Goldman Sachs -- Reverse Robin Hood
Have you ever seen the old Errol Flynn movie, Robin Hood, where the outlaw, Robin steals from the rich and gives to the poor. That was supposed to have happened in the 1300's. Well, that was then. Now hundreds of years later, Goldman Sachs has a new twist on that old fable, steal from the rich and give to yourself.
On 21 April 2010, Goldman Sachs testified in front of Congress. The SEC had brought charges that Goldman had sold the collateralized debt obligations (CDO), Abacus, to their clients, telling them that there was great profitability in sub-prime residential mortgage-backed securities. The allegations showed that Goldman had not informed its investors of the participation of their associates, Paulson & Co. hedge fund, in the portfolio selection of the CDO Abacus. The charges, which included numerous internal emails, showed that Paulson and Co. took short positions against the same sub-prime CDOs that Goldman was marketing to its own customers. Goldman claimed it was Paulson & Co., not Goldman directly, that took the other side of the investment.
"Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party," said Robert Khuzami, director of the SEC's division of enforcement.
By not informing their investors of Paulson's short positions, Goldman Sachs demonstrated their predisposition towards kleptocracy. What is Kleptocracy? Merriam-Webster dictionary defines Kleptocracy as "a government by those who seek chiefly status and personal gain at the expense of the governed." While Goldman Sachs is not yet the government, it sought status and gain at the expense of its own sophisticated investors. As a direct result of the charges, Goldman Sachs stock lost billions from the Market's reaction, as its investors pulled their porfolios. Goldman also settled with the SEC for $550 million (without admitting wrong doing). One can only imagine the number of individual civil lawsuits filed by attorneys as well. Remember, all of Goldman's investors are sophisticated, and wouldn't have the wool pulled over their eyes. Interestingly enough, no one from Goldman Sachs went to jail.
Exactly year later, on 14 April 2011, Goldman Sachs and Lloyd Blanfein, Goldman's CEO, again return to testify in front of Congress. Releasing the findings of a 2-year inquiry, the Senate said that the matter should now be turned over to federal prosecutors, reviewing whether to bring perjury charges against Goldman's CEO and other current / former employees who testitied in Congress last year.
According to the findings of the report, much of the blame for the 2008 market collapse was from banks and brokerages like Goldman that earned billions of dollars in profits creating and selling CDO's that imploded along with the housing market.
It now appears that Goldman improperly marketed other CDOs including one called, Anderson. The report claims that Goldman "selected a large number of poorly performing assets for the CDO, took 40% of the short position, and then marketed the securities to its clients." In April 2010, Goldman testified that it was Paulson & Co. that took the short positions, betting against the CDO. For the first time, the report now reveals that in another CDO, it was Goldman, itself, that bet against the same portfolio they were marketing to their clients.
The report went on to claim that "when a client asked how Goldman 'got comfortable' with the New Century loans (that were part of the Anderson CDO), Goldman personnel tried to dispel concerns about the loans, and did not disclose the firm's own negative view of them or its short position in the CDO.
In April 2010, when the Senate brought charges against Goldman, discussing internal emails specific to the CDO Abacus, Goldman was clever in its testimony, limiting all of its comments to Abacus alone. Now comes April 2011. Goldman again wants to dispell the view that it did anything illegal, responding to the accusations that they misled the Senate investigation: "The testimony we have was truthful and accurate..." Remember, at that time they said that it was Paulson & Co. that shorted against the CDO. Probably Goldman assumed the investigation would end there, with the payment of $500 million to the SEC (without admitting wrong doing), and no one would bother to look beyond Abacus. But the Senate investigation did look further, carefully examining additional internal emails covering more than just one CDO.
At the time Goldman testified in 2010, they did not admit that, oh by the way, we have another CDO, Anderson, where we, ourselves, took 40% of the short position on that investment and won big when it failed. Clearly, Blankfein and his current / former employees never saw the movie Robin Hood, or if they did, chose to interpret the outlaw's actions as fool hearty and naive.
Barbara Cohen CIO, Shadowtraders, and professional day trader, specializes in teaching students how they can be trading futures with their own trading system and trading strategies. Ms. Cohen has helped hundreds of traders achieve their goals trading. Find out if trading futures is for you by attending one of Ms. Cohen's free webinars. Check out my Futures Trading Articles For more information, send an email to shadowsupport@shadowtraders.com or call 866-617-2037 today.