:

    http://attempter.wordpress.com/2010/04/17/the-sec-sues-goldman/

  29. Buy Gold and Silver

    “this is good for the financial reform vote
    harder for repubs to just say no”

    Not yet, every Republican Senator (41) signed on against even bringing the proposed bill up for discussion.

    What a country.

    GOP senators united in opposition to financial reform bill

    http://www.cnn.com/2010/POLITICS/04/16/republicans.financial.reform/

    Also an interesting article where Mcconnell’s talking points against the bill came from, yes it’s from a Luntz (the primary Repub spin master) memo.

    http://www.huffingtonpost.com/2010/04/14/democrats-batter-mitch-mc_n_537441.html

    The only good thing might be that as the Repubs push this interesting point of view, it might make it more probable that the banks will eventually be broken up.

  30. Well said. That’s exactly the heart of the matter. Either, at least in SOME aspects of our lives, we are in this together, or we are dog-eat-dog and will continue to allow the unending meme of “rugged individualism” to run it’s now hugely pathological course. I know the America i want. And i know the America we now have. The gap, when i think about it, seems hopeless.

  31. Buy Gold and Silver

    No this won’t make it impossible for Repub’s to say no. Mcconnell just said the banks should be left to fail and Repub senators are united against legislation.

    Every Republican Senator (41) signed on against even bringing the proposed bill up for discussion.

    What a country.

    GOP senators united in opposition to financial reform bill

    http://www.cnn.com/2010/POLITICS/04/16/republicans.financial.reform/

    Also an interesting article where Mcconnell’s talking points against the bill came from, yes it’s from a Luntz (the primary Repub spin master) memo.

    http://www.huffingtonpost.com/2010/04/14/democrats-batter-mitch-mc_n_537441.html

    The only good thing might be that as the Repubs push this interesting point of view, it might make it more probable that the banks will eventually be broken up.

  32. This case against Goldman Sachs is a fraud in the sense that it’s only a way for the government to vent a little of the steam and manage public anger over the vast criminal enterprise known as investment banking. I can tell your the result right now: Goldman will be penalized at a small fraction of its profits on this deal, and that will be the end of it. (Of course, the media will make it sound like a big deal, but journalists are–as they always have been–part of the problem.)

    In effect, this case is in all likelihood designed to put a government imprimatur on the criminal activities of these giant vampire squids. Their entire business model is based on obscuring risk in complex packages, dumping the risk on the little guy or the disfavored and then betting in the other direction, cleaning up with both gold-plated fees and massive hidden trading profits in the process. That’s it! This is all they do and all they have done for decades and generations! Well, that’s all if you don’t count the fact that they use a little chump change now and then to make sure they’re well stocked with all the rating agencies, elected officials and regulators they need to legalize, endorse and complete their scams. But the fact that they’ve completely seized both political parties and every relevant jot and tittle of two out of three branches of government (oh, what the hell, maybe they have the judiciary in their pocket, too) is a fairly minor detail in the grand scheme.

  33. Really….? No…? Looks like insiders colluding to me, but what do I know.. in the end I will just go with morally repugnant then.. works for me!

  34. And I also very frequently spoke out on the risk posed by empowering the credit rating agencies too much and in May 2003 I even had a letter published in the Financial Times which ended with “I simply cannot understand how a world that preaches the value of the invisible hand of millions of market agents can then go out and delegate so much regulatory power to a limited number of human and very fallible credit-rating agencies. This sure must be setting us up for the mother of all systemic errors.”

    Which just reinforces the point made above.

  35. Great Response. This is a witch hunt promulgated by the administration.

  36. Kind of puts the discussions about homeowner ‘moral hazard’ into perspective.

  37. EXCELLENT analysis. TYFT.

  38. All this being true, as well as known only to a few, does not negate the fact that FDR helped create a middle class that helped millions, and helped afford us the ability to really KNOW what we know, about all of this. Seriously, what would have been a better alternative…given that fact that others have power we cannot, practically speaking, take away?

  39. “John Paulson obviously knew what he was doing in helping to create the “designed to fail” securities – and the consequences this would have. If he cannot be convicted of conspiracy to commit fraud, then the law in this regard needs to be tightened significantly.”

    Thank you! Where is people’s common sense when they say that Paulson did nothing wrong? Baloney! He gained more than anyone in this transaction and knew exactly what he was doing when he concocted it.

  40. And it is also completely stunning how the silent professional experts and the dumb regulators permitted all of this to happen. Now they have found themselves a big juicy, probably quite guilty scapegoat, and that they intend to milk for all they can. http://bit.ly/aXSYyu

  41. So what is YOUR solution? Do tell.

  42. Here is what Ned Zeppelin says over at ZeroHedge about the case against Goldman Sachs.

    “This fraud case is very simple and the suit tells a compelling story if the base facts are true: 10b-5 fraud, and it is a material amount, $1B. … This is a securities plaintiff’s lawyer’s wet dream case. That part of this may serve to bring GS down. You heard it here first.”

    “Rule 10b-5 fraud is simple and elegant: the failure to disclose a material fact to an investor. Do you think it was material to disclose that Paulson hand picked the basket of CMBSs from which ACA would choose the reference securities, and that Paulson made known its intention to short the living sh*t out of them? Would you want to know that GS made falso statements to ACA to the effect that Paulson would be long the “equity” tranche of the CDO issuance, to assuage their concerns about Paulson’s involvement? I would have wanted to know that.

    Done, done, done from a 10b-5 perspective. GS does not wiggle out from under this one. It is not a witch hunt, or sort of shaky, or not quite right. The allegations are dead on, and no doubt easily proved. That is the purpose of 10b-5: a demonstration of intent is not required, only a failure to disclose a material fact. Read the complaint: GS hid the Paulson side of the equation from the mark, er ha, investor. GS took steps to make sure ACA stayed in the deal, knowing the mark was assured by the presence of an independent portfolio “expert” making the choices of reference securities.

    Go ahead, don’t be cynical: be outraged.”

  43. But who is going to do what about it when the upcoming possible slap on the wrist for GS is spun as a great accomplishment of justice for the American people? If we’ve learned anything in the last few years it should be that we KNOW we won’t survive this paradigm of evil at the top. Wall Street and DC have already won and we’re already burnt toast. This is just another placebo to keep us thinking there’s hope.

  44. Exactly. What can we, the long disgusted, average citizen do to help? Dodd’s reform efforts appear to be bought off by financial sector and rendered virtualy toothless, so something else is needed. Obama is sounding stronger on this outrage, so will we at last see real reform or will the Goldman lobby and govt. revolving plants continue to thrwart efforts. The poor suckered middle-class has about had it. We need real leadership, as in Ted Kaufmann and your vaunted efforts.

  45. The “public perception” has been quite clear all along. IIRC, phone calls against the bailouts in October 2008 ran 90% against.

    It’s elite perception that matters. And if our elites aren’t completely corrupt, they’ll throw the bankster CEOs over the side under the rubric of “accounting control fraud.”

    However, I’m starting the countdown until “bad apples” appears in the coverage. As we know from the torture debacle, that’s the institutional tell that the fall guys have been chosen, and the perps hope to skate away clean.

  46. Please don’t use phrase “real reform.” As we saw in the health insurance bailout debacle, it’s meaningless.

    Better to simply name the policy option that one considers real, eh?

  47. you win, others lose…can you sleep well at night? Good luck with that. If so, God bless you.

  48. I don’t like that “If the weight of the law…” phrase at all.

    It seems like a pre-capitulation, to me. Bill Black has been raising the alarm on “accounting control fraud” for some time now — and I take the fact that mainstream pundits like Krugman never quote him as prima facie evidence that he has a strong case.

    We managed to prosecute the perps in the S&L crisis. Ditto Enron. Why not now?

  49. Some flunky in the documents department failed to mention ????
    Do you have any idea how many lawyers read that crap before it ever hits a “printer”?
    They MUST be held accountable, whatever that means. I don’t care how much money they make or how many toys they have a crook is a crook and must be brought to justice.

  50. Yeppers. Obama’s role is to consolidate and rationalize the elite gains achieved under the Bush administration. As with executive powers to surveill and torture, so with empowering the banksters to continue their own criminal activities.

  51. Faith Rendell

    Thanks for your post. Can we join together and do something? I’ve sent an email to Obama to urge him to take on the fight to reform the financial system. And have asked a number of my friends to do the same.

  52. please explain to me why a senator from Delaware should be trusted to do financial reform.

  53. More difficult is to explain why the so notoriously failed regulators should be trusted to do financial regulatory reform. http://bit.ly/aXSYyu

  54. I applaud and support your position. At the risk of adding gasolene to the fire, I’ll point out that the deregulation of Internatinal Trade (WTO and all)produced similar short term benefits as the deregulation of Wall Street…i.e.cheap consumer products and a booming housing market and superficially healthy economy for about 10 years. In both cases the temporary benefits resulted from cannibilizing infrastructure and surplus resources (materials, skills, regulations, energy) needed for sustainable, humanly manageable systems.

    It takes surpluses to isolate production and management of anything into humanly managable chunks; whether managed through the hiearchies of business or the homeostasis of markets. We will have to force the reconstruction and maintenance of these resources back into trade (manage trade on a nation by nation basis) and into corporate structures. The process will require a short term hit on consumption… probably an unlikely scenario.

    Look at the one sustained complex system… the web of life on earth. It both requires individuals and species and imposes term limits on them. We have set up the species “corporation” with no term limits for behemoths so that their load of parasites and pathogens permanently cripples them, while we drain our resources to put them on life support lest they bring down society. We need to put term limits on corporate life coupled with apoptosis during the last decade of life. I too write about economics… but adding biological metaphors to the limited Newtonian ones of Econ 101.

  55. and Obama has legitimized the killing of American citizens without trial. So what? Indeed, AGAIN…SO WHAT’S THE SOLUTION?

    It’s all fine and good to be smart, savvy, not be fooled by all those crooks, liars and hucksters, but what is to be done? if nothing, say so. If there is, FESS UP!

  56. You suggesting Larry Summers might be one of the obstacles to real reform? If you’re not, I will. He is Obama’s General McClellan … too much respect for the enemy. President Obama needs to find a General Grant to lead his economic advisors.

  57. Yes, but you wouldn’t mortgage your house–and your ten of your neighbors’ houses–to finance getting the drug on the market. Or you’d be stupid. And if you were getting a commission on all the mortgage transactions, I would become highly suspicious of your motives.

    Ahhh … the security of the corporate veil.

  58. General Grant? No, we need a General Sherman.

  59. “if we serve our clients well, our own success will follow.”

    Another empty advertising slogan accompanied by pseudo-cultured piano music carefully calibrated to make Mr and Ms Middle-Class feel comfortable and safe as they open up their wallets.

    Remember this one?

    “We make money the old-fashioned way, we earn it.” (Smith-Barney)

    The truly old-fashioned way is to pillage and loot. That ethic seems to be alive and well.

    I don’t care how many John Housemans and Sam Waterstons get trotted out in front of artfully-placed cameras cut with shots nodding, well-dressed, looking-competent people at their laptops sipping from steaming mugs. Down in the trading pits it will always be leave-nothing-on-the-table finance, which is what we want working FOR us.

    We need to acknowledge that finance will always be conducted right up to the edge of what is permitted, define that edge as clearly as possible, let everybody watch the financiers like hawks, and nail the transgressors to the wall. Otherwise, we just have, as Simon Johnson so aptly put it, “…a more sophisticated way of ripping people off.”

  60. I do not believe it really worked for Obama. Sure he got $25 from a lot of people, most of whom probably voted for him. But what about the huge sums given to his campaign from Wall Street. If my memory serves me right, that sum dwarfed what the small contributions. And I voted for Obama over Hillary because I did not trust she or her husband given their record. Sigh, afraid I agree with Chris Hedges. Obama may slow down the decay, but I think we are toast. We talk about democracy to the rest of the world? We may vote, but all too seldom we are able to influence the voters (hats off to Bernie Saunders).

  61. OK so there IS NO HOPE. That is a valid position. What are you, personally, doing about it?

  62. Oh that was “really” helpful.

  63. Thank goodness you’re not in charge of my pension fund, Evan.

  64. If I’m any example, the tea partiers are out there in front.

    I don’t see any dems out there complaining.

  65. Is there any solution, other than never investing or “saving”?

  66. I’m disturbed to feel, after over 40 years of voting and being what might be considered a “patriotic good citizen”, saver, home owner, taxpayers and etc., that everything’s all a sham, including elections, which are nothing more than a dog and pony show for gullible voters.

  67. LoL. be careful: bringing real “morality” into this argument could get you sidelined. ;)

  68. David A Toluca Lake CA

    America seems to need to be told something a million and one times before it ever decides to get up off of its lazy behind and do something about it.

    Derivatives should be heavily regulated, and in some cases eliminated.

    They have the potential for creating something far greater than the sub-prime meltdown.

    Do it NOW.

  69. That’s one possibility Russ.

    Another is that Obama is actually very serious about reform, and knows full well that he’ll never get anything effective through the Congress we have today.

    Given the rank corruption in his own party (I’m looking at you, Ben Nelson, and you too, Tim Johnson), compounded by the brain-dead “we’re-opposed-to-anything-that-moves” stance on the Republican side, his reform agenda is D.O.A.

    And that’s bad for his re-election prospects. Meanwhile, getting it right gets him shortlisted for inclusion with the Presidential Greats.

    A move like this solves several problems at once. By making GS even more politically radioactive, he forces Republican’s to think very carefully about their policy of total non-cooperation. Winning votes out from under McConnell is a giant source of credibility.

    And by charging GS with a practice that others surely engaged in, he puts every other bank on notice as well. The message is clear: “I can’t trust Congress not to take bribes, so I have to threaten each and every one of you with certain death if you go on offering them.” Put differently, the next time Obama takes offense at what’s coming out of K St., he won’t be saying so with personal calls from his office. Displeasure will be expressed via guys with badges talking about jail time and disgorgement.

    In short, the banking lobby has just been put on notice: their rating has just been downgraded from ‘architect’ to ‘observer’.

  70. Friday, McConnell’s office announced he has 41 votes to block even debate on a mild financial regulations bill. Senator Durbin recently said: “The banks own the Senate.” Paulson and Blankfein are laughing at your feeble hand waving, because they have bought the Senate.

    It all points to Borowitz’s great satire column, “Goldman in Talks to Buy US Treasury”: http://www.borowitzreport.com/2009/07/16/goldman-sachs-in-talks-to/.

    To quote Lilly Tomlin: “No matter how cynical I become, I just can’t keep up.”

  71. How come no one has mentioned the loss of ethics and integrity in America? No matter what the law says, unless the law AND ethics are to be understood (law) and upheld (ethics), we are doomed. Wall Street has no ethics; corporations have no ethics. People seem to toss ethics out the window when it serves their purposes. Ethics involves doing what you believe is right, whether you like it or not. That means you have to believe in something other than yourself.

    A friend told me that ethics have no place in economics. Now I believe him.

    Small-town America is suffering the same loss of ethics and integrity as main stream America. We are an amorla society, and have a lot of work to do, since we have been in this boat for a long time. Changing laws has become a project for facilitating scams. Constitutional law has great power, but has been watered down by legal judgements made on behalf of special interests.

    High time for America to look herself in the face, and note the battlescars. And to make changes which will save the country.

  72. Yes, they have 41 votes now. But do you really think the SEC put every one of its cards on the table yesterday?

  73. Whatever I can do to describe what is so wrong with the current regulations… like how the structure of the capital requirements provided the growth-hormones the big needed to turn them into too-big-to-fail… and all of which the regulators do not want to acknowledge because that would signify admitting they were plain dumb. You can find my efforts all over the web including here http://bit.ly/bDPxRd

    I believe that sooner or later, with a little help of my friends, the truth will be able to expose these regulators and so that we can break out from having them monopolizing the discussions among themselves, as they do in the Basel Committee and the Financial Stability Board.

  74. You are asking the right question. I’m waiting for all the big brains on this board to give you a cogent and practical answer, instead of just showing how smart they are with their analysis, cynicism and carping about the “problems”.

    If they DON’T KNOW, then let them say so. If there is something to be done, then let them DO IT and encourage the rest of us.

  75. Actually, what saved the middle class was WW II, although Roosevelt does deserve credit for getting America involved (by provoking Japan). The destruction of European and Japanese productive capacity gave American labor a window of opportunity which lasted roughly 25 years during most of which US money and technology was creating the foreign competition which returned to haunt us in the Seventies, providing the excuse for outsourcing in the Eighties, financialization in the Nineties, and sheer idiocy ever since.

  76. Ditto. I often think of the huge numbers of people under the Soviets and Mao…never thought I’d see the day…but …

  77. I think it was Winston Churchill who noted that “You can always count on Americans to do the right thing–after they’ve tried everything else.”

  78. wrong post, sorry

  79. discussion and truth telling are crucial,but not enough, and irrelevant if there is NO HOPE. I keep hearing there is NO HOPE. If there is where is it?

  80. And that’s exactly the point of the SEC’s play. They’re going over the Senate’s head.

    I mean, if you know that members on both sides are open every bribe you offer (esp. in an election year), then the solution is to ‘discourage’ people on the other side from offering them in the first place.

    Obama has asked (repeatedly) that major banks end their lobbying. Needless to say, he’s been ignored. Now that he’s opened what might become a fatal wound in Goldman’s side, do you think that the other banks are suddenly taking him more seriously?

    The question they’re all asking now is (a) what kind of precedent would get set here, and (b) could we be charged with the same thing?

    If the answers are “seriously damaging” and “yes” I suspect that you’ll find that lobbyists (and by extension, their bought-and-paid-for representatives in Congress) are suddenly far more accommodating when it comes to the reform agenda.

  81. Barbara Sussman

    Last week the White House asked Jamie Dimon and Lloyd Blankfein to ‘cool it’ on their intense lobbying efforts against derivatives and financial reform.
    Perhaps the SEC finally doing what it is empowered to do will help them in their decision.

    This is just the tip of the iceberg. The Wall Street Banks are knee deep in fraud especially when it comes to naked short selling. No one can obtain the kind of systematic returns that Goldman was producing without either cooking the books or engaging in some other frauds. That is the same ‘tell’ as the steady and out sized returns that Madoff was producing, and yet the SEC had missed that scam as well.

    Let’s see if this goes any deeper, and if serious punishments and reforms result. The SEC can only enforce the Securities Laws, but cannot bring criminal charges. Certainly Goldman will be subject to civil lawsuits and discovery. But the real test of the Obama government will be any role that the Justice Department does or does not take in this. They could of course defer, using the show trials of the Financial Crisis Inquiry Commission as a rationale to take no action. If this were the case I pray that any one of a number of state AG’s jump into the void.

    This is blatant robbery, outright fraud, being conducted by an organization that is paying half the Congress and the Administration, and staffing key positions in the government with its employees. This revolving door policy must end.

  82. Ditto. I often think of the huge numbers of people under the Soviets and Mao…never thought I’d see the day…but …

  83. true enough, though refusing to sell Japan scrap steel and oil is really just an economic sanction, not really a military provocation. They were already geared up to launch the carriers. They also chose the wrong side of history by playing kissy face with Hitler.

  84. great article…how can any Republican now stand up and defend the status quo in Wall Street…they (the Republicans) will look like bumbling idiots or scheming fraudsters just like these sleazy, greedy characters being charged by the SEC…never has so few (fatcats) caused so much pain and suffering to so many innocent investors (not to mention hard working Americans who lost their jobs, businesses, homes and retirement funds…

  85. You have to outlaw gambling by institutions entrusted with other people’s money. All this talk about OTC derivative trading shifting risk and lowering the cost of capital is complete nonsense. The solution is not hair splitting analysis of individual transactions to separate the legal from the illegal. The solution is putting a complete stop to the game.

  86. Points acknowledged and well taken.

    I actually said creating the middle class…out of the thirties, NOTHING FDR did helped middle America?

    What would have been a better solution? knowing what we NOW know,

    Let us LEARN from history what we can.

  87. No matter the business or the institution people will find ways to cheat. I do not understand anyone who does not think banking and Wall Street need some clear reminders in the way of reform and new regulations. I worked as a clinician in a hospital setting for years and was told by the V.P. of finance that I was too honest…… arrrrgh!!!!

  88. and you think that is possible?
    others I’m hearing, DO NOT…
    that all games whatever they are are rigged by the very system, and regardless we are all suckers and we all lose – not everything [that would be too much truth, lead to violence, etc, not sure, m'self that is NOT going to happen anyway] but enough to keep them laughing at the rest of us.

  89. Hell ya

  90. All Kabuki theater, designed to placate the gullible masses; Goldman Sachs will get a light slap on the wrist and told to be better boys in the future; Washington politicians will not damage their political version of a sugar daddy, especially since Goldman Sachs pays the politicians’ huge campaign contributions with yours and my money. This is an example of US crony capitalism at its worst; we live in a banana republic not worthy of the name.

  91. If Obama were serious he might try a RICO prosecution or two. That doesn’t require Congressional help.

    What he seems to be serious about is making speeches and giving his big contributors access to the vault.

    No doubt you measure his greatness by the rhetoric. That is the usual measure, and in this case it is the only possible measure, since the man has never done anything else but shoot off his mouth.

  92. Prantha Trivedi

    Excuse my humble ignorance (I am clearly not as sophisticated in these matters as you all), but didn’t the Bush Administration plant corporatist judges in Federal courts across the land – and in the Supreme Court?

    If so, do y’all REALLY think that anything of substance will come of this litigation – when, if Goldman Sachs is found guilty, they appeal all the way to the SCOTUS?

    (Sadly, as an ordinary person with no pedigree, I expect the SEC to find itself spitting against the wind in the end.)

  93. Don’t be fooled, the suit is a diversion.

    That Goldman (GS) has ONLY been sued civilly and ONLY one low-level employee has been named means this case is a whitewash of a serious fraud that hurt many investors, including pension funds, university endowments, municipalities and charities – as well as the U.S. economy itself.

    If what the SEC alleges is true, the Justice Dept. should have indicted GS and its top executives on multiple counts of fraud and conspiracy. Even the SEC’s tepid civil suit should have charged executives up the supervisory chain with aiding and abetting (by turning a blind eye), failure to diligently supervise, and control person liability. To say that a 31 year-old GS employee acted alone defies credulity. Paulson should have been named as well.

    This case will wind up in a couple of years with GS entering into a no admissions (without admitting or denying the charges) settlement with fines and restitution of less than $500 million (a pittance for GS). GS employee Tourre, the sacrificial lamb, will also settle with no admissions and several million in fines and restitution, and a lifetime bar from the securities business.

    Meanwhile, the real perpetrators go unscathed free to continue business as usual. Apparently, not only is GS too big to fail, they’re too big to indict.

  94. I think that you made a Freudian slip at the end of paragraph 7 when your refer to Hank Paulson rather than John Paulson.

  95. For me, the appointment of Chris Cox to the SEC was the canary in the coal-mine. He was a committed anti-regulation ideologue, steeped in the mantra of letting business ‘do what it does best’ and getting government out of the way. His job at the SEC was essentially to put everyone to sleep. I knew we were headed for trouble with him in charge. They wouldn’t even act against Madoff after being given the scam on a platter. And a special shout-out of thanks to Phil Graham of Texas. Ya did a heck of job..Phillie.

  96. Jake, the initial charges were filed yesterday.

    If the object of the game is to fend off lobbyists by controlling the pain, why would you start by twisting the knife?

    Doesn’t it make more sense to keep that in reserve?

  97. Louis Peluso

    we have another thing we didnt have a long time ago: the internet- the corporate cronies with their media empires will not be able to contain the truth of what has been done.

    paulson needs real jail time in a real jail where the tax paying “little people” go when they get caught smoking their medical marijuana.

  98. John Ullmann

    Internationally, what GS has done in municipal finance throughout the world is casus belli. Look to Matt Taibbi’s vivisection in “Looting Main Street,” in Rolling Stone (where it seems to have been “Not Found”) and BlackListedNews. Also, here: http://groups.google.com/group/misc.activism.progressive/msg/2cb4ecd2ff8b30da

  99. we should not underestimate President Obama’s stamina and tenacity in reaching his stated goals, one of which is meaningful financial reform…he’s playing this game like baseball…we’re only in the 2nd inning…there will be more “battles” ahead before this 10 headed hydra monster (aka Wall Street) is brought to its knees…the American people (the serious and educated ones at least) know the dismantling and reconstruction of Wall Street has to be done very soon or we face even more (and bigger) financial catastrophe in the near future…even some in the Tea Party and Republican Party know (or has to know) there is something really rotten going on in our large financial institutions that’s like a cancer in our economy…with this blockbuster SEC court filing just announced nobody can claim ignorance anymore

  100. So we live as citizens of a “banana republic”? what does history tell us they have done…that has actually helped?

  101. Prantha Trivedi

    Pension funds relied on the (mis)representations of the gents at Goldman Sachs.

  102. Um… you are behind the eight ball. Did you miss that last election???

    Under Bush 1, the R’s under Clinton and then Dubya we had the largest deregulation kick EVER; causing one of the biggest financial fiascos of all time. Dubya had a surplus coming in, he and the R’s spent more and caused the largest government growth spurt EVER in the history of the US. Taking away more rights (yes even yours) and denying rights of everyday Americans with God as their rallying cry.

    Teabaggers or Tea-bagees are being used by the R’s. You have legitimate concerns about the economy, government and the direction of the country. Sadly most Tea-bagees didn’t care if the Country was being run into the ground under the the “President You Would Most Like To Have A Beer With” and a R run government. So I have no respect nor any sympathy with the Tea-bagees screaming now. You missed your chance and lost all credibility with your latest efforts.

    The latest polling outlines the Tea-bagees as exactly what they are, old white guys and gals afraid that something is going to change with their God given rights to entitlements from the government.

  103. yes there is a solution…it’s called enterprenuership at the grassroots level..one small business at a time…one honest, hard working, ethical businessman/woman at a time…as building blocks of a new American economy…hiring other hard working Americans who still believe in the American Dream (though it seems like an American Nightmare at this point to many)…yes it can still happen…it needs to happen..for the future of the young generation of Americans who cannot yet do it for themselves and who need the self-sacrifice of the older generation to show that there is a better way of making a living and re-building a fair and just economic system which does not favour only the elite 5% but can promise fair rewards to all…which many corrupt corporations (and multi nationals) and their overly paid executive class have utterly failed to do…it may sound naive, but it can still happen…it better happen!

  104. I like the baseball analogy, b.nimble.

    Given that Obama’s calendar revolves around the November 4th election, this show and the MLB season are in almost perfect sync.

  105. I was aware of this article…thanks for posting the link. So much truth to absorb…
    hmmm..his conclusion: “this isn’t capitalism it’s nomadic thievery”…everywhere we look is my take.

    what happens when a huge number of people are being systematically and through official sanction ripped off of not just their livlihoods, but the hope of survival at the most basic level?

    that’s what i wanna know.

  106. Have you tried everything ?
    Does anyone of you still know how your ancestors solved the problem of cattle rustlers and horse thieves in the mid 1850s ?
    Where is that spirit now ?

  107. To an disembodied corporation, the word ‘disgorgement’ suggests a similar level of fatal and exceedingly painful violence.

    Worth noting: Robert Khuzami (director of the Division of Enforcement for the SEC) used that exact word in the announcement he made yesterday.

    That doesn’t sound like the kind of rhetoric employed by a guy who’s building up to a slap on the wrist.

  108. If I, as an independent investment adviser, were found guilty of consipiring to withhold material information from clients that was adverse to their interests, not to mention that I may have been taking the other side of a trade that I had steered them into, I would lose my license to practice, if not be barred outright. Anyone want to take bets this same penalty is not going to be imposed on GS in the event the charges are upheld?

    Simon, I wish you were right about this being our Pecora moment. Only problem, there is no Pecora. He after all was just a lucky accident and I am fairly certain the powers that be will not want to risk that outcome this time. A fine of a few hundred million dollars provides the appropriate symbolism for all the parties involved.

  109. Lauteur Calme

    As a distant observer, it is undeniable that U.S. politicians, the Federal Reserve, and crafty financiers on Wall Street are responsible for the underlying global financial crisis.

    As a recent Chinese economist stated, where ever there is wealth in the world, and in particular the U.S. (i.e., 401K, Real Estate, etc), opportunistic and deceptive practices by investment bankers on Wall St. eventually steal it while U.S. politicians and the Federal Reserve turn a blind eye.

    The global reaction from Wall Street’s egregious behavior allowed by U.S. politicians is almost universally negative.

    With full equilibrium analysis, it is glaringly obvious that Wall Street is one huge Ponzi scheme.

    In addition, for years financial policies coming out of Washington, D.C. have been in the interests of bankers in New York and elsewhere.

    The fact that U.S. politicians have been bought and sold for years is nothing new. However, there are ironies to this global financial debacle that are interesting. For instance, seeing Clinton and Bush beg for money from U.S. citizens and the global community for Haitian relief after the earthquake.

    It’s also ironic that one of the Federal Reserve’s mandate is to manage the flow of money and credit in the U.S. economy, much less the world. One must ask the question what does Greenspan(incredibly adroit at trying to exculpate through technical jargon), Rubin(always convivial as long as it benefits him), Summers(the apotheosis of arrogance), Madoff(one big lie), Bernake(a pawn), and Geitner(sounds like a robot) have in common?

  110. thanks…very simply, you cannot become President of this great country by being a dumb politician…Obama is one of the smartest and tenacious White House occupant in modern history…whether you agree with his politics or not…righting this once great supertanker called the U.S. of A. will take months, if not years…sadly it has been adrift and taking water for sometime…so Obama has to fix the supertanker at the same time trying to steer it to safe harbor for future generations…he needs all the skills he can muster and plenty of good luck…

  111. Sorry… on the hope part you’ve got to help out. I am not an US citizen. Now a clue could be to support all the smaller banks in eliminating what regulatory bias there is against them… and in this you could also probably get a lot of help from small businesses associations all over the country… as for me I keep to the discussion and truth telling because unfortunately the truth of this crisis has not been understood yet… and less now when we have such juicy scapegoats to divert our attention.

  112. So the marketing material should have said: Mr. Paulson stands (and in his opinion is highly likely) to make Billions off of this transaction and You (the purchaser of this “product”) stand (again in mr. Paulson’s opionion are higly likely) to lose even more Billions, and that would ameliorate the fraud issue? It would then bring up another question: Why would Goldman Sachs make such a product available since, even if it were blatently obvious to be a loser it would not be in the best interests of their clients (us).

    Of course the answer to both of these questions is GREED and how it has displaced TRUST as the driving force for the members in control of our financial institutions (including the elected officials and the appointed officials that promoted the necessary obfuscation and de regulation that made it possible).

  113. Gilbert of Woodhaven

    I feel skeptic about it yet. Is this another circus? When I see the crooks in jail and punish. Then I believe.

  114. Its a witchhunt that will help to expose the financial sector a little better for the average joe and add some transparency to the biggest firm..and allow the public to be for reform of the system that’s crippled the economy..and provides for some sense of retribution towards the biggest of the financial market, for the average joe.

  115. first amendment

    At what point are toxic assets ever supposed to be a good thing?
    If Brooksley Born has been right for over a decade then why didn’t you listen to what she was saying all along? Why haven’t the boards of all these companies who should have been protecting their stockholders been doing something about their leadership that was being instead paid to pillage their own companies?

    I am equally interested in why terms like fiduciary responsibility are as meaningless to this administration as malfeasance was to the last.
    I watched Moyers last night and thought we’ve now reached the point where the patriotic thing to do has become writing a book and cashing in on ruining an entire system rather than doing what Born tried to do—tell it is it is. And act to fix it NOW. Why solve when you can get rich editorializing instead?

    Both she and Elizabeth Warren are being treated as hyperbolic Cassandras instead of the specialists trying to solve the problem. Any woman learning about this is inevitably going to ask herself if they would have been taken seriously sooner if they had been men. There is a reason I told you so and you should have listened when I said it are such womanly sentiments.

    There is a huge secret market larger than the visible market. Why keep it secret? Both are accountable to nothing other than greed, no regulation –no punishment for illegal and deliberate fraud totalling trillions –then why give your investors the pretense of participating in a business when all you’re doing is setting them up to steal from them?
    Theft is theft. When will Obama’s administration begin punishing thieves?.

  116. Allegedly the buyers of the CDO’s were told by GS that “an independent third-party” had selected the underlying assests.
    Hence the fraud.

  117. kafkafinancial

    The SEC should sue Paulson and Co for insider trading. Sure they didn’t have a fiduciary duty to disclose anything, but they knew the securities were designed to fail where pension funds buying those securities from GS did not. That means Paulson was privy to insider info that the rest of the market didn’t have. They should disgorge those profits.

    Seems simple to me. Any lawyers here that can shed some light on that. I am not a lawyer.

  118. There is a great deal of truth in your comment. However, let us not forget that UBS, RBS, DeutscheBank, SocGen were also “competitors” trying to keep up with the Sachs’es (or was it the other way around?) and have to share at least some culpability. Furthermore, I wouldn’t be the least bit surprised if one or more banks in the BRIC countries were just as nefariously involved.

  119. The only shortcoming of the article is the incorrect idea that people did not know about the fraud. The fraud was obvious from the outside just like the Equity Funding Fraud was obvious to outsiders.

    Bloggers have been posting since late 2008 that AIG, Goldman-Sachs with the knowledge of Geithner, Paulson and others were intentionally making and selling defective mortgage bundles and then buying credit default swaps that the defective derivatives were defective. This was not gambling. When you bet against a race horse that you have just drugged, that is not a bet. That is fraud.

    I doubt this investigation is tailored to do more than draw attention until people lose interest and then late some Friday afternoon before a big weekend, there will be a small announcement that the case has been dropped. Maybe they can get Martha Stewart to take the rap again.

  120. Both Paulsons should be in prison.

  121. Check your local ‘privitization’ listings…

  122. Nice analogy! :) However, I think it may be more accurate to say the USA supertanker ran aground AT LEAST 10 years ago, is leaking a billion barrels per day and all the rats are taking their leave, along with everything that’s not nailed down, before the ship goes to its watery grave with all hands… no survivors.

  123. That’s a reply i would have bought 10 years ago. However, my daughter has started a small business, ethical…all that you have said…and well, it’s not pretty…AND the corruption has been exposed at levels so pervasive and deep, i no longer can go there. i do so very worry about the future of my kids and especially my grands……

  124. They do, and he’s French, for a little pizazz. You can’t make this stuff up…

  125. Today, Henry Blodgethas on piece on his ” Business Insider” as follows:

    ” One Part of the SEC’s Fraud Charges Against Goldman is Laughable”

    The SEC claims that GS failed to disclose to the investors in the Abacus CDO that Paulson & Co. had been involved in the securities selection. The official selection agent was ACA. Thus, it is literally impossible that the investors were not subject to disclosure by GS . ACA was also the lead investor in the Abacus CDO.

  126. Do you think there would be any merit in starting a campaign for Born/Warren presidential ticket? Perhaps, instead, campaign one for POTUS and the other for chief of SCOTUS? Maybe it’s high-time we had “women in-charge”… just not Hillary. :D

  127. A Real American

    I agree with Mr. Johnson. This is why America needs the Tea Party movement, to rein in these kinds of shenanigans, and put real Americans back in charge of the country. We need to eliminate this ridiculous system of government regulated stock markets, and return these assets to the people. Let’s shut down Wall Street, and just return all the wealth back to the hard working Americans who created it. One big dividend check, with no taxes withheld. That’s the economic stimulus we need. No more big corporate/government involvement, no more Wall Street ripping off hard working Americans. It’s my economy, send me my check dammit!!

  128. i do find i have a lot in common with libertarians. but not that.

  129. do tell. how did they solve it? not by Doc Holiday, i can tell you that.

  130. Spare Me The Sudden Outrage by Joshua M Brown April 16th, 2010

    Do me a favor…spare me the faux-populism and the sudden bouts of outrage, this garbage CDO factory stuff has been very widely known for a long time. When was Zuckerman’s Greatest Trade Ever book published? Last year. When did the New York Times start telling this story? January.

    Now you’re angry? Now you’re outraged?

    Here’s how it will all end for those unfamiliar with the process:

    1. Goldman will hire the best lawyers in the history of the universe, making OJ’s Dream Team look like Ally McBeal.

    2. They will make public statements about their “vigorous defense” while negotiating a settlement that will involve a large check and quite possibly the sacrifice of “Fabulous” Fabrice Tourre.

    3. Upon the writing of this check, Goldman will admit no wrongdoing and the White House will claim victory.

    4. Not one of you will be safer, more employed or in better shape as a result of any of this.

    5. The lawyers and PR reps involved in the case will buy Maseratis and vacation homes. Lots of them.

    6. Fabrice Tourre will be running his own hedge fund within 3 years.

    7. Everyone connected to this case will still have more money in the bank, in real estate and in investments than you could ever dream of.

    8. The sun will come up the next day, you will go to work, then pick up your kid at Karate, then pay the utility bill.

    That’s it, folks. Let’s not pretend otherwise.

    http://www.thereformedbroker.com/2010/04/16/spare-me-the-sudden-outrage/

  131. michael brillson

    People like you really tick me off. You misconstrue and misstate facts. YES, prospectuses are not mailed out until the offering is completed this is the final prospectus, BUT every POTENTIAL investor must be mailed or have available a RED HERRING which has all the relevant facts of the offering.
    I could go on… the rest of your diatribe is just that.

  132. first amendment

    Have either Greenspan or Rubin ever publicly apologized to Born or acknowledged that she was as right about this as they were flat-out wrong?
    If I were Brooksley Born I’d send both Greenspan and Rubin each a samurai dagger and a full set of do it yourself seppuku instructions.

    I particularly loved watching Greenspan and Rubin apologize about how this all merely comes down to a glitch in their model.
    Say what?

    Anyone who still has a nickel in Citigroup has to be out of their minds. For $126 million they could have bought every ouija board on earth and gotten so much better results.

  133. fair enough. what about the other Big Brains on this board?

  134. Brad Thrasher

    bernadine, this is a site devoted to economic policy and law. You’re looking in the wrong place for the next hot stock, get rich quick scheme.

    Ironic that your attitude speaks to a quality of character that got us into this mess.

  135. Last night on Bill Moyer’s journal I was intellectually elevated by your candid reproach to the financial system regarding America’s “Oligarchic (old “European Dynasty’s” never die?) Capitalistic System”. I’ve always held the republican party at fault,period! The GOP controlled congress from 1995 through 2007 (ironically both parties weakened,better said gutted the FDIC in 1993 – I’m trying hard too be impartial here)when the onslaught of regulatory reform was imcubated. The repeal of the “Glass-Steagall Act (Nov.97)” orchestrated by none other than US.Senator Phil Gramm (Tx),and co-sponser US Rep.Leach was the undoing of america’s fiscal fiduciary responsibility creating a ambiguous (ambiguities perpetual timeline of faux-naif behavior)”Pandor’s Box” (designed to fail)! There was no fanfare by the press,…how disgusting. Unfortunately, it wasn’t enough for “Wall Street” – President Clinton again has to sign into law the, “Financial Modernization Bill (Nov.12,1999)”(in all fairness to Clinton his hands were tied again,kind-of-laughable?). Finally,…here comes the “Sarbanes-Oxley Act(July 30,2002)” the toothless reform legislation for public accounting,and investor protection? Your interview with Bill last night was somewhat of a letdown when you weren’t in favor of total bankrupcy,…why? Lehman Brothers was a success,and worked it’s way through the bakruptcy system quite well,regarding all parties involved. Remember this (no,I’m not lecturing)…the whole is supposedly equal to the parts, but it would be in the best interest of these behemoths too break-up. Why,…the parts are vastly worth more than the whole. This is not a hypothetical mathematical equation, but real life historical,and empirical knowledge that tells me otherwise – as was the past using the examples of “Ma Bell”,and “Standard Oil” ,which you breifly mentioned last night. Thankyou for your listening,and keep on “Digging for America’s Sake” Mr.Earle

  136. first amendment

    Hillary would never had let this happen in the first place, dear.
    No, I do not want to even think about turning this into a woman’s issue. Being ignored by men who did really is bad enough.

    At some point it will come out that all the promises Obama made to America are being kept one billionaire at a time. How else do you think he got the campaign money?

    It’s been down to Wall St. vs Main St. since this started –6 banks controlling 60 percent of the economy and a million a day on lobbyists –and Obama is not showing any inclination to lose his corporate backers. We are all well aware he’d have to be a one-termer to do it. And my sense of Obama is that his ambition invariably overrides anything else. Including what is best for the country that elected him.

  137. I’m not sure we’re underestimating Obama’s stamina and tenacity. Look what those got us in health care reform. He asks the 13 biggest bankers “How can we help you,” keeps Geithner and Summers, seems to approve of the Dodd bill, and doesn’t get forcefully behind even the Volker rules. It doesn’t seem like he is there for us.

  138. In the now famous words of Sarah Palin, “time for us to roll up our sleeves and reload”.

  139. I’m afraid that the same corporate forces that fought health care reform, and are now fighting financial reform, will swamp the media with false and misleading accusations, and the complicit corporate media will have Goldman Sachs appearing as the victim.

    The investigators will be seen as the un-American tyrants, helping the government to “seize” and control the banks, similar to the way that the media described the bailout of GM (Government Motors) as being a socialist takeover.

  140. Goldman Sachs sold a dying horse bundle of subprimes and then shot it after betting that it would die.

  141. But (possibly BECAUSE we have the Internet) will sufficient people really care about this to talk to their congresspeople? The majority are too busy looking for jobs, while watching funny videos on You Tube, emailing interesting stuff to one another, downloading movies from websites like netflix.com, twittering, playing with their new iPads, or texting their friends on their neat smartphones.

    When Pecora shined, there was little to divert the attention of the masses (other than the radio.) Now, we have over 200 cable channels, the vastness of the Internet, and tons of nifty toys that occupy our time.

    I hope I am wrong.

  142. While sympathizing with your anger, your suggestions have as much creative potential as removing all the regulation and government support of the transportation system,and returning our nation to farms and villages connected by unrepaired muddy roads.

    We’ve built a modern infrastructure using banks, stock markets and other financial constructs, the British knew enough to prevent their development in the US prior to 1776 to keep us an agrarian supplier of food, tobacco and cotton. We are now utterly dependent on these tools to support anywhere near this national and global population. What you suggest would return us to remnants of humanity living hardscrabble lives. I’m a real American who doesn’t see this as an acceptable solution.

    I don’t think the old saying was: When the going gets tough the tough flee to the hills and leave it to the rest of us to solve the problems.

  143. You paint a plausible, but not certain, scenario. As Edmund Burke said: The only way for evil to succeed is that good men do nothing. Overlooking for the momemnt the sexism in that statement, What would real reform look like? (It would have at least two elements: reactive reform to fix corrupted systems and pro-active ones like Glass-Steagal to make it more difficult to corrupt the system in the future) What can we do to support real reform? Leaving politicians to do it themselves won’t work. I’ve been working on answers to the two questions for several years, and have posted some of them. What are your answers? It’s a tough challenge.

  144. Sad, but true. Only fear of losing their jobs can prompt our legislators to stop the fraud. Only fear can overcome their insatiable greed for Wall Street money.

    Who do our legislators fear? No one. Especially not the voters.

  145. I notice that banker types blame the greed of investors who expect quarterly prospectuses/reports to show growth, regardless of whether the enterprise might be the sort that starts slow, or needs a breather to shift to renewable energy, and so on.
    So it’s not just insisting on exorbitant end-of-life care bleeding that fifth of the economy and its government counterpart Medicare, nor just the Social Security counterpart where we think if we succeed in living to 100 hale and wealthy, the government has to be bled for us at whatever cost to the commonweal. It’s also investors with their expectations.
    We need people to go on strike against protracted end-of-life care (and other forgoable treatments) and go on strike against the American dream of golfing for 35 years in the sun and go on strike against any investment vehicles that look for Fast-Food investments.
    Is there a Counter-Party that can organize and do that?

  146. Two reasons Booksley Born wasn’t listened to: Her status was lower than Robert Rubin’s and Larry Summers in the Clinton years, no-one wants to hear what a whistleblower has to say so long as things seem to be going well. The corruption and de-regulation kept the economy (housing market) humming for a few years… as we cannibilized our infrastructure to support superficial consumerism. Anyone who listened to her would need the courage to swim against popular beliefs, and wouldn’t be re-elected. Add to that that it went against the higher-ups in the organization and you have a tribal reality which we have to acknowledge before we can develop truly sustainable solutions. (Of course sexism was a third factor… but, from my years in organizations, it was third on the list… impacting her perceived status, which is normally more important than results in large organizations. Larry Summers was more than happy to put her in her place.)

  147. and the guy getting in trouble just happens to have the last name of Paulson.

  148. Time for a tar and feathers squad.

  149. bernadene – how about this solution (tongue in cheek – at least partly)

    The solution would be to let the whole damn system fail and fall apart and then start over, taking care the public doesn’t flip out and join either the Brownshirts or the Communists like was happening in German when the Weimar Republic was coming apart. It would help if we could find a few good world class industrialists to support the rebuild, in German they helped Hitler to oppose the Communists. Maybe we could get some of the Chinese industrialists and some industrialists from India. The Nazi and the Brownshirts did well with Foreign support and later after consolidating with the Prussian Generals had Chamberlain to stop the reaction against the Invasions of other countries. Chamberlain’s actions make much sense when one realizes the fear of the Communists by Industrialists the world over and the felt need to oppose the Communists. Hitler dropped the Tea Baggers – opps – Brown Shirts (night of the long knives) when he procured the support of his Prussian Generals. (Tea Baggers are you listening?) He then rebuilt the country in the image of the rightful owners and runners of the world….ops..I forget whether I’m speak of u.s. or 1930’s Germany.

    sorry but I am not very optimistic

  150. RecoverylessRecovery

    “Goldman’s executives ..should offer to break up the firm into smaller and more transparent pieces as a way to settle the firm’s liability with the SEC.”

    No, no and NO.

    Goldman Sachs executives NEED TO GO TO *PRISON* as a way to settle the firm’s liabilities with the SEC ..and with the AMERICAN PEOPLE.

    BTW, the fact that Goldman Sachs has been committing FRAUD was openly obvious to ANYONE paying attention for at least 2 years now. The U.S. government has been COMPLICIT in all this because sadly FRAUD has become INSTITUTIONALIZED in the USA.

  151. Because he knows were all the corpse are hidden?

    Wasn’t that the reason Obama picked his Financial Crew? Obama said he want those who knew the business. Yep they knew the business and how to give us the business while they covered up their business.

  152. Valerie Gagnon

    Bernadene and Btraven, we are all humans! Fraud, greed, deceptions are inherent to our nature this regardless of the economic system under which we toil.

    Severe financial crisis have been part of the deal ever since the development of capitalistic enterprises took ground in Europe during the early 13th century. The hope is to be able to prevent the best way we can, catastrophic explosion of systemic fraud before it brings down the country with it. Public shame thru hard core investigations plays in this realm a crucial role.

  153. I just read in the Washington Post that the CDO discussed in the suit against Goldman Sachs, ABACUS 2007-AC1, and in which investors lost more than $ 1 billion, was created on April 26, 2007

    Just out of curiosity I went back to my blog TeawithFT and found the following letter:

    On March 19, 2007: Let us pray the estimates are wrong

    Sir, let us pray for that the estimate that 2.2m of American families could lose their homes and that John Gapper mentions in “The wrong way to lend to the poor” is totally wrong. If not, then let us prepare for the worst, as the political consequences of such fallout in the sub-prime mortgage market would by far surpass whatever all other thorny issues such as Iraq and the illegal immigration could all produce, together.

    What I miss in this scarily good saddening and scaring article, is some words of how it came about that some 2.2m obviously individual shaky loans could have, when all was said and done, produced the sufficiently good ratings needed to attract so much money. The credit rating agencies sure must have some explaining to do, as has those Bank regulators responsible for giving the credit rating agencies so much power to begin with.

    You can find it here http://bit.ly/9clEC9 … but that’s not all friends,

    On April 13 I responded to an article of Gillian Tett in FT titled “Subprime proposals could broaden litigation risk all around” http://bit.ly/d9I0rt

    Also on April 13, 2007 I responded to an article in FT by Richard Beales titled “A whiff of double standards” http://bit.ly/d2vopp

    And on April 18, 2007 I responded to a comment in FT by Desmond Lachman titled “Housing bubble burst into American elections” http://bit.ly/cxKT3P

    And so there obviously has to be so much more to it? Where were the regulators? Was it criminal negligence?

  154. mondo pinion

    You are protected IN THEORY. At any point a “national emergency” could be declared and your claim on your deposit could be “deferred” . . indefinitely.

  155. The bigger question is why don’t we have investigations into the buying of our legislators anymore. Our legislators aren’t supposed to be available to the highest bidders. There must be laws. If there aren’t, we need to pass some. A good start would be finance reform and a good second step would be to limit the campaign window. Why should legislators be campaigning more than legislating?

    We. the People, have some work to do. But we are all supporting our local legislators. I’m done with that. I think if people abandon the dems in WA St, we will probably send Republicans to Congress. I’m not sure how to handle that. But, maybe we should just want our country go down the tubes, hope for revolution, and then become the country we were intended to be again. Instead, this “death by a thousand blows” we have under Democrats, will reinforce passive acceptance.

    Sound a little rash? Maybe. But choices have to be made. This country is not working under either party right now. My only ethical and moral choice is to go third party finally.

  156. structurequity

    Not quite ‘Pecora’ yet a step toward justice for the common man. Now, if only, we need the media to get on board in terms of not defending the status quo they so much are a part of. Let them bring pressure to bear on our elected representatives and their appointees to do the required lifting of rocks and bringing light to the injustice of our economic system. So, those affected cry out a chorus of demand “open up your greedy hands!”.

  157. Agreed.

  158. A safe bet.

  159. i love this 65 minute al capone line…awesome.

  160. actually, i thought this was the Pecora moment.. to watch Levin (there is no more skilled questioner in the Senate)..go through a q & a process with these numbskulls..is all that is needed. he is frustrated, and just goes from one topic to the next in utter disbelief..yes, he can not believe that this is the way “financial institutions” with fiduciary responsibilities, and tax payer (i.e. FDIC) guarantees could operate this way. it is shocking. literally, senate levin is in shock..i have no doubt he will refer this matter to the justice department for adjudication. ouch…

    see it for yourselves here: http://c-spanvideo.org/program/id/222384

  161. Agree. Institutionalized corruption. Too many words and not enough action. In a way, isn’t that typical of the left? Even Obama? This isn’t the change I expected when I voted. I used to believe that words matter. I’m not so sure anymore.

  162. mondo pinion

    If Obama doesn’t go after Wall Street the Dems will lose control of Congress. I am sure he knows that. I expected this to begin soon after he pushed heath care through. It’s right on schedule. The question is, how much of his ‘financial reform’ will be just show, and how much real? He may not be able to get away with a sham reform even if he wants to, because hauling these criminals into the light will unleash a tidal wave of anger.

    Giving Obama the benefit of the doubt, maybe he has been educating himself in financial matters lately instead of relying on his experts. I think if Geithner is gone in six months, we will probably see some actual reform.

    Either way Obama is forced to begin the process in order to hold power. And in the inevitable wave of public outrage, the courageous leadership of Simon and Kwak may be our best hope to force through real reforms.

  163. Why pick only on the words of left?

    I remember when Reagan saved social security by doubling our social security tax and putting the bonds purchased with my money into a lock box – then spent the increased collections for tax cuts to the likes of our Financial System Brothers………Clinton dropped Glass-Steagall. You should check out the top marginal tax rates over the last hundred years – http://www.truthandpolitics.org/top-rates.php#graph

    I like the L-curve as it gives a decent gut level feeling for those Financial Wizards with their billion dollar bonuses: http://www.lcurve.org/

    There are plenty of objects of disruption from both parties to point fingers at.

  164. mondo pinion

    Alex — excellent analysis imho. Even if Obama is Wall Street’s boy now, he is also his own man — and a very able one — and capable of watching for opportunities to trump the financial powers and — as you wisely point out — write his name in history. I am thinking Geithner may soon be bye-bye and if so that will tell us something. I get the sense that Obama is feeling for cracks in their defenses. Reminds me of the initial phases of bringing down Big Tobacco. The key in leashing Wall Street, I think, is that EVERYBODY has a stake in it. And Plouffe knows how to bring such huge forces to bear on an issue. And now — here comes Plouffe, right on cue.

  165. Actually it’ more of a warlock hunt. And there are plenty of them out there to find, they’ve been flourishing and interbreeding for the last 40 years or so.

  166. there are definitely millions of voters who are very disillusioned with President Obama with regards to the speed (or lack thereof) of much needed reforms in all aspects of governance…health care and finance included…it’s hard to blame them…he sure fired up many of us and got us inspired and got us EXPECTING substantial reforms ASAP…alas the vested interests and their highly paid and efficient lobbyists on K Street are fighting tooth and nail to stop or at least slow down these reforms…and the President is not the revolutionary (Teddy Roosevelt mold) we were hoping for…maybe that was our fault not his…he never promised us a “revolution”…just change…and NOT rapid head-snapping change either…so that’s where we are in this struggle..

  167. thats not really a fair comparison. Its not like investment banks are using capital from savings and checking accounts – they are using money raised from private equity, bond markets, and treasury sales. Joe Sixpack isn’t keeping his money at Goldman or Morgan Stanley (JPMorgan is a bit different, but theyre commercial and investment divisions are virtually standalone anyway)

  168. Scot Griffin

    Read the complaint. It lays out which laws were broken and how.

  169. mondo pinion

    Right right right. Thank you.

  170. you’re missing the point. This might not be obvious people who don’t deal in financial products, but just because something is very risky and subject to huge losses doesnt necessarily make it bad (or good). People will take risk if they are being appropriately compensated, either by paying a low price or having a higher possible return. The German counter party in this trade apparently didn’t weigh that balance at all.

  171. there’s no doubt one group who has paid dearly in this Great Recession are the small busineses…and there’s no safety net for any of them should their bets go sour…on top of that the banks have mostly abandoned them…and this is the group that historically creates the millions of jobs needed for a robust and durable economic recovery..so we are in a real dillema here…and no easy road ahead as far as we can see

  172. mondo pinion

    Good perspective. When single celled organisms first started to join into multi-celled organisms in the ancient oceans, it took nearly a billion years for complex animals to evolve. I think one of the biggest problems to be worked out was efficient, equitable distribution of nutrients and air to all the cells. The organism which stumbled in correct distribution would sicken and die, or fail to reproduce, or be taken by predators and competitors. There are parallels, I think, in human distribution systems. Russian communism was a failed experiment. China seems to be doing better. As for the US, it’s not looking too good.

  173. As someone who founded two successful startups (and two other intense learning experiences), I can assure you that that is not in any way, shape or form a solution to this problem. We agree that it will take some serious repair work to facilitate the entrepreneurs of the future, But so long as behemoth banks and other corporations control most of the country’s resources, we won’t be able to innovate our way out of this economic mess.

    Assuming entrepreneurs can do it is like assuming society can rid itself of small pox by eating right and excercising. Those things help, but it takes a modern medical system to combat parasites and pathogens; which is what the leaders on Wall Street and other behemoth corporations have become. We crippled our financial “medical system” through deregulation, neglect, economic stupidity, insufficient funding and decades of gaming by the parasites. Now the parasites have the upper hand, sucking the life out of our economy until it collapses.

    True reform will have at least three elements: laws and penalties to stop the bleeding, pro-active reforms to impede and minimize the future activities and growths of parasites and pathogens, and adaptive audit and enforcement systems prepared and able to react to parasite gaming of companies, laws and Congress. It can be done… but not with lesser measures.

  174. Except this has not happened since the very creation of the FDIC in 1933, despite runs on the bank and more than a dozen financial crises.

  175. I was especially pleased to hear you talk about Brooksley Born whom I ran across from following the bailout mess! This woman should be a prominent leader of SEC, have a post in the Obama administration, or be listened to at a very high level. Along with Elizabeth Warren she is one of the most informed and practical people coming up with solutions to Wall Street’s problems. Let’s get rid of the Jamie Dimons, Robert Rubins, and let some people who you can recommend get in there and clean house! Are you listening Geithner, Summers, et al?

  176. “spare me the faux-populism and the sudden bouts of outrage, this garbage CDO factory stuff has been very widely known for a long time.”

    you are correct. i knew bad stuff was going to happen just from paying attention to the smart people available to me…and i am very truthfully, a nobody who has only modest access. i had a little bit of money to protect.

    the drums of DOOM were every where if you just looked, and cared somewhat.

    i took it ALL out of speculation 5 years ago.

  177. Sylvain Raynes, tells truth on CNBC show, is yanked off air

    04.16.2010 – quantnet.com – excerpt

    “Those of us at Quant Network who know Sylvain Raynes personally aren’t stranger to his unconventional remarks. He called Ben Bernanke “mammoth incompetence” in his most recent guest post, Hollow Men of Financial Engineering. His previous article on the state of financial engineering generated a lively discussion on our forum.

    But they all pale in comparison to the latest episode when, during a guest appearance today on Jim Cramer’s CNBC’s “Street Signs” with Erin Burnett, he called Jim Cramer and others who’ve been talking about the Goldman Sachs fraud charges, “public relations officials for Goldman.”

    Jim Cramer, after consulting with “the right people” in Goldman Sachs has spent the better part of the afternoon outlining defense after defense of the firm on CNBC. Almost all of which falls under the headline of “we’re all adults here and people knew what they were getting into”. (link)

    After Cramer seemed to defend Goldman Sachs, or at least appear skeptical of their wrongdoing, Raynes got his chance to weigh in. “I’m pleased to be on this show, since most of your previous guests were public relations officers for Goldman,” he said. “Is it ok if I’m a little critical?”

    The shot at Cramer garnered an immediate response from the Mad Money host. “I don’t like to hear that,” he said. “I’ve blasted Goldman many times I don’t need to hear that nonsense.”

    After correcting Cramer’s pronunciation of Abacus, Sylvain went on to destroy Cramer’s false “breaking news” about Goldman being long Abacus.

    Sylvain Raynes: It’s quite possible that Goldman had an equity position, they probably wrote it off on the closing date. So they stood to lose a few million and make a few hundred million… Goldman was clearly in the know, they knew what they were doing. In fact, if they are defending themselves against a fraud charge they will have to make a case that they didn’t know. I think too highly of Goldman Sachs to think that they didn’t know what they were doing… These deals were made to be shorted.

    Then comes the kicker

    Sylvain Raynes: We don’t have time to go into detail. I’ll keep it shallow in deference to Mr. Cramer.

    At which point all hell breaks loose….”

    http://www.quantnet.com/sylvain-raynes-v-jim-cramer

  178. Neither have apologized, nor probably even recognized their personal culpability for some of the same reasons the hierarchy of the Catholic church hasn’t recognized its culpability: our internal belief systems include barriers to change. A book that helps explain this is “Influence” by Robert Cialdini. He discusses the automated reactions we all use to make fast decisions while avoiding complex thinking and changing personal beliefs… reactions that are productive most of the time, but reactions best suited to tribes of hunter gatherers in which these traits evolved. The value of reading this book is that it clarifys the magnitude of the problem and suggests solutions that might work. It’s well written, easy and enjoyable to read and thoroughly documented with controlled experiments on human behavior.

  179. Agreed. Clone Brooksley and Elizabeth.

  180. “On November 3, 2009, Cramer appeared on the Martha Stewart Show to promote his new book,”Getting Back to Even”. While baking wholewheat bread, he casually mentioned that it is a great time to invest in real estate and that he has recently purchased the Debary Inn in Summit, NJ.”

    http://en.wikipedia.org/wiki/Jim_Cramer

  181. Whoever successfully prosecutes these criminals deserves the Presidency for 8 years,at least,if they want it.

  182. curious steve, boston, ma

    it doesn’t take a rocket scientist to know that a system that produces such inequity as ours is either morally unacceptable or woefully gameable.

  183. Per Kurowski wrote:

    “And so there obviously has to be so much more to it? Where were the regulators? Was it criminal negligence?”

    April 17, 2010 Fred Dustin wrote:

    “Business Insider (and Henry Blodget would know) predicts that Fabrice Tourre will be thrown under the bus and that GS will setlle. He’s probably right. Maybe he can give Fabrice a job. Don’t think we will hear Lloyd Blankfein saying GS was doing God’s Work anytime soon…”

    http://tinyurl.com/y5ob83b

  184. you may possibly want to inform yourself about what is called “asymmetry of information”.

  185. bernadene – If i might let me offer something we need to do, take another look at how we see economic systems and how they work from a very bottom and at the limits view.

    There is a book called “The Origin of Wealth” by Beinhocker and he sets out to show the problems of economic theory and offers an alternative view, complexity and agents. The first part is great – the last parts are not as good but worth the read because he also introduces the concepts of evolution to economic systems and innovations.

    Simple put, agents – as cells, individuals, families, businesses, states, nations – play, each for their own advantage, in an environment. The idea comes clear when one realizes that as individual agents like a GS and then the agents inside GS all play a syncronized but sequencial game each with seld-interest in mind. Since they are coupled in the environment yet free in what they choose what comes out is a Game that one can never devise equations for as the situation Emerges from the interaction.

    What one can do is look at the meta-rules such as how property is respected and money and book recorded money is conserved. One can look at the limits, for example when the amount of money that can be created through loans dos not allow the interested promised on assets to be serviced. One can look at the environment created by where and who controls money and obligations in the system and then talk about solutions to who is going to have to have obligations to them cancelled because everyone can not possible pay off everyone else…..period

    Now we look at equations and relationships and try to figure out what will effect what but this in the best case demands the variables be either independent or dependent on other variables in the system of related equations. There needs to be at least the same number of independent equations as there are variables, and that is for a simple linear system! add exponents and piece wise linearity and bifurcations and other non-linearities and you have an impossible system. The major problems are things like housing purchases, equity/second mortgages, jobs, consumer purchases, government spending, taxation, fuel costs, foreign prices and what they do to their currency exchange….and you have an impossible situation only agent based simulations can handle..and they are simulations.

    But you can say somethings relatively simply. One can look at the amount of money that can be created, the amount owed already, the amount saved (really a loan from the other perspective) and then look at the cash flow necessary to service all this. We have been relying on growth in loaning to generate more cash flow which is necessary to service debt interest and when the overall system can not expand, a contraction begins and will continue until enough accumulated savings,debt,obligations, what ever you want to call it is DESTROYED in the system. The system will unwind until it can start growth again.

    The battle now is who pays off who first! If you are out of debt in our system you are protected. If you own property with a title of some kind you are protected if you dont own any money. The unwinding is controlled by rules and those in power and those who can get others that owe them or bailout money free and use that to get out of debt first.

    I dont think this was written very clearly and I apologize as I am a Physics, engineering, systems type person with much experience in Real time controls and servo systems, all that need and use the concept of phase shifts and time delays, things economist often have no seat of pants feeling for.

    let me offer what is looks like a good site for some better information and ideas and terms to search on for papers and research.

    http://econ2.econ.iastate.edu/tesfatsi/ace.htm

    if we do not begin to understand systems then we will always be at a loss to understand what is going on and therefore know how to look at building a better and more stable and fair to all system that recognizes and rewards individual and small group effort because at the extreme, Oligarchy, Feudalism, Fascism, Communism, Capitalism – all the ismes – end with a few in charge and control of the many. The best will be a buffered system that zig-zags back and forth wondering seamlessly around the environment and adapting in evolutionary ways to changes necessary

  186. Holm Bussler

    Sic!
    “…By engaging in the misconduct described herein, GS&Co and Tourre directly or indirectly engaged in transactions, acts, practices and a course of business that violated Section 17(a) of the Securities Act of 1933, 15 U.S.C. §77q(a) (“the Securities Act”), Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. §78j(b) (“the Exchange Act”) and Exchange Act Rule 10b-5, 17 C.F.R. §240.10b-5…”

  187. Murphy by Samuel Beckett:
    “The sun shone, having no alternative, on the nothing new.”

  188. Would someone take a crack at explaining the meaning of the data on page 121 – Table 19 – in this paper?

    http://www.bis.org/publ/qtrpdf/r_qa1003.pdf

    Title is Amounts outstanding of over-the-counter (OTC) derivatives, by risk category and instrument.

  189. Lauteur Calme

    As a distant observer, it is undeniable that U.S. politicians, the Federal Reserve, and crafty financiers on Wall Street are responsible for the underlying global financial crisis. As a recent Chinese economist stated, where ever there is wealth in the world, and in particular the U.S. (i.e., 401K, Real Estate, etc), opportunistic and deceptive practices by investment bankers on Wall Street eventually steal it while politicians turn a blind eye.

    The global reaction from Goldman Sachs egregious behavior allowed by U.S. politicians is almost universally negative. With full equilibrium analysis, it is glaringly obvious that Wall Street is one huge Ponzi scheme. In addition, for years financial policies coming out of Washington, D.C. have been in the interests of bankers in New York and elsewhere.

    The fact that U.S. politicians have been bought and sold for years is nothing new. However, there are ironies to this global financial debacle that are interesting. For instance, seeing Clinton and Bush beg for money from U.S. citizens and the global community for Haitian relief after the earthquake. It’s also ironic that one of the Federal Reserve’s mandate is to manage the flow of money and credit in the U.S. economy, much less the world.

    One must ask what does Greenspan(incredibly adroit at trying to exculpate through technical jargon), Rubin(always convivial as long as it benefits him), Summers(the apotheosis of arrogance), Madoff(one big lie), Bernake(a pawn), and Geitner(sounds like a robot) have in common?

  190. My apologies if I offended or seemed flippant. I most certainly was not trying to make it a “woman’s issue.” Simply stated, I consider Ms. Born and Ms. Warren to be two of the most astute, intelligent and rational _people_ (gender irrelevant) it has been my profound pleasure to witness/hear.

    You may be correct about Hillary not letting “this happen in the first place,” however, she would have had to be elected in place of her husband, or the obviously brain-damaged jackass that followed him, to have had any chance of averting this fiasco. Furthermore, while WJC _did_ sign some of the laws that facilitated this mess, those bills were conceived and submitted by a GOP dominated Congress.

    You may also be correct about President Obama. However, despite being more than a little disappointed, myself, about how his administration has been proceeding so far, I think it is still too soon to make any “final judgment” about his first, and perhaps only, term. Do you play chess? It can be very difficult to determine an opponents “overall strategy” (if one even exists) by witnessing their “opening moves.” Time, if civilization still has enough, will tell.

  191. joebob, that’s a show-stopper of a reply. I was going to say mid-way, “Hey, productive activity is organic; even with no money at all (globally), we’d be trying to feed our faces nonetheless.”
    But let’s see here. Americans think they own homes whilst renting the money to pay for them from banks, and whilst watching the values tank. Do they think they have assets (“real” real estate assets?) or do they think they have debts and obligations? Ditto for the banks; do they think they have assets or debts? Their leverage, i.e., what they’ve loaned to me and you? If you’re like me, you have assets in funds that are earning money on one hand and obligations that are costing some on the other. And different tax implications and business requirements determine which way we try to have the balance going. I suppose the entire United States might be seen to be like that: paper obligations on one hand (to China et al.); paper expectations on the other hand (human energies, raw materials, tax revenues of course etc).
    I tend to think this could be true globally as well, that the entire world is sort of breathing in and out, invest/grow, ballooning in growth/change, and also contracting in miscalculation/disruption/ contraction. Your post suggests (to this meagerish brain) that economists have equations for something like this.
    I didn’t need a book to tell me that stockbrokers have been playing us for fools since before the dot.com boom. I suppose hundreds of millions of us could be writing our senators and congresspeople horror stories, but it seems Levin has the picture already. (See someone’s post and link a ways back.)
    Perhaps the planet won’t survive if the contraction phase takes too much of the stuffing out of us. My approach would be like that of Mahatma Gandhi, economic nonviolence, a sort of capitalist starvation, forgoing all but the essentials, and even forgoing to the point of death if a point needed to be made that way. (I need to get over it?)
    I used to think the bankers would have devastating contraction risk figured into their risk assessments, but apparently not.

  192. You are correct that there are many circuses designed to entertain us under the guise that something is being done. It’s easy to be skeptical. My feeling is that the size of this economic collapse is so huge, we really are not even close to feeling its full weight yet. There was a time while the Titantic was sinking that everybody realized if they were in life boats that they had to paddle quickly away or be sucked back into the vortex as the ship went down. Right now we’re all paddling as fast as we can. Have no fear, social evolution will not let this come to pass without a huge final plunge that will sink those on deck still smoking cigars and listening to the orchestra. Those of us in the lifeboats will be the lucky ones.

  193. “Completely stunning how much damage these peeps on Wall Street and their cronies throughout the system have done to wreck quality of life for all.”

    Except for them. Times have never been better for the super-rich, with everyone knocked to sh*t the buying opportunities have never been juicer! Houses, exotic cars, aircraft all at bargain prices!

    Ditto for “The Help”, encouraged to tighten their belts in these “hard times” and work harder for less.

    There might be a nagging feeling of needing to beef up security at some point, but these are fabulous times!

  194. Valerie Curl

    Mr Johnson & Mr Kwak:

    I’ve just read an article in National Journal about how to deal with TBTF banks. I wonder what your opinions are of the authors solutions.

    http://nationalaffairs.com/publications/detail/curbing-risk-on-wall-street

  195. William Black’s Top Ten Ways to Crack Down on Corporate Financial Crime:

    #10 — Hire 1,000 FBI agents.

    #9 — Appoint a chief criminologist at each of the financial regulatory agencies

    #8 — Fix executive compensation

    #7 — Target the top 100 corporate criminals

    #6 — Regulate first

    #5 — Bust up the FBI partnership with the Mortgage Bankers Association

    #4 — Get rid of Ben Bernanke as chair of the Fed. Replace him with Nobel prize winner Joseph Stiglitz

    #3 — Get rid of TBTF

    #2 — Create a consumer financial protection agency headed by Harvard Law School professor Elizabeth Warren.

    #1 — Fire Treasury Secretary Timothy Geithner, Office of Thrift Supervision chief John Bowman, Fed chief regulator Patrick Parkinson, and Office of the Comptroller of the Currency Chief John Dugan

    Bill Black’s website

  196. Burn baby burn!

  197. This is very, very funny. Or it would be in other circumstances. It’s the pitchbook for ABACUS 2007-1. I love the part about ACA Management LLC, especially at the bottom of page 27 where GS notes: “Track Record No rated notes in any of ACA’s CDOs have ever been downgraded.”

    http://cdn.quantnet.com/wp-content/uploads/2010/04/30036962-Abacus-2007-Ac1-Flipbook-20070226.pdf

  198. Please hang them all!!!!

  199. Dianna Jackson

    Fox won’t let anyone one their programs that educate the public. Oh, once in a while one will sneak thru (like the Prez)…but by and large they have right wingers on to preach to the ignorant.

  200. Pardon the simple words.

    There is a concept called scalability which here means we can expand the concept below and in-fact the rules hold up at all scales. Thus we can look at very small scales and see how they work so that when it becomes complicated the overall thing is the same if we balance the books and data collect.

    I think everything is debt – even savings. If I go to the bank and give them 100 bucks, I think I have a hundred bucks saved somewhere. (the bank thinks I gave them a sort of open ended loan) The bank took my money and loaned it to you so the money is not in the bank at all, it is in your pocket. The bank is going to want you to pay them 100 bucks plus 10 dollars for interest. You likely (but not always) have time payments to make and likely a period you have to have it all paid back) so the bank can count on the return. The bank is going to give me 5 bucks profit for the year for keeping my money (they actually see me as a debt, a loan, but I can take it out anytime but that ends my interest income)

    Let us say you pay the money back in one year and you managed to find someplace to get the 10 extra bucks. I take my money out after a year and the bank gives me 105 bucks. So the bank ends up with 5 bucks profit and no other money in the bank.

    So now the books are, I have 105 bucks – the bank has 5 bucks and you? you had to find the 10 bucks somewhere……. we started with 100 bucks in the system and ended up having to have 10 extra bucks in the total transaction. The requirement was for the system to grow an extra 10 bucks somewhere in the end. the cash flow has us with a product of 110 plus 105 or 215 bucks. ( I know financail transactions are not counted in the US GDP but we are looking at cash flow here. Neither I nor the Bank care where you got your extra 10 bucks but it came from somewhere.

    If the only source of money was the lil-system here then the 10 bucks was invent someway, could be labor to the bank organically, but then the bank would have had to invent my money someway- maybe some sort of bank services?

    The point I am trying to make is that eventually if all money and obligations are track, any interest made, paid, demanded can only come from time delays in the system of loan to pay back, UNLESS the dollars on the book are written down someway.

    That is the basic environment – period. The trading of collatoralized options – kept on the books and borrowed against for their notional value and interest that needs to be repaid must always end up with someone(s) losing what is on the books that is owed them and someone piling up some extra cash. These are inherent in the game. This is also what Elizabeth Warren was referring to when she said we should make the banks balance their books and when we do the investors will be wiped out.

    If we start out with a pile of money and someone always gets more and gives less then someone else then through bankruptcy someone will get it all or the game will crash and end or both. There are some good ways of looking at this and playing a game, one was presented in an article in American Scientist backa few years called “Follow the Money” by Brian Hayes

    http://www.americanscientist.org/issues/pub/follow-the-money

    he also mentions the Gini Index, which becomes an index into economic inequality:

    http://www.visualeconomics.com/income-distribution-by-country/

    The concept of Agent Based Simulations which really plays out in reality is that things and paths are not conserved, that is the, one way through the maze might not work again and the way back might not be possible. This is part of Emergence.

    At the risk of too much text – let me mention the beer game for those wanting a very simple real world example of chaotic behavior out of very simple seeming arrangements and a way to see hoe phase and time delays work in a system:

    http://sbaweb.wayne.edu/~absel/bkl/vol25/25bx.pdf

    there are many others online if you search google for beer game and mit – there is a version that can be played competitively with large crowds.

    And yes to your first mention of organic economies that might not even use money. Money gives one the power to buy resources and pay labor in advance so the a profit can be made from a product. Barter systems make this game almost impossible to manage beyond a few individuals because of the need for fairness and the tracking of obligations that involve time or time over time over time over effort….and so on. One would need a computer to track it all and those would not be invent-able until money comes into existence…..but maybe we could do this type of exchange now!!!!!

    Maybe we could track time and labor obligations with computers and eliminate some or much of the money and still maintain an accountable, transparent, fair system……but not on a huge scale and the IRS wants to tax us on in-kind exchanges.

  201. Goldman already fired the first return salvo yesterday, when it shorted the market heavily at open.

    http://www.zerohedge.com/article/talk-pits-goldman-sold-1000-large-sps-earlier

    Expect an undercurrent of fear below the media proclamations – the government is attacking business, 401ks will nose dive, asset portfolios will deflate, state pension funds will fail to get the 8% returns they need to meet the unfunded obligations they have laid at the feet of future generations. The asset-inflation, anti-saving nash equillibrium will shatter…

    We’ll see what Team Obama is made of, though based on the past 15 months, I am not at all hopeful.

  202. I think it is crucial to get some handy ways of expressing the economic situation with so much anger and hurt in play (think Tea Party), so thanks joebob.
    Though I haven’t yet following your links, what comes across in your reply to a common citizen is that if we’re sitting on the Titanic right now (see Mort Twain up top), the ones in the lifeboats might be the ones able to declare bankruptcy (i.e., those with good lawyers, to a certain extent), able to declare bankruptcy to do so at a whistle, whatever signal there is.
    I am thinking Whole Earth Catalog, retreat to the wild, plant your own peas and so on. I think of the era of Vietnam war resisters camping out, untraceable by the IRS, in Canadian woods.
    Let me posit that some of the Tea Party mentality is that it’s smart-enough to see that the national debt plus irresponsible banks puts us within range of such minimalism. Return to basics; the strong, the armed, the Daniel Boone types at the helm again.
    Good conceptualization of a basically mathematical threat dealing with paper “debt” (all money, indeed, are IOU’s) can help us see our way through without aiming like homing pigeons for “the hills.”
    If computer models, as you suggest — outside of the grip of greed (banks), however that is done — can help register the actual values on this planet, human and otherwise, then perhaps that could be a good part of the salvation of this particular Titanic; register value; not “deals,” keep that second set of books. Otherwise the colossal unfairness involved remains clothed in “deals” and could be extremely destabilizing. Think of The Emperor Has No Clothes. We don’t have this “thing” in its nudity yet. Is overpopulation a plus or a minus, for instance?
    Computer models “merely” designed to maximize profit for certain banks are obviously not good enough.

  203. This table details first notional values in force. That is the total value subject to being honored if all contracts triggered. This is the same as the total value of everything insured by a casualty company that they would pay off on if every coverage were a loss.

    Bear in mind there are all kinds of cross trading going on, even between different traders in the same company. For example, the top banks are net credit default insured in their favor. That is, they bought more protection than they sold. In many cases, individual positions are heavily of the cancel out variety. Thus Goldman covered itself very well when the bought protection from AIG which was the stupid seller here. Then, AIG blew a huge hole in itself by having to post collateral way, way in excess of what they possessed.

    The other side of the table is the market values of the positions held both ways where applicable. For example, John Paulson may have purchased CDS’s for 1 % of notional coverage per year with a cumulative investment over time of say 3 %. Suddenly, the covered debt begins to lose market value and holders desire to buy coverage themselves. Increasingly on a panic basis. Then is when John Paulson decides to start selling the contracts. When the CDS was at say 60% of coverage values. Just examples.

    Of course, this table details all kinds of notional contracts and their market values.

  204. On this issue, viewing America from Japan, one can see how much of this is ingrained in the culture. Here, seeing each human interaction, in both speech and body-language, in the way decisions are made, you are reminded of the pronounced psychological self-centeredness of Americans. Yes, in the 80’s, Japanese business lost its bearings and an atmosphere of greed set in, but the default mentality of Japanese society itself is one of self-effacement and caution. It drives you nuts sometimes, and it is not a culture conducive to creativity, but there are some fundamental safeguards. People don’t lose their homes at the drop of a few missed payments. Banks try to work with their customers on a far more personal level. Since the value on “getting rich” is virtually non-existent compared to the U.S., greed does less damage here.

    But cultures don’t change. Moderation and integrity in the U.S. banking sector, as in the Thirties, will be imposed by self-centered Americans angry at self-centered bankers, with the government as the intermediary.

    As for Obama, there’s a great mystery. Is he a tool of the corrupt elite or the Great Liberal Strategist. Read Greenwald, reflect on his perverse continuation of Bush policies, including the current DOJ attack on a whistleblower, and despair. Obama aside, I think historical forces are the great leveler. China is a hungry culture. Americans take too much for granted and can barely educate their children. There’s the changing environment. 2050 will be interesting.

  205. Yes. I’ve been damning both the left and the right since Reagan. Clinton: the last great republican President (paraphrased) – Theodore Lowi, Cornell

    That’s why a third party may be the only way.

  206. Regardless of whether paulson was involved in creating the product, was all information readily available to all parties? Did both sides of the trade have the ability to analyze the pieces?

  207. Stephen Mason

    I hope Mr. Johnson is right and we are finally at the beginning of a necessary populist backlash against the banking syndicate. Nevertheless, the current polarized political climate gives me pause because of the anti-intellectual disestablishmentarianism of the right wing.

    At the same time, I wonder if any prescription to address our system of institutionalized graft and corruption, that does not present itself in the simplest of black and white terms, will have any pull with Joe Public. The terms suggested by this article here may be simple enough for those who have been following the issue and already have a basic understanding of the intricacies.

    But it remains to be seen whether the argument for reregulation can be simplified enough to overcome Fox News reductionism, which prefers to frame the debate as some sort of struggle between the holy forces of the free market and the multi-headed hydra of Obama, Pelosi, Congress, etc. The Fox news version is so much easier to understand (and requires much less work to understand, to boot).

  208. joebob, I think you need to do a little research on “fractional reserve banking.” I know your example of how saving/lending works is shared by far too many people but that’s not the case. Very simply put, if not over-simplified, when you deposit your $100 into your “savings” account, your bank can then loan up to $1000 based on the fractional reserve your $100 represents. Of course, when the bank loans that $1K to 1 or more people, they want in paid back WITH interest. This is how “money” comes into existence (as if by magic) and why it is termed “fiat currency.” Moreover, if you consider that the derivatives market is said to be “valued” at more than $600 TRILLION, which is more than 10-times the GDP of every country on the planet combined, you should realize that most of what you and most others believe about money is pure fiction.

  209. The Federal Reserve is a private entity owned by the same behemoth banking institutions it lends money too at near zero interest. It prints money out of thin air with no solid,or liquid tangible assets to back-it-up…such as gold,silver,or even oil. Please hear me out regarding the Sarbanes-Oxley Law,…there’s a narrative here. Several years after the passage of the law, US Treasury Secretary,Hank(former CEO Goldman Sachs) Paulson; NY Stock Exchange CEO,John (future CEO of Merrill Lynch) Thain;and former AIG CEO,Maurice(Hank was the unknowing Godfather of “CDO’s,CDS’s,MBS’s,ABS’s,R&CMBS’s”…sound familiar?) Greenberg verbally,and literally warned,and openly chastised the government that the regulatory environment in the United States is/was threatening our competitive position in the global marketplace. Now…when Hank Paulson takes over from the Treasury Secretary John Snow as Bush #43 US Treasury Secretary, he again openly critizes the Sarbanes-Oxley Law,predicated on the uncontested thesis that the cost of government regulation has become unbearable. We all know how the story ends. Moving on…the best seller “Den of Thieves” in 1990 over the “Junk Bonds Debacle” starring Martin Siegel/Kidder Peabody&Co.;Ivan F. Boesky/Ivan F. Boesky Corp.;*Michael R. Milken,and Dennis B. Levine/Drexel Burnham Lambert Inc.;and last,but not least,Robert Freeman,and **Robert E. Rubin(future co-chief executive)Goldman Sachs& Co., – with the usual peripheral bottom feeders: Lazard Freres,Shearson Lehman Brothers,Bank Leu/Nassau @ the Bahamas,Merrill Lynch&Co.,…Carl Icahn,and KKR Inc.! This was supposed to be the end of exotic,highly leveraged dirivatives,and securities junk-bond trading? Why,…I’m mentioning this all ties into the tightly connected circle of “Temple Worshipper’s” whose rules only apply to themselves,and only too themselves,period! The narrative starts here…Sandy (how powerful is he,..he fired Jamie Dimon as a threat,and quickly disposed of Traverler’s CEO) Weill the CEO of Citi wanted the Glass-Steagall Act/Law repealed,and now he’s got his way,as I mentioned in my previous post. Travelers Group gets bought out by Citi on April 7,1998,and becomes the largest behemoth in the financial world approximately five months after the repeal of Glass-Steagall. The audacity of Weill is incomprehensible when he is noted as calling Robert Rubin {President W.J.Clinton’s (NAFTA?) Secretary of the Treasury} to give him advance notice of the upcoming merger announcement. Rubin reportedly quipped,”You’re buying the Government”! I’d like to finish with the governments ill-advised attempt – that is they are actually being played by these behemoth banks to break them up so as not too go into bankrupcy. The “Seven Sisters” is how Standard Oil became stronger as did the “Baby Bells. Example: Standard Oil of New Jersey(ESSO) becomes Exxon,now ExxonMobil; Shell splits with Royal Dutch Shell: British Anglo-Persian Oil Co.,now BP; Standard Oil of New York becomes Mobil,merges with Exxon;Standard Oil of California becomes Chevron; Gulf Oil/Part of Chevron becomes part of BP,and Cumberland Farms; Texaco merges with Chevron and calls itself ChevronTexaco but goes back too calling itself Chevron. My point being ,names change but ownership,and power remains the same but becomes a web of deceit,where only cannabalism proliferates the strongest survivors in this symbiotic incestual paradox…that no mathematician can equate,never mind a bonifide economist,for the very purveyors our still pulling the silk. Thanks

  210. Actually, for those of use who read Michael Lewis’ brilliantly told story in The Big Short, this Goldman scam is a consistent pattern which occurs many times in his book, although those who were inside the Goldman’s and others who were skillfully hiding their massive leverage in the nefarious world of the CDO’s and CDS’s. These same folks can’t begin to claim that they knew not what was happening, when they were picking the bonds to bet against as the tanching of the CDO’s materialized (if they could calculate the odds on the tranches, logically they already knew the potential toxicity of the original bonds backing them). Not to mention, in the book it turns out that all of the data necessary to make that determination was publicly available.

    But, in the end, the moral of Michael’s story is that if you have a good thing going, just convince yourself that, although it may be too good to be true, it will last forever anyway, and, so what if it doesn’t if you walk away with many millions while the sun is shining on you. Time to get to the bottom of things. It might take twenty years of massive investigations to uncover all of the corruption that was defacto on the Street between the Born episode and late 2008, but it would be worth every second to strip the crooks of their fortunes and have them doing time with the Mafiosi, since their crimes actually have hurt far more people globally than the worse Capo did on his best (most evil) day.

    I know there has been a lot of air given to the idea that we should just move forward, but I don’t think we can if these crooks are allowed to keep their fortunes, their limosines, their yachts, and their mansions (and especially their lobbyists).

  211. Michael Perino reminds us in the Bill Moyers Journal:

    “You know, we need to be a little humble about what these kinds of hearings are likely to be able to do not be able to do. Pecora was a fabulous lawyer. There’s no doubt that he did an amazing job at these hearings. If the hearings were intended to find the causes of the crash and the causes of the Great Depression, they failed. ‘Cause they never actually did that. They did show bankers behaving badly. And there’s no question about that. And showing that created the atmosphere in which reform could pass. But, he never actually showed what caused the Depression.”

    And that is what can happen as the pro-regulatory agenda of many frontline debater eggs on the people against big bad bank oligarchs, while diminishing the role the regulators had in creating this crisis.

  212. Jurek Konieczny

    I disagree with Simon in his assessment of John Paulson’s role. What he did was not in any way wrong or deceitful. He made a bet that some securities will fall in value. The entire fault is Goldman’s. They marketed the securities without disclosing a material fact: that a hedge fund manager, not an independent institution, picked the securities. This information may, or may not, have been useful, but this is not relevant. Withholding information is all that matters. Here is an example. I have a piece of gold that want to sell. I think is fake. I ask an intermediary to arrange the sale for me (and pay him for his services). To sell it, the intermediary advertises the piece as real gold.
    Perhaps Paulson should have alerted potential buyers that they are buying a misrepresented security. But the deceipt is all Goldman’s.
    By the way, how this compare to the information withheld from Bank of America’s shareholders who approved takeover of Merill Lynch?

  213. Do love Bill. He’s not just a straight shooter, but is very good with words and never intimidated.

  214. (sidenote–dear Christopher Cox was given the SEC position for a “job well done”/true goper/etc after he LOST /was BLOCKED from becoming a FED JUDGE..THey needed to find a “proper” spot for him as he had proven himself loyal !! Much like Argyros got his Ambassadorship without language ability for the country assigned/etc…mere pay-offs for loyalty to the party cause/etc !! Neither were “truly copetentent ” to fill their respective positions, mere placeholders/compensatons)

  215. mmm, out to “get yours”, no matter what the cost to others and not as if the BIG players would miss a billion but the ordinary sorts and their pensions/investments..hey, guess you able to take what you figure is just doing business th e American way….like WOWZERINO and thensome, your’s for the taking and intend to take if can ! Wonder if really WORTH it or how one sleeps peacefully,etc !!

  216. Earl of Florida points out big mergers, and the kaleidoscopic way power is wielded. I think that is exactly what the Obama administration is up against. Say we decide to abandon oil “on a war footing”; Exxon stock collapses, then the substantial number of voting AARP members with pensions invested in all those oil companies would be loudly voting their “pocketbooks.” The statguy who posted that Goldman Sachs’s shot across the bow is a warning that an attack on the banks is an attack on pensions, on investments, on business — (I’m not trying to be an expert, sorry) — that is I suppose what Fox will be purveying. Not just YOUR pension fund, but the pension funds of all 50 states; that is: your property taxes will go up in order to hold the states’ finances together.
    Such is the foe the banks can muster against true regulation. That (those with investments) plus their ability to dominate financing “all” the campaign funds for our “representatives.” Am I right? It is truly daunting.
    I just want to point out that Obama seems to respect that sudden changes in valuation (like pulling the carpet out from under the health insurers) is likely to be more of a punch to the gut than this country can stand right now. Why? The valuation of the mammoth corporations seems to me to be linked to the well-being of the banks due to the amount of capital needed. (Clearly huge corporations have control of their own huge capital, but exactly because of that, huge corporations would also be encouraged to borrow huge amounts. The government regulators and the assessors are interwoven, too.)
    It seems far-fetched, whatever Simon Johnson would like, that even over 10 years, that populist opinion can even comprehend the situation, let alone get it fixed; thus far, populist opinion seems to me to grasp the opposite of the truth.
    Anyway this much we do understand about banks: They like to loan to those who need it least (Exxon, yes; you with the pink slip, no), UNLESS they want to make a killing off your near-corpse in one way or another. Then they are first-rate buzzards.

  217. I cannot take credit for the following – “bookofdisquiet” posted in the WaPo responding to Geithner’s “we have turned the page” op-ed this week. Very much in tune with what you wrote, Jake:

    “This is a classic case of fighting yesterday’s war–remember the “reform” after Enron? Yeah, that worked out didn’t it. So we decide to regulate derivatives and form a central clearing house, less leverage–whatever. Wall St. will merely create new “complex” products traded in the shadows — they’ll just create new legal entities (formerly “special investment vehicles”) that will get around any capital requirement.

    This is not a fix, this is phony posturing to appease a clueless and angry American public. If you believe this will stop the greed and ruthlessness of a Goldman Sachs or JP Morgan then I’ve got a bridge I’d like to sell you.

    Soon as this[financial reform] bill passes they’ll have 500 lawyers figuring out how to get around it. The only way to change things is to make these bankers personally liable for their failures–make them be legal partnerships. I guess 300 million dollars spent lobbying against reform gets you a toothless consumer protection agency housed in the fed and a sorry excuse for a Treasury Secretary’s vague panderings.

    We’re all getting rolled and our so-called leaders know it. These a**holes can only destroy so many pensions until something breaks–it will happen again. This is not reform– this is cowardice and complicity in the greatest theft in world history.”

  218. I think Bush 43’s agenda of having everyone’s Social Security money partly invested in the stock market was intended to insure that everybody had a vested interest in the well-being of Wall Street and the banks, not just those with pensions.
    It is probably retirees, however, who are most rigidly convinced that banks are fiduciary institutions and patriarchal capitalism needs its laissez faire. If Fox says here goes your 401(k), there goes the Democratic majority.

  219. I would hope there are more enlightened ways to create capital flow besides feeding into the military industrial complex/war machine.

    (Is the death, destruction, broken-ness that results…something for us to aspire to and be proud of?)

  220. Thanks for sharing this. It gives me a bit of hope.

  221. “…we need a shock treatment to the ethical lobes in our brains.”

    Thank you.

    P.S. I sense…we’re in the early stages of this process right now. (Doesn’t it feel like we’re living through the initial stages of such a shock treatment?)

    P.P.S. I might prefer to call it a massive, spiritually-based “wake up” call. (Yes. I dare refer to something “spiritual” on a site devoted to financial issues. They don’t have to be from opposite worlds now, do they?)

  222. I agree with you.

    Obama’s selection and support of Timmy-the-tax-cheat, Summers, and Bernankio stinks to high heaven.

    Obama received close to $1M from the Gold-Men for his campaign.

    Obama represents the monied class, including the Banksters. There will be some acts to “appease the masses,” but the end game is all about feeding the uber-wealthy and their comrades.

  223. Amen. Amen.

  224. And “long term greedy” is better than short term greedy?
    Are you joking?
    Greedy defined (yourdictionary.com): “wanting or taking all that one can get, with no thought of others’ needs…”

  225. Sunday 18 April 2010 – The Observer – excerpt

    “Goldman Sachs is expected to earmark about $5bn (£3bn) for staff pay and bonuses this week, days after being accused of securities fraud by the US regulators, fuelling the controversy over bankers’ rewards in the teeth of the financial crisis.”

    http://tinyurl.com/death-where-be-thy-sting

  226. 1. The CIVIL charges were filed by the SEC, not the DOJ;
    2. Why hasn’t the DOJ (criminal charges) been on this since day one?

  227. Germany to Weigh Action on Goldman

    APRIL 17, 2010, 3:52 P.M. – Wall Street Journal

    “Germany said it will ask the Securities and Exchange Commission for information in a case in which Goldman Sachs Group Inc. is accused of defrauding investors, potentially as a prelude to legal action.”

    http://tinyurl.com/y4qjwuf

  228. 1. Reform campaign finance (including no contributions allowed from any Wall Street dude/dudette, family member, or affiliate company/program to any person running for public office);
    2. No member of Congress, no WH administrator, no WH staff person, or cabinet member/staff member, nor any member of Congress/Congressional staff person is allowed to work for a Wall Street bank for twenty-five years after leaving said positions;
    3. Convert banks back to private partnerships entities (which makes bringing criminal charges against individuals much easier);
    4. Begin massive criminal investigations re: every CEO, CFO, board member, executive of these banks;
    5. Require the WH/DOJ to put up a separate website detailing:
    a. the progress of each investigation;
    b. the possible criminal conduct breeches of each person/entity being investigated;
    c. timeline for grand jury inquiries;
    d. timeline for court dates re: prosecutions.

    Does that answer your question?

  229. P.S. Criminal inquiries as well for those heading ratings agencies and oversight agencies in addition to criminal inquiries for members of Congress and members of the WH. (Add these to #5 above.)

    And yes, I’m serious.

  230. BINGO. Where has the Department of Justice been all this time? And where is it now?

  231. America is done as a global power and the decadent behavior is done as well. Nothing, laissex faire capitalism or socialism will bring it back.

    America is IMO just waiting for its Caesar and beginning of the imperial age. It is the only way to keep its role as number 1 in the world and the decadent lifestyle they want. Take all the resources you want, suppress global economic developement, reindustrialize. It won’t take near as long as you may expect. I can see the merchant and the worker side by side singing together as the country’s infrastructure is being rebuilt. It will seem like a new blood flow has risen, a brand new age has begun. When this country reaches so low after they give up trying to stop the decline, people will need to eat and people will need to live again.

    The German’s used it under the guise of “National Socialism”.

  232. sixfeetunderhope

    Excellent said.
    Thank you!

  233. sixfeetunderhope

    Scenario:
    Paulson: “I’ll make your spouse disappear, but first I’ll insure him/her for $1 billion.”
    GS: “Great. I did it , too.”
    Paulson:” Make sure to attend my party. I’ll make sure she/he will get dead drunk, put in her/his car and let her/him drive on the narrow road across the ravene”.

    After his/her death, GS and Paulson shake hands.

    Harvard lawyers will find nobody’s fault, but will send you to jail for farting in a public place.
    Thank you.

  234. you have absolutely misunderstood the entire intent behind my questions. not surprising given the way most of this world works.

  235. Surely you must be joking? Either that or you’ve been living under a rock in total isolation. The American Empire has existed and been expanding for decades. Perhaps you would do yourself a favor and get to the library/bookstore and read Chalmers Johnson’s series referenced by the first title. The books are _Blowback_, _The Sorrows of Empire_ and _Nemesis_.

  236. sixfeetunderhope

    what about steven cohen and SEC Financial, schwartzman and Blackstone Group, litowitz and Magnetar, and ….all the criminals behind hedge funds and insider traiding?

  237. sixfeetunderhope

    It was a long, step by step, well orchestrated worldwide Ponzi scheme.

    “Greenspam” the idealog,Rubin and Summers, the enablers with Geithner as student,Bush, his Dick and Hank, the enforcers, Bernanke, Geithner the CONTINUATORS, under strict and generous paid by taxpayers supervision of ….RUBIN and SUMMERS?

    Is it any pattern? or just continuity in distroying America and the world?

  238. not really. I understand what should happen. thanks for the thoughtful analysis. i hope to god with all my heart that it even CAN.

    this is to what i was referring:

    “But the fact that they’ve completely seized both political parties and every relevant jot and tittle of two out of three branches of government (oh, what the hell, maybe they have the judiciary in their pocket, too) is a fairly minor detail in the grand scheme.”

    how does one person decide to live, based on this kind of analysis?

  239. yes. interesting for you, perhaps.

  240. Brad Thrasher

    Hey kids, SEC v. Goldman et al may have our attention but this has been building for more than a year. Check out, “The Credit-Crunch After Party” at American Lawyer.com

    http://www.law.com/jsp/tal/PubArticleTAL.jsp?id=1202437375363

  241. Does it make any practical sense to consider requiring CEO’s (maybe all Officers) of publicly traded companies to be licensed by the SEC? Securities dealers and brokers must be licensed and are sanctioned when they break the rules.

    I’m dreaming of a day when a Madoff type CEO, found guilty of violating securities laws & regulations looses his Securities License, is held personally liable, and can never be the CEO (Officer) of a publically traded company, again.

    There is simply too much ‘cover’ in modern corporate sturctures protecting individuals from personal liability.

  242. I’m 63, retired and a lifelong Republican who voted for Obama because I could’t tolerate the Republican 8 year reign of profligate spending. I bailed on all my Merrill Lynch, Bank of America and Wells Fargo accounts prior to the collapse precisely because I expected them to live up to their fiduciary responsibilities and they did not.

    It was one of the hardest things I have done – going so against the grain of popular economic wisdom and risking my financial future (how it felt at the time) by acting on my minority opinion of the imminent economic collapse.

    I am now wandering in the wilderness looking for a way out of this mess that does not have a path through Washington D.C.

  243. colinc,

    I was not talking about the fractional banking system but of the simplest banking system possible.

    I wanted to show that even with the very simplest banking system with no games played to increase the amount of money lent, or leverage anything, that the problem of growth and sustainability still exists as long as interest is tracked as money needed to be generated.

    If you concentrate on the fractional banking system as the boogie man then you miss the real underlying problem that has to be addressed.

    The fractional banking system does add to the amount of money that can be generated and the interest problems that result, ie. the need for growth to make more money in circulation possible to pay the interest generated out of thin air.

    BUT

    If you make the fractional banking system and the fed as the blame then you miss the true and fundamental environment and relationships that cause the problem.

    You will then treat the symptoms without doing anything about the disease.

    The problem is that ALL money for savings and investments are just figures on a balance sheet.

    There is real money in the system and that is M0, bank vault cash and currency and money in circulation. I just looked on their website and the total currency is 874 billion. All the rest of the money people assume is in the system is just figures on balance sheets.

    When a loan is settled or paid off that money is essentially gone from the books. If it was a bank that was paid off then the bank has the right to loan that amount of figures out again…but it is all figures on paper. Our money is not physical except for the M0 the money is figures on paper in books.

    When investors of retirement funds invest the money, they transfer the right to record an asset on the books of the investment while simultaneously subtracting the figure invested from the ledger book of figures, those figures coming from the employees who transferred the figures from their before those checks were printed, unless they go to a bank and write a check out of their account which is just a balance sheet with their name on it. THERE IS NO MONEY IN THE SYSTEM, just promises and obligations and accumulated promises and obligations.

    You can spout Gold standard all you want and unless you want to carry around a bucket and essay that bucket and weight it out gold doesn’t work any different then a check book. If you limit the government to only using gold then life as we know it CAN NOT EXIST…….you can not transfer gold over wires or with radio waves. Even promises of gold transfer over wires or radio waves is then records of figures on a paper or hard drive.

    The basic problem and the only way to understand it is to look at the very fundamental level of what is really happening in as simple of a way as possible using the rules of the game that are taken as axioms or rules of operations.

    Sure the fed has added to the problem. sure fiat money is the issue, but unless you understand what fiat money really is then there is no hope of changing for the better.

    Sure the system is gamed by those who can and they dont have to understand the fundamentals but only what will make a buck, and often being able to use time delays and inside type information to their advantage.

    The underlying problem is that we ignore things we take for granted and what they really are.

    Again – as an example – of what has to happen – Elizabeth Warren says we need to make the banks balance their books – this will wipe out the investors but then those debts and losses will be removed from the books. When the books are balanced and the debt and interest not payable and the mortgages that can not be paid are written off and the government debt is written off and those who bough the treasuries are wiped out we will not come out of this. Since most of the calls on money that does not exist will be from the wealthy in investments, they will be the big losers but they know this and this is what the bailouts were for and about. As long as they remain in the position of stopping the balancing or to force the losses upon retiree moneys and the common man and small investor we will continue on to the forced end.

    pardon and word – speeling or other problems cause it is LATE. thanks

  244. Thanks for you explanations,

    What i like about the table is that the total global GDP is less then one-tenth of the total amount of derivatives. imagine that – the amount of interest that needs to be generated by the GDP to keep the derivatives in place and paying the tranches is of the order of the worlds GDP. cool eh?

  245. Birds of Prey

    Their shadow dims the sunshine of our day,
    As they go lumbering across the sky,
    Squawking in joy of feeling safe on high,
    Beating their heavy wings of owlish gray.
    They scare the singing birds of earth away
    As, greed-impelled, they circle threateningly,
    Watching the toilers with malignant eye,
    From their exclusive haven–birds of prey.
    They swoop down for the spoil in certain might,
    And fasten in our bleeding flesh their claws.
    They beat us to surrender weak with fright,
    And tugging and tearing without let or pause,
    They flap their hideous wings in grim delight,
    And stuff our gory hearts into their maws.
    –Claude McKay

  246. The U.S. recovered and became a global leader from manufacturing and selling into a world that was devastated by war and needed exports.

    Since the 60’s we have more and more cut our manufacturing jobs and begun importing goodies made cheaply over seas. Instead of inflating our economy inside the borders (we did a couple times with very bad results) we discovered that we can inflate out money overseas, get cheap goodies to make up for rising cost internally – things like housing – and the cost of the jeans and electronics just offset the increase in housing and infrastructure cost.

    WaLa, Walmart became our saviour….for a while.

    Those foreign dollars want to come home and they want to invest them so Derivatives proved the best vehicle to sell our debt over seas to countries that had lots of dollars. The national debt is now about 50% foreign owned but the real foreign ownership is in forex and derivatives! We hit the wall, the housing bubble burst so we could not pump out more loans, some of the foreign banks were hit early on because they bougth those low risk (sic) high interest rate derivatives with American Dollars we inflated into the world with our Imports.

    If we are forced to balance the books the U.S. will be wiped out!

    Please pass the blame along to the us citizens purchasing imported goodies with equity and second mortgages and let them share it with Wall Street who were the ones enabling the American Dream to happen and took the haircut they wanted from vehicles they generated to keep the bubble going. They got richer but they passed enough of the bootie along to keep the population and the politicians happy. The Bankers laid the golden egg we all broke and consumed, demanding more, until the interest needed to service our debt cause the collapse.

    We have meet the enemy and they is u.s. and our bankers.

  247. James Strachan

    As we look at history we had Teddy in 1901. Where is a Teddy out here to step forward and fight with Financial Bankers.

  248. Looking at the actual SEC complaint, it is evident that Paulson & Co. submitted the names of 123 RMBSs (residential mortgage backed securities) that it wanted ACA (the third party appraiser) to approve for a CDO that was envisaged. ACA immediately confirmed that it had previously invested in 62 of the 123 submitted securities. After two weeks of further review, ACA would only approve 55 of the names sought by Paulson. ACA’s 45% acceptance rate reflects a significant and material paring of the original 123 names.

    I don’t think it is possible for the SEC to prevail on its claim with the contention that it was Paulson who put together the CDO portfolio when ACA nixed 55% of the proposed names. The SEC’s contention that ACA would not have vetted the portfolio had it known Paulson intended to short the CDO will be open to question. Likewise, the SEC’s contention that sophisticated international banks would not have invested in the CDOs had they known that a hedge fund (Paulson) was betting against the portfolio is also conjecture and a weak argument. As a former banker, I can tell you that banks do not lend money based on the credit ratings assigned by third parties. In fact, each bank loan requires due diligence on the part of the underwriter which is then subject to various levels of credit review before being approved as suitable to become a bank asset.

    It is clear that Goldman’s omission of Paulson’s role in the selection of the portfolio in SEC required investment circulars was intentional, deceptive and possibly may be considered material both before and after the fact.

    By citing Goldman emails, it appears that Fabrice Tourre, the 31 year old Goldman employee who structured the transaction, deliberately deceived ACA into believing that Paulson was seeking to invest in the CDO rather than betting against the CDO by entering into CDSs (credit default swaps). I don’t know that deception meets the standard of fraud.

    My takeaway is that Goldman took advantage of ACA and its investors (the international banks that invested in the ill-fated CDOs). As a matter of law, I don’t know that Goldman is going to be judged liable on the claims cited in the SEC complaint. I think Goldman’s investors and clients need to question whether Goldman perceives a fiduciary duty to meet their best interests

    Read more: http://curiouscapitalist.blogs.time.com/2010/04/16/sec-goldman-is-actually-a-vampire-squid/#more-9552#ixzz0lQsSrjeC

  249. Actually, it’s even worse. This so called financial reform bill does NOTHING about the real problems (credit default swaps, leverage, accounting slight of hand, regulatory arbitrage, tax evasion), which combine to provide unlimited opportunities for insider looting, will produce serial bubbles (and crashes) and continue to undermine the real economy, while Obama and the Democrats congratulate themselves for standing up to banker interests and restoring integrity to financial markets. As always, the Devil is in the details.

    The bill should be called The Barney Frank/Chris Dodd Lipstick on the Pig Memorial Cave In to Casino Interests. The bank lawyers wont have to waste time figuring out ways to get around it, because (as with other ‘reform’ legislation) they have written it. Moreover, the thing is unintelligible and it will take decades for any judge to determine if any bank is violating any useful prohibition that somehow wandered in by accident while Barney and Chris were not looking.

    Until the soundrels are removed from Congress, nothing will happen there but kabuki theatre. Unfortunately, that means just about everybody on both sides of the isle. Mark Twain had it right: ‘apart from the Congress, America has no native criminal class.’

  250. Paulson built a CDO designed to fail and arrainged for its marketing, knowing some credit rating agency was so compromised or stupid that they would rate it incorrectly, and some smuck would depend on those ratings to insure the CDO, and then insured against its failure, and you see nothing wrong with that? Did Paulson’s profit come from providing a valuable service or product? If not, then Paulson is a leach on society that needs to be eliminated from any opportunity to damage the economic system again.

  251. How did you feel about credit default swaps? See any problem with several hundred trillion of those lurking out there off the balance sheets of our financial and business institutions?

  252. None of those crises were as major as the one that spawned the decision to form the FDIC, and most of them occurred under the protection of laws intended to prevent another distaster like that. The next crisis will almost certainly be worse than the Great Depression. Can you be certain the FDIC will hold up through that? I can’t.

  253. This is Alan Greenspan’s version of a mea culpa, (actually it’s more of an excuse wrapped up the usual dense language that fooled lots of people into believing that he knew what he was doing) made while testifying before Congress:

    Henry Waxman: “Do you feel that your Ideology pushed you to make decisions that you wish you had not made?”

    Greenspan: “I found a flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak.”

    Greenspan is right when he says that there was a flaw in the way he views the world, but he still doesn’t seem to get it; his flawed ideology hurt a lot of people, not just in America, but around the world. Unfortunately, there are a lot of culpable people who still don’t get it, Larry Summers and Robert Rubin for example.

    I truly hope that a modern-day Pecora will rise up to help build a financial sector that is not based on fraud.

  254. Something interesting seems to have happened at least at UBS – a majority shareholders decided to hold the management responsible for the fiasco. Could that ever happen to GS?!

    Quote from Jesse’s Cafe Americain:

    “Shareholders yesterday preferred honesty over immediate profit,” the Geneva-based Le Temps newspaper said in an article titled, “Shareholder courage”.

    “It was a courageous and responsible decision.”

    During the big bank’s annual shareholder meeting in Basel, some 4,700 stockholders representing 1.7 billion shares, voted by a margin of 53 per cent to reject recommendations by the current board to absolve executives from all responsibility for the bank’s staggering subprime losses that prompted a SFr 60 billion federal bailout.

    The decision means former managers are now exposed to potential lawsuits.

    “This is something that no one for a long time thought possible,” said Blick. “By standing up to the board, the owners of UBS have written economic history.”

  255. The investigations ARE had – and the Supreme Court finds that corporations are “people” and money is “speech” and that’s that.

  256. Exactly right. The real issue here is structural rather than regulatory. I’m cynical as most informed people in the US today are. These securities should have never existed. The OTC markets and CFTC just another slight of hand to provide the rewards of doing GAWDS work.

    Former Sen. Phil Gramm’s CFMA created a vast opaque ocean for predatory sharks to swim in, little minnows haven’t a chance as this one piece of faulty legislation created the feeding frenzy. It was a paradigm shift economically, allowed our current lords to tax those items of need to flow into their pockets without oversight or speed bumps. Financial ‘innovators’ fueled more feeding with the chum of promised rewards in SIVs to entire nations.

    Lawyers (lobbyists) writing laws for lawyers. They don’t need to find it, they will insert it at the 11th hour before passage, without debate or review. The mechanisms to rob the masses won’t be touched.

    The core is rotten, what hasn’t been accounted for is the ability of what was once the middle class to continue the obscene paydays to the upper 5%. What isn’t recognized is the bodily fluids are gone, sucked dry the carcass is rapidly turning to stone.

  257. mondo pinion

    I think maybe we’re not in Kansas anymore.

  258. Do you think it is possible through civil discovery to learn if Goldman itself was shorting or entering into CDSs on similar or equivalent CDOs? I seem to remember when it was reported that Goldman had been at the table during the AIG/Treasury negotiations, Goldman announced that it was “covered” outside of its deals with AIG.

    Would it matter to the case?

  259. Valerie Gagnon

    Crel, I vould not agree more.

    Teabaggers, you need to wake up for you have been complacent in every socio-political and economic policy decisions which lead to this crisis. Your conformism is simply appalling.

  260. You may be right but I pray you’re wrong because if that is to happen the world has lost America and the illusion of what it stands for http://bit.ly/daMKK1

  261. very good points…but until Congress and all of Washington power structures are weaned from the corporate interests funding machinery (aka legalized bribery) these much needed reforms will never see the light of day…let alone vigorously enforced…they (big corporations/multinationals/lobbyists) have the hammerlock of a very corrupt and incestous ecosystem that rewards the very few at the top…a virtual vicous cycle that needs to be broken…we thought Pres Obama was the Deliverer and bring us out of this morass…we’ll see…

  262. Speaking of Larry Summers…A couple of days ago I noticed he published a little tidbit entitled “Relief for Middle Class Families” in the renowned economic journal, Huffington Post. My antennae always go up when I hear the phrases “working families” and middle class families, so I read it. Seemed out of character for Summers. I wondered why he might be “casting pearls…”
    And now today:

    http://www.huffingtonpost.com/news/larry-summers

  263. political contributions are the ultimate hedge fund

  264. Vigilante Justice

  265. “The majority are too busy looking for jobs, while watching funny videos on You Tube, emailing interesting stuff to one another, downloading movies from websites like netflix.com, twittering, playing with their new iPads, or texting their friends on their neat smartphones.”

    Some are reading the right articles on the right websites and leaving their two cents worth in the reply section. Next step: tell yourself you’ve now done your part.

    ps – my snarkiness doesn’t mean i think you’re wrong – quite the opposite

  266. Liz entrekin

    Recipe for economic disaster

    1 company (including CEO and all levels of mgmt)
    10 congressmen
    4 determined lobbyists
    500 people looking for a quick large return

    Start with one company of large size, clever attorneys, creative accounting. Gently stir in congess officials looking to line pockets with
    funds provided by special interests. Push through ambiguous laws that provide special interest loopholes . Utilize stock market slight of hand and off tract betting. Whip in investors looking for a quick surge in money. Pour in a world sized pan. Bake slowly for 10 years. Serve in crystal goblet with wine made from the general populace tears and desires.

    In other words, one can not specifically blame a single group without also knowing all are at fault. Strict regulations governing wall street are necessary but notice many are already laws with no teeth. Congressional acccountability is also necessary bit hard to do when they are always passing laws to ensure their own protection. Lobbyists should be required to provide facts to support views not money to support campaigns or line pockets. Investors should carefully consider before jumping into markets with a buyer beware attitude. Stockholders should demand and receive a bill of rights that provides greater accountabiliy and payroll explanations. Accountants and attorneys should uphold standards of practice as professionals and in accordance with the laws of the country rather than the strictures of the company. Companies should strive to ensurefrom top to bottom that they remain firmly within legal and moral, mission statement boundaries and that all layers remain within manageable levels. Gonna happen, doubtful! Until personal greed is controlled and laws are provided that insure control are nonpartisan all we can do as individuals is make decisions based on best information and require all parties to be as transparent as possible.

  267. Risk ok? WHO will be damaged with the losses…it is no longer just the 2 people/institutions making the deal…..the rest of the citizens in the country/world count too

  268. Agree with you on our willing participation. Would like to add two points:

    The short temporarty benefits of globalization (what you describe re Wal Mart) or centralization (mergers and acquisitions in a market) are cheaper products which result from cannibalizing infrastructure and resource reserves and sometimes from real economies of scale. The long term consequences are too large to manage and too large to fail organizations which distort and dominate their markets. The USA cannibalized its manufacturing infrastructure and resource reserves for a decade of cheap consumer products. We must forego these products and save to rebuild manufacturing infrastructure. Do we have the self-discipline as a people? Not right now.

    A second point: Major error of the 90’s was permitting Banks (with FDIC insured deposits), Fannie and Freddie to issue mortgages for more than 80% of assessed value. Last 20% should have remained by law a 2nd mortgage, fully at risk. Again, short term the “centralization” of mortgages into 100% firsts, drove the consumer economy, so we all wanted to believe.

    The enemy is us, but so is the solution if we get past blame (and then past Bargaining…quick fixes which let us go on as before) and humbly suck it up and work on a solution that involves us all.

    I write about these issues on my own blog.

  269. I just don’t understand HOW these people sleep at night? aren’t their parents ashamed of them…weren’t they taught human empathy for the pensioners they would screw and the others losing their hard earned money?

  270. “John Paulson obviously knew what he was doing in helping to create the “designed to fail” securities – and the consequences this would have. If he cannot be convicted of conspiracy to commit fraud, then the law in this regard needs to be tightened significantly.”

    For Paulson, conspiracy to defraud investors.

    For Goldman Sachs, conspiracy to defraud the government of the United States.

    And I believe there’s a law.

  271. Teapartiersin front? you mean the like the couple with 5 kids ALL on Conn subsidized healthcare , out protesting taxes? Like the guy on unemployment and VA benefits also anti-tax,plus they guys who showed up here in NH with assault weapons and guns galore against “socialism”, with the 65+ crowd yelling to keep the gov’t OUT of Medicare….not to mention the “Watermelon”placards…people who DIDN”T REALIZE they pay virtually NO income tax, yet complain of their excessive taxes…..when I stop seeing this ignorance, you’ll have a better case.

  272. Our biological abilities to rationalize and justify our actions to ourselves are amazing. Without them we’d never have enough self confidence to make decisions and take actions. Once we face this “imperfection” in our evolved brains we can take two productive actions:
    First: recognize that we’ve done equivalent rationalizations which similarly blind us to our own failings, and act with a bit more humility about ourselves and others.

    Two: as a community we need to establish laws which presume that this individual and collective blindness will enable people with control of large blocks of resources (business, religion, government, military) both to do heinous things and then to completely self-justify them. Most of our laws assume voluntary conformity (traffic laws for instance), which happens most of the time… but they also include punitive elements for those who endanger others. Because without them the transportation system would disintegrate driven by personal selfishness. Those punitive elements will always be gamed by some people… which is why laws and regulators need adaptive mechanisms to counteract the gaming.

  273. And what about the tenured finance professors, the regulators, economists at the IMF, and all others who should have spoken out in time but were too inept, too disinterested, or too conveniently silent. Should they sleep like babies? http://bit.ly/aXSYyu

  274. Facts,and Figures aren’t mysterious black-holes when it comes to the overall dirivatives global market. If there is,and are $600tn out there in tangible/intangible dirivatives,…there are two sides of the trade. Therefore we can half the bogus number to a more realistic value of $300tn. Let’s dig deeper into the magical tranch hierarchy of the financial world hyperbole tour de’ jour. Presto! It’s unbelievable but our $300tn is now $30tn, when only 10% is needed to leverage the assets. Please be well advised that there are many abstract duplication,and other factors involved,but the grounding rationale is very simple with sheer transparency. Is that asking for too much. PS. Let the big monopolies fail – reason being,…everyone needs a pay check,even the fat cats/wise guys on “Wall Street” that are neither wise nor smart,but only hyper-deviate in comparison to the average God fearing american citizen. Thanks again,and “Keep Diggin for America’s Sake”

  275. Eric said – April 18, 2010 at 5:05 am,

    Greenspan is right when he says that there was a flaw in the way he views the world, but he still doesn’t seem to get it; his flawed ideology hurt a lot of people, not just in America, but around the world. Unfortunately, there are a lot of culpable people who still don’t get it, Larry Summers and Robert Rubin for example.

    As human beings, in our groups of friends, we help each other out. We doing things for each other because some of those friends are almost family. For those of us nearer the bottom of the pile what we do does not effect millions of peoples live. We would not want our friends hurt, we protect our friends, we know much less about others outside the group and really do not care because we do not have that Emotional Connection. We know others like us economically and assume they run by the same or similar rules and we expand that view to the world.

    Greenspan has no empathy for the billions of lives he has effected and so indicates. While he is good friends with those in his layer, he just does not have a clue to the lives he has F..Ked up. He is autistic to those millions and millions of lives and can experience life only through the lens of possibilities at his level.

    I believe this is exactly the purpose of our checks and balances and of the rules related to nepotism and the revolving door that was in the news years ago but has totally dropped away.

    In fact, Obama helped the revolving door take a few turns with his appointments and the excuse of them knowing the system ignores that they know what to cover up and have empathy for the positions of those responsible and deal with them very differently then the millions of lives f’d up which they have no comprehension or or empathy for.

    I would assume that the purpose of good public policy and laws would be to limit the capture of the major institutions of our system by a small circle of friends……………hum……

    Phil Ochs wrote a song like that didnt he….called “Outside of a small circle of friends”

  276. My mother told me a story about when i was young. I had a younger brother and when i got up during the enforced nap time, the first thing i would do was get a toy my brother like and pass it to him in his crib, then i was free to play with what ever i wanted as long as i did not make to much noise and bro-ed was happy playing on hi own…..

    seems the noise is getting to loud today.

  277. Goldman has publicly stated that it lost $90 million on the Abacus deal. My guess is the Abacus deal was a learning experience for the Goldman risk management committee which eventually led to Goldman taking a bearish position against CDOs. Goldman bought billions of credit deefault swaps from AIG and then essentially reinsured or hedged itself by laying off AIG counterparty risk to other players, i.e., financial institutions. The civil discovery process should prove to be an eyeful in the SEC-Goldman case and others that are sure to follow.

  278. mondo pinion

    . . or maybe we should question the corrupting practise of usury — and how “capitalism” locks us into unsustainable perpetual growth.

  279. Mr. Kurowski, no offense but I doubt “praying” is going to resolve anything. The Chalmers Johnson books are real eye-openers and I’m sure that, at the very least, most of the population of the USA is blissfully unaware of the imperialistic actions and intent of this “wonderful” country. Mr. Johnson (Chalmers, not Simon) clearly and unequivocally lays out the facts and provides numerous citations of sources for virtually anyone to check.

    The USA has more than 730 military bases in more than 30 countries around the world. Some are “small”, others not so small. There are more than a million people stationed at these bases including the military personnel, their families and support “civilians” provided primarily by companies like Halliburton and KBR, among others. The monetary costs of maintaining these facilities would cover the costs of “free” health-care for _every_ American and put a substantial dent in repairing/upgrading the country’s crumbling infrastructure. Personally, I skipped reading the 1st book but the last 2 should give anyone reason for concern, if not night-sweats and chills. Enjoy!?

  280. …after 100 or so years of record prosperity and relative political stability, Americans have lost the stomach for a true “revolutionary” process to solve most of their social and political problems…and the politicians and their pollsters know that..so they (the politicians & its corporate backers) devise plans and diversions to appease the masses to keep them at bay… while the traditional power elites keep amassing more fortunes increasing the wealth imbalance to really dangerous levels…are we near that tipping point when the average Joe is just totally fed up and willing to reach for the pitchforks?…perhaps…but then again the average Joe is probably too busy watching baseball, basketball, NFL or Tiger Woods’ latest misadventures on his Made in China plasma tv…

  281. And the accountants, and the lawyers….

  282. “It worked for Obama.”

    No, it didn’t. Obama’s major contributors were from FIRE, and GS was, IIRC, #2. Further, Obama’s seed money came from FIRE.

    All of which lends credence to the idea that this is all kabuki. “Round up the usual suspects.”

  283. Isn’t it something like 4 lobbyists for every congressmen?

  284. Ptolemy Jones

    They sleep on silk sheets, with dozens of servants to serve their every need, and passports at the ready.

  285. valerie,

    interesting take on this mess. you’ve opened a door that i haven’t seen in the other comments on this or any website.

    total agreement with your assessment of human nature but i’m wondering if you are saying that financial crises are limited only to capitalism? not quite clear on that.

    i would suggest that all forms of governments eventually evolve into kleptocracies before they implode. we, as humans, take what we can get even though it leads us to our own eventual destruction. or, as lincoln so beautifully put it: ‘too many pigs; not enought tits.’

    with this latest mess coming to light we are all going to point that self-satisfying finger of blame at individuals, institutions and government. but we were all in this together. when my little, rural home; which i bought in 1995 for 79k, was appraised in 2006 for 225 i was thrilled. not for once second did i wonder at the insanity of the appreciation … i just wanted the money.

    oh well, i think maybe i’ll go outside and work in my garden.

  286. donna and valerie,

    can not agree with you more, especially that all the ism’s suffer the same type of human problems. IBM and the Soviets were very close in that they had their elected CEO and their board of directors and the privileges went to themselves in their life styles and to athletes and scientists and engineers as well as local politicians who brought in outside money and fame or developed weapons of war.

    They were both giant bureaucracies that needed care and feeding so concern for the rest of the population or customer base was missing except as the resources to maintain the bureaucracies. They were not concerned for the others “Outside of a small circle of friends”

  287. Ptolemy Jones

    Not to mention military recruitment. How do we get young men to enlist during wartime? Take away their chance at jobs! On whose behalf are these wars being fought anyway?

  288. Ptolemy Jones

    The moment Obama appointed Larry Summers Tim Geithner et alia it was obvious that the fix was in. All hope for real change flew out the window. Until and unless these criminal enablers are purged from the White House the only hope there is, is for a white wash. Excellent as the interview on the Bill Moyers Journal was, I found it stunning that Simon & Kwak bent over backwards to say that this was not a criminal conspiracy! This is a conspiracy decades in the making. The conspirators have taken every opportunity to take advantage of government protections of the economy e.g. savings & loans, Medicare, Fannie Mae & Freddie Mac and now health insurance to loot the US government and its citizens. Their sights are now trained on Social Security. It is time to abolish the Federal Reserve and for the government to start printing it’s own money as Lincoln did. It is time to end the “Miracle” of inflation and compound interest. Although any leader that follows that course is sure to suffer the same fate as Lincoln.

  289. I’m going out to work in the garden too. Thinking Timothy Leary should have studied economics at Havard rather than psychology. ” Tune in, turn off, drop out.” American economics.

  290. Ptolemy Jones

    Excuse me – Hilary not let it happen? Wasn’t she in the White House partnering with her husband when the ground work for this heist was being planned. Please!

  291. It’s good to hear Phil again.

  292. Having been in an equivalent situation as a CEO, and always convinced that Larry Summers was a terrible choice, I’ve nonetheless taken a less negative view. The Wall Street debacle and economics was not in Presiden’t Obama’s wheelhouse of experience; therefore he took advice from others in making his selections. My guess is his advisor was either Robert Rubin or Bill Clinton. Clinton has, within the last few days, had the decency to admit Robert Rubin and Larry Summers were dead wrong in their advice to him, and he was dead wrong in implementing it… but I suspect that wasn’t the case 2 years ago when Summers managed to make it into the inner circle. He’s staying there, I suspect, by agreeing with whatever the President says, and subtly sabotaging real reform. Not certain about this, but it would fit patterns I’ve seen and experienced in my 16 years as a CEO. Ultimately it is up to the President to make a much needed personnel change.

  293. April 17, 2010 – New York Times – excerpt

    By THOMAS HOENIG

    “Unfortunately, the proposal for regulatory reform now before the Senate does not eliminate the concept of too-big-to-fail, and it deliberately narrows the central bank’s focus to Wall Street alone.”

    Thomas Hoenig is the president of the Federal Reserve Bank of Kansas City

    http://www.nytimes.com/2010/04/18/opinion/18hoenig.html

  294. My coffee was too hot

    APRIL 16, 2010

    “So GS gets their comeuppance from the SEC. Nobody should cry for GS if they are fined for their lies and misrepresentations. But what about their counterparties? They lost $1 billion because GS did not tell them that Paulson felt bearish about their CDOs?

    Excuse me, but these people were not some Norwegian fishermen. They were professional financiers who should have known how to analyze securities. So how exactly were they defrauded of their money? Because GS forgot to tell them that security prices can go in both directions? Give me a break.

    There is a much simpler answer. They were deceived because they were only too happy to deceive themselves. Subprime CDOs looked to them like a good risk so they wanted to get the kind of advice from GS that would justify taking this risk. Sure enough, GS delivered exactly what the customers wanted.

    It takes two to tango.”

    http://tinyurl.com/yyqfnq3

  295. Does this mean Phil Graham will get what’s coming to him?

  296. ‘the illusion of what it stands for’… Yep, but not without a fight. We’re gonna have to ask the Germans and Japanese what we tought them. We have forgot.

  297. No Jeanne, in fact they teach their kids that, “honey, financial crises is something that happens every 5 to 7 years”-Jamie Dimon

    No problem Mr. Dimon maybe all those unemployed that you ruthlessly laid off (even though your company is spitting more profits than ever) can come and camp out at your place.

  298. mick grayston

    You are grossly mistaken. Some depositors in the bank failures of the 1930’s took as long as 22 years to recoup all their deposit losses.
    I suggest you study history before further comments.

  299. I have a bad case of food poisoning from this recipe. I will pass the desert de jour ‘Doomsday Loop II’ or the civet coffee.

  300. Did the Lehman bankruptcy examiner consider suing the ratings agencies for breach of contract?

  301. GS will settle with the SEC for an as yet undetermined amount of money.

  302. While I agree re Cox, every time I see Markopolis try to speak in public, he comes off as both crazy and an arrogant ass. To the extent that I have any minor sympathy for the SEC, it stems from his lack of credibility.

  303. bill windsor

    you may possibly want inform yourself about what is called “asymmetry of information”

    Now, what the hell does that mean?

  304. bill windsor

    All of this would point out the need for more and better (federal)regulation. There is a large element in this country that would argue that point. They would suggest that the Federal government should stay out of Wall Street business and that the system should govern itself.
    They are against ‘Big Government’, let things be handled state by state. This is not a ‘State’ issue pure and simple, and it is just one example. Just imagine where we would be if Wall Street were regulated by the State of New York, not that it’s not bad enough now.

  305. BRUCE E. WOYCH

    Pecora was a Rockafella “stooge?” is not just a distortion but it is a misrepresentation of history itself and defies explanation based on some gross association with an alledged plot with FDR. Review wome of the background material readily available:

    http://en.wikipedia.org/wiki/Ferdinand_Pecora

    Pecora’s investigation unearthed evidence of irregular practices in the financial markets that benefited the rich at the expense of ordinary investors, including exposure of Morgan’s “preferred list” by which the bank’s influential friends (including Calvin Coolidge, the former president, and Owen J. Roberts, a justice of Supreme Court of the United States) participated in stock offerings at steeply discounted rates. He also revealed that National City sold off bad loans to Latin American countries by packing them into securities and selling them to unsuspecting investors, that Wiggin had shorted Chase shares during the crash, profiting from falling prices, and that Mitchell and top officers at National City had helped themselves to $2.4 million in interest-free loans from the bank’s coffers.

    http://en.wikipedia.org/wiki/Pecora_Commission

    “In 1939 Ferdinand Pecora published a memoir that recounted details of the investigations, Wall Street Under Oath. Pecora wrote: “Bitterly hostile was Wall Street to the enactment of the regulatory legislation.” As to disclosure rules, he stated that “Had there been full disclosure of what was being done in furtherance of these schemes, they could not long have survived the fierce light of publicity and criticism. Legal chicanery and pitch darkness were the banker’s stoutest allies.”

    Boy that not only sounds familiar but it sounds like a rehersal for today. If the SEC is really doing its job we should see a sweeping inditctment of many other circumstances start to surface. The reality is that someone got hurt that has some clout and undoubtedly dogged the SEC into a corner trying to get his money back. Settlement down the road…or sweeping indictments at other leverl…only time will tell. My bet is a settlement amongst hostile compadres that ameliorate the guilt as just normal practice gone alittle overboard. Bad boys pay fine; maybe one career wrecked and will have to settle on the island paradise they buy to “seclude” him in detention.

  306. You don’t see any Democrats or libs/progessives complaining? Try reading the liberal blogs like HuffPost, Salon, Firedoglake, Open Left, and on and on….

  307. Then again… sounds like maybe he is….

  308. I’m not claiming to be a big brain, but my gut reaction to this mess is that the little guys take’em out one at a time.

    Move your money. I agree 100% with Per. I absolutely cannot fathom why anyone would leave their money with GS now!

    Even if you think the others are no better, if investors showed their displeasure against one at a time, sooner or later, the Republican rhetoric of ‘let the market take care of itself’ might actually work.

    Maybe the best question to ask at this point, the best people to point our fingers at are – who the hell is still allowing GS to pay their execs outrageous bonuses? Anyone paying their fees.

    Trust me, I realize this may sound like vilifying the victims, but… really?

    There are options. This is not a professional opinion and since no one here is paying me, I don’t think I can be sued if I’m wrong – hehe – but if I were a GS client, I’d be looking for socially responsible funds who are getting good returns. And I would move the money. Money talks, bs walks.

  309. yay! Thanks for a piece of good news!

  310. But it is a bit like wanting to put in jail the kid that called out that the emperor had no clothes… is it not?

    I mean who provided the bad mortgages? and who rated them so badly?

  311. I understand the disillusionment of both parties. I just don’t understand “Too many words and not enough action. In a way, isn’t that typical of the left?”

    And, what isn’t the change you expected when you voted? Institutionalized corruption?

    If you will look at the organizations who are pushing for fair elections, I believe you will find those very active people consider themselves to be ‘progressive.’

    The left side of the aisle in Congress just succeeded in passing a health care (or insurance reform) bill, weak as it may be, against all the rage of the far too publicized right wing fringe and, in fact, with no cooperation from the other side.

    Both sides got contributions and that probably made for a weaker law, but at least the Democrats passed something and a Democratic President signed it.

    You had better believe that is a big change over the previous administration!

    I’m sure you’ll remember W’s calling for privatization of social security.

    Don’t get me wrong, Obama is not doing as much as I wanted, either – but there is definitely a change for the better in the WH.

  312. Jake, your post of truth intrigued me, so that I linked from your name to your site. I’m gonna buy your book, even though it was a bit rough sledding through all the irony of that interview. Your view is scary, but I’m afraid you might be right. We may be looking over a mass of economic dark matter (worthless sliced and diced CDOs et al) in the millions of trillions – that is gonna make the Great Depression look like a garden party.

  313. Your forecast is quite depressing.

  314. is that a suggestion?

  315. OK, John Prine is my hero…

    “Blow up your TV, throw away your paper, go to the country, build you a home.

    Plant a little garden, eat a lot of peaches, try and find Jesus on your own.”

    from Spanish Pipe Dream

  316. OK – he works for me to – Down to earth and pretty straight forward.

    I like the one of his you suggested but this one might be a better one concerning our economic leadersship in this country.

  317. A little. But more like wanting to inhibit one of the leaches on society. It is probably not possible to inhibit all the leaches at once. So start with one, and to mitigate damage to society, proceed to inhibit the rest as fast as possible. Prohibiting one will probably make the rest think twice, slowing the damage down.

  318. You are wrong.

  319. Simon and James, you should take your information directly to the people. Get on Oprah, Glen Beck, Bill O’Reilly, Anderson Cooper, The View, etc. I don’t care if the people are on the far right, far left or somewhere in the middle, once you explain what happened they will understand and mobilize. If you expect the citizens to act you have to get your message out to them. NPR, Bill Moyers, etc. only reach so many viewers. With this Goldman lawsuit you have a window of opportunity to make your case while more people are listening. You just have to seize the moment and tailor your presentation to appeal to the target audience of the talk show.

  320. Seconded

  321. accidentalfission

    It’s been the culture of Wall street for a long time now. Free money, wheeeee!

    In that particular subculture, it is by definition “moral” if it’s profitable.

    What might be immoral to non-moneyed classes — those of who don’t play in hedge funds, sit on boards, and count our bonuses in millions — is probably legal as well as “moral” in the Wall St./CEO culture.

    Look at Dick Chaney being on Haliburton’s payroll as his company was given billions ($12 billion? More?) in no-bid contracts to fight a tragic war that never should have been started. Yeah I know, it was a severance package, an insured annuity, all nice and legal and he wasn’t “working” for them any more.

    That’s the kind of example set right at the very top in the Wall St./CEO culture.

  322. thanks joebob.
    i am at least glad this thread finally took somewhat of a philosophical course, if not Nietzsche, Derrida, or Camus…[or maybe it was? lol]

    At the risk of sounding preachy, the song by Phil Ochs and this one by Prine aren’t as helpful to me. I don’t need more opening of the eyes and scales to fall off…what i want for my spirit, are other real humans with whom to connect and keep up the good cause of helping m’self and others to “keep on keepin’ on” [now there was a scarily prescient human -Bob Dylan egads...]

    as a species, to be us and happy, with some few exceptions, is to be with others…they are our best and most efficient way to get our real needs met. hence my long ago post up there in the ether above somewhere of the pathological nature of American mythical “rugged individualism”
    this is [or was] usually the extended family…and we know where that has gone…i have a large extended family, but in this age we are in, not sure that will do it any longer…

    I am thinking the communes of the sixties, etc., [minus the lack of sexual boundaries...ack!] are the likely answer. a combo of communism…SMALL C…and private enterprise,

    “from each according to one’s ability, to each according to the need”

    OR hell, maybe it’ll all crash and burn and all us little folk, will remain plebians, indentured servants and what did they call the strong-backs-and wet-nurses of the Lords and land owners of Feudal Europe?…

    i don’t really know. but i would like to be somewhat prepared, if possible.

  323. that would be good.
    except all the talk shows are owned by the very people this would bring down. Moyers was probably the only venue available, [except right here in Dodge City]…

    the idea of freedom of the press does NOT mean access…
    not in two-party Corpocratic America.

    perhaps the best we can do is continue to scream bloody murder at top of our lungs in the internet echo chamber and hope, someway, somehow, we are finally heard by those who matter to make a real difference. it sure as hell ain’t Obama, the disappointment of the last two milleniums.

    btw i just learned that Moyers is going off the air at the end of this month. i cried. for real.

  324. Numerous consumer groups, the FBI, and even bloggers, were among those who said all this fraud was going on, years in advance of anyone really talking about it in mainstream media where it might have educated citizens enough for them to resist industry hype. All the relatively good articles we’re reading now, could’ve and should’ve been published several years ago. I became aware of it in about 2001 and I’m just an ordinary person, who happened to be doing reserach beyond the usual news sources, like govt documents for one example.

    If consumers and investors knew what was going on (or could not so easily have gone into denial about it) back then, their reluctance to get involved could’ve greatly minimized the effect of the housing bubble and bust on the economy. Consumers, long criticized for not being financially savvy, are ironically being blamed for orchestrating the economic mess, when they could not possibly have had the knowledge, connections, or resources, to pull off the massive and complex fraud schemes. Industry insiders, on the other hand, did, and the FBI reported that very fact in its white collar crime reports but was denied resources to combat it by the Bush Admin. Investors, also, were knowledgeable enough to have known mortgage backed securities were junk and they bought them anyway. In the Goldman Sachs fraud case it is being aired, finally, that this was a deliberately orchestrated fraud that some insiders expected to profit from, leaving everyone else to pick up the tab while they made off w/their millions. Not at all news to those who were following this at least a decade ago. The corporate control of the govt and media is obscene and has contributed to our economic downfall, and this country’s descent into being another 3rd world country complete with outrageous corruption and a growing class of poor and uneducated citizens. These industry insiders are criminals; if you or I took out the economy we’d be in jail for life.

  325. “The corporate control of the govt and media is obscene and has contributed to our economic downfall, and this country’s descent into being another 3rd world country complete with outrageous corruption and a growing class of poor and uneducated citizens.”

    agreed. this has already been said. what to do?

  326. “We have waited long and patiently…”

    Maybe that was the problem, then? Action vs. consumption?

  327. yes. action by citizens is required. I’m thinking, alternative economic ways of being…

    “if you or I took out the economy we’d be in jail for life.”

    If you or i SIDELINED the economy, we’d be under threat of societal sanctioned violence/restraint.

    these are extreme examples,with terrible consequences and psychopathic underpinnings but think: Ruby Ridge, Waco, and Jonestown.

  328. Why do you not try out the normal social sanction route? There are literally thousands of tenured and non tenured finance professors in your universities and who said absolutely nothing about the upcoming crisis… why do you not ask each university to defend itself or remain on a list of the plain stupid or irresponsible silent?

  329. Re: @ Bernadine………….nice ;^)

  330. to bernadene…I’m sure you’re aware that in some areas of the country (Detroit; East L.A.; rural Georgia; West Virginia, etc.) it’s already as bad or probably worse than in the so-called Third World countries in terms of birth rates; life expentancy; crime rates; drugs; corruption; family breakdowns; suicide rates; abortion; depression, etc…the question is: will this blight eventually spread to the comfortable white suburbs of America…I have a feeling the Great Recession has already made possible the inevitable spread of this deacy (or blight) and infected the once mighty pristine neighborhoods of Suburbia, U.S.A….just look around you or ask your local police…they know

  331. Wow! You have stated the fears of conservatives, racial bigots and economic bigots quite succinctly. But it doesn’t answer her question: what to do to correct the ills of Wall Street. Unless of course your suggesting that by putting the poor and uneducated in ghettos surrounded by police we will end Wall Street corruption. Seems like a stretch to me.

    We’ve given the corruption nearly 40 years to infest both the financial community and politics while deliberately weakening their immune systems. Things look grim when first realizing that, but the answer lies in a step by step legal process, such as the Goldman Sachs prosecution, accompanied by public awareness and outrage which pressures politicians to act in the interest of the public. The process has begun, we must actively support it with all legal and democratic means at our disposal. It’s going to take years, if not decades, and no solution will either eliminate the problem nor work forever. This is much like the battle between parasites-pathogens-poisons, and the human immune system. It never ends, and it actually produces positive evolutinary benefits if one doesn’t die in the meantime.

  332. How about either removing corporate personhood. OR. Use the right to use the death penalty on corporations. Three strikes and your OUT

  333. Nature’s solution to limiting parasitic load is twofold:

    1. Built in term limits for all living beings. We’ve mistakenly given corporations unlimited life. They should be limited to 70 years. (Early Dutch, English and US corporations were limited to 21 years, but their boards got more and more automated renewals and ultimately our unlimited life construct.

    2. An apoptosis process: a managed process (from within and without) for ending the life of an ill or aged cell so that its resources are recycled for other cells. As opposed to necrosis where an injured cell hemorages uncontrollably and damages surrounding tissue. When we to impose term limits on corporations, we’d also require board directed apoptosis of their resources during the last 5-10 years of their lives.

    Limited life spans would indirectly prevent corporate entities from entering into defined benefit agreements and would limit their overall growth.

    There are a few other regulations from nature we need to apply, but this one adresses your question. I’ve written about some of the others on my blog. More to come.

  334. mondo pinion

    That, from a much different personal perspective, is how I see it too.

  335. re: @edwin lee…you missed my point…all I’m trying to do is remind readers (especially the ones who live in gated communities away from any downtown core U.S.A.) that there are already pockets of economically depressed regions in the U.S. that approach (or maybe exceed) Third World levels of social problems…it’s already happening as we speak… and the Great Recession is just going to accelerate this meltdown…and maybe spreading these social ills to once shiny, prosperous idyllic neighborhoods…it’s sad but it is plain ugly reality and not (usually) the fault of the citizens living in these badly hit communities…this is all tied to policies (of both parties) over the past 30 years that favored megacorporations who provide generous funding to both parties every election cycle…the hollowed out communities in question cannot afford to hire K Street lobbyists…and the Congressmen and Senators who are supposed to represent these disdavantaged folks are too busy being wined and dined and entertained (in exclusive Country Clubs) by these corporate interests…too busy to remember the poor and displaced voters from their districts…

  336. I did indeed miss your point. Correction well taken. Thanks.

  337. If this “trial” goes on as many of us hope, I can only dream that the person who heads it has the insight and courage into not only investigating f the crime itself, but how we got there. Who enabled it. Bring Phil Gramm into testify. Sitting and retired members of congress who’s obsession with de-regulation created the conditions for this to happen. There is not only financial theft and corruption at the heart of this, there is massive political corruption as well, and it can’t remain the elephant in the room that everyone is afraid to talk about. Name names. How about a question like “to what degree did Goldman favor repeal of Glass-Stegall, and why.”

  338. Cheney served as chairman of the board of Hailburton from 1995 to 2000. Well before the invasion of Iraq.

    Lets keep the conspiracy theory, Illuminati crap under wraps, shall we?

  339. COME ON PEOPLE – 3Run Homer has it right here – I usually agree with Professor Johnson, but I think he is missing the bigger picture.

    The true fraud here is that Moodys and S&P rated 80%+ of the Abacaus structure (along with all of the other asset-backed strucutres) as AAA. Paulson was simply taking a view that the whole model that Moody’s and S&P were endorsing by giving a AAA rating was totally wrong. Why is that fraud? Goldman is on more shaky ground as they sold the structure that fell apart, but ACA clearly had the final choice on the structure.

    Weren’t there other deals where GS actually shorted their own deals? Wouldn’t that be more likely to be fraud than Paulson shorting this one?

  340. If this problem is indeed solvable, aside from cloning Brooksley et al., …

    We need to clone Dennis Kucinich. He represents the very downtown core of Cleveland of which you speak. Let’s find more of him.
    There is safety in numbers. If his influence continues to grow, as it seems it might, he is in grave danger, not just politically, but physically as well.

  341. thanks. oh yeah, serfs.

  342. Edwin Lee, as a scientist, i do so appreciate your references to “Nature”. Agreed, there is nothing MORE or LESS natural than a human being, and by logical extension, all human activities.

    But, unless i am grossly misunderstanding you, the inevitable conclusion of your analogy is the “survival of the fittest”. As philosophers, we know where that leads.

    What say you?

  343. except every one knew that the AAA ratings were BS. S&P and Moodys were pressured like every one else.

    the entire system stinks to high heaven. enough said.

  344. Yes and now it is time for some “Razzle dazzle ‘em” http://bit.ly/b5b5ob

  345. extension of the analogy in real terms? what exactly are the lifeboats and how do you get there?

  346. yes a lot do.

    a really close friend of mine wrote a dystopian novel, published last year about this very thing…
    serious.

    “2045: a story of our future” by Peter Seidel

    WHO, what,& where are the ones [rich and powerful] who do NOT sleep well at night?

    any takers?

  347. are you really a banker? if so that gives me more hope…

  348. [Cheney served as chairman of the board of Hailburton from 1995 to 2000. Well before the invasion of Iraq.

    Lets keep the conspiracy theory, Illuminati crap under wraps, shall we?]

    Oh PLEASE…get real. or inform yourself of his interests…!

  349. is this your blog? regardless, I am glad many others whom i trust understand the details…i get the MEGO effect…my eyes just glaze over…

    i am always going to cut to the chase, given as much information and its implications as i can handle…

    hence, what the hell do we do? i think i know at least for me…

    someone said it above…

    nothing new under the sun.

    i think i’m done. thanks to ALL on this thread.

  350. bernadene,

    as a scientific type also, i suggest that evolution also rewards empathy as empathy enables complex groups of individuals to live together and prosper. I might also add that evolution also selects for in-group xenophobia and purity of all kinds. the environment determines what is selected for and we – u.s. – as others in the world are willing to trade short term benefits and hide our head under the blanket and not question where the bennies came from.

    if we control the environment better we can promote more empathetic corporations.

    we should also be considering thhe world situation also. essentially we now have a world government in the WTO and the other EVOLVED global institutions that SELF Regulate world trade and that provides the environment.

    Corporations and individuals have been offshoring money and control for many years and without solving that problem just regulating banks will not work…..all though regulating banking is a necessary move – it is just not sufficient.

    Have a friend who teaches international law and the world government is here and brought to you not by the illuminaty but the evolved requirements of international trade and global corporations.

    there is an dump in the Philippines that evolved a complex system, there was a program on NPR a few days ago about the Rag Men in India, the pirates did evolve pirate courts, gangs do it in the block in cities……..and the WTO evolved because of issues related to problems of dealing with trade on a global nature and the barriers and nationism……

    it is done in similar paterns – human paterns – froom the bottom to the top, except at the top the world is effected….

    http://www.harpers.org/archive/2006/12/0081312

    enjoy

  351. Bernadene;
    Survival of the fittest is a crude misnomer for natural selection, which is a valid, though imperfect process for maintaining health and winnowing productive companies and innovations from less productive ones. It is not the only process, especially when humans are involved, but there is a degree to which it is an essential one. Philosophers who think we can do without a natural selection process in economic, political or cultural systems haven’t accurately considered the alternatives. I like your question, and will produce a more complete answer on my blog and in the book I’m writing.

  352. i am done for sure…no more time left.

    I can be found for further info, for an internet gathering at bazennie@gmail.com

  353. addendum…thanks to all, joebob, Edwin Lee, Per Kurowski, etc…!

    I think i need to visit some additional blogs…and discussion threads about the things that matter to me.

    argggh…time be not my master.

  354. bernadene wrote:

    “But, unless i am grossly misunderstanding you, the inevitable conclusion of your analogy is the “survival of the fittest”. As philosophers, we know where that leads.

    What say you?”

    To paraphrase Darwin, it is not the strongest or the smartest that survive, but the most adaptable.

  355. Aurelia rush

    does this reflect the views of the masses. nothing succeeds like success? what.

    Sounds like it is related to this story.

    Then the one on his left. He hardly stood still or looked at his audience for more than a few moments during his big announcement on Tuesday. Whether Geithner can handle the gargantuan task of bailing out a troubled government bailout – and saving the livelihoods of millions of Americans – couldnt be answered by a single solo performance.

    http://www.unitedstatespolitical.com/senate/geithners-big-moment-a-hard-sell.html

  356. Carol Lewis

    Many Ceo’s and Exec’s need to know….When you deliberately withhold adverse material information from customers, that is FRAUD. When you do this on a grand scale, the full weight of the law will come down on you and the people who supposedly supervised you. And if the weight of that law is no longer sufficient to deal with – and to prevent going forward – the latest forms of very old and reprehensible crimes, then it is again time to change the law.
    And maybe all those unemployed Bankers that their managers laid off because we preferred honesty over immediate profit and we cannt meet the numbers can come and camp out at the congress … We have waited long and patiently…….