On giving Goldman a chance
After my Rolling Stone piece about Goldman, Sachs hit the newsstands last week (unfortunately the piece is not yet up on the magazine’s web site, so I can’t link to it yet — but it is out in print), I started to get a lot of mail. Most of it was thoughtful and respectful criticism, although there was an amusingly large number of people writing in impassioned defense of their right, under our American system, to be ripped off by large impersonal financial companies. “If my pension fund is buying [crap mortgages] from Goldman, and my pension fund loses lots of value, that’s not Goldman’s fault,” wrote one reader. “No one is forcing anyone to buy anything. The only thing Goldman is guilty of is making profits.”
I’m not even going to go there — the psychology of a human being who would take the time to actually write in a complaint like that is so bizarre that it would take more time than I have today to even begin discussing it. One other complaint that I will address quickly, though, is the notion that I didn’t tell Goldman’s side of the story. “Not exactly a balanced approach,” complained one reader. “You should take an ethics class. You have to give the other side a fair shot.”
Actually I did contact Goldman and gave the bank every opportunity to respond to the factual issues in the article. I’m bringing this up because their decision not to comment on any of those questions was actually pretty interesting.
We figured ahead of time that Goldman was probably not going to respond to many of the allegations in the article, since its MO in the past with regard to hostile journalists has usually either been to make bald denials or to simply avoid comment (that’s when they’re not using the carpet-bomb litigation technique, as in the case of GoldmanSachs666.com). So what I decided to do the first time I approached them was to send a short list of simple factual questions. If the bank decided to engage us and educate us as to its point of view on these simple questions, we would send more queries and expand the dialogue.
Given this, I tried to make that first list of questions as basic as possible. I asked if Goldman would have turned a profit in Q1 2009 if it hadn’t orphaned the month of December 2008. Then I asked if Goldman had made changes to its underwriting standards during the internet boom years; if Goldman’s position was still that the steep rise in oil prices last year was due to normal changes in supply and demand; and if it could explain its 1991 request to the CFTC to have its subsidiary J. Aron classified as a physical hedger on the commodities market. Citing various sources, I also noted that some people had complained that its move to short the mortgage market in 2006 even as it was selling those same types of instruments proved that the bank knew the weakness of its mortgage products, and asked if the bank had an answer for that. And I asked if the bank supported cap-and-trade legislation, and if it was fair to say (as we planned to in the piece) that the bank would capitalize financially if such legislation was passed.
I intentionally put a lot of yes/no questions on that list. If the underlying thinking behind any of those questions was faulty, it would have been easy enough for them to say so and to educate us as to the truth. Instead, here is the response that we got:
“Your questions are couched in such a way that presupposes the conclusions and suggests the people you spoke with have an agenda or do not fully understand the issues.”
You have to have swallowed half a lifetime of carefully-worded p.r. statements to see the message written between the lines here. That this is a non-denial denial is obvious, but what’s more notable here is that they didn’t stop with just a flat “no comment,” which they easily could have done. No, they had to go a little further than that and — and this is pure Goldman, just outstanding stuff — make it clear that both I and my sources are simply not as smart as they are and don’t understand what we’re talking about. So the rough translation here is, “No comment, but if you were as smart as us, you wouldn’t be asking these questions.”
So now word filters through that Goldman has issued yet another statement in response to the piece, this one by mouthpiece Lucas Van Praag (or Von Doom, as he apparently is often called). Again, the company does not take issue with any of the facts in the piece — not one. Here’s what he says (via Felix Salmon at Reuters):
Taibbi’s bubble case doesn’t stand up to serious scrutiny either. To give just two examples, even with the worst will in the world, the blame for creating the internet bubble cannot credibly be laid at our door, and we could hardly be described as having been a major player in the mortgage market, unlike so many of our current and former competitors.
Taibbi’s article is a compilation of just about every conspiracy theory ever dreamed up about Goldman Sachs, but what real substance is there to support the theories?
We reject the assertion that we are inflators of bubbles and profiteers in busts, and we are painfully conscious of the importance of being a force for good.
Okay, let’s look at that bit piece by piece. Von Doom takes issue with the bubble argument by citing two “examples” of the case not holding water, the first being:
… the blame for creating the internet bubble cannot credibly be laid at our door…
I kept waiting for the “because…” clause here, but there wasn’t one. He just says so and leaves it at that. Now there is obviously some measure of hyperbole in solely blaming Goldman Sachs for something like the internet bubble, or any of the other recent Wall Street disasters, for that matter. But you’d have to be absolutely crazy (and you wouldn’t need “the worst will in the world,” either) not to accept the notion that Goldman shouldered a significant portion of the blame for the internet mess. They were, after all, the leading underwriter of internet IPOs during the internet boom years. In 1999, at the height of the boom, they underwrote 37 internet companies, most of which had little or no history and were losing money at the time of the launch. By late 1999 Goldman was underwriting one out of every five internet IPOs. They were repeatedly caught and punished for manipulating the prices of their IPOs, either via laddering or spinning. Van Evil doesn’t deny any of this, and just blithely says that one can’t credibly blame them for the internet bubble. I’m almost insulted by the lameness and half-assedness of that comeback, but that might be part of the point, to be insulting. He moves on:
…and we could hardly be described as having been a major player in the mortgage market, unlike so many of our current and former competitors.
Again, not to beat this into the ground, but in 2006, at the height of the housing boom, Goldman underwrote over $75 billion in mortgages, over $59 billion of which were non-prime. That represented 7% of the entire market, which seems like a pretty “major” slice to me. It is true that they did not jump so completely ass-first into the market as Lehman and Bear did (note Von Doom’s bemused reference to “former competitors”), but if you read the piece, we noted why that doesn’t take them off the hook at all. Because while their “former competitors” (one of whom is clearly “former” in large part because a former Goldmanite, Hank Paulson, elected to save Goldman’s hide instead of Lehman’s) were dumb enough to hold their mortgage paper and be sunk by it, Goldman shorted their own crap, which means (and I know I’m repeating myself here) they knew that what they were selling was a loser. So while they maybe weren’t the biggest player, they were still a major player, and one can easily make the case that they were the most obnoxious player, given that they dove into this muck with their eyes wide open, unlike so many other idiots on Wall Street.
In the middle of this weirdly substanceless retort, Von Doom then goes on complain about the lack of substance in the article, makes the predictable charge that the piece was a compendium of invented conspiracy theories, then moves on to “reject” the notion that the company inflates bubbles and profits in busts (about that last part: I recommend checking out Goldman’s profit/bonus numbers in 2002, 2008, and 2009 to date. I’m not sure how they can refute the notion that they have profited during the recent financial calamities). Lastly, he says that the bank is “painfully conscious” of the importance of being a force for good, which I noted with amusement is not quite the same thing as saying that that bank is a force for good, or wants to be.
So to sum up, this all translates as:
“Taibbi’s bubble case doesn’t hold water. To use just two examples, Taibbi’s internet bubble case doesn’t hold water, and we didn’t sell as many mortgages as Lehman Brothers. Taibbi’s article is a compendium of every other story about Goldman that doesn’t hold water. We reject these theories that do not hold water, and are aware of the difference between right and wrong, making us legally sane according to the law.”
I’m aware that some people feel that it’s a journalist’s responsibility to “give both sides of the story” and be “even-handed” and “objective.” A person who believes that will naturally find serious flaws with any article like the one I wrote about Goldman. I personally don’t subscribe to that point of view. My feeling is that companies like Goldman Sachs have a virtual monopoly on mainstream-news public relations; for every one reporter like me, or like far more knowledgeable critics like Tyler Durden, there are a thousand hacks out there willing to pimp Goldman’s viewpoint on things in the front pages and ledes of the major news organizations. And there are probably another thousand poor working stiffs who are nudged into pushing the Goldman party line by their editors and superiors (how many political reporters with no experience reporting on financial issues have swallowed whole the news cliche about Goldman being the “smart guys” on Wall Street? A lot, for sure).
Goldman has its alumni pushing its views from the pulpit of the U.S. Treasury, the NYSE, the World Bank, and numerous other important posts; it also has former players fronting major TV shows. They have the ear of the president if they want it. Given all of this, I personally think it’s absurd to talk about the need for “balance” in every single magazine and news article. I understand that some people feel differently, but that’s my take on things.
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I’ve already read some crazy ass comment about your article being The Zionist Protocols 2.0
It’s also pretty unclear what sort of balance an article is meant to add if the subject being criticized refuses to engage the reporter on the subject. Even if Van Pragg had sent the response before the piece ran, there’d have been little to write besides, “When reached for comment, a Goldman Sachs spokesman said, ‘Nuh-uh’.” Balance!
There are two sides to every story, but there aren’t always two credible sides to every story. When one of the sides offers nothing more than “That’s not true, because we say so”, treating that like its as credible as the cogent, facts-based points made by the other isn’t balance, it’s misleading.
–d
What’s the deal with balance? When did it become important for someone to say a few nice things about a subject when reporting that the subject is bad? Am I supposed to think you’re point is not valid because you didn’t trumpet Goldmans long history of humanitarianism? If you did that I’d think you were a bit wishy washy, that you weren’t sure of your point.
‘“If my pension fund is buying [crap mortgages] from Goldman, and my pension fund loses lots of value, that’s not Goldman’s fault,” wrote one reader. “No one is forcing anyone to buy anything. The only thing Goldman is guilty of is making profits.”’
How is this not Goldmans fault? Who created the mortgage backed security? It wasn’t the pension fund, it was the people selling them. They put a bunch of dogshit in a shiny gold box and sold it as a shiny gold box but you don’t blame them when it turns out to be a box of shit? Who do you blame for that? Granted there a otehr party’s involved but you can’t remove from blame the people who invented the vehicle though which millions were defrauded*.
*When you ignore any risk modeling that tells you the person you are making a loan to will almost certainly default, then take payments from them, then take their house, you are committing fraud.
[...] On giving-Goldman a Chance [...]
[...] Given their immense reach, how much slack should we cut Goldman Sachs (GS)? (True/Slant) [...]
Excellent. PR spinners don’t stand a chance against you Matt.
Note to corporate shills: don’t try to make a pinata out of Taibbi, man. He’ll rip you a new one.
Matt, your piece in RS was great.
I work in the financial industry so I already knew about the corruption at GS. What I appreciated and made the RS piece great was you getting this story out in the mainstream like you said MSM is practically controlled by GS. Joe Sixpack needs to know GS is looting this country; raping the women, wasting the men, enslaving the young and destroying the old.
Very good rebuttal to Von Pragg or Doctor Evil’s nonsense. Keep up the great work!
That was a beautiful Maiden reference there, my friend.
In response to another comment. See in context »Having not read your article, I can’t comment on it. But maybe I can make a case for one sort of balance.
When I want that, I don’t want a vapid wire piece where somebody who appears to know nothing gets matched quotes from two “sides”. If I wanted symmetrical drivel, I’d just read both press releases. Instead, I want something from a writer with knowledge and a viewpoint, but who has made a conscious attempt to confront their own biases, prejudices, and leanings.
I don’t always want a balanced view. Rants, screeds, and polemics have their place. I can get entertainment or motivation from them. But when I want facts and analysis, I reject anything from a writer that doesn’t demonstrate a willingness to tackle their own bullshit with at least as much vigor as that of the article’s subject.
[...] Taibbi on Goldman Sach’s response to his recent Rolling Stone piece. Go read it all, but this is priceless: After my Rolling Stone piece about Goldman, Sachs hit the [...]
I hope some of your correspondents criticized you for failing to understand the entire concept of “hedging.”
Because wow, you REALLY don’t understand it. Goldman wasn’t buying ABX contracts because they secretly knew that “what they were selling was a loser” — Goldman was hedging its risks. Banks always hedge as much of their risk as possible. This has been going on for thousands of years.
The reason Goldman feels like officially responding to you is beneath them is that….well, officially responding to you is beneath them. The truth hurts.
To know the full extent of this situation, one would have to know also, what private placements may have been issued to capitalize on the morgage meltdown…and the issue of hedging is a very convenient way of dodging the issue. LBlankfein also said to a congressional panel that it made no difference to GS one way or another whether AIG was bailed out with government money because they were perfectly covered–I find this to be more bold face lies since if what he said was true, GS would never make any money, or they would never be in trouble financially…it just ain’t so.
In response to another comment. See in context »If officially responding to him or his article is beneath Goldman, then what do you call Van Praag’s statement? Was he in fact referring to a different but similar article by an unrelated, more worthwhile Taibbi?
In response to another comment. See in context »Hahahahahah!!! Dude, hedging is one thing, but intentionally selling that crap to people while knowing all along that it is crap is downright unethical and corrupt.
I don’t understand how that can be viewed any other way. Maybe it is OK for me to roll back the odometer on my 1997 Nissan and sell it as a brand new car.
In response to another comment. See in context »I gather you work at Goldman?
In response to another comment. See in context »NickJ
Just a quick question for you……… Who do you work for, Goldman Sachs?
In response to another comment. See in context »Shallow defense @ best; fraud is fraud.
Hedging?
Kind of like they called the netting of CDSs hedging. It was of a good strategy as long as there was a counter-party around to pay off their bet. They used hedging techniques in a derivative that defied the concept of hedging. The only reason they didn’t lose their ass was Paulson and the 13 billion paid to them from the proceeds of the taxpayers check. That was close to 33% of their tangible equity at the time. That’s of course if one believes their accounting which is suspect at best.
There seems to be a very blurry line between being smart and just being a criminal on Wall Street. I seriously doubt that people who work there even consider any of the activity Goldman does to insure massive profits at others expense is anything but smart. They figured they have “hedged” themselves quite well by placing people in Govt positions to insure little will be done after they get caught in the variety of scams they have run.
In response to another comment. See in context »“because WOW” and “This has been going on for thousands of years” doesn’t stand in light of the consequences of their actions, does it? Or are you completely devoid of sense? Perhaps you’re one of the sociopathic profiteers. Or just plain stupid. One or the other.
In response to another comment. See in context »Do you know any folks at Goldman, nickj? Because I do, and they don’t agree with you.
Was in class with several of them the other day, in fact, and when Taibbi’s article was brought up in discussion, the GS people were not defiant. They practically hid beneath their chairs. That’s called shame, nickj.
In response to another comment. See in context »Bullsh*t- it would be hedging if they held on to the underlying instruments. If they unloaded them to fools and also shorted them, it would be profiting double when creating crappy MBS securities.
In response to another comment. See in context »You don’t hedge on products you’re selling, because once you’ve sold them they pose no risk to you. You’re supposed to hedge on products you’re buying in case the investment goes bad.
Goldman basically filled the cellar with gasoline, locked the basement door and sold the house, then took out fire insurance on it.
In response to another comment. See in context »yes banks always hedge their positions because they know they know nothing. and even when they hedge things dont always work the way they should.
but they sell un-hedged positions to their customers. [of course they cant sell hedged positions because that would be either a gift or theft depending upon whether they sold them for more or less than they were worth. assuming of course that their hedges actually work.]
and the customers want the risk because hedging limits the possible reward as well as possible losses.
the point is that they sold these things to their customers and down played the risk to the customers while they hedged their risk and took the commissions.
it seems insincere.
In response to another comment. See in context »Really? Have there been banks for “thousands of years”. That’s THREE “0″s. I’m sure we all agree there hasn’t been globalized, corporate banking for 1000s of years and likely the rules of sheperd banking may not be adequate for today’s complex financial institutions and products. I am certain the sheperd’s did not put the wolves in with the goats (keeping it in a 1000 year perspective). The point is simple: when for-profit enterprises create complex self-hedged financial products who’s “value” is primarily in their speculative nature – and then manipulates their markets by deceiving consumers of associated risks – at this point governance should provide oversight and protection to the consumer. Matt’s coverage shows that regulation was so influenced by GS and others that it did not occur. The mantra of the ridiculous right is too absurd to wrap my head around. I.E.: “I have a right to be screwed, that’s capitalism”. While I understand the few indiviuals who still benefit from the scam arguing for it – I cannot understand why the “screwees” do! Is it really “American” to blindly take a screwing in the ass quietly? A kind of “man up” thing? Yikes. In my mind to let corporations with no goals other than profit be allowed to ruin lives people (who barely knew where their investments went) to be destroyed and further collapse a housing market and economy – is unholy and unAmerican. Who’s passing this koolaid? It must stop. If we look to history, the last major movement against “speculators” turned out badly. Avoiding a similar extreme response as communism provided to the Romanovs would be a good thing. Thanks Matt.
In response to another comment. See in context »Nick, wow, what a pretentious turd you are. I like how you slid in the jargon so we all know you’re a “big deal”. Matt’s questions were perfectly reasonable. Any journalist, interviewer, researcher, etc. should be asking these questions considering the situation we’re in. To say they are beneath them is to claim some sort of special exemption that exists only in your own mind. Do they teach this arrogance when they train to cold call old ladies retirees and widowers? I frankly love how Taibbi calls a spade a spade. Running to your room and crying about how much better you are is not really a defense anywhere outside of lower Manhattan.
Matts article perfectly illuminates what is an unbelievable problem for us here in America–trying to dispell ‘conventional wisdom”. I think it was sociologist Joel Best who said that getting rid of a bad statistic was, “harder to kill than a vampire.” And this vampire notion completely applies to the myths out there about the federal reserve and their agents of which goldman sachs is their first born. Conventional wisdom and group think give a beginning explanation as to why so few people know that the Federal Reserve is a private corporation. Yes, the Federal Reserve Act gave this privately held corporation with 300 shareholders the right to print our country’s money, and to charge for doing so, and to rebate the United States Treasury for all profits minus their operating expenses. Bloomberg reported on June 5, 2009 in the article “ Fed Intends to Hire Lobbyist in Campaign to Buttress It’s Image” , that the Federal Reserve was hiring one of Enron’s previous lobbyists. On May 6, 2009, US representative Alan Grayson questioned the Inspector General of the Federal Reserve, Elizabeth Coleman, if she had any idea where 9 TRILLION dollars of off-balance sheet transactions for the Federal Reserve were located—she had no idea. Structured investment vehicles (SIV) were the method that Enron used to manage the off balance sheet transactions that caused so much hurt to so many people, and it is also, SIV’s that the Fed is using for this 9 trillion dollars. Since both the Federal Reserve and Enron use SIV’s, perhaps an x-Enron lobbyist will help the private Federal Reserve Corporation navigate the bad press that seems likely to follow, when the public understands these details. Problem is, with the cunning audacity that is used to overlook all accusations, and a whole system that is designed to protect these overlords, it doesn’t matter what the public understands until/unless big daddy’s power is revoked by congress.
Calling out this comment – explained below.
In response to another comment. See in context »This is not about hedging! It’s about knowingly selling shit branded as triple-A doughnuts! That they massively hedged it only proves the point.
Matt, your recent article in RS was one of the best I’ve read the past many years and I’ve made sure as hell RS know I feel that way.
Very few people speak the truth these days and MSM that can’t even get themselves to utter the word “fraud” when talking about these criminals and their blatant criminal acts.
GS latest trick has been to get NYSE to stop publising program trading figures (See Zerohedge today). This is outragous.
Seeing that GS apparently completely own almost everyone they need to in positions of power there is only one thing to do.
Award-winning financial blogger Karl Denninger called for a “Starve The Beast” today (http://market-ticker.org/) and that is just what thousands of americans and indeed people across the globe will do to stop this madness.
Keep it up!
Jesper, Paris
There are two reasons that financial journalism is frequently dishonest:
1) Reporters don’t like to say mean things because it puts a damper on their social life. Most journalists just want to be loved.
2) When a journalist writes negative pieces, the sources stop talking to him, and it’s difficult to get scoops.
Taibbi is fearless and casts both of these aside. I just hope he doesn’t wind up face down in the Hudson River. (Even Jan Wenner may go after Taibbi for daring to say that Democrats and Obama share some of the blame.)
Here’s what Taibbi needs to explicate for his readers:
1) GS is more hedge fund than i-bank. At the end of the August 2008 quarter, their debt/equity was over 22x, a number that would make most hedge fund cowboys blush. This means that equity was only 4.2% of assets. If GS’s $1.081 trillion in assets fell after the August quarter by 4.2%, GS would have been bankrupt. Typical hedge funds and endowment asset values fell by much more than that in that quarter (around 20%). Without TARP, who knows what the bottom would have been?
2) Taibbi says GS got at least $13b from the AIG bailout. Word on the Street is that the number was higher. Without this $13b, debt/equity ratio rockets to 32x, and equity falls to 3.0% of assets. Investors panic, covenants are breached, bonuses disappear, and the talent flees like rats off a sinking ship.
Over the years, GS could have retained earnings in order to build up a rainy-day fund. But instead, they paid out massive compensation to employees and dividends to shareholders, thereby keeping book equity low in order to boost return-on-equity numbers, which, by the way,are not just a measure of reward, but are as much a representation of the catastrophic risk the firm is taking. As Nassim Teleb said, “We have a very strange situation in which it’s the worst of capitalism and socialism, a situation in which profits were privatized and losses were socialized. We taxpayers have the worst.”
Keep fighting Matt…you’re an American hero!
- Landanlius Truefeld
[...] Matt Taibbi – Taibblog – On giving Goldman a chance – True/Slant – I intentionally put a lot of yes/no questions on that list. If the underlying thinking behind any of those questions was faulty, it would have been easy enough for them to say so and to educate us as to the truth. Instead, here is the response that we got: [...]
Yes, Matt, it’s always important to get the other side’s story. Very important, for instance, to get Jeffrey Dahmer’s side. He might have had a very compelling and substantive reason for killing and eating those people. It’s not all black and white.
Buying a fixed income instrument and then buying credit protection against it is hedging.
Selling a fixed income instrument and then buying credit protection against it is a doubled-down or leveraged short bet against said instrument, which is the opposite of hedging.
I agree with you Mr. Taibbi. Good piece.
As for nickj: The difference between hedging and dumping is in the quantity as well as the quality.
Excellent post.
Also, half-assedness is one of my favorite words. I thought that I was the only one who used it though.
I am no huge fan of GS (as a frequent reader of Zero Hedge, it is impossible to be), but I do take issue with some of your logic. You criticize them because “they knew that what they were selling was a loser”, but this applies to anybody selling almost any financial instrument. I sold a stock today, because I believed it was a loser. If I thought it was a winner, I wouldn’t have sold it. (Duh!) As a purchaser of a financial instrument, you are making a bet that the instrument is a winner, but this bet is far from assured, and anybody who takes the seller’s advice that it’s a surefire winner is an idiot, pure and simple.
The fact is that GS is very, very smart, and they’ve made some very, very shrewd moves over the past decade. The line between simply being smarter than the party on the other side of the transaction and taking advantage of the other party isn’t always clear. With these types of transactions, IMO, unless you have blatant misrepresentation or illegality, “buyer beware” applies and the winner has “outsmarted” instead of “exploited” the loser.
Like the human body, financial systems are extremely complex and unpredictable. Just as you can’t just blame the doctor because a patient dies, you can’t just blame the bank (or other seller) because an investment blew up. Maybe it was just bad luck… but even if the instrument was a lemon from the beginning, after all it was YOU (the investor) who was dumb enough to buy it; it was YOU who didn’t do your research; it was YOU who took the seller’s word that you were getting a great deal; unless GS outright lied to make the sale, it is YOU who are the blame, not GS.
Regarding the Internet bubble, I completely agree with you that most of the companies brought public by Goldman were complete crap. But so what? The fact that Goldman underwrote the IPO is not a guarantee that the company will succeed and the stock will appreciate indefinitely! Any investor in the markets should know that there are no guarantees, huge risks, and careful research (and risk management) is required. The fact that these companies were hugely speculative bets that had never made a dime was 100% public knowledge. Buying the IPO of a tech company during the bubble was like laying money down on “12″ at the roulette table. Do you blame the casino when the ball lands on “28″ and you lose your bet? Of course not. While it’s true that there were many retail investors who got swept up in the bubble and thought these tech companies were surefire investments, these people were naive and for the most part plain stupid, a fact for which you cannot blame GS (and these investors were every bit as greedy as GS, too).
Now I’m not saying that GS didn’t do its part to pump up the bubble, and for that they do deserve criticism. But the fact is that bubbles are largely self-inflating. They exist inside the minds of market participants, and once they get going have a life of their own. (Correct me if I’m wrong, but the Tulip Mania predated GS by almost 200 years.) GS didn’t create the desire for these IPOs. People were hungry to invest in “the next Yahoo!” and, to a large extent, GS was simply providing a service and giving investors what they wanted (and also funneling investor capital to businesses that needed it, a vital service). To blame GS for the tech bubble is like blaming real estate agents for the housing bubble; they played their part, but in reality they were doing exactly what we would expect them to do (their job). If they oversaw some sales that blew up in the end, to the unfortunate buyers I say, “You know what you were buying, and you knew what you were paying, so stop complaining.”
But they changed the rules in order to make it easier to get investors to buy in to those IPO’s that had lost money. Just like they manipulated the rules in order to make their CDO’s look like AAA investments. That is CORRUPTION!! How do you not understand that?
I am all for a free market and let the losers be losers, the problem is that our pu$$y a$$ nation is so afraid to let the big guys lose, they bail them out over and over which only encourages their behavior. How can you support that???? HAHAHAHAHH
Great piece Taibbi!! Please keep up the hard work. I am passing your stuff on to as many people as I can.
In response to another comment. See in context »Comparing selling a loser stock to what Goldman does is so far off the mark when comparing what a private investor does to a large enterprise, it should be shouted down.
At one time Goldman was not in the habit of bringing out companies that had no concept of profit until the bubble and short term greed took over “long term greed”. Reputation mattered then. That meant there was a certain amount of trust that Goldman felt was necessary to getting only the best clients.
As mentioned in the article, there was a fairly strict set of milestones a company had to pass in the 80s before bring brought public. They were quickly discarded in the 90s as Goldman rushed to be the leader in the new bubble.
In your buyer beware rant; I see the same “blame the victim” mentality that seems all too common. Why not just say that banks are worst than buy here pay here used car lots in terms of trustworthiness and everyone should know this?
That is the essence of this article. They are crooks. A responsible journalist who does his work well doesn’t look for balance when he is exposing a criminal enterprise.
How many times did we see Mike Wallace of 60 minutes blind side a company who had been screwing people left and right? He knew if he gave them fair warning his chance of getting the story would be slim to none.
The justifications you use are horrible, until they are put in the right context. Matt put a buyer beware notice that the reputation that Goldman traded off of was fiction . So now that people know that they are what they are, doing business with them means win-loss. Win for them, loss for their marks.
That’s why Goldman felt it necessary to give something more than “no comment” in response to the article. Once they are seen as a Wall Street version of a “buy here-pay here” used junk lot; it will be awfully difficult to return to the glory days of 27 billion in bonuses in a year. Now people will realize what lies behind that smile and handshake.
Be sure to wipe the grease off.
In response to another comment. See in context »[...] “On giving Goldman a chance“, Matt Taibbi, True/Slant, 30 June 2009 [...]
Thanks again Matt. Having been reamed by some “really smart guys” who were constantly telling me I just didn’t “understand”, when they were taking my business public, in truth they were just taking it. It sickens me to read the snotty, you don’t understand derivatives” line.. Here is a quote from the dictionary: the instantaneous change of one quantity relative to another. Whew.. Got that out of the way. The saddest thing is these guys are, one rung above Nigerian scammers. To bad Mr. Obama can’t see the forest for the sleaze.
Dear skyshoes,
In response to another comment. See in context »It is not that Obama can’t see it, it is just that he and most every politician is owned by “it”–the financial-government complex, led by the privately held federal reserve, and infinitely more destructive and massive than any old military-industrial complex you might have once known about….the fed is the grandmaster puppeteer overlord of us all….congress, however, does have the power to revoke their power, and let our country be taken back by we the people.
H.R.1207 and S.604 must be passed. If they don’t vote for these bills vote them out of office.
In response to another comment. See in context »i love how thorough you are
Gee whiz, Mike. You haven’t even scratched the surface. Let’s get someone to do a little investigative reporting about the following as recently disclosed – but not effectively synthesized – in the media:
1. Check the resumes of Geithner, Bernanke, Summers, Paulson, Rudin, etc. Former GS boys or acolytes all. Then check to see who was in the Georgetown townhouse the week-end that it was decided to pull the plug on Lehmann: G, B, P and Mr. J. Finkbein, the present head honcho of GS. Noone else representing the gov’t, or the banking industry, or the investment houses. This was, it appears, strictly an in-house, back room deal and Obama, Dodd, Frank, etc., likely were, and will in the future continue to be, just rubber stamps. Once upon a time Lehmann was GS’s chief competitor; where are they now and where are all the other erstwhile competitors? Merrill? Gone. Bear Stearns? Gone. JP Morgan? Gone. Morgan Stanley? Reduced to second-class status. GS? Still standing, more powerful than ever, the only real game in town anymore. So what if they didn’t show a real profit in Q1′09. Given the present world situation (which one could argue they created just to do the shakeout), all they have to do is SURVIVE for awhile; then it will simply be Monopoly and they will own ALL the real estate, AND the bank, AND the utilities. Plus, a permanent “Get out of Jail Free” card in their back pocket. Think all that was an accident? Think all these geniuses didn’t know what would be the (temporary and manageable) global fallout from a decision like that? No pain, no gain. It’s called “killing the competition,” salted with a little brinksmanship. Just know that these guys have all the answers to questions we haven’t even thought of yet.
2. How about AIG? GS swore at the time that it wasn’t involved. But why then did Congress agree to the paying out of so much ultimately unrecoverable taxpayer money while retaining absolutely no oversight(or even reporting requirements) over the use of the bailout funds given to financial institutions, particularly to AIG (who promptly gave $XX billions of dollars from the bailout package to GS – who had previously said they weren’t owed any)? Was it in fact a payback to a creditor? Or to an insured client? Or just the cost of doing business in the real world of international finance/politics? Damn! And I thought investing (and investment banking) was supposed to involve some degree of RISK!!!
3. Check out GS’s interests in the European banking system and in China. However the global financial meltdown shakes out, Heads GS wins, Tails, GS wins – that is unless the world’s financial system (including GS) has overplayed its hand and we all wind up in a depression – which is possible if not likely and which, if it happens, will have no predictable end in sight. But if not, then when China becomes the strongest financial power in the world (and it can be seriously argued that they already are), do you think GS might be called upon to advise the otherwise unsophisticated Chinese bankers how to use that power? Why would Geithner have already quietly come out in favor of the equally quiet Chinese proposal to subordinate the dollar to some new form of world currency? (Let’s not forget he spent years in China doing economic studies and speaks fluent Mandarin.) Maybe because, if China formally assumes the highest postion of power in world finance, what good is that power if the universal denomination of value underwriting how that power is exercised is the US dollar (whose value would remain under the control of the US)?
I could go on and on with other seemingly unrelated matters, but suffice it to say that it seems that GS has risen to the level of the world’s first Superstate, beholden in reality to no government and in control of every major world financial decision that will be made from here on out. It’s like GS is using the American government as a front office. As was written recently, this is the New Oligarchy, the New World Order and the new rules we will have to play by, safe from intervention, safe from regulation, safe from full disclosure. Someone should put the pieces of this jigsaw puzzle together just so the ignoranti like us can know what is really going on out there. You weren’t even given the time of day, Mike. Get used to it; this is the new Reality of the globalized financial industry, and GS is in the driver’s seat…and noone else even gets to read the map. Money is not King, FINANCING is King: Money is just the coin of the realm – like it always has been. Truth is, Financing is the corrupt genius child of Greed and it’s probably irreversible, but I’m not sure that it should be reversed even if it could be. At least there will finally be some measure of control over the world’s banking and investment system by some really smart people who may be corrupt, but who will now be beholden to the system that they created. And maybe what we are going through won’t get that much worse and maybe, just maybe, it won’t happen again anytime soon. Let’s just pray the boys at GS know what the hell they are doing; no one else seems to.
How does one get a non-sarcastic slow clap started in a comments section? Superlative work as always, Matt.
clap… clap… clap…
In response to another comment. See in context »Goldman Sachs is gonna buy Rolling Stone, fill Matt Taibbis closet with skeletons and Spitzerize him.
[...] Goldman attempts to rebut Taibbi, Taibbi tears them a new one Jump to Comments On giving Goldman a chance. [...]
Chris Hedges, Jay Rosen and anyone who has been paying attention all agree: the promotion of balance in journalism is inherently fraudulent, a practice that elevates bad information at the expense of truth. Why is it that we reflexively dismiss Holocaust deniers? Teach the controversy!
NickJ, I have to take issue with your comments re: hedging…..Goldman didn’t hedge this risk as would occur in normal practise, I’m afraid Matt is most likely correct, they created financial products that their analysts knew were EXTREMELY likely to blow up, and they covered themselves. Basically Goldman are a ‘go for the dollars and damn the social consequences’ type of organisation, and that you might say is perfectly legal. And yes, you’d be 100% correct, but is it moral? Does society benefit from these type’s of predators? I am a professional and may I say ethical trader, and can assure you that Goldman have and still are deliberately gaming the Energy sector, and net energy importers all over the world are paying the price for their fun and games. Just as oil prices were headed south a few months ago, goldman released an extremelly dubious year end outlook suggesting $80 a barrel was on the cards, and there is no credible economist that would agree that the world economy could handle such a price in its current recovery mode….even with supply disruptions, OPEC have 4-5 million barrels of excess production parked….making comments that game markets like this to make a quick buck or two just isn’t morally defenceable. The only hope is that enough participants in all markets and sectors around the world begin to filter these types of comments with the rest of their worthless spam. Goldman’s constant ‘whoring’ of its credibility shall one day be its downfall no doubt. Just because they are large doesn’t make them more or less corruptable than any other person or organisation, but the facts are the facts. On a final note, in my personal experience, anyone or any organisation who makes little effort to engage in a detailed defense of its actions usually has something that they would struggle to defend in detail to any credible degree. I once caught a company out in a direct lie in major issue of shareownership and recieved a letter issued from their legal representatives saying ‘it appears our client was mistaken’, when challenged on a major legal ownership issue! Incredible….Matt my advice, keep the pressure on them. Demand a face to face, and keep circulating the story until they respond seriously. CNBC, Bloomberg etc might like the story, they are very much covering the Madoff and Stanford cases right now, and prehaps an indepth on lack of ethics and manipulation might be a runner.
I have read (Tor F) that when the US Gov bailed out AIG to the tune of 150B plus dollars, billions flowed through and went to GS to cover their claims for losses on their insurance bets on credit default swaps.
What a deal, we the raxpayers try and save AIG and we saved GS.
Only in America
— richard cooper
As an old media spokesperson, I grew tired and frustrated with both managements and editor/reporters who strove for “balance” in their stories, devoting space to two sides of an issue when only one perspective makes any sense. “Fairness” in reporting is what matters. While the tests for fairness may appear subjective, little things like facts, history and consequences together with some range of enlightened opinion can add up to a “fair” reflection of the truth, which Matt Taibbi seems to capture in his perspectives above.
(Note -repost from the wrong area)
Matt,
I read the Print piece. That was THE best I’ve read from you. No equal.
I don’t get the impression that Goldman is a pioneer in the art of legal theft, I just think they let other companies who may or may not have stumbled onto soemthing that could be exploited show them the way, then they use every tool in their break-in kit to dominate that technique.
For example: I don’t think they brought Netscape public in 1995. That’s what really started the phenomena of IPO stocks going up hundreds of percent on opening day. Once they saw that , then they geared their operations for “Bullshit.com”. Netscape was a profitable company. The ones they brought out were slapped together websites or ventures that consumed so much money doing something so obvious that the IPO became a joke. It wasn’t a joke though to the millions who lost money as that bubble burst.
I read about laddering. It’s hard to see why no one went to jail for this. It was clear manipulation. Those tiny fines were a joke.
The cap for me was when you pointed out they paid somewhere in the neighborhood of 27 billion in bonuses and 14 million in income taxes. The other question that you raised for me is; how much money is sitting in tax free havens?. How many of those banks really did need TARP funds?
I’m betting Goldman is a leader there too
There were a number of things I wasn’t aware of though that may put them in pioneer status. The Cap and Trade bubble ( coming to a neighborhood near you) and the letter they got in 1991 from the govt stating there wasn’t any limit in commodity futures.
The rest of it is like a fine woven fabric of connecting all the dots showing your readers who these people are and how long they have been doing it. Well done.
Well done Taibbi. Using RS to get this out was pure genius. The GS filters would have got you otherwise. But do look after yourself please. These are vicious people.
The question is – Is Obama getting to read your article or have they turned him to a zombie already?
oh one last thing I forgot to say earlier, which no-one has really touched on. GS, like everyone else packaging these contacts were using credit rating agencies to rubber stamp them, and ppl working for these agencies have publicily stated that the validity of their ratings were compromised by the nature of their relationship to the owners of the contacts. Now you can’t say that someone was simply hedging their position if they were deliberately influencing the ratings of these things. They can only be likened to clever Snake Oil sales men who shorted their own snakeoil, plain and simple! And you can say buyers should beware, but then shouldn’t we be able to trust the ratings of a major agency? There are others who are just as culpable as Goldman’s here, but that doesn’t detract from their guilt also. I don’t believe you can work for these types of organisations and believe in a God, unless you are making a concious decision to lodge permanently in the eternal hot house!
Yup, I was thinking the same thing. Many of the pension funds would not have been able buy the CDOs without the AAA rating. And I have no doubt both Goldman and the rating agencies knew the CDOs were not AAA.
In response to another comment. See in context »[...] Keep pushing, Taibbi: [...]
I haven’t received my RS copy yet, but Matt Taibbi is a thorough journalist and a freaking rock star!!
Crazy as it is, I live in the reddest state in the union where people profess their belief in capitalism as Christ’s way and the ‘evils’ of socialism from the pulpit. I NEED articles like Taibbi’s that bring to light the corruption and greed that is entrenched in companies like GS. Bravo!!
Matt, if you need a bodyguard I’d love to submit an application.
Hi Matt, I was just wondering if Simon Johnson might come to your defense. Also, I think this site is trying to be “cool” with “Called-Out Comments” – but it could easily be misunderstood that the comments listed are “Calling You Out” – ie they’re right and you’re wrong. Taking a brief glance at the comments, it might look like nickj had simply discredited you – end of story. Anyway, my fiancee signed me up for Rolling Stone – I think the magazine is crap – but I found it interesting that you were willing to lay at least part of the blame on Obama and the Democrats. I don’t think the two feuding ideologies realize that independents can discern pretty quickly when an article is simply a party-line hit piece. And given I think these bailouts are a synchronized attack by both parties on all of us, I appreciate that you were willing to forgo the bias. Nice article – I hope you can absorb the fallout.
Nickj is intentionally confusing “hedging” with outright securities fraud. Hedging implies that GS saw multiple outcomes of a particular asset, and was tying to prevent their investments from primarily bad outcomes. GS only had ONE outcome in mind for mortgage backed CDOs: total failure. They profited from foreknowledge on mortgage backed securities that investors didn’t have, causing losses GS knew were going to happen ahead of time. The point being is that GS didn’t not “hedge” with uncertainty, but in fact dumped and shorted with near total certainty. I think nickj knows this, and is just being intellectually dishonest.. or is acting as a penny ante troll.
In response to another comment. See in context »I have no doubt he’s a troll. We all work in industries where we can make up euphemisms for “here’s how I’m gonna fuck you over”. What’s odd here is that, following the lead article, they list 3 “Called-Out Comments”. If people weren’t ignorant, we wouldn’t have this problem with the bailouts – they depend on our collective laziness and stupidity. So the final comment listed, at first glance, “appears” to debunk Taibbi’s article. Most people do scan articles o the web – so nickj should be applauded for a good day’s work. I still can’t tell wtf qualifies a “Called-Out Comment” here? They should at least attempt to control what little they can control.
In response to another comment. See in context »There is a term in psychology for people defending Goldman, Sachs. It is called Stockholm Syndrome, in which a hostage idealizes his or her captor because it would be too terrifying to believe someone with so much power over you could be a bad person. This kind of trauma bonding shows up in power relations all the time and certain cultures cultivate it more than others.
Keep your teeth firmly planted on Goldman’s ass, Matt. God knows, somebody needs to expose these shitbags.
The most valuable part of the article is the warning that the rules are changing again, and next in line to bleed the pockets of American taxpayers is the carbon credit market, and everyone involved with it – which includes Goldman Sachs.
President Obama has been pumping our heads with the idea that “green jobs” are going to take America into the future and save the economy.
So what we’re gonna do is jack up everyone’s energy costs until the changes actually happen!
Give ‘em hell, Matt. Ten or twenty thousand coworkers and I lost our jobs, health insurance, and much of the value of our retirement savings (company stock frozen in our 401Ks) as the result of a disastrous merger. Investment bankers made huge profits doing the deal and now they are about to make huge profits undoing the deal. Please don’t let up; you are on the right side in this battle.
Matt
Enjoyed your Goldman article in RS. There is little doubt that when you have former GS executives in most key Government posts, they will take care of their own. At some point in the near future, American taxpayers will wake up and realize that their much vaunted democracy is a farce run and controlled by special interests groups. The Junior senator from Chicago who is now President is a gifted orator who knows how to give a good speech but at some point, the tax payers will revolt when they get hit with Wall Streets Bills. As an investment advisor, we cannot be encouraging our clients to buy XYZ while shorting or selling our own positions, yet Investment Banks like GS get away with it because they can. America’s problems are so fixable and it will one day return to prominence but as long as politicians can be influenced, the American tax payer will be destined for more of the same. America needs a leader and it is not Obama. He will be a one term President who will preside over the continual decline of the great American Empire.
Goldman Sucks. SO – they bankroll these sub-prime loans, then they bet (Credit Default Swaps) that these loans will fail. They not only gain through their own profit; but, also through the demise of their rivals.
I personally think JP Morgan is just as culpable, and can’t help but wonder if their credit default swaps affected the way in which they serviced their loans ie let them default. I can’t help but wonder how much they might profit from credit card defaulters. Maybe they’re banking on defaulters by targeting those with a history of low payments on high balances.
Then there John Mack at MS.
Can’t wait to read this one. I LOVE that you are on to the dizzying wonderful world of Piracy. But you must be made aware that you can’t manipulate an economy alone, you must engage in consPiracy. And the man who’s always played by that book is the Captain; Captain Morgan. Who do you think taught Goldie all those tricks? You didn’t get a nudge from that old bird, did you? He always likes to play Good pirate, and I thought he might have talked you into painting Goldie Bad. She’s glad to play a whore if it will pay. I’ve gone to Poor Tom as these fools know no boundaries of reality. They have been on Nobel Quant Acid Koolaid for almost a decade and I don’t have to tell a Stoner when someone is done. Like a tissue of dried husks.
My step-mom took my legacy and in exchange left me hers to drag around NYT’s Dealbook like a mad Achilles/Antigone; don’t you know they didn’t see eye to eye on burial plans and neither did we. Well, her ghosts go so deep into the darkest of times that you could say the “Unc” was the GOPs “little black bag man” to buy Harding the White House and the Black Cabinet. Teapot Blown. So, I’m not so unfamiliar with the way these boys play.
You are likely right on the money. Goldie’s weak spot? Speculating she’s all out. Actuarially speaking! Wowowowowo!
[...] have to admire Taibbi for his liberal outrage. Then again, maybe I should admire Zakaria for carrying the kool-aid for his corporate [...]
Goldies is a clique – and a very hard one to get into.
Us dippy humans have always created cliques – it’s a fact of life. And there is always a latent risk inherent in criticizing the clique du jour: are you genuinely angry with what they did, or just the fact that they would never, ever let you in?
Cliques tend to interpret all criticism in the latter terms – ha! he’s just pissed off he can’t get in. It’s one of their key sources of power and inspiration.
Respect.
Outstanding article Matt. I’ve been waiting for someone of stature to lay the truth out line by line , year by year. I’ve studied the Great Depression for a long time and have lived through the the Tech Bubble, the real estate bubble, the oil bubble , and have called the next one the alternate energy bubble (which cap and trade was included.
It’s interesting to see you get attacked by the supporters of these bubble machines and the only conclusion you can come to is they made a lot of money playing this game and will defend it to their death.
You can always tell when a bubble is being built when you here the pundits say “THE OLD RULES NO LONGER ARE VALID, THIS IS A NEW ECONOMY” When tech stocks were the hot ticket they touted the old earnings rules no longer applied, and your description of insider trading to a special few was being done is the open and plain to see.
The real estate bubble exhibited the same nonsense talk when house prices were rising at 10 to 20% a year, they fielded all kinds of nonsense talk to justify it. Then as you point out they built the devices to screw the world and they knew they were selling junk , and so did the rating companies who rated them triple a. At the same time house prices were rising wages were falling but the wage to price ration kept increasing. If your head wasn’t screwed on backwards you knew what was happening. How come all the money managers who bought this junk didn’t know. Simple I guess they didn’t check.
Thanks Matt, I love your work.
Hey NickJ,
If you think that GS hedged all their subprime on the exposure by shorting the abx….or even half their exposure by shorting abx, then you don’t know what the hell you are talking about. The entire planet would have felt them putting it on and taking it off and I suspect you know something about markets and therefore you know this.
Goldman hedged the bulk of their exposure by tattooing AIG with it and when that didn’t work out so well, AIG got their bailout.
Matt -
I never understood the origin of the fair and balanced crap.
Reporting facts logically leads you to a conclusion as Bill Moyers used to say. I believe that is the difference between journalism and punditry.
Thank you for being a journalist.
Regards,
Tengrain
I heard about your Rolling Stone article on Thom Hartmann’s talk show and knew I had to read your article.
Since I couldn’t find it online, I had to rush to the neighborhood Barnes & Noble to get a copy (I live in the boonies and we don’t have newsstands out here).
I cribbed about seven or eight paragraphs from your article, summarized a few more, and sent it off to some local Dems and fellow peace demonstrators.
Your observations seem pretty reliable to me and I will be very sure to warn Dems of the coming Global Warming Bubble, to make sure they know the companies and persons involved in raking up the dough.
Your final paragraph is the clincher:
“But this is it. This is the world we live in now. And in this world, some of us have to play by the rules, while other get a note from the principal excusing them from homework till the end of time, plus $10 billion free dollars in a paper bag to buy lunch. It’s a gangster state, running on gangster economics, and even prices can’t be trusted any more; there are hidden taxes in every buck you pay. And maybe we can’t stop it, but we should at least know where it’s all going.”
Thanks for your research and great writing.
[...] business writer Matt Taibbi’s answer to the arrogant Goldman Sachs creeps responding to his outstanding piece on GS in the current [...]
[...] yet — only in print –but Mr. Taibbi has posted a response to the early critics on his blog at True/Slant. (h/t: [...]
Rolling Stone piece is great. An historical note on what happened in the 1980’s was Lehman and Drexel Burnham Lambert. Lehman the first investment bank to go public. Both brokers made big bucks through hype and crossing over a line. It was Lehman that pioneered the CDO’s, MBS back in the early 1980’s, but the formula wasn’t refined enough and to take off — line the pockets of the brokers at the expense of investors — this type of security needed a wider distribution system than a single investment banker could supply. Hence, the scam languished for a couple of decades until Wall St was out of products.
[...] market manipulation since the Great Depression – and they’re about to do it again." Matt Taibbi’s latest piece for Rolling Stone. [...]
[...] Given their immense reach, how much slack should we cut Goldman Sachs (GS)? (True/Slant) [...]
[...] market manipulation since the Great Depression – and they’re about to do it again." Matt Taibbi’s latest piece for Rolling Stone. [...]
Yo Matt!
Keep up the great reporting, you have successfully picked up where Dr. Hunter S. Thompson left off.
Does anyone really believe these G – S assholes actually have any concern about anything beyond their own balance sheets?
[...] his blog, Taibbi has begun a discussion of the public reaction to his article. Some commenters have [...]
[...] Matt Taibbi ziehen in den Krieg, melden die New York Times und New York Post. Hintergrund: Taibbi (hier sein Blog) hatte in einem zwölfseitigen Artikel behauptet, Goldman habe Washington dadurch [...]
[...] On giving Goldman a chance (Matt Taibbi’s follow-up to his initial article in Rolling Stone re: GS) [TrueSlant] [...]
Mr. Taibbi,
While the name “Jim Cramer” does little more than arouse feelings of anger and distrust, one need not look further than his account of the TheStreet.com’s 1999 IPO in his book, “Confessions of a Street Addict”. Goldman Sachs underwrote the offering and the entire process reaks of mismanaged, manipulated debauchery. Look even further to see how Goldman farmed out original shares to a Broker/Dealer which could front run demand on the upside (pushing up price) while playing the short side with its own capital (pulling the floor out of a pump and dump shorting the stock on the way down). Look at the daily price data on the opening. Truly astounding.
While Goldman has branded themselves as Wall St.’s “smart guys”, there is no doubt they are privy to information the average investor will never come in contact with while scanning the headlines.
Best,
Nick
[...] Check out Taibbi’s blog. He gets hammered pretty good by commenters. Posted by Mark Tokarski Filed in Ramblings [...]
[...] Matt Taibbi on Goldman’s Response to his Rolling Stone article (True [...]
I wouldn’t worry about the financial world’s idea of what is fair and what isn’t, mate.
When markets are about to dive or when they are about to file for bankruptcy; do they give anyone advice?
Let them eat S..t, that is all they deserve
[...] Read more. Related Posts:Taibbi on the heinous Goldman SachsGoldman to make record bonus payoutMatt Taibbi tells some truth about Hank PaulsonLarry Summers is too dirtyThe REAL scandal at A.I.G. (More truth from Eliot Spitzer) SHARETHIS.addEntry({ title:”, url:”}, {button:true} ); Tweet This! [...]
In all my years I have never ever read such a piece of poor journalism.
eg (and there are many)
re the letter J Aron in 1991 wrote to CFTC for companies involved in oil markets need to hedge positions and I quote you ” That 1991 letter from Goldman more of less directly led to the oil bubble in 2008!”
I mean honestly even readers of Rolling Stone are not that credulous.
You are obviously paid by the word and not the quality of what you are writing and thus doing a diservice to all other journos in the industry who strive to report facts and not histerical frustrated ranting.
Get off the pot and let someone else have a go!
[...] his blog, Taibbi has begun a discussion of the public reaction to his article. Some commenters have [...]
Please tell me that Goldman Sacks is not a Jewish cartel. My only child is Jewish and I would not wish her to be associated with this criminal cartel. I have ever so reluctantly come to the conclusion that Israel is a criminal state as is my own,(USA)and would not like to learn that the masters of the economic collapse are jews!
As this may be my first opportunty to comment among some equally disgusted folk, if you like good old fashioned dirt on monolithic dirt balls with excellent source work, read “America’s 60 Families.” Not a conspiracy book. It’s a compelling indictment. A “What the Hell Just Happened and How They Did It from 1896 to 1937 by a Veblen told you soer. Folks thought it was going to be a vanity deal, but they soon found a big egg in their face.
I read a copy the Taft School shipped off to Douglas, AZ, old home of Phelps Dodge. That’s where the Guggs shipped the copper cartridges for Pancho. Love JP’s Union Cartridge posters. That old coot, co-opting the word “Union.”
I fondly refer to it as the Pirates’ Playbook. Deep trout. Worth the effort to have your library locate you a copy. You just won’t want to give it back.
ehswan,
Unless I can’t hear the sarcasm, have no fear. Avarice is universal. I can site hundreds of good Christians who helped to destroy economies and even fledgling dreams of nation. Some are blood relatives, others are just the crap you pick up through marriage. “Unc” went to Russia under the wool of the Red Cross, but he was really foxing out the facts for his Wall Street buddies. I won’t misquote Sutton. You don’t have to drink Mr. Sutton’s koolaid to get those bums’ trip. Wall Street and the Bolshevik Revolution. What will a million dollars buy? Baku, mon ami.
You nailed it. The other part of this attitude is, “If you were as smart as we are you would agree with us and be rich like we are.”
I’ve worked with some brilliant high-tech execs and many of them have this attitude toward journalists. If they can’t explain it because they aren’t good at explaining stuff, well clearly it is because the reporter is stupid! So they treat the reporter like an idiot who can’t figure out that the they are being talked down to. Reporters might not know all the details of every bit and byte but they are geniuses at knowing when someone is talking down to them, lying to them or patronizing them.
During IPOs I ran into some bankers getting ready to take a client on the road, they were huge jerks to everyone because they were the ones who were going to bring money to the poor tech start up. But they were so arrogant they didn’t bother to do their job with the buyers. Sure they would take their multibillion dollar cut, but they didn’t really want to do any real work.
They treated everyone in the process like dirt, when I challenged them to do their job they pretended like they HAD done their job. I knew better since this wasn’t my first IPO. I took the CEO aside and reminded him that THEY work for him and not the other way around.
“So the rough translation here is, ‘No comment, but if you were as smart as us, you wouldn’t be asking these questions.’”
The noive of you unbalanced moron “journalists.” You need to be ensmartened !
[...] Stone’s story, see here. For Rolling Stones’ writer Matt Taibbi’s rejoinder, see here. Rolling Stone has not yet published the article on-line, but it is available in that other medium [...]
[...] True/Slant’s own Matt Taibbi uncovers the truth behind the scam and wonders aloud, “Why are we letting this [...]
You deserve a Pulitzer for your Rolling Stone piece, Matt. I’ve read pretty much everything you’ve published in the past 5 years. I’m a subscriber to RS because of you and you’ve outdone yourself here.
Although, if you don’t receive a Pulitzer, Goldman Sachs will probably have a hand in it.
[...] text version: The Great American Bubble Machine | Corrente Here is a Matt’s answer to GS comments: Matt Taibbi – Taibblog – On giving Goldman a chance – True/Slant I have only one comment. I think it’s not limited to GS only, but can be said about whole US [...]
Matt,
I have to take issue with an omission you made in calling founders Goldman and Sachs “German immigrants.”
Certainly they were “immigrants from Germany,” and also “German speaking immigrants,” both which would have been accurate characterizations. But they had an identity that was more important to them than “German citizenship” and you know it. For them, German-ness was a passport and a host country and nothing else.
Are Robert Rubin and Alan Greenspan Ben Shalom Bernanke and Larry Summers also “Germans” Matt?
It’s a courageous and valuable article, but with that one little speck of cowardice, blaming “Germans” when everyone knows full well that the architects of financial fraud are usually people with “German sounding names” but are definitely not German.
The article was fearless and substantiated many theories I have about Goldman Sachs. As a financial journalist, I can confirm that Goldman Sachs is consistently arrogant and unresponsive to requests from the press. You gave them a fair chance to respond, and they blew it. Until they change their attitude and approach to the press, they deserve to be the target of articles like this. Whether or not every fact is correct, I’m glad this piece is now part of the public discussion. I hope some in Washington, D.C. read it and come up with intelligent regulation of Goldman and its ilk. The SEC has failed on many levels, it’s time for some reason and common sense to be applied to the oversight of Wall Street.
Matt – Why is my 2 day old post still under review when you made an entirely new post about the same topic?? I’m becoming disillusioned…
OK,
I was going to get the RS but then I saw those horrible Jonas Bros on the cover. I’m traveling. I will not carry those little twerps anywhere someone might see me. Just the one on the left makes me want to take a sharpie to their faces. Bet mommy wouldn’t approve of an earring, much less two! Will get around to it when I get home. I do appreciate anyone ruining GS’s day, if not just a lunch at the Banker’s Club. Go T!
Only makes sense that Goldman should also be involved in the rigging of the price of gold. Why? Because of something called Gibson’s Paradox. Simply stated: if the price of gold goes up, interest rates go up as well. In order to keep interest rates low, the price of gold has to be kept in check.
It was Robert Rubin (from Goldman) that cooked up the scheme for central banks to “lease” their “unproductive” gold assets to bullion banks (JP Morgan) who then dumped the gold on the market to force the price down. The silliness here is that the lease rate was so low that whatever interest the government received was pathetic.
The bullion banks then had a secret arrangement so that they wouldn’t have to return the gold. The price of gold then fell, but the gold reserves of the central banks also fell (ultimately ending up in countries like China).
The ultimate result of meddling in markets is that JP Morgan and the rest of the bullion banks are fighting just to keep the price of gold where it is. It will fail, ultimately producing a gold bubble, leading to financial ruin of the dollar. This will also lead to huge losses for the gold shorts. Good work Goldman!
As it turns out, we have the same nonsense going on in the silver market (which is a lot smaller and more easily “managed”). JP Morgan and another bank have shorted almost a years worth of world production. The Commodities Futures Trading Commission is “investigating” (for a year now). Most likely they see “nothing wrong”.
mornin matt,
listen i put a small amount of money in a penny stock. this penny stock stopped trading out of the blue. no reason what so ever.
i dug into find out why.
i found that goldman sachs had two subsidiaries? entities? that owned 10% each of this penny stock. share price.0001 now why the flip would a huge joint like government sachs want a penny stock?
also there is something about germany involved. weird huh?
i tried everything i knew to get answers no luck at all. whether they still are in this penny stock or not i havent a clue.
i have since found this penny stock has gone from a public company to a private company and changed its name. i am deliberately leaving out the details on what the penny stock symbol is and the name change of that company.
maybe you could help me get answers?
maybe its nothing at all.
it just seems weird that GS would get involved with such a trash stock. unless there is more to it than i can find out.
Matt: Your take on “balance” works for me. The thing about your writing that’s really unique is the way you put the pieces of your research together to paint a picture – a picture that’s not being painted by others (with a lot less research work) in their so called “balanced reporting.
They can’t keep the misdirection working if you won’t take your eye off the ball. Judging by Van Praag’s response, it doesn’t sound like they even
worry about it much anymore. They’ve got us!
Jim
Although it’s a point of theory, dichotomous “balance” is not the only game in town. It is a Western cultural predilection to reduce all matters to simple oppositions, or binaries, or dualities, etc. Why not three sides to every story? Four? Five? 360degrees of the circle? All the points of the encompassing sphere?
Dualism is always oversimplification, always reduction, always framing. In Western culture there is a cognitive dial that determines the reference frame and terms of any “issue” even as it creates the issue itself. Turn the dial to point to your own position on the matter and the dial, by mechanical imperative, gives rise and ontological status to its precise opposite by disjunction. The result goes unquestioned in Western culture. It is Western “logic” at work at the lower level of a machine language of the culture.
Thus, “balance” is imperative. The rest of the universe is excluded by the logic and fails to have the least ontological status. It is denied existence by the dualistic frame.
However, balance is dogma in Western “journalism.” Its presence in reporting is sine qua non of societal credibility. The appearance of “balance” is a cognitive check box, as it were, which if unchecked renders a piece of reporting negligible, reason be damned. The society, on the whole, responds to the cue in mechanical, predictable fashion.
In the end, there is no real balance, only the appearance of it. All that really is are the individual points of view, the interpretations of individuals like Taibbi. It can be safely presumed that instead of one opposing view there would be many, depending upon the perspective of the individual that engages in the “debate,” or “dialogue,” or “discourse,” or “discussion,” that forms (like a funnel cloud) around the “eye” that is the original post. Look at these forums that arise in the wakes of blogs and articles all over the Internet. They do not fall simply into for/against dualisms. They are spectral in the sense of being more akin to a color spectrum, comprising ranges of valid perspectives.
Just my two cents. . .
Thank god there are people like you writing and disseminating this information – this country is clueless and we need more voices like yours to educate us on THE REALITY of these artificial “crises” which intentionally crash the American economy systematically and have been since the 1920’s. Your ROLLING STONE magazine article on Goldman Sachs is brilliant as was the MADOFF article (such a prophetic name for Bernie!).
i was wondering what you guys think of deepcapture.
mark mitchell is dong a 15 part series on market manipulation.
spotlighting dendreon.
give it a look.
deepcapture.com
Frankly, it is ironic: Goldman Sachs is outsmarting itself, because global warming is going to happen much quicker than is predicted by current climate models (because they don’t consider ecosystems):
“We underestimated the risks … we underestimated the damage associated with temperature increases … and we underestimated the probabilities of temperature increases.” — Sir Nicholas Stern, author of “The Stern Report,” April 17, 2008
“Few seem to realise that the present IPCC models predict almost unanimously that by 2040 the average summer in Europe will be as hot as the summer of 2003 when over 30,000 died from heat. By then we may cool ourselves with air conditioning and learn to live in a climate no worse than that of Baghdad now. But without extensive irrigation the plants will die and both farming and natural ecosystems will be replaced by scrub and desert. What will there be to eat? The same dire changes will affect the rest of the world and I can envisage Americans migrating into Canada and the Chinese into Siberia but there may be little food for any of them.” –Dr James Lovelock’s lecture to the Royal Society, 29 Oct. ‘07
So, the cap-and-trade is ridiculous, as is any severe carbon dieting scheme:
“The alternative (to geoengineering) is the acceptance of a massive natural cull of humanity and a return to an Earth that freely regulates itself but in the hot state.” –Dr James Lovelock, August 2008
I’m a fan of Taibbi’s but what I read of the RS piece on its website doesn’t seem to have a lot of substantiation to it. It’s basically an opinion piece, not a work of reportage. Does Taibbi have any documents indicating GS pumped-and-dumped or otherwise inflated the price of stocks it knew were worthless in the late 90’s? Has anyone from GS been censured, prosecuted, indicted or anything else for this kind of behavior? If so, we don’t learn about it in Taibbi’s piece (and people at other investment banks certainly were). And he himself is guilty of the kind of obfuscation he accuses GS of in its responses to him, as when he writes “Gone are Hank Paulson and Neel Kashkari; in their place are Treasury chief of staff Mark Patterson and CFTC chief Gary Gensler, both former Goldmanites.” Paulson was the Secretary, not the chief of staff, but since the person who is actually in Paulson’s place isn’t a former Goldmanite Taibbi substitutes Patterson. And of course former Goldmanites are in positions of power and influence– it’s because they’re the best, and everyone who is awesome at this wants to work there. It’s like saying the Yankees are trying to improperly dominate baseball and you can see this because the Yankees have the best players. Does Taibbi have any documents or sources saying these govt officials are doing Goldman’s bidding? I didn’t see any on the website. The zealous deconstruction of every sentence GS writes to him only highlights the emptiness of what he’s got on the record. I don’t deny GS might be nefarious and tries to make money in unsavory ways but to blame them for the mortgage crisis– they didn’t write these bunk mortgages for “cocktail waitresses,” they bought and sold them. And I don’t deny their involvement in oil speculation, but to single-handedly create a bubble would not only be near impossible but contradicts the definition of a bubble. Finally, the carbon market in Europe, which like the one Waxman-Markey would create, is essentially worthles because like W-M it gave away the credits. If GS were as powerful as Taibbi claims they would have ensured they were auctioned instead, thereby guaranteeing value.
Taibbi’s response to this is going to be good.
Tullis clearly has never spoken matter-of-factly with many practicing finance capitalists, or he’d know they’re largely “I’m gonna get my piece” selfish pricks. By itself, Tullis’s accusation that Taibbi obfuscated using a parallelism is hilarious and indicative of the level of his reading comprehension.
In response to another comment. See in context »Hey Paul,
I’m not sure you did read the article. If you did, you’d have known that Goldman actually did have to pay a settlement for numerous laddering and spinning violations during the internet years — they were part of the 2002 Spitzer settlement. And laddering is absolutely a means of artificially inflating share prices.
And accusing me of obfuscation because your grasp of parallel structure is poor is absurd. I say in that sentence you refer to that Gensler is the CFTC chief, which a normal reader would understand means that I’m aware that Kashkari/Gensler and Paulson/Patterson do not have the same jobs. This is just a way of saying that one pair of influential former Goldman bankers was replaced in government by another.
And as for Goldman not writing mortgages for cocktail waitresses; I’m really tired of this argument as well. The innovation that allowed mortgage lenders to lend to cocktail waitresses was the securitization technique perfected by these banks. Without banks like Goldman buying these crap mortgages up and selling them off on the secondary market, those mortgages don’t get written. They were the enablers of that irresponsible lending and banks like Goldman absolutely were accomplices in this irresponsible behavior. Do you think it was a coincidence that so many of these loans were designed to reset after a period of time that happened to exactly coincide with the amount of time it took for the loan to be securitized and sold off on the secondary market? The lenders and the securitizers were accomplices in this racket, and you’d have to be nuts to think otherwise.
Oh, and by the way, your Yankee analogy sucks. The Yankees have the “best players” because they buy them, in a system that is heavily skewed to favor the rich teams. Actually, the Yankees are one of the worst player-development teams in the league. If baseball were a meritocracy, the Yankees would be chasing the Orioles every year, trying to win on a team with Robby Cano batting cleanup and Cody Ransom playing third base. Just FYI.
In response to another comment. See in context »[...] here: Matt Taibbi – Taibblog – On giving Goldman a chance – True/Slant Tags: are-inflators bubbles-and detected easy-enough ever-dreamed following goldman-sachs [...]
[...] I read Matt Taibbi’s piece about Goldman Sachs gaming the oil/gas marketplace and wrote my own response, I started to think about the massive $24.3 billion budget deficit in [...]
I know this is two days after the fact but I just wanted to comment on….Paul’s comment.
Paul writes “I don’t deny GS might be nefarious and tries to make money in unsavory ways but” and, “And I don’t deny their involvement in oil speculation, but;” so essentially Paul knows that GS has essentially fucked us all over and won’t be held accountable thanks to the way the media functions (not to mention being big contributors to Obama’s campaign). But isn’t Taibbi such a bad man for pointing it out?
[...] Taibbi responds to the flack and notes why Goldman’s POV is not represented in the article. They didn’t want to talk. Time Magazine steps into it in a somewhat ham handed way. Not making many points or adding much [...]
[...] issued a statement in response to Taibbi’s article. And, Taibbi, as you might have guessed, then fired back himself. This entry was posted in Corporate Crime, Economics, Politics and tagged bailout, blood [...]
[...] Taibbi responds: I’m aware that some people feel that it’s a journalist’s responsibility to “give both sides of the story” and be “even-handed” and “objective.” A person who believes that will naturally find serious flaws with any article like the one I wrote about Goldman. I personally don’t subscribe to that point of view. My feeling is that companies like Goldman Sachs have a virtual monopoly on mainstream-news public relations; for every one reporter like me, or like far more knowledgeable critics like Tyler Durden, there are a thousand hacks out there willing to pimp Goldman’s viewpoint on things in the front pages and ledes of the major news organizations. And there are probably another thousand poor working stiffs who are nudged into pushing the Goldman party line by their editors and superiors (how many political reporters with no experience reporting on financial issues have swallowed whole the news cliche about Goldman being the “smart guys” on Wall Street? A lot, for sure). [...]
A shame they don’t teach rhetoric/logic in American high schools.
[...] on the Rolling Stone site itself here. The article’s caused quite a stir. You can start here for Taibbi’s response to Goldman’s response. The rest you can Google [...]
[...] Matt Talbbi responds to Goldman Sachs’ response. [...]
[...] han efter Rolling Stone-artikeln har hamnat i något slags palaver även med Goldman Sachs, läs HÄR på Taibbis blog på Huffington [...]
[...] grants to Firepower. Then, as is traditional among the parasitic worms who’ve burrowed their way through the vital organs of the world economy for so many years, Finnin became Firepower’s [...]
[...] this page was mentioned by Fritz (@fritz), Klint Finley (@klintron), Michael Wade (@dahifi), David Broudy (@broudy), Kim Hutchinson (@francesamerikey) and others. [...]
Goldman Targeted by Investor Complaints of Naked Short-Selling
By Pierre Paulden and Caroline Salas
Nov. 17 (Bloomberg) — Investors in the $591 billion high- yield, high-risk loan market are accusing Goldman Sachs Group Inc. of naked short selling to profit from record price declines.
At least two fund managers complained verbally to officials of the Loan Syndications and Trading Association, saying they believe Goldman helped drive down prices by using the technique, according to people with knowledge of the objections. New York- based Goldman is acting against its clients by trying to profit at their expense, the investors said.
A $171 billion drop in the value of the loans in the past year is pitting banks against investing clients on assets once considered so safe they typically traded at par. The drop exposed flaws in an unregulated market where trades can take from several days to months to settle and banks may have information unavailable to investors. In a naked-short transaction, a firm would sell debt it didn’t already own, betting the price will fall before it purchases the loan and delivers it to the buyer.
“The LSTA is closely monitoring issues of naked short selling,” Alicia Sansone, head of communications, marketing and education at the New York-based industry association, said in an e-mail.
The group, comprising banks and money management firms that trade the debt, plans to tighten rules to ensure transactions are settled more quickly and prices reported accurately, Sansone said. She wouldn’t elaborate or discuss the claims against Goldman.
‘Different Causes’
“Increased volatility in the secondary market has been broadly documented and loan portfolio managers have suffered negative returns since July 2007,” Michael DuVally, a spokesman for Goldman, said in a statement.
“Investors are understandably focused on the many different causes of this volatility, but Goldman Sachs’ trading positions should not be one of them,” he said, declining to comment on whether the firm was short-selling loans.
Goldman rose to the fourth-largest U.S. originator of leveraged loans last year from eighth in 2005, according to data compiled by Bloomberg. The firm helped arrange financing for First Data’s purchase by Kohlberg Kravis Roberts & Co. as well as the $32 billion acquisition of First Energy Holdings Corp., formerly known as TXU Corp. by KKR and TPG Inc.
Most Aggressive
The bank was seen as the most aggressive in recent months in selling loans at prices below other dealers’ offers and taking longer than the LSTA’s recommended seven days to settle the deals, according to the investors complaining to the trade group.
There’s no rule preventing naked short selling of loans. The U.S. Securities and Exchange Commission this year banned the practice for 19 stocks including Lehman Brothers Holdings Inc. and Fannie Mae and Freddie Mac from July 21 to Aug. 12 as share prices plunged. New York-based Lehman, once the fourth-biggest securities firm, eventually went bankrupt and Fannie and Freddie, the two largest mortgage-finance providers, were brought under government conservatorship.
The slump in loan prices during the global seizure in credit markets is causing particular disruption in the loan market because the debt typically trades close to 100 cents on the dollar. Prices never were below 90 cents until February this year. By October they had fallen to a record low of 71 cents, according to data compiled by Standard & Poor’s. The decline, which S&P said equated to losses of about $171 billion, helped drive the complaints from fund managers.
‘Shell-Shocked’
“Investors are shell-shocked” by the decline, said Christopher Garman, chief executive officer of debt-research firm Garman Research LLC in Orinda, California. “In many ways they’re all but wiped out.”
Because prices were so stable, short sales of loans were unheard of until now, Elliot Ganz, general counsel of the LSTA, said at the group’s annual conference in New York last month.
“No one ever shorted loans,” Ganz said. “Prices never went down.”
High-yield, or leveraged, loans are given to companies with below-investment grade ratings, or less than Baa3 at Moody’s Investors Service and under BBB- at S&P. Banks typically form a group to arrange the financing. They then find other investors to take pieces of the debt, helping spread the risk.
Those loan parts can trade through private negotiations between banks and hedge funds or mutual funds. One of the lenders involved in the initial deal remains the so-called agent bank, which keeps track of who owns what piece. Unlike bonds and stocks, the debt doesn’t trade on an exchange and has no central clearinghouse.
Agent Banks
When a loan changes hands, the agent bank must sign off on the transaction, meaning it knows exactly who is buying and who is selling. The rest of the market is in the dark. Getting an agent to sign off, also can delay settlement.
“An agent will have a bird’s-eye view of who owns what and when,” said John Jay, a senior analyst at Aite Group LLC, a research firm that specializes in technology and regulatory issues in Boston. “They have information that no one else has.”
Conflicts within the syndicated loan market have escalated since the credit crisis began. Banks, stuck with more than $230 billion of loans they’d promised to fund leveraged buyouts, tried to renege on some agreements and others broke ranks with the typical banking syndicate.
Bain Capital LLC and Thomas H. Lee Partners LP, the Boston- based buyout firms that bought Clear Channel Communications Inc. sued banks including Citigroup Inc. and Deutsche Bank AG, in March accusing them of refusing to fund the acquisition. The banks counter-sued, claiming they were acting in good faith. The parties reached a settlement in May allowing the purchase to proceed at a lower price.
Tensions Increase
Tensions have also increased between investors that buy debt from banks. As banks ratcheted back credit and loan prices fell, fund managers that use borrowed money to buy loans have been forced to offload assets, further eroding prices and sparking more waves of selling.
Black Diamond Capital Management LLC, a Connecticut-based manager, filed a lawsuit last month against Barclays Plc, the U.K.’s second-largest bank, over derivative agreements tied to leveraged loans. Black Diamond is demanding the lender return $302 million.
The lawsuit is “without merit” and Barclays will fight it, Brandon Ashcraft, a spokesman for the bank in New York, said in an e-mailed statement.
Loans aren’t securities and are not governed by laws covering trading in bonds and stocks. While LSTA standards say a loan should settle within seven days of the trade, there’s no law governing the timing.
The average trade of a loan to a company not classified as distressed took 19 days to settle in the second quarter, according to LSTA data.
Three Days
In the bond market, the standard settlement time is three days following the trade. In a bond short sale, a trader acquires debt by borrowing the security in a deal known as a repurchase contract. The two sides specify how long the bond will be borrowed with the right to renew the pact. Because loans can’t be borrowed through such agreements, any short seller would have to go naked.
While the LSTA doesn’t track the amount of loans currently unsettled, at least 700 trades made by Lehman Brothers Holdings Inc. before it filed for bankruptcy hadn’t cleared, Ganz told last month’s conference.
Emergency Meeting
The strains over settlement prompted LSTA president Bram Smith to call an emergency board meeting on Oct. 20, people with knowledge of the session say. The complaints of Goldman’s trading methods were also discussed, said the people, who declined to be named because the talks were private.
Among those on the call was Lisa Opoku Busumbru, chief operating officer for loan trading at Goldman and a board member of the LSTA. Opoku Busumbru denied on the call that New York- based Goldman was short-selling loans, the people said.
Trading in the market is so opaque that it would be impossible to tell if a firm was short-selling, Jay Katz, managing director of Storm Networks LLC, a New York-based technology company launched in October with backing from Bank of America Corp. Credit Suisse Group AG and Morgan Stanley that helps settle loan trades within three days. A trade could be delayed for many reasons including not owning the debt, he said.
Heightened Concerns
While the delay in settlement had been an administrative issue for years, the tumbling loan prices and heightened concerns about creditworthiness of borrowers, banks and hedge funds have made it pernicious, said Ian Sandler, an executive director at Morgan Stanley and a board member of the LSTA.
A buyer or seller, or even the borrowing company, could go bankrupt in the time it takes for the loan to change hands, causing losses for the firm on the other side of the trade, Sandler said.
“Delayed settlement is a real concern because you have to worry about the loan deteriorating and the failure of the counterparty until the trade is completed,” said Sandler. He wouldn’t discuss the claims against Goldman or the emergency board meeting. “There is a tremendous amount of open trades currently in the loan market.”
Goldman has previously butted heads with investors, who are also clients through borrowing or advisory agreements.
In the early 1990s, the firm created the $783 million Water Street Corporate Recovery Fund to buy controlling stakes in the debt of financially distressed businesses. It was shut a year later when its negotiations upset clients such as Fidelity Investments and Tonka Toys.
While other banks are reining in capital, Goldman raised $10.5 billion last month for a fund run by Thomas Connolly in New York to make loans to high-yield companies.
The firm may write down its leveraged-loan portfolio by $1.3 billion in the quarter, Guy Moszkowski, an analyst at Merrill Lynch & Co., estimated last week.
To contact the reporters on this story: Pierre Paulden in New York at ppaulden@bloomberg.net; Caroline Salas in New York at csalas1@bloomberg.net
Last Updated: November 17, 2008 00:01 EST
http://www.bloomberg.com/apps/news?pid=20601087&sid=as3PwfEfBlhk&