Tag Archives: Goldman Sachs

A “vanilla characterization”: Goldman Sachs, Deutsche Bank, and Hillary Clinton

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Goldman Sachs, Deutsche Bank, Hillary Clinton. Your cash is good at the bar.

Emails recently released via wikileaks restore little hope about the Clinton team behind scenes. The excerpts below, verbatim and in-house, pertain to that vexed topic of Clinton’s paid speeches for Wall Street.

They’re pretty clear. Little editorializing required. As Halloween approaches, some naked self-exposure of cynical willingness to fool the public is highlighted in orange:

On Fri, Nov 20, 2015 at 3:03 PM, Dan Schwerin <dschwerin@hillaryclinton.com> wrote: > Following up on the conversation this morning about needing more arrows in > our quiver on Wall Street, I wanted to float one idea. In October 2014, > HRC did a paid speech in NYC for Deutsche Bank. I wrote her a long riff > about economic fairness and how the financial industry has lost its way, > precisely for the purpose of having something we could show people if ever > asked what she was saying behind closed doors for two years to all those > fat cats. It’s definitely not as tough or pointed as we would write it > now, but it’s much more than most people would assume she was saying in > paid speeches. (Full transcript is attached and key riff is pasted below.) > Perhaps at some point there will be value in sharing this with a reporter > and getting a story written. Upside would be that when people say she’s too > close to Wall Street and has taken too much money from bankers, we can > point to evidence that she wasn’t afraid to speak truth to power. Downside > would be that we could then be pushed to release transcripts from all her > paid speeches, which would be less helpful (although probably not > disastrous). In the end, I’m not sure this is worth doing, but wanted to > flag it so you know it’s out there.

The suggestion did not meet with unmitigated moral contempt or a generous wrath. On the following Monday, Clinton spokesman Brian Fallon passed it along:

Reviving this thread because AP is working on a story similar to Pat Healy’s article in Sunday’s NYT about HRC’s “Wall Street image problem.” The reporter, Lisa Lerer, plans specifically to note that her paid speeches to banks were closed-press affairs, and transcripts are not available. She is asking if we wish to characterize her remarks in any way. I think we could come up with a vanilla characterization that challenges the idea that she sucked up to these folks in her appearances, but then use AP’s raising of this to our advantage to pitch someone to do an exclusive by providing at least the key excerpts from this Deutsche Bank speech. In doing so, we could have the reporting be sourced to a “transcript obtained by [news outlet]” so it is not confirmed as us selectively providing one transcript while refusing to share others.

There were demurrals. As Mandy Grunwald responded the same day,

I worry about going down this road. First, the remarks below make it sound like HRC DOESNT think the game is rigged — only that she recognizes that the public thinks so. They are angry. She isn’t. Second, once you start looking at speeches, you run smack into Maggie Haberman’s report for Politico on HRC’s Goldman Sachs speech, in which HRC isn’t quoted directly, but described as saying people shouldn’t be vilifying Wall Street.

In other words, the suggested riff might not obfuscate enough to be helpful. As Grunwald went on,

Maybe you think the Deutsche Bank speech takes the sting out of the Goldman report — but I am concerned that the passage below will exacerbate not improve the situation.

For nostalgic reasons, I like seeing the name Deutsche Bank come up. Remember the great moment in Casablanca when Rick (Humphrey Bogart) entertains an official from Deutsche Bank?

Clip on Youtube here

Playing it again

Playing it again

The dialogue names names:

53. I’m sorry sir, this is a private room.

 

54. Of all the nerve! Who do you think…? I know there’s gambling in there ! There’s no secret . You dare not keep me out of here! You

 

55. Yes? What’s the trouble? ABDUL This gentleman — GERMAN RICK Your cash is good at the bar. GERMAN What ! Do you know who I am? Yes? What’s the trouble? This gentleman ….

 

56. I’ve been in every gambling room between Honolulu and Berlin and if you think I’m going to be kept out of a saloon like this, you’re very much mistaken.

 

57. Hello Ugarte. Uh, excuse me, please. Hello, Rick.

 

58. What! Do you know who I am? Your cash is good at the bar

 

59. I do . You’re lucky the bar is open to you.

 

60. This is outrageous. I shall report it to the Angriff!

 

61. Huh. You know, Rick, watching you just now with the Deutsche Bank, one would think you’d been doing this all your life.

 

62. Well, what makes you think I haven’t.

Goldman Sachs shorted its own products, Senate investigation reports

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Senate Permanent Subcommittee on Investigations: Goldman Sachs shorted its own products

Sen. Carl Levin intends to refer Goldman Sachs to the Justice Department and the SEC for possible prosecution and civil litigation, regarding its trading in subprime mortgage-related paper.

Goldman Sachs

The Senate Permanent Subcommittee on Investigations, chaired by Levin, released its report on the subprime lending crisis yesterday, following months of investigation into the financial debacle culminating in 2008.

Sen. Levin

“The investigation found that the crisis was not a natural disaster, but the result of high risk, complex financial products; undisclosed conflicts of interest; and the failure of regulators, the credit rating agencies, and the market itself to rein in the excesses of Wall Street.”

Among the most hair-raising instances of the latter, the report summarizes, were problems at the formerly hallowed Wall Street firm of Goldman Sachs.

Saving discussion for later, following are some pertinent passages from the Executive Summary on Goldman Sachs, one of two case studies on investment bank abuses. (The other is DeutscheBank.)

As the Subcommittee notes,

“Investment banks can play an important role in the U.S. economy, helping to channel the nation’s wealth into productive activities that create jobs and increase economic growth. But in the years leading up to the financial crisis, large investment banks designed and promoted complex financial instruments, often referred to as structured finance products, that were at the heart of the crisis. They included RMBS [residential mortgage backed securities] and CDO [collateralized debt obligation] securities, credit default swaps (CDS), and CDS contracts linked to the ABX Index. These complex, high risk financial products were engineered, sold, and traded by the major U.S. investment banks.”

Wall Street commerce in these complex packages based ultimately on ordinary homeowners’ mortgages became brisk and then became huge:

“From 2004 to 2008, U.S. financial institutions issued nearly $2.5 trillion in RMBS and over $1.4 trillion in CDO securities, backed primarily by mortgage related products. Investment banks typically charged fees of $1 to $8 million to act as the underwriter of an RMBS securitization, and $5 to $10 million to act as the placement agent for a CDO securitization. Those fees contributed substantial revenues to the investment banks, which established internal structured finance groups, as well as a variety of RMBS and CDO origination and trading desks within those groups, to handle mortgage related securitizations. Investment banks sold RMBS and CDO securities to investors around the world, and helped develop a secondary market where RMBS and CDO securities could be traded. The investment banks’ trading desks participated in those secondary markets, buying and selling RMBS and CDO securities either on behalf of their clients or in connection with their own proprietary transactions.”

This is where the plot thickens:

Two investment banks in particular, Goldman Sachs and Deutsche Bank, “illustrate a variety of troubling practices that raise conflicts of interest and other concerns . . .”

Goldman was engaged not only in selling complex derivatives, i.e. boosting them, but also in betting against complex derivatives:

“From 2004 to 2008, Goldman was a major player in the U.S. mortgage market. In 2006 and 2007 alone, it designed and underwrote 93 RMBS and 27 mortgage related CDO securitizations totaling about $100 billion, bought and sold RMBS and CDO securities on behalf of its clients, and amassed its own multi-billion-dollar proprietary mortgage related holdings. In December 2006, however, when it saw evidence that the high risk mortgages underlying many RMBS and CDO securities were incurring accelerated rates of delinquency and default, Goldman quietly and abruptly reversed course.

“Over the next two months, it rapidly sold off or wrote down the bulk of its existing subprime RMBS and CDO inventory, and began building a short position that would allow it to profit from the decline of the mortgage market. Throughout 2007, Goldman twice built up and cashed in sizeable mortgage related short positions. At its peak, Goldman’s net short position totaled $13.9 billion. Overall in 2007, its net short position produced record profits totaling $3.7 billion for Goldman’s Structured Products Group, which when combined with other mortgage losses, produced record net revenues of $1.2 billion for the Mortgage Department as a whole.”

Investment bank and investment advisor Goldman did not go the extra mile in transparency:

“Throughout 2007, Goldman sold RMBS and CDO securities to its clients without disclosing its own net short position against the subprime market or its purchase of CDS contracts to gain from the loss in value of some of the very securities it was selling to its clients.” [emphasis added]

There are four such mega-packages in particular, “four CDOs that Goldman constructed and sold called Hudson 1, Anderson, Timberwolf, and Abacus 2007-AC1.”

“In some cases, Goldman transferred risky assets from its own inventory into these CDOs; in others, it included poor quality assets that were likely to lose value or not perform. In three of the CDOs, Hudson, Anderson and Timberwolf, Goldman took a substantial portion of the short side of the CDO, essentially betting that the assets within the CDO would fall in value or not perform. Goldman’s short position was in direct opposition to the clients to whom it was selling the CDO securities, yet it failed to disclose the size and nature of its short position while marketing the securities. While Goldman sometimes included obscure language in its marketing materials about the possibility of its taking a short position on the CDO securities it was selling, Goldman did not disclose to potential investors when it had already determined to take or had already taken short investments that would pay off if the particular security it was selling, or RMBS and CDO securities in general, performed poorly.”

Taking these four packages one by one:

  • “In the case of Hudson 1, for example, Goldman took 100% of the short side of the $2 billion CDO, betting against the assets referenced in the CDO, and sold the Hudson securities to investors without disclosing its short position. When the securities lost value, Goldman made a $1.7 billion gain at the direct expense of the clients to whom it had sold the securities.”
  • “In the case of Anderson, Goldman selected a large number of poorly performing assets for the CDO, took 40% of the short position, and then marketed Anderson securities to its clients. When a client asked how Goldman “got comfortable” with the New Century loans in the CDO, Goldman personnel tried to dispel concerns about the loans, and did not disclose the firm’s own negative view of them or its short position in the CDO.”
  • “In the case of Timberwolf, Goldman sold the securities to its clients even as it knew the securities were falling in value. In some cases, Goldman knowingly sold Timberwolf securities to clients at prices above its own book values and, within days or weeks of the sale, marked down the value of the sold securities, causing its clients to incur quick losses and requiring some to post higher margin or cash collateral. Timberwolf securities lost 80% of their value within five months of being issued and today are worthless. Goldman took 36% of the short position in the CDO and made money from that investment, but ultimately lost money when it could not sell all of the Timberwolf securities.
  • “In the case of Abacus, Goldman did not take the short position, but allowed a hedge fund, Paulson & Co. Inc., that planned on shorting the CDO to play a major but hidden role in selecting its assets. Goldman marketed Abacus securities to its clients, knowing the CDO was designed to lose value and without disclosing the hedge fund’s asset selection role or investment objective to potential investors. Three long investors together lost about $1 billion from their Abacus investments, while the Paulson hedge fund profited by about the same amount. Today, the Abacus securities are worthless.”

[update]

Goldman spokesman Michael DuVally returned a call for comment on the Subcommittee report and referral to the DOJ. His statement, by email:

“Margie,

As discussed.

Michael

General response:

“While we disagree with many of the conclusions of the report, we take seriously the issues explored by the Subcommittee. We recently issued the results of a comprehensive examination of our business standards and practices and committed to making significant changes that will strengthen relationships with clients, improve transparency and disclosure and enhance standards for the review, approval and suitability of complex instruments.”

On the issue of GS allegedly giving misleading testimony:

“The testimony we gave was truthful and accurate and this is confirmed by the Subcommittee’s own report. The report references testimony from Goldman Sachs witnesses who repeatedly and consistently acknowledged that we were intermittently net short during 2007.  We did not have a massive net short position because our short positions were largely offset by our long positions, and our financial results clearly demonstrate this point.””

More later

TARP money and hush money

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TARP money and hush money

The steady stream of reports is becoming a torrent: Notwithstanding abundant evidence of shortcomings in-house and public revulsion on the street, firm after firm that benefited from taxpayer bailouts and other public funding is now—again–setting aside enormous funds for executive bonuses.

AIG

This morning’s Wall Street Journal reports that AIG—American International Group, is holding off on planned bonuses for executives, including $235 million specifically for its troubled financial products unit. Outrage over the planned bonuses, almost dwarfed by the bonuses contemplated at other financial firms, is leading to congressional oversight. The Washington Post, the Los Angeles Times, and numerous other metropolitan dailies are carrying the story of this quarter’s round of bonus revelations.

Yesterday Morgan Stanley was reported as setting aside $3.9 billion for payouts–in spite of posting losses of $159 million for the second quarter of 2009–an increase of 26 % over compensation from a year ago. That would be 72 percent of Morgan Stanley’s net revenues.

Last week Goldman Sachs reported setting aside $6.65 billion for executive compensation. Unlike Morgan Stanley, Goldman Sachs reported whopping profits for the quarter. Still, the amounts involved were enough to strengthen demand for a “say-on-pay” law in Congress, with Goldman, which repaid $10 billion to the U.S. Treasury, as Exhibit A in a general picture of shamelessness among Wall Street tortfeasors.

Meanwhile, J. P. Morgan Chase, Citigroup and Bank of America also posted windfall earnings—all financial giants bailed out by Lilliputian taxpayers. Citigroup is also among banks planning multi-year bonuses for executive recruiting.

The week before, AIG asked administration approval for retention bonuses, including bonuses for the financial products unit largely responsible for the troubled mortgage-backed derivatives commerce involved in the financial crisis.

Needless to say, all these bonuses come at a time when millions of ordinary people face job loss, foreclosure or bankruptcy, or at best diminished income from the general business downturn. Also, the companies involved are battling demands for greater oversight from the feds, going so far as to ramp up their lobbying—paying for the lobbying, while keeping the purse strings tight in their lending–to prevent more effective oversight. Financial companies are also fighting off demands for greater transparency from their shareholders—whose stock losses in their 401(k)s helped get the Wall Street no-strings-attached bailout passed in Congress, last fall, even under the outgoing and discredited Bush administration. And not only have stock prices suffered, but shareholders for the most part are not exactly being sweetened with increased dividends.

You really do have to wonder why some of the biggest financial entities on Wall Street would be so much more willing to send away their own shareholders angry, and to anger the public, than to send away some of their top management angry.

There ought to be a law . . .

Reforms are being contemplated by Congress, and some reform legislation will undoubtedly pass. In the interim, we do have law enforcement. The phrase “hush money” may be slang, but it is defined in Black’s Law Dictionary as “A bribe to suppress the dissemination of certain information; a payment to secure silence.”