Goldman Sachs

The dissection of GS begins. And I’m not sure how to view their perfidy. I once had a personal accountant who sold me a low – income – housing  tax shelter and, after buying it, I reviewed (duh) the prospectus and discovered that my accountant had acted as a salesman on commission, not a trusted financial advisor. We had a chat, he agreed to buy back my position and wasn’t I lucky;  a few years later the IRS ruled the whole scheme a tax scam and invalidated the deal.

But that was a one-on-one relationship, a young lawyer with his Mill Pond Accountant. Should an institutional client of Goldman Sachs expect the same loyalty? The SEC seems to be saying “yes”, but I wonder whether all these sharks don’t deserve each other. The institutions buying all this CDO crap were absolutely positive that the people betting against them were fools, so someone was bound to lose. Goldman made the market that allowed the trade and made money doing so, but is that illegal?

I think GS is a dreadful outfit and when I am a billionaire, I will never entrust them with a dime, but I’m not sure I see a crime here.

16 Comments

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16 responses to “Goldman Sachs

  1. Local Townie

    Maybe not a crime, but certainly using your position as a financial power house to clean out people’s life savings does seem criminal.

    Maybe the Inna’net will name a scam after them …

  2. Anonymous

    Every industry, profit or non-profit, has numerous scammers, been that way for centuries, unlikely to ever change

    Perhaps <5% of "professionals" in any industry are both competent and honest

    Take some personal responsibility to do own due dili and apply common sense and margin of safety and all that

    Victimization, vilification, sanctification stuff is always moronic and usually reflects those unwilling to accept personal responsibility for own poor decisions and risk/reward judgment

  3. Given the transactional enlightenment I repeatedly shared with the Fountain boys back in the late ’50’s/early ’60’s, I would guess your scam radar has since been fully operational.

  4. out looking in

    There are two primary hats being worn by GS in the transaction- structurer and salesman. They made at least two sales- a speculative product for Paulson and an “investment” product for the European Banks (aka dupes). Having personally invested with Paulson for several years in the late ’90s-mid ’00s (back in the day when few knew of him- he managed less than $200m), I have no beef with what he did. He was looking for the shittiest mortgages to short so that his clients could profit (and him via the incentive fee).
    However, once Fab donned the salesman cap and approached the dupes, most likely cooing about how he was protecting their interests and paving the road to riches for the bank’s clients, he had a fudiciary responsiblity (at least, that is the SEC’s position), to disclose knowledge of any issues that might adversely impact the performance of the investment. A fair analogy is that he sold swampland, acting on behalf of GS as principal AND agent, but represented it to the client as prime South Beach oceanfront property. And he KNEW it. That is fraud. And as someone who held bearish positions on the corporate debt and housing markets during this same period for myself and my clients, I would have been awfully angry had GS even attempted to pull an Abacus sale on me. I have also come to know many reps of state and union pension plans over the years, and I can atest to the fact that they relied on their sales covergae by I-banks for professional investment guidance, as they lacked the ability to understand much beyond “S&P rates this AAA”.

  5. out looking in

    oh yes, and the crap I find most ILLUMINATING is how GS represents that they lost money on THAT specific transaction. Of course, they most likely owned 100% insurance on that traunch from AIG through a basket of CDS. And most likely was short at least a few 100% more of that same ISSUE. It’s known in the trade as an overlay…

  6. kidding really?

    “when I am a billionaire, I will never entrust them with a dime” – you’ll never be a billionaire with this mindset.

  7. NYer

    Nothing too complex here to figure out. GS sells CDO claiming a neutral third party (ACA Mgmt) selected it, when in reality short money did so. Simple fraud, nothing more. A bigger question that I have that nobody seems to be asking is why a speculative investor is working directly with a structurer/originator. This seems to me to be analogous to a short hedge fund working with an I-Bank on a tech IPO in 2000 and then shorting the shares at the offering…seems unethical at best.

  8. disgusted OG'er

    Off the subject, but why isn’t Jim Himes Cos Cob Library meeting on April 25th posted on his website?

  9. Retired IB'er

    You guys ever heard of inflation… just wait, we’ll all be billionaires.

  10. Greenwich Gal

    Bring back Glass-Stegall. You can’t be a fox and guard the henhouse at the same time.

  11. Anonymous

    “I once had a personal accountant who sold me a low – income – housing tax shelter ”

    Could this have been in the mid 70’s – early 80’s CF? That seems to have been the golden age of that type of tax shelter.

    My CPA in another city sold me a so-called “sale/leaseback” type of shelter during that same time period just before I moved to Greenwich. It turned out to be a crooked deal, and I ended up in court with him and the other parties to it for over three years of hell.

    When I moved to Greenwich, my first CPA here, a well-known “wheel chair athlete” tried sell me on investing in a number of tax shelter deals which even he described as “aggressive” and on which he, of course, would make a commission. I had learned better by then and declined, but we had a very nasty parting of the ways afterward.

    Let’s kill all the accountants!!!

  12. Inagua

    Christopher,

    As a recovering securities lawyer, you surely understand that this is all about truth in advertising. Did Walt do the due diligence he claimed? Did Goldman accurately represent the mortgage package to the buyers? The answers are obvious, which is why these suits almost always settle after the liars delay the inevitable for as long as they can.

    BTW, it doesn’t help with potential jurors that the liars collected huge fees for their services — nearly a billion for Walt from Madoff, and 100% commissions for Goldman on CDO swaps.

  13. Anonymous

    Like Toyota having to take ownership and responsibility for their products, GS should do the same.

  14. Walt

    Weasel Boy –
    Do me a favor. Take the pop tart out of your mouth, and go look in a mirror. Think about what Goldman did. It was totally sleazy, and if not criminal, it should be.
    Now think about what you do. And all the other “real estate professionals”. Every day. Pot, meet kettle.
    You know I am right Dude.
    Your Pal,
    Walt

  15. out looking in

    NYer-

    not as uncommon as u think. i often spoke to bankers concerning risks/factors i wanted to hedge or exploit, and was unable to find a listed product to effectively do so…so much occurs upstairs anyways, from algo trading, simple institutional buy programs, basket trades, customized options, etc…on the stock side u typically deal with the equity derivatives desk…i had similar conversations with MS and SG regarding my views on the mortgage debt market- convo went something like this- “my receptionist now owns $2mm worth of condos on South Beach on her $55k/yr salary…i want to short her loans…oh yeah, and my yard guy (the laborer, not the owner) just bough a house- i need to sell short the mortgage mkt- where do I find the best crap to sell at the cheapest price with the most leverage? totally ethical..unfortunately, i started 18 mos too soon- so paid a price and definitely not tooting my horn- i’m not paulson’s neighbor (anywhere!)