”In an interesting side note to the much more publicized businesses involving John Paulson, Greece, and whatever else Goldman is currently getting tarred and feathered for, the bank was quietly slapped on the wrist by the SEC for violations related to naked short-selling. I wrote about this last year. The story was that Goldman (and others) had extremely lax standards for locating the securities it lent out to short-sellers. When you lend securities to someone without locating the stock first, that makes it possible for that person to sell the stock without actually possessing it or intending to possess it.
That’s called naked short-selling and it’s a kind of counterfeiting that pretty much everyone admits is fairly common on Wall Street, although there is wide disagreement over how harmful it is to the market. The current story reports that the SEC fined Goldman for failing to prevent crappy locates in late 2008. They’re describing the violations as a “bookkeeping error,” probably because a systematic effort at profiteering via the enabling of naked short-sellers is not a simple thing to prove. ( Matt Taibbi )
Like the Enron the play being pulled from Broadway after a short and unprofitable run, Goldman-Sachs CEO Lloyd Blankfein may be the next song and dance man to be pulled as the public face of the bank holding company.Its surprising he has lasted as long as he did, not following Bank of America’s Ken Lewis into the sunset. His ”Mad Men” routine of prancing into the company boardroom, doing his song and dance routine, and exiting stage left may have run its course.
Like a rock star like Slash who gets arrested for peeing on an airline flight once too often or Boy George for tying boyfriends to the whipping post, it appears Blankfein nay have stepped beyond the limit, as large and morally elastic as it was; despite the innumerable times in his testimony on capitol hill that he used the expression ”I don’t know”. If he didn’t know who did?. But then, replacing the CEO, the Financial Times ”Person of the Year” will result in a fresh face, but the same mindset of corporate slaves so willing to assume the mantle. Financial stocks and their activities are, in an absurd turn of events, considered primary industries given their importance in the economy. In the Toronto Stock Exchange, TSX, financials represent a staggering 40% of the index’s market capitalization.
The strategy of Enron, to mask information within a form of shell game, ”box within a box” ; ultimately producing a series of horror laden pandora’s boxes, is not dissimilar in conception to the manouvers of Goldman’s holding companies serving as boxes over other companies, with the same idea of elimating traceability and evoking the criticism of lack of transparency and obscurity. For all but a few, their business models are simply not comprehensible. Like Russian dolls, they contain very little, but beckon to the next one; and like a Dostoevsky novel, the number of characters and subplots is almost limitless; perhaps ultimately traceable back to Babylonian civilization or ancient Egypt. The link between banking and religion, faith and money extends to deep antiquity:
The history of private banking started as early as 2000 BC and flourished in Babylon. The first record of a private banking system was the IGIBI Bank of Babylon, later monopolized by the temples. Two centuries later, in Greece, private bankers and government specialized in money lending, changing of coin, letters of credit, and paying interest on deposits.”In Egypt and Mesopotamia gold is deposited in temples for safe-keeping. But it lies idle there, while others in the trading community or in government have desperate need of it.In Babylon at the time of Hammurabi, in the 18th century BC, there are records of loans made by the priests of the temple. The concept of banking has arrived.”
”Until now, Mr. Blankfein’s survival, like Mr. Dimon’s, has been aided by the firm’s success. Even in the depths of the financial crisis in 2008, Goldman still brought in a profit of $2 billion. It rebounded faster and str
r than rivals, posting $12.19 billion in net income in 2009 and its first quarter this year, produced $3.3 billion.But the sustainability of this success is in question. Goldman’s profits were driven largely by gains on the trading floor that produced and was championed by Mr. Blankfein. But it is precisely that trading operation’s philosophy that has become the target of critics and regulators.
Fairly or not, Goldman’s cutthroat market-making machine has been characterized as, what Sen. Claire McCaskill (D., Mo.), called “a little weird.” Short sellers help pick mortgages for CDOs. Arrangers fret about their reputations. Goldman bankers call their creations monstrosities, or more bluntly, s— deals. To many who have been watching, Goldman’s business practices illustrate Wall Street’s greed culture run amok. Goldman will have to change, or at least lay low, to avoid more wrath. Mr. Blankfein may or may not have condoned the behavior, but he is ultimately responsible. The firm needs to move on. Mr. Blankfein’s resignation is the appropriate first step. ( David Weidner, Wall Street Journal )
”Berkshire Hathaway Inc. Vice Chairman Charles Munger, whose company is the largest private shareholder in Goldman Sachs Group Inc. and Wells Fargo & Co., said banks will use their “enormous political power” to prevent changes to the industry that would benefit society.
“This is an enormously influential group of people, and 90 percent of that influence is being spent to gain powers and practices that the world would be better off without,” Munger, 85, said yesterday in an interview with Bloomberg Television. “It will be very hard to accomplish the kind of surgery that would be desirable for the wider civilization.”
Munger said policy makers should seek to impose limits on banks that are deemed “too big to fail” after financial institutions worldwide suffered more than $1 trillion in losses. The U.S. government and the Federal Reserve have spent, lent or committed $12.8 trillion, an amount that approaches the value of everything produced in the country last year, to stem the recession.
“We need to remove from the investment banking and the commercial banking industries a lot of the practices and prerogatives that they have so lovingly possessed,” Munger said. “If they are too big to fail, they are too big to be allowed to be as gamey and venal as they’ve been — and as stupid as they’ve been.
The character of Lloyd Blankfein himself has been a curious examination, given the secrecy and reserve of the leading finance men, the public has been given a rare glimpse, a door justly slightly ajar for one to peep into a very old subculture. There is an uncanny connection to Graham Greene’s ”The Heart of the Matter” For twenty-first century sensibilities, the colonial era attitudes towards local people appear patronising at best, but this how the banking elites act today. Perhaps that is how things have always been. But Greene’s The Heart Of The Matter is not a descriptive work, and its ability to transcend place and time, make it fit into the context of the Senate hearings. Like a Shakespearean tragedy, the events and their setting provide only a backdrop and context for a deeply moving examination of motive and conscience. And also like a Shakespearean tragedy, Greene’s novel transcends any limitations of its setting to say something unquestionably universal about the human condition.
”Another casualty of Enron was the demise of one of the nations then leading and respected accounting firms – Arthur Anderson – for their participation in the scam that was Enron. They falsified records much the same as Wall Street’s rating agencies had done when they fraudulently gave Triple A ratings to mortgage pools that a first year loan officer could have told you were foreclosures waiting to happen. Are the rating agencies any different then Arthur Anderson? I would venture to say that the actions of Goldman Sachs and the other Wall Street Bansters scammed and defrauded much more then both Enron and Madoff ever did. Their scams might even be bigger then all financial scams in history put together.
Goldman Sachs seems to not only have a “Get Out of Jail Card” but they don’t even have to pass GO to collect money. Money is just showered on them as if they were gods receiving offerings from all the sacrificial lambs they have either slaughtered or attempted to slaughter. Why?
My next big question then is; Who is Goldman Sachs? They seem to operate outside of moral, ethical and perhaps legal limits with no consequences whatsoever. They have enriched themselves well beyond the limits of greed and seem to not hesitate to throw that in our faces while we suffer. Who are these people and why do they have this self perceived god like power? How can a company appear to be a major cause of probably the worst financial crisis the modern world has ever seen and not be taken to task by any in the world? ( Mike Morgan )
Blankfein really is a close fit for the character of Henry Scobie in ”Heart of the Matter” He is a man of principle who thinks he is a recalcitrant slob. He is a man of conscience who presents a pragmatic face. He makes decisions fully aware of their consequences, but remains apparently unable to influence the circumstance that repeatedly seems to dictate events. He remains utterly honest in his deceit, consistent in his unpredictability. His life becomes a beautiful, uncontrolled mess. His work , the Bank, is like his wife’s simple orthodox Catholicism, which contrasts with his own never really adopted faith. He tries to keep face, but cannot reconcile the facts of his life with the demands of his conscience. His ideals seem to have no place in a world where interests overrule principle. He sees a solution, a way out, but perhaps it is a dead end.
Even if those investigations go nowhere, Goldman under Mr. Blankfein will remain a target. At best, Goldman is seen as a firm that plays it too close to the line for comfort. Its only interest is in enriching itself, a reality underscored not only by its mortgage bets and trading practices, but also by its role in the Greek debt crisis, its payout from AIG, American International Group Inc. and questions about a board member possibly leaking inside information at the height of the financial crisis.( David Weidner )
”The Federal Reserve System certainly makes large profits. According to the Board’s 1995 Annual Report, the System had net income totaling $23.9 billion, which, if it were a single firm, would qualify it as one of the most profitable companies in the world. How were these profits distributed? By an agreement between the Board of Governors and the Treasury, nearly all of the Fed’s annual profits are paid to the federal government. Accordingly, a lion’s share of $23.4 billion, which represents 97.9 percent of the Federal Reserve’s net income, was transferred to the Treasury. The Federal Reserve Banks kept $283 million, and the remaining $231 million was paid to its stockholders as dividends.
Given that less than one percent of the Fed’s net earnings are distributed as dividends, it seems that an investor could easily find much more profitable ways to store their wealth than buying Federal Reserve stock. Regarding Schauf’s lamentation, the Federal Reserve System has been paying its profits to the Treasury since 1947.
It does not appear that the New York Federal Reserve Bank is owned, either directly or indirectly, by foreigners. Neither Mullins nor Kah provided verifiable sources for their allegations, nor did their mysterious sources agree on exactly who owns the New York Federal Reserve Bank. Moreover, their central assumption that control of the New York Federal Reserve is the same as control of the whole System is wrong and demonstrates a lack of understanding of the System’s basic organizational structure. The profits of the Federal Reserve System, again contrary to the assertion of Kah and Schauf, are funneled back to the federal government, not to an “international banking elite.” If the U.S. central bank is in the grip of a banking conspiracy, then Mullins and Kah have certainly not uncovered it. ( Dr. Edward Flaherty )