I’ve just read over my last blog (July 19 last year) on Goldman Sachs, and it’s déjà vu all over again. Paul Krugman wrote shortly before then that Goldman had been selling toxic mortgage-backed securities to its customers, while at the same time making billions by “selling mortgage-backed securities short, just before their value crashed.”
The new twist in recent days is that Goldman Sachs was not only doing this, but that it neglected to tell its customers anything about its short selling. Just to keep you updated, “selling short” means that a stock trader bets that a given stock is about to go down—and when it does, he makes as much money as if he bet successfully on it going up. I first learned about this through a stock trader years ago, the new husband of an old friend, who the day I visited their New York apartment, happily informed me that he and his son had just made about $2 million dollars that day. His specialty, “selling short.” Though betting that a stock would go down seemed insane to me, Dick explained it was perfectly legitimate, and smart.
Apparently, the boys at Goldman think the same way. Only, again, they somehow forget to tell their customers about it, i.e., that the securities they’re pushing on them are, in their opinion, doomed and, as a result, they’re secretly selling those same securities short. Worse, in emails that have been made public by the Securities and Exchange Commission (which has brought legal action against Goldman for this type of fraud), Goldman managers have boasted of their cleverness in bilking widows and orphans out of their money. Fabrice Tourre, a Goldman trader, joked: “I’ve managed to sell a few Abacus (the name of the toxic portfolio) bonds to widows and orphans that I ran into at the airport, apparently these Belgians adore (them).” (quoted by AP, 4/24/10). Tourre also quoted Dan Sparks, manager of Goldman’s subprime business, as saying that the business “is totally dead, and the poor little subprime borrowers will not last so long!” Ho ho.
Evidently, a hedge-fund manager named John Paulson (his personal income in this hedge business during the crisis amounted to over $10 million a day! according to Gregory Zuckerman in “The Greatest Trade Ever”) helped Goldman select investments for Abacus knowing that it was going to go into the toilet (Paulson put the deal together as a hedge, i.e. betting that the securities would go down), and then pushed the deal to its customers. Those customers, kept in the dark, were mainly European banks who had no idea that the American housing market was so shaky. Goldman managers, like CFO David Viniar, referred to the Goldman strategy as “the big short.” Of course, Goldman is publicly denying that it had organized a strategy of going short, but the firm’s records show otherwise. Together with its role in bringing down AIG, its use of nearly interest-free government funds to make huge profits, and its use of exotic swaps to help Greece disguise its financial problems (while it bet against Greece by shorting Greece’s debt), this makes plain that the premiere investment bank in the world is indeed what Matt Taibbi called it last year: a “great vampire squid wrapped around the face of humanity.” As to the financial sector of which Goldman is the most shining example, its share of domestic corporate profits “never higher than 16 percent until 1986, hit 41 percent in the last decade” (Frank Rich, NY Times, 4/25/10). And you were wondering whatever happened to American manufacturing, to American firms which actually produce something other than fraud?
But the question I want to raise, again, is “who are these people?” What kind of flesh-devouring, soul-killing robots can bear to engage in this kind of criminality? From their point of view, it’s called “enlightened self interest.” From their CEO Lloyd Blankfein’s perspective, they are doing “God’s work.” I suppose if you believe that God is a sadistic, cruel, diabolical destroyer of hopes and dreams, lives and cities and whole countries, a deity who enjoys watching widows and orphans get screwed while wealthy dweebs (just watch them as they testify before the Senate Finance Committee) luxuriate in their pools and palaces, then perhaps it is God’s work. But if you question what kind of nation could allow this to go on, what kind of economic system could foster this kind of cruelty, fraud, inequality and sheer human suffering—then you may be thinking that something more than new regulations or new legislation is going to be needed. What that eventually turns out to be is still not clear. But I know one thing: if I were one of the executives in any of these so-called banks or brokerage houses, I wouldn’t walk too casually or conspicuously down the street these days.
P.S. In their testimony before the Senate yesterday, Goldman execs vigorously disputed the notion that they had an obligation to disclose anything whatsoever to their customers (suckers). Lloyd Blankfein insisted that Goldman was just acting as a marketer, selling the level of risk their customers wanted. In sum, these guys make used-car salesmen seem like (I was going to say Franciscans, but given the odor of priests these days, it might not be such a good metaphor) Mother Theresas.