Friday, April 23, 2010
Thursday, April 22, 2010
Wednesday, April 21, 2010
Mark Twain - "Official Physic" (1867).
The mania for giving the Government power to meddle with the private affairs of cities or citizens is likely to cause endless trouble, through the rivaly of schools and creeds that are anxious to obtain official recognition, and there is great danger that our people will lose our independence of thought and action which is the cause of much of our greatness, and sink into the helplessness of the Frenchman or German who expects his government to feed him when hungry, clothe him when naked, to prescribe when his child may be born and when he may die, and, in fine, to regulate every act of humanity from the cradle to the tomb, including the manner in which he may seek future admission to paradise.
ONE OF THE LAST HONEST MEN IN THE WORLD SPEAKS TRUTH
Bill Black's eye-popping opening statement at House FinServ hearing on Lehman Bros. failure
US GUV'MINT COUNTERFEITS MORE FIAT $100 NOTES TO PREVENT COUNTERFEITERS FROM COUNERFEITING THE NEW COUNTERFEIT NOTES
U.S. Government Unveils New Design for the $100 Note
April 21, 2010
2010-4-21-11-26-45-15644
U.S. Government Unveils New Design for the $100 Note
Government to Currency Users:
Know Its Features So You Can Know It's Real
(GT sez: 'Real What?' Valueless Ink and Paper promises ?)
WASHINGTON, D.C. (April 21, 2010) – Officials from the U.S. Department of the Treasury, the Board of Governors of the Federal Reserve System and the United States Secret Service today unveiled the new design for the $100 note. Complete with advanced technology to combat counterfeiting, the new design for the $100 note retains the traditional look of U.S. currency.
"As with previous U.S. currency redesigns, this note incorporates the best technology available to ensure we're staying ahead of counterfeiters," said Secretary of the Treasury Tim Geithner.
"When the new design $100 note is issued on February 10, 2011, the approximately 6.5 billion older design $100s already in circulation will remain legal tender," said Chairman of the Federal Reserve Board Ben S. Bernanke. "U.S. currency users should know they will not have to trade in their older design $100 notes when the new ones begin circulating." (Gee, thanks Ben, I feel better now! All your phoney paper will stay in circulation and lose value.)
There are a number of security features in the redesigned $100 note, including two new features, the 3-D Security Ribbon and the Bell in the Inkwell. These security features are easy for consumers and merchants to use to authenticate their currency.
The blue 3-D Security Ribbon on the front of the new $100 note contains images of bells and 100s that move and change from one to the other as you tilt the note. The Bell in the Inkwell on the front of the note is another new security feature. The bell changes color from copper to green when the note is tilted, an effect that makes it seem to appear and disappear within the copper inkwell.
"The new security features announced today come after more than a decade of research and development to protect our currency from counterfeiting. To ensure a seamless introduction of the new $100 note into the financial system, we will conduct a global public education program to ensure that users of U.S. currency are aware of the new security features," said Treasurer of the United States Rosie Rios.
"For 145 years, the men and women of the United States Secret Service have worked diligently to protect the integrity of U.S. currency from counterfeiters," said Director Mark Sullivan. "During that time, our agency has evolved to keep pace with the advanced methodologies employed by the criminals we pursue. What has remained constant in combating counterfeiting, however, is the effectiveness of consumer education initiatives that urge merchants and customers to examine the security features on the notes they receive." (The REAL CRIMINALS attempting to prevent the amateur counerfeiters from counerfeiting the counterfeit paper promises of a bankrupt guv'mint!!!)
Although less than 1/100th of one percent of the value of all U.S. currency in circulation is reported counterfeit, the $100 note is the most widely circulated and most often counterfeited denomination outside the U.S.
"The $100 is the highest value denomination that we issue, and it circulates broadly around the world," said Michael Lambert, Assistant Director for Cash at the Federal Reserve Board. "Therefore, we took the necessary time to develop advanced security features that are easy for the public to use in everyday transactions, but difficult for counterfeiters to replicate."
"The advanced security features we've included in the new $100 note will hinder potential counterfeiters from producing high-quality fakes that can deceive consumers and merchants,"
(You'll have to leave that quality of counterfeiting to us!) said Larry R. Felix, Director of the Treasury's Bureau of Engraving and Printing. "Protect yourself - it only takes a few seconds to check the new $100 note and know it's real."
The new design for the $100 note retains three effective security features from the previous design: the portrait watermark of Benjamin Franklin, the security thread, and the color-shifting numeral 100.
The new $100 note also displays American symbols of freedom, including phrases from the Declaration of Independence and the quill the Founding Fathers used to sign this historic document. Both are located to the right of the portrait on the front of the note.
The back of the note has a new vignette of Independence Hall featuring the rear, rather than the front, of the building. Both the vignette on the back of the note and the portrait on the front have been enlarged, and the oval that previously appeared around both images has been removed.
GT sez: For more brainwashing materials:
For a more detailed description of the redesigned $100 note and its features, visit http://www.newmoney.gov/
where you can watch an animated video, click through an interactive note or browse through the multimedia resources for images and B-roll.
Also, visit http://www.newmoney.gov/
for information on how to order free training materials for cash handlers, or you may download the materials directly from the Web site. The training materials for the $100 note are available in 25 languages.
April 21, 2010
2010-4-21-11-26-45-15644
U.S. Government Unveils New Design for the $100 Note
Government to Currency Users:
Know Its Features So You Can Know It's Real
(GT sez: 'Real What?' Valueless Ink and Paper promises ?)
WASHINGTON, D.C. (April 21, 2010) – Officials from the U.S. Department of the Treasury, the Board of Governors of the Federal Reserve System and the United States Secret Service today unveiled the new design for the $100 note. Complete with advanced technology to combat counterfeiting, the new design for the $100 note retains the traditional look of U.S. currency.
"As with previous U.S. currency redesigns, this note incorporates the best technology available to ensure we're staying ahead of counterfeiters," said Secretary of the Treasury Tim Geithner.
"When the new design $100 note is issued on February 10, 2011, the approximately 6.5 billion older design $100s already in circulation will remain legal tender," said Chairman of the Federal Reserve Board Ben S. Bernanke. "U.S. currency users should know they will not have to trade in their older design $100 notes when the new ones begin circulating." (Gee, thanks Ben, I feel better now! All your phoney paper will stay in circulation and lose value.)
There are a number of security features in the redesigned $100 note, including two new features, the 3-D Security Ribbon and the Bell in the Inkwell. These security features are easy for consumers and merchants to use to authenticate their currency.
The blue 3-D Security Ribbon on the front of the new $100 note contains images of bells and 100s that move and change from one to the other as you tilt the note. The Bell in the Inkwell on the front of the note is another new security feature. The bell changes color from copper to green when the note is tilted, an effect that makes it seem to appear and disappear within the copper inkwell.
"The new security features announced today come after more than a decade of research and development to protect our currency from counterfeiting. To ensure a seamless introduction of the new $100 note into the financial system, we will conduct a global public education program to ensure that users of U.S. currency are aware of the new security features," said Treasurer of the United States Rosie Rios.
"For 145 years, the men and women of the United States Secret Service have worked diligently to protect the integrity of U.S. currency from counterfeiters," said Director Mark Sullivan. "During that time, our agency has evolved to keep pace with the advanced methodologies employed by the criminals we pursue. What has remained constant in combating counterfeiting, however, is the effectiveness of consumer education initiatives that urge merchants and customers to examine the security features on the notes they receive." (The REAL CRIMINALS attempting to prevent the amateur counerfeiters from counerfeiting the counterfeit paper promises of a bankrupt guv'mint!!!)
Although less than 1/100th of one percent of the value of all U.S. currency in circulation is reported counterfeit, the $100 note is the most widely circulated and most often counterfeited denomination outside the U.S.
"The $100 is the highest value denomination that we issue, and it circulates broadly around the world," said Michael Lambert, Assistant Director for Cash at the Federal Reserve Board. "Therefore, we took the necessary time to develop advanced security features that are easy for the public to use in everyday transactions, but difficult for counterfeiters to replicate."
"The advanced security features we've included in the new $100 note will hinder potential counterfeiters from producing high-quality fakes that can deceive consumers and merchants,"
(You'll have to leave that quality of counterfeiting to us!) said Larry R. Felix, Director of the Treasury's Bureau of Engraving and Printing. "Protect yourself - it only takes a few seconds to check the new $100 note and know it's real."
The new design for the $100 note retains three effective security features from the previous design: the portrait watermark of Benjamin Franklin, the security thread, and the color-shifting numeral 100.
The new $100 note also displays American symbols of freedom, including phrases from the Declaration of Independence and the quill the Founding Fathers used to sign this historic document. Both are located to the right of the portrait on the front of the note.
The back of the note has a new vignette of Independence Hall featuring the rear, rather than the front, of the building. Both the vignette on the back of the note and the portrait on the front have been enlarged, and the oval that previously appeared around both images has been removed.
GT sez: For more brainwashing materials:
For a more detailed description of the redesigned $100 note and its features, visit http://www.newmoney.gov/
where you can watch an animated video, click through an interactive note or browse through the multimedia resources for images and B-roll.
Also, visit http://www.newmoney.gov/
for information on how to order free training materials for cash handlers, or you may download the materials directly from the Web site. The training materials for the $100 note are available in 25 languages.
AND ANOTHER ONE FROM ERIC FRY AT THE DAILY RECKONING
SOMETIMES, THE TRUTH IS SO SIMPLE ...GT
The "Goldman Sachs Phenomenon"
Eric Fry
Now that the American financial sector is safe and unsound once again, has the threat of serious economic crisis genuinely passed? And has the structure of American capitalism actually improved? Or did the Fed merely dress a sow in lingerie and call her a raving beauty?
In other words, what did the Fed accomplish by lavishing billions of dollars upon the financial sector? Was the Fed's inflationary rescue mission really worth all the trouble? Or would the nation have been better off if Bernanke and Paulson had simply gone golfing while Bear Stearns failed?
At first glance, the Fed's rescue seems to have halted a serious crisis in its tracks. The rescue also seems to have preserved the viability of the American banking system. But upon closer inspection, we discover that the Fed's rescue also preserved at least one dysfunctional characteristic of our economic system - namely, an over-reliance on "asset-swapping" activities, rather than "asset-producing" activities.
Australian author, James Cumes, asserts that the US economy has become overly dependent on trading things back and forth, rather than manufacturing goods and selling them. He calls this new reality the "Goldman Sachs Phenomenon."
"In the larger Anglo-Saxon economies," says Cumes, "transfer of ownership [has] supplanted fixed-capital investment as the most common form of what purported to be 'investment.' Investment has become a means of making a fast buck, not by entrepreneurial effort, construction of factories and installation of productive equipment, but by gambling to add market value through mergers and acquisitions...that would lead to higher shareholder value in the marketplace...
"Despite the higher, short-term market values [that might ensue], they would not necessarily add anything to productivity or to the volume or value of final output" - "Inevitably," Cumes continues, "there are social impacts from this deal-maker, day-trader, casino-like type of ownership investment, especially to the extent that it spreads over a more and more major part of the economy...Inequality is dramatically intensified by generous bonuses for senior executives and others in financial firms in the United States and such other financial centres as London."
The Fed's bailout of the financial sector seems to have supercharged the Goldman Sachs phenomenon. Not only do the top dogs at publicly traded financial firms "make bank," they continue to make bank even after destroying billions of dollars of shareholder wealth. And the top dogs enjoy their privileged positions under the watchful, doting eyes of the Federal Reserve and Treasury. No bad deed goes unrewarded.
"Of course, there is justice in rewarding effort and enterprise," Cumes concludes. "That is historically one of the ways in which a capitalist system has justified and maintained itself; but there are other considerations too. "Indeed, if our present essentially democratic capitalism is to survive - and survive securely - it must pay attention to social outcomes. Poverty in the midst of plenty is not a comfortable social situation. Some inequality there will always be but gross and growing inequalities must, over time, be a threat to social, political and even strategic stability, as well as economic and financial stability."
But these "big picture" concerns do not seem to concern the head of the Fed and Treasury. In fact, throughout this crisis, Bernanke and Paulson have assiduously avoided implementing (or even suggesting) any regulatory changes that would impinge upon the limitless liberties of Wall Street's investment banks. The perpetrators of the crisis remain in power and the corporate structures that supported their recklessness remain in place. Instead, incredibly, Treasury Secretary Paulson wags his regulatory finger at hedge funds.
Huh? Why? Hedge funds did not create the crisis, they merely profited from it. Aren't the investment banks the ones who created trillions of dollars of crazy derivatives? And aren't they the ones who loaded their balance sheets with suicidal quantities of leverage? And aren't they the ones who are now receiving billions of dollars of government support?
So here's a radical idea: How about regulating the perpetrators of the crisis, rather than the profiteers? Or maybe the Fed should require all the top-ranking officers of every company that receives a bailout to resign? Or how about one upper-level resignation for every $1 billion a Wall Street investment bank borrows from the Fed's discount window.
This isn't complex stuff, folks. If the Treasury Secretary sincerely wished to clean up and re-regulate the banking system, his new regulations would only require about 50 words:
1. No officer of any publicly traded financial institution may receive more than $10 million per year in total compensation.
2. No financial institution may borrow more than $10 for every one dollar of readily marketable assets (i.e. "Level I" assets) on its balance sheet.
3. No financial institution may incur any liabilities "off-balance sheet."
4. No exceptions.
Implement these regulations and you would have forever eradicated the DNA of financial catastrophe from the American financial system.
But what would critics say about such "draconian" new regulations? (We'll call these regulations the "Level Playing Field Act of 2008.") After choking on their foie gras, they would probably protest, "That's not nearly enough compensation for top officers! You'd lose the top talent!" Then they would protest: "What! No off-balance sheet financing? Are you crazy? That's where all the juice is! You would lose the ability to ramp up return on equity!"
To which we would reply: "Hallelujah!" and "Amen!"... Finally, we could purge the financial system of all the "talent" that has delivered America's most severe credit crisis since the Great Depression. Finally we could purge the system of the "creative" leverage that the "talent" has amassed over the last several years. Finally, we'd have a banking system that would operate like one - a banking system that would provide capital to entrepreneurial endeavors, rather than to catastrophic speculations.
The American financial system does not need "talent" and "creativity." It needs prudence and perspicacity. It does not need creative bankers. It needs dull bankers.
Why? Because the American financial system needs to safeguard its capacity to finance creative and talented entrepreneurs. It needs to safeguard its capacity to preserve the purchasing power of our currency and to safeguard the legendary America capacity to create wealth from the bottom-up, not to destroy wealth from the top-down.
But the American financial system still possesses too much talent and creativity to operate prudently. In fact, Ben Bernanke and Hank Paulson may be the most creative finance officials in American history.
Consider yourselves forewarned!
Eric J. Fry
for The Daily Reckoning
The "Goldman Sachs Phenomenon"
Eric Fry
Now that the American financial sector is safe and unsound once again, has the threat of serious economic crisis genuinely passed? And has the structure of American capitalism actually improved? Or did the Fed merely dress a sow in lingerie and call her a raving beauty?
In other words, what did the Fed accomplish by lavishing billions of dollars upon the financial sector? Was the Fed's inflationary rescue mission really worth all the trouble? Or would the nation have been better off if Bernanke and Paulson had simply gone golfing while Bear Stearns failed?
At first glance, the Fed's rescue seems to have halted a serious crisis in its tracks. The rescue also seems to have preserved the viability of the American banking system. But upon closer inspection, we discover that the Fed's rescue also preserved at least one dysfunctional characteristic of our economic system - namely, an over-reliance on "asset-swapping" activities, rather than "asset-producing" activities.
Australian author, James Cumes, asserts that the US economy has become overly dependent on trading things back and forth, rather than manufacturing goods and selling them. He calls this new reality the "Goldman Sachs Phenomenon."
"In the larger Anglo-Saxon economies," says Cumes, "transfer of ownership [has] supplanted fixed-capital investment as the most common form of what purported to be 'investment.' Investment has become a means of making a fast buck, not by entrepreneurial effort, construction of factories and installation of productive equipment, but by gambling to add market value through mergers and acquisitions...that would lead to higher shareholder value in the marketplace...
"Despite the higher, short-term market values [that might ensue], they would not necessarily add anything to productivity or to the volume or value of final output" - "Inevitably," Cumes continues, "there are social impacts from this deal-maker, day-trader, casino-like type of ownership investment, especially to the extent that it spreads over a more and more major part of the economy...Inequality is dramatically intensified by generous bonuses for senior executives and others in financial firms in the United States and such other financial centres as London."
The Fed's bailout of the financial sector seems to have supercharged the Goldman Sachs phenomenon. Not only do the top dogs at publicly traded financial firms "make bank," they continue to make bank even after destroying billions of dollars of shareholder wealth. And the top dogs enjoy their privileged positions under the watchful, doting eyes of the Federal Reserve and Treasury. No bad deed goes unrewarded.
"Of course, there is justice in rewarding effort and enterprise," Cumes concludes. "That is historically one of the ways in which a capitalist system has justified and maintained itself; but there are other considerations too. "Indeed, if our present essentially democratic capitalism is to survive - and survive securely - it must pay attention to social outcomes. Poverty in the midst of plenty is not a comfortable social situation. Some inequality there will always be but gross and growing inequalities must, over time, be a threat to social, political and even strategic stability, as well as economic and financial stability."
But these "big picture" concerns do not seem to concern the head of the Fed and Treasury. In fact, throughout this crisis, Bernanke and Paulson have assiduously avoided implementing (or even suggesting) any regulatory changes that would impinge upon the limitless liberties of Wall Street's investment banks. The perpetrators of the crisis remain in power and the corporate structures that supported their recklessness remain in place. Instead, incredibly, Treasury Secretary Paulson wags his regulatory finger at hedge funds.
Huh? Why? Hedge funds did not create the crisis, they merely profited from it. Aren't the investment banks the ones who created trillions of dollars of crazy derivatives? And aren't they the ones who loaded their balance sheets with suicidal quantities of leverage? And aren't they the ones who are now receiving billions of dollars of government support?
So here's a radical idea: How about regulating the perpetrators of the crisis, rather than the profiteers? Or maybe the Fed should require all the top-ranking officers of every company that receives a bailout to resign? Or how about one upper-level resignation for every $1 billion a Wall Street investment bank borrows from the Fed's discount window.
This isn't complex stuff, folks. If the Treasury Secretary sincerely wished to clean up and re-regulate the banking system, his new regulations would only require about 50 words:
1. No officer of any publicly traded financial institution may receive more than $10 million per year in total compensation.
2. No financial institution may borrow more than $10 for every one dollar of readily marketable assets (i.e. "Level I" assets) on its balance sheet.
3. No financial institution may incur any liabilities "off-balance sheet."
4. No exceptions.
Implement these regulations and you would have forever eradicated the DNA of financial catastrophe from the American financial system.
But what would critics say about such "draconian" new regulations? (We'll call these regulations the "Level Playing Field Act of 2008.") After choking on their foie gras, they would probably protest, "That's not nearly enough compensation for top officers! You'd lose the top talent!" Then they would protest: "What! No off-balance sheet financing? Are you crazy? That's where all the juice is! You would lose the ability to ramp up return on equity!"
To which we would reply: "Hallelujah!" and "Amen!"... Finally, we could purge the financial system of all the "talent" that has delivered America's most severe credit crisis since the Great Depression. Finally we could purge the system of the "creative" leverage that the "talent" has amassed over the last several years. Finally, we'd have a banking system that would operate like one - a banking system that would provide capital to entrepreneurial endeavors, rather than to catastrophic speculations.
The American financial system does not need "talent" and "creativity." It needs prudence and perspicacity. It does not need creative bankers. It needs dull bankers.
Why? Because the American financial system needs to safeguard its capacity to finance creative and talented entrepreneurs. It needs to safeguard its capacity to preserve the purchasing power of our currency and to safeguard the legendary America capacity to create wealth from the bottom-up, not to destroy wealth from the top-down.
But the American financial system still possesses too much talent and creativity to operate prudently. In fact, Ben Bernanke and Hank Paulson may be the most creative finance officials in American history.
Consider yourselves forewarned!
Eric J. Fry
for The Daily Reckoning
FROM MONDAY'S DAILY RECKONING
Scattering Under the Light of the SEC
Why America hates Goldman Sachs
Eric Fry
Reporting from Laguna Beach, California...
If you shine a light on a cluster of cockroaches, they scatter and hide. But when you shine a light on a cluster of investment banking con men, they simply stare back and reply, "The SEC's charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation."
As the entire investing world knows by now, Goldman Sachs is the latest cockroach to scuttle under the spotlight. Last Friday, the Securities and Exchange Commission accused Goldman of defrauding investors out of $1 billion.
The details of the SEC's complaint allege that Goldman failed to disclose "vital information" about a mortgage-back security called Abacus. The SEC said: "Unbeknownst to investors, Paulson & Co. [a hedge fund]...which was posed to benefit if the [securities in Abacus] defaulted, played a significant role in selecting which [securities] should make up the portfolio...In sum, Goldman Sachs arranged a transaction at Paulson's request in which Paulson heavily influenced the selection of the portfolio to suit its economic interests."
Goldman responded in classic fashion - crying "Foul!" and claiming that it is the victim of a gross misunderstanding. Does anyone really believe them? To rephrase the question, does anyone really believe that this single instance of alleged fraud is the only such instance?
This question reminds us of another truism about cockroaches: There's never just one. Any financial firm that is capable of committing a fraud as egregious and flagrant as the one the SEC's complaint describes is certainly capable of committing a second fraud...and maybe even a third or a fourth...or a fortieth.
The fraud the SEC identifies in its complaint against Goldman is not a mere "Oops!" It is a fraud that every licensed stockbroker in the land would recognize as a career-ending no-no.
"The product was new and complex," explained Robert Khuzami, a director from the SEC's Division of Enforcement, "but the deception and conflicts were old and simple."
In other words, a lie is a lie.
Nevertheless, your editor is content to let due process run its course...and to wait as long as necessary for the guilty verdict to arrive.
Whatever the ultimate verdict, Goldman is already "guilty by association" in the eyes of most Americans. It is guilty by its close association with the practices that precipitated the financial crisis of 2008. It is also guilty by its close association with the powers in Washington who decided which firms would receive billions of dollars of emergency assistance (i.e. Goldman Sachs) and which would be allowed to fail (i.e., Lehman Bros.). And most of all, it is guilty by its close association with the obscene sense of entitlement that characterizes Wall Street pay practices.
In short, America hates Goldman Sachs.
So the fact that Goldman may have actually committed a large-scale fraud is a very big deal. Suddenly, the Goldman-haters are carrying loaded weapons...and the ensuing firefight might produce some significant volatility in the financial markets.
For starters, this event might produce a very convenient excuse for a very pronounced selloff. But Goldman is not merely an excuse for a stock market selloff; Goldman is the stock market...and it is also the commodity market and the Treasury market. Goldman is the biggest market maker in the US stock market and among the biggest players in every major commodity market. Goldman is also one of the largest primary dealers of Treasury Securities.
So maybe it is no fluke that most commodities tumbled Friday, right along with the stock market. Gold and crude oil both tumbled more than 2%. And as this new week begins, Goldman's troubles are mounting.
Citing Goldman's "moral bankruptcy," Britain's Prime Minister Gordon Brown called for a full inquiry by Britain's Financial Services Authority in conjunction with the SEC. Germany also said it would ask for detailed information about the case. Both governments had to bail out banks that lost hundreds of millions of dollars on investments marketed by Goldman.
None of this will be good news for the stock markets of the world. And yet, none of this is really a surprise either. Nearly two years ago, in a column entitled, "The Goldman Sachs Phenomenon," your California editor remarked, "The American financial system still possesses too much talent and creativity to operate prudently... Consider yourselves forewarned!" We are re-publishing this column in today's edition of The Daily Reckoning.
Just two months before this column first appeared, JP Morgan Chase had acquired the failing Bear Stearns. As part of the deal the Federal Reserve took responsibility for $29 billion in toxic assets from the Bear Stearns portfolio - effectively handing a $29 billion subsidy to JP Morgan, and establishing a precedent for the hundred-billion-dollar subsidies that would flow to Wall Street's largest firms just six months later.
We smelled a rat back then...and the rat doesn't smell any better now...
Why America hates Goldman Sachs
Eric Fry
Reporting from Laguna Beach, California...
If you shine a light on a cluster of cockroaches, they scatter and hide. But when you shine a light on a cluster of investment banking con men, they simply stare back and reply, "The SEC's charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation."
As the entire investing world knows by now, Goldman Sachs is the latest cockroach to scuttle under the spotlight. Last Friday, the Securities and Exchange Commission accused Goldman of defrauding investors out of $1 billion.
The details of the SEC's complaint allege that Goldman failed to disclose "vital information" about a mortgage-back security called Abacus. The SEC said: "Unbeknownst to investors, Paulson & Co. [a hedge fund]...which was posed to benefit if the [securities in Abacus] defaulted, played a significant role in selecting which [securities] should make up the portfolio...In sum, Goldman Sachs arranged a transaction at Paulson's request in which Paulson heavily influenced the selection of the portfolio to suit its economic interests."
Goldman responded in classic fashion - crying "Foul!" and claiming that it is the victim of a gross misunderstanding. Does anyone really believe them? To rephrase the question, does anyone really believe that this single instance of alleged fraud is the only such instance?
This question reminds us of another truism about cockroaches: There's never just one. Any financial firm that is capable of committing a fraud as egregious and flagrant as the one the SEC's complaint describes is certainly capable of committing a second fraud...and maybe even a third or a fourth...or a fortieth.
The fraud the SEC identifies in its complaint against Goldman is not a mere "Oops!" It is a fraud that every licensed stockbroker in the land would recognize as a career-ending no-no.
"The product was new and complex," explained Robert Khuzami, a director from the SEC's Division of Enforcement, "but the deception and conflicts were old and simple."
In other words, a lie is a lie.
Nevertheless, your editor is content to let due process run its course...and to wait as long as necessary for the guilty verdict to arrive.
Whatever the ultimate verdict, Goldman is already "guilty by association" in the eyes of most Americans. It is guilty by its close association with the practices that precipitated the financial crisis of 2008. It is also guilty by its close association with the powers in Washington who decided which firms would receive billions of dollars of emergency assistance (i.e. Goldman Sachs) and which would be allowed to fail (i.e., Lehman Bros.). And most of all, it is guilty by its close association with the obscene sense of entitlement that characterizes Wall Street pay practices.
In short, America hates Goldman Sachs.
So the fact that Goldman may have actually committed a large-scale fraud is a very big deal. Suddenly, the Goldman-haters are carrying loaded weapons...and the ensuing firefight might produce some significant volatility in the financial markets.
For starters, this event might produce a very convenient excuse for a very pronounced selloff. But Goldman is not merely an excuse for a stock market selloff; Goldman is the stock market...and it is also the commodity market and the Treasury market. Goldman is the biggest market maker in the US stock market and among the biggest players in every major commodity market. Goldman is also one of the largest primary dealers of Treasury Securities.
So maybe it is no fluke that most commodities tumbled Friday, right along with the stock market. Gold and crude oil both tumbled more than 2%. And as this new week begins, Goldman's troubles are mounting.
Citing Goldman's "moral bankruptcy," Britain's Prime Minister Gordon Brown called for a full inquiry by Britain's Financial Services Authority in conjunction with the SEC. Germany also said it would ask for detailed information about the case. Both governments had to bail out banks that lost hundreds of millions of dollars on investments marketed by Goldman.
None of this will be good news for the stock markets of the world. And yet, none of this is really a surprise either. Nearly two years ago, in a column entitled, "The Goldman Sachs Phenomenon," your California editor remarked, "The American financial system still possesses too much talent and creativity to operate prudently... Consider yourselves forewarned!" We are re-publishing this column in today's edition of The Daily Reckoning.
Just two months before this column first appeared, JP Morgan Chase had acquired the failing Bear Stearns. As part of the deal the Federal Reserve took responsibility for $29 billion in toxic assets from the Bear Stearns portfolio - effectively handing a $29 billion subsidy to JP Morgan, and establishing a precedent for the hundred-billion-dollar subsidies that would flow to Wall Street's largest firms just six months later.
We smelled a rat back then...and the rat doesn't smell any better now...
Tuesday, April 20, 2010
Goldman's Travails: Don't Get Your Hopes Up
Goldman's Travails:
By Mike Whitney
Screwing people is a "growth industry". And a big organization like Goldman has a reservoir full of snakeoil, so it doesn't have to worry about running-low on reserves. Just stitch-together a bunch of junk securities, dress them up in sequins and gold-lame', dump them off on investors, and rake in big profits when the ship sinks.
http://www.informationclearinghouse.info/article25252.htm
By Mike Whitney
Screwing people is a "growth industry". And a big organization like Goldman has a reservoir full of snakeoil, so it doesn't have to worry about running-low on reserves. Just stitch-together a bunch of junk securities, dress them up in sequins and gold-lame', dump them off on investors, and rake in big profits when the ship sinks.
http://www.informationclearinghouse.info/article25252.htm
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