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Goldman Sachs To Face Fraud Charges

Discussion in 'Finance & Banking' started by Chris C, 19th Apr, 2010.

  1. Chris C

    Chris C Well-Known Member

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    Goldman Sachs May Face U.K., German Inquiries After Fraud Suit - Bloomberg.com

    LOL I thought this was a typical leaf in the wind statement by a politician...

    ... but nonetheless being the sort of person who is always questioning the role of banks in our economy, and more importantly - their ability to manipulate it, I have to say I'm glad to see the spotlight turning towards the financial sector.

    Who knows, by the end of this saga I might actually have some of my faith restored in the system.

    What's everyone else's thoughts?
     
  2. bigbuddha

    bigbuddha Well-Known Member

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    Indeed, I too am more than happy to see GS being put to task. However, doesn't it seem so convenient that GS is being put through the wringer just as OBAMA and CO. are seeking to push through a financial reforms act this friday I believe.

    Also the SEC put a warning to GS last Dec I believe so they have known for quite some time. Seems to me that the politico's have kept this little gem in their back pocket ready to use when it suited them.

    as far as confidence in financial systems. I will only have confidence once central banks particularly the FED have been removed.
     
  3. Chris C

    Chris C Well-Known Member

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    When pigs fly...

    The US economy will have to sink into another great depression or hyperinflation even in addition to all political propaganda channels (mainstream media) would have to be down for for a sufficiently long enough time for people to start using some common sense and drawing some rational conclusions...

    ... but here's to hoping!

    :rolleyes:

    Nonetheless I'm hopeful that at least some regulatory progress can be made.
     
  4. Simon Hampel

    Simon Hampel Co-founder Staff Member

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  5. Tropo

    Tropo Well-Known Member

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    Why Bear Stearns Refused Paulson's Pitch

    Why Bear Stearns Refused Paulson's Pitch

    Friday's news that the SEC charged Goldman Sachs with "defrauding investors" for selling a subprime mortgage product is eerie because much of the process that created it was profiled in last year's widely reviewed bookThe Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History , by The Wall Street Journal's Gregory Zuckerman.

    At the center of the SEC's complaint is a Goldman product loaded with dicey synthetic collateralized debt obligations, or CDOs. It was sold to institutional investors and, suffice to say, a losing proposition. The question is whether the losses were preordained with Goldman's knowledge, in which case the investors were sucker-punched. Or, to quote the phrase that's become widely used in the last 24 hours in describing the fund, was the product "designed to fail"?

    The flip side of the failure, intentional or not, is that hedge fund honcho John Paulson profited in spades from the fund's implosion in what Zuckerman coins as the "the greatest trade ever." In fact, Paulson helped design the product that a) failed and b) created enormous profits for him. Was there a connection between the two?
    To be precise, did a) preordain b)? The SEC seems to think so. Nonetheless, there's a fine line between trying to outlaw failure and regulating against creating products that are intentionally designed to stumble in order to create profits for insiders. Clearly, the ability to fail must be and should be preserved in the financial system, but only if it's part of promoting a legitimate and fair-minded embrace of risk and capital formation.
    It's not clear that this is what was happening with the Goldman and Paulson deal, although perhaps we'll learn otherwise as the case unfolds in the days and weeks ahead.

    Meantime, "What makes it feel like dirty pool," writes Joe Nocera in The New York Times, "is the allegation that Paulson & Company and Goldman Sachs were actively involved in choosing the bonds that would be bet on — knowing they were going to be short."

    How we got to this point is outlined in Zuckerman's book. Paulson reportedly had been looking for an investment bank that would be willing to cobble together a fund of CDOs with a bearish aura before he came across Goldman. At one point Paulson was in contact with Scott Eichel of Bear Stearns about the proposed idea.
    Zuckerman writes that, "Paulson would want especially ugly mortgages for the CDOs, like a bettor asking a football owner to bench a star quarterback to improve the odds of his wager against the team.
    " Paulson, in other words, would be shorting the mortgage components of the fund. The problem was that someone would need to take the other side of the trade by owning the fund.
    Zuckerman goes on to report:
    "On the one hand, we'd be selling the deals" to investors, without telling them that a bearish hedge fund was the impetus for the transaction, Eichel told a colleague; on the other, Bear Stearns would be helping Paulson wager against the deals.
    "We had three meetings with John, we were working on a trade together," says Eichel. "He had a bearish view and was very open about what he wanted to do, he was more up front than most of them.
    "But it didn't pass the ethics standards; it was a reputation issue, and it didn't pass our moral compass. We didn’t think we should sell deals that someone was shorting on the other side," Eichel says.

    For his part, Paulson says that investment banks like Bear Stearns didn't need to worry about including only risky debt for the CDOs because, "it was a negotiation; we threw out some names, they threw out some names, but the bankers ultimately picked the collateral. We didn't create any securities, we never sold the securities to investors….We always thought they were bad loans."

    Besides, every time he bought subprime-mortgage protection, someone had to be found to sell it to him, Paulson notes, so these big CDOs were no different.
    Indeed, other bankers, including those at Deutsche Bank and Goldman Sachs, didn't see anything wrong with Paulson's request and agreed to work with his team. Paulson & Co. eventually bet against a handful of CDOs with a value of about $5 billion.
    The rest, as they say is history... still unfolding in real time.
    Why Bear Stearns Refused Paulson's Pitch -- Seeking Alpha

    Goldman Sachs issues detailed rebuttal as it fights to clear its name
    Goldman Sachs issues detailed rebuttal as it fights to clear its name - Telegraph
     
  6. Chris C

    Chris C Well-Known Member

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    Let's see them try and make their billion dollar quarterly profits without a rigged market!

    :)
     
  7. Tropo

    Tropo Well-Known Member

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  8. Chris C

    Chris C Well-Known Member

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  9. Tropo

    Tropo Well-Known Member

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    Warren Buffett backs Goldman Sachs over fraud allegations

    The "Sage of Omaha" – speaking publicly for the first time since the Securities and Exchange Commission (SEC) filed civil fraud charges against the investment bank – stressed that he "loves" his $5bn (£3.27bn) stake in the investment bank and branded the Royal Bank of Scotland as "dumb" for losing $900m on the $1bn transaction under scrutiny from civil and criminal investigators.
    Warren Buffett backs Goldman Sachs over fraud allegations - Telegraph