On Wednesday (January 13) Government Goldman Sachs CEO Lloyd Blankfein was questioned by FCIC chairman Phil Angelides about some, shall we say, less than ethical practices at Goldman. In essence what Goldman is accused of doing is selling securities as safe investments while at the same time betting their value would go down,
Here is a portion of the transcript, from McClatchy:
"PHIL ANGELIDES (the commission chairman): I want to ask you about a very specific instance as a way of getting to how things worked and how things might be changing in the future . . . And it appears, at least according to public documents and other reports, that you may have simultaneously bet against securities you sold to clients. According to the reports, you sold about $40 billion in 2006, 2007. In December 2006, you came to the conclusion the mortgage was heading south and you began to reduce your own positions. And many of the securities that you sold to institutional investors went bad within months of issuance. Now one expert in structured finance said, "The simultaneous selling of securities to customers and shorting them because they believe they are going to default is the most cynical use of credit information I've seen."
Do you believe that was a proper legal, ethical practice? And would the firm continue to do that practice? Or do you believe that's the kind of practice that undermines confidence in the marketplace?
LLOYD BLANKFEIN: Well, the way it's . . . let me . . . the short answer is this is the practice of a market maker. And I would like to explain this. But the answer is I do think that the behavior is improper, and we regret the result -- the consequence that people have lost money in it...
ANGELIDES: But Mr. Blankfein, you are actually creating this securities. And let me just tell you, as someone who's been in business for half my career, the notion that I would make a transaction with you and then the person with whom I made that transaction would then bet that that transaction would blow up is inimical to me.
The next day (January 14) Goldman released this statement:
NEW YORK, January 14, 2010 -- The Goldman Sachs Group, Inc. (NYSE: GS): Today certain media reports have erroneously stated that, during testimony at the Financial Crisis Inquiry Commission in Washington, D.C. yesterday, Lloyd Blankfein said Goldman Sachs' practices with respect to the sale of mortgage-related securities were "improper." Mr. Blankfein said no such thing.
Mr. Blankfein was responding to a lengthy series of statements followed by a question that was predicated on the assumption that a firm was selling a product that it thought was going to default. Mr. Blankfein agreed that, if such an assumption was true, the practice would be improper. Mr. Blankfein does not believe, nor did he say, that Goldman Sachs had behaved improperly in any way."
So in short, Goldman expects us to believe that Blankfein's answer was purely hypothetical, and had absolutely no correlation to the company's practices. Right. Corporate CYA if I ever heard it.
Speaking of Blankfein, take a look at who the Wall Street Journal called his BFF:
Shocking, huh?
Here is a portion of the transcript, from McClatchy:
"PHIL ANGELIDES (the commission chairman): I want to ask you about a very specific instance as a way of getting to how things worked and how things might be changing in the future . . . And it appears, at least according to public documents and other reports, that you may have simultaneously bet against securities you sold to clients. According to the reports, you sold about $40 billion in 2006, 2007. In December 2006, you came to the conclusion the mortgage was heading south and you began to reduce your own positions. And many of the securities that you sold to institutional investors went bad within months of issuance. Now one expert in structured finance said, "The simultaneous selling of securities to customers and shorting them because they believe they are going to default is the most cynical use of credit information I've seen."
Do you believe that was a proper legal, ethical practice? And would the firm continue to do that practice? Or do you believe that's the kind of practice that undermines confidence in the marketplace?
LLOYD BLANKFEIN: Well, the way it's . . . let me . . . the short answer is this is the practice of a market maker. And I would like to explain this. But the answer is I do think that the behavior is improper, and we regret the result -- the consequence that people have lost money in it...
ANGELIDES: But Mr. Blankfein, you are actually creating this securities. And let me just tell you, as someone who's been in business for half my career, the notion that I would make a transaction with you and then the person with whom I made that transaction would then bet that that transaction would blow up is inimical to me.
The next day (January 14) Goldman released this statement:
NEW YORK, January 14, 2010 -- The Goldman Sachs Group, Inc. (NYSE: GS): Today certain media reports have erroneously stated that, during testimony at the Financial Crisis Inquiry Commission in Washington, D.C. yesterday, Lloyd Blankfein said Goldman Sachs' practices with respect to the sale of mortgage-related securities were "improper." Mr. Blankfein said no such thing.
Mr. Blankfein was responding to a lengthy series of statements followed by a question that was predicated on the assumption that a firm was selling a product that it thought was going to default. Mr. Blankfein agreed that, if such an assumption was true, the practice would be improper. Mr. Blankfein does not believe, nor did he say, that Goldman Sachs had behaved improperly in any way."
So in short, Goldman expects us to believe that Blankfein's answer was purely hypothetical, and had absolutely no correlation to the company's practices. Right. Corporate CYA if I ever heard it.
Speaking of Blankfein, take a look at who the Wall Street Journal called his BFF:
"As The Wall Street Journal reports today, Treasury Secretary Timothy Geithner has kept in very close contact with Wall Street titans during his first year in office...If this were a popularity contest then Lloyd Blankfein would be a winner. Geithner called or met with the Goldman Sachs Group CEO 22 times in the first seven months of the year."
Shocking, huh?
Oh thrill, bart-1 is here. Who you gonna stalk this time, bart?
Want to wager on where Timmie will go to work after his stint i n the Government ?
If you make a system that is so complex the average person can't understand it, then it becomes easy to manipulate it to your advantage.
I agree with AGK.
If I continue to read your commentary, and watch Dylan Ratigan... at some point, I may have some small understanding of all that happened in the financial markets... to cost this country several trillion dollars.... and over 10% unemployment, several million foreclosures, etc.
Keep the faith in VY.
Bart - we do mention Sarah Palin just to remind voters of the alternative.
I'm no great fan of Sec. Geithner, but at least he understands exactly what it is the Fed does. Clearly he was in bed with the banks. But can you imagine anyone - I mean, ANYONE - going to Sarah Palin for advice on handling the financial crisis? I am pretty sure even I know more about collateralized debt obligations and the secondary mortgage market than she does. So, yes, Geithner screwed up. But there is a reason he was president of the NY Fed and it was not because he was telegenic or gave a good speech.
Thanks. and I didn't forget. One thing, though. When it comes to Vince and his abilities and capabilities, no expectation is unrealistic.
You, see bart, we are a diverse blog. We do politics, education, science, energy, local affairs, and humor. One part of the humor we cover is farce. Beck-Palin come under that category. Farce. Still funny though.
Thanks for reading.
Desperado, these blogs are your best ever. Much better than your unrealistic expectations for VY. Don't forget our wager next year.
Despo, I must congratulate you on discussing such a vitally important investigation into the manufactured financial crisis instead of say discussing Palin/Beck interviews. Are there still people talking about Geithner's bedpartners besdies you on either political spectrum at the Chron?
I'm with you, it all makes my head spin too. Collateralized debt obligations, credit default swaps, mortgage backed securities. It's confusing by design, to everybody but the crooks who devised it. I just look for people who do understand it and can break it down into simple English.
Thank you for writing these. This stuff is practically impossible to understand to anyone without an MBA in Finance - and even then it's tough. Thank you for helping decipher this.