I know the Goldman short has been addressed repeatedly in housing finance circles over the past 6 mos. but I'm still amazed that the general population hasn't really grabbed it. It's infuriating and such an obvious answer to so many questions that those first addressing the housing bubble may be asking. There are many individuals who setup too big to fail companies to bubble and burst in order to generate personal wealth. See that was easy to understand wasn't it? Insiders created all the necessary element in order to create the perfect storm and they bought all the influence they needed to facilitate it. Now, those same individuals are still running amok in gov't and finance and nobody is being held accountable. Can't wait to see what they are cooking up next for us. When will enough be enough for the American people? When do we finally get mad enough to pay attention and demand action?
Here's an article from July of last year just to remind us of how we've been played and how nothing has been done about it.
tgolferman:
Why did the SEC rush into a settlement with Goldman Sachs (GS) over fraud charges pertaining to its ABACUS CDO for 550 million dollars on Thursday? Could it be because there is enough evidence in the public domain to prove that the SEC under William Donaldson and Christopher Cox committed FINANCIAL TREASON by aiding and abetting Goldman Sachs, a select group of firms, and privileged individuals with the largest insider trading scheme, which will heretofore be known as "The Big Short", along with the Federal Reserve and Financial Accounting Standards Board (FASB)?
First, lets get to the name "the big short." During the Financial Crisis Inquiry Commission hearings, emails and internal correspondence were provided to the Commission. Below is a part of an annotated email from Goldman Sachs CFO David Viniar from July 25, 2007:
"Tells you what might be happening to people who don't have the big short." 1
What is or was "the big short" (TBS)? Act one of TBS was the systematic expansion of the residential and commercial real estate - stock market bubbles using the 2004 Net Capital Rule Waiver, which would allow the biggest investment banks to take capital held in reserve for market losses and invest it in the market in any way they saw fit. 2 The second act was softening the rules on Complex Structured Financial Transactions (CSFT) which would allow GS and similar companies more leeway in creating ABACUS and similar investment vehicles. 3 Act three or popping the bubbles to guarantee TBS paid off was done via implementation of FAS-157 by the Financial Accounting Standards Board (FASB). 4
Understanding what group within FASB was pushing for 157 and who was in the group is important to understand the Big Short:
In 2003, it created a User Advisory Council, which includes representatives from individual and institutional investors, equity and debt analysts, lenders and credit rating agencies. 5
Mr. Robert Ehudin - Managing Director - Credit Risk Management Advisory Group - Goldman, Sachs & Co. 6
In a Chief Financial Officer magazine September 1, 2006 article Robert Herz the head of the FASB states:
Herz concedes that numerous issues surrounding fair value need to be addressed. But important users of financial statements are pressing him to move forward on fair value without delay. 7
You see, GS and others pushed FAS-157 knowing the rule change would force firms to re-value assets on their books which would in essence create paper losses that would cause further distress in an already troubled real estate market full of toxic mortgages which would eventually bring down the stock market where the real money was going to be made considering the hyper inflated stock price values to earnings multiples.
David Viniar of GS in a December 15, 2006 email wrote the following:
On everything else my basic message was let's be agressive distributing things because there will be very good opportunities as the markets goes into what is likely to be even greater distress and we want to be in position to take advantage of them. 8
GS and everyone on the FASB User Advisory Council knew what FAS-157 was going to do to assets on the books of companies around the country. Massive write downs were magically going to occur and being net short on mortgages, debt, and the stock market should be where the SEC should be doing insider trading short selling investigations. Unfortunately, since it was money that played a role in who controlled the SEC before the collapse, it has been the same money stolen in the collapse that has been controlling them up to now. Just like a judge recusing himself because of a conflict, the SEC should not be allowed to conduct investigations of firms whose alumni are working at the SEC. Nor should the SEC be allowed to investigate frauds related to rules changes it had a hand in changing.
In a November 2007 CFO magazine article just before the official enactment of FAS-157, after some companies had already been recommended to make their 157 accounting adjustments before the actual enactment it stated:
The Royal Bank of Scotland Group estimates that U.S. banks and brokers, already under massive losses caused by the collapse in the subprime credit market, potentially face hundreds of billions of dollars in write-offs because of what are called Level 3 accounting rules, according to Bloomberg.9
It is very easy to understand how "The Big Short" could produce trillions upon trillions of dollars of profit for individuals that knew when the write downs would begin to occur. The beauty of the entire operation was to focus attention on the firm and away from individual investors. The firms obviously had varying degrees of success and failure, which is the perfect smoke screen which has kept the spotlight off of insiders that knew what to short, when to short, and for how long to short.
GS knew what was going to happen when 157 went into full effect. Daniel L Sparks of GS writes in this February 22, 2007 email concerning Paulson:
I will not want us to trade property derivatives until we get much closer to home as it will be a significant distraction from our goal.
This is a time to just do it, show respect for risk, and show the ability to listen and execute firm directives. 10
Getting closer to home is basically making sure you have all your bets laid off. Since the upper echelon of GS knew how TBS worked, during this critical time they would not want traders going out and trying to be hero's. From this point forward the FIRM would make sure it made some money on TBS. The real money though would be made by insiders shorting everything in sight and when the time was right they would be given a sign to extricate themselves from their shorts and go long.
The man that would decide how to manage the big short was none other than Ben Bernanke, the Great Depression expert hired to take over for Alan Greenspan. His role would be to better control this operation in order to prevent a total collapse, like what occurred during the Great Depression, while trying to preserve the power of those who had worked so hard over the past 20 to 30 years deregulating the financial markets. I have not uncovered the sign he gave the insiders to exit their short positions; however, considering the stock market began moving upward before Bernanke gave his blessing to adjust fair value accounting or 157.
In a September 30, 2008 Bloomberg article highlighting the resistance of the SEC and FASB to suspend FAS-157 despite nearly a full year of economic collapse in the real estate, credit, and stock markets, it stated the following:
Federal Reserve Chairman Ben S. Bernanke and other proponents say removing the rule would erode confidence that firms are owning up to losses. 11
Ben Bernanke must have given a signal to close short positions because the stock market began to rise and then he gave his blessing to adjust the accounting rule:
Federal Reserve Chairman Ben Bernanke on Tuesday argued that regulators should make some improvements to controversial mark-to-market accounting rules at the same time as lawmakers create a systemic risk regulator that will fill in 'shocking gaps' in regulatory oversight. 12
Shortly thereafter FASB adjusted 157 in April 2009:
The Financial Accounting Standards Board, pressured by U.S. lawmakers and financial companies, voted to relax fair-value accounting rules that Citigroup Inc. and Wells Fargo & Co. say don’t work when markets are inactive. 13
TBS was over for now. The stock market stabilized, job loss trends had been reversed. But, trillions of equity in real estate, most of which was the result of a highly rigged and leveraged market, was lost in a period of years. Pension funds had lost billions if not trillions resulting in reduced retirement benefits. Trillions and trillions of dollars had been skimmed out of the stock market.
What happens to a national or global economy where a small minority of people steals trillions of dollars from the majority of people, with the help of the governments financial market regulators? Can the financial markets ever re-establish trust if those who engineered this collapse and those who profited from it as insiders are not brought to justice? I hope we aren't that dumb and susceptible to propaganda.
Finally, GS hasn't granted me any interviews, so much of my analysis of the facts can be written off as speculation. However, I will leave you with one last bit of evidence that clearly highlights the treasonous actions of GS, the Bush SEC, the Bush FED, and the Bush FASB.
Fabrice Tourre of Goldman Sachs wrote in an email on January 23, 2007 concerning his involvement in the ABACUS CDo some roughly three months before it went public:
standing in the middle of al these complex, highly levered, exotic trades he created without necessarily understanding all the implications of those monstruosities!!! Anyway, not feeling too guilty about this, the realpurpose of my job is to make capital markets more efficient and ultimately provide the US consumer with more efficient ways to leverage and finance himself, so there is a humble, noble and ethical reason for my job ;) amazing how good I am convincing myself !!! 14
This is why the SEC settled with GS. Since both were involved in TBS they both wanted the news media spotlight to shine elsewhere.
Now, since many of the insiders bought their way into the Obama inner circle of economic advisors, I would have to say that he has been played like we all were played. So, what does he do now? I would first demand the resignation of Ben Bernanke and Tim Geithner to show their sponsors that I wasn't going to be played any longer. Then, I would call on the House and Senate to quickly remove us from the southern half of NAFTA, withdraw from the WTO, and suspend China's MFN status and to quickly erect tariffs on goods or services coming from any country with a standard of living below that of the U.S. and that has a trade surplus with America, and force any U.S. multinational corporations wishing to sell product in the U.S. to bring back their productive capacity and begin employing Americans. The chances of the House and Senate doing this would be very slim; therefore, I would issue an executive order requiring an end to the southern half of NAFTA and a permanent suspension of China's MFN status. Next, I would direct my justice department to begin an immediate investigation into the roll of the FED, SEC, and FASB in the roll of the collapse and to bring any and all parties to justice. This would require a massive expansion of the financial crimes division of the Justice Department. I would then issue another executive order to nationalize the FED and remove its leadership and replace it with a team with the likes of Joseph Stiglitz, Paul Krugman, Peter Morici, Elizabeth Warren, and Brooksley Born to name a few. While this would be a very turbulent time, I think it is the only thing that President Obama truly can do to restore confidence in our financial markets and to save the Democratic Party in November and his job in 2012.
Time's a wasting Mr. President.
Sources:
1) http://documents.nytimes.com/goldman-sachs-internal-emails#document/p9/a3
2) http://www.nytimes.com/2008/10/03/business/03sec.html?_r=1
3) http://www.cfo.com/article.cfm/8509345?f=search
4) http://www.fasb.org/jsp/FASB/Pronouncement_C/SummaryPage&cid=900000010271
5) http://www.cfo.com/article.cfm/8505758?f=search
6) http://www.fasb.org/user_advisory_council/uac_members.shtml
7) http://www.cfo.com/article.cfm/7851757/3/c_7873404?f=related
8) http://documents.nytimes.com/goldman-sachs-internal-emails#document/p25
9) http://www.cfo.com/article.cfm/10097878?f=search
10) http://documents.nytimes.com/goldman-sachs-internal-emails#document/p29
11) http://www.bloomberg.com/apps/news?pid=newsarchive&sid=agj5r6nhOtpM
12) http://www.marketwatch.com/story/bernanke-we-need-improvements-fair-value
13) http://www.bloomberg.com/apps/news?pid=newsarchive&sid=agfrKseJ94jc
14) http://documents.nytimes.com/goldman-sachs-internal-emails#document/p80
(TGOLFERMAN http://tgolferman.newsvine.com/_news/2010/07/17/4699618-the-big-short-why-did-the-sec-and-goldman-rush-a-settlement-on-abacus)
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