Sunday, April 25, 2010

Being Goldman Sachs

The internal emails that have been released proves what many have been saying about Goldman Sachs for some time now: It is a toxic firm. Goldman Sachs benefited on the front end and back end. As people were losing their homes, this investment bank positioned itself to win on the front end by creating and bundling an alphabet soup of complex derivatives that were given bogus AAA credit ratings by credit agencies. (Credit agencies were complicit in the financial meltdown too. Why should our credit scores have so much weight when the game system is obviously rigged? They lowered Berkshire's credit rating long after it was quite clear that they were not deserving of the coveted AAA credit rating. It currently has some $20 billion in debt on its balance sheet.) On the back end Goldman was bailed out by tax payers to the tune of $12.9 billion via AIG, not to mention the tens of billions it received directly from the government. I have been writing about Goldman Sachs' double dipping everywhere for nearly two years now. This seems illegal.

One email from Goldman Chief Executive Lloyd Blankfein dating from November 2007 read: "Of course we didn't dodge the mortgage mess. We lost money, then made more than we lost because of shorts." In a released statement Senator Carl Levin (D-MI) said of the email: "There it is, in their own words: Goldman Sachs taking 'the big short' against the mortgage market. Investment banks such as Goldman Sachs were not simply market-makers, they were self-interested promoters of risky and complicated financial schemes that helped trigger the crisis. They bundled toxic mortgages into complex financial instruments, got the credit rating agencies to label them as AAA securities, and sold them to investors, magnifying and spreading risk throughout the financial system, and all too often betting against the instruments they sold and profiting at the expense of their clients." The SEC civil case may need to broaden; this seems criminal. The credit agencies need to also be investigated for their role in the financial crisis.


Big Mark 243 said...

There was a story on 'This American Life' that talked about how so few people saw the crisis that was obvious to all.

Of course the fat cats who are symbolized by Goldman were aware that they were being greedy. They simply did not care.

Judith Ellis said...

That's for sure, Mark. It's awful that we funded their greed even though it appears that we had to as many cities invested in Goldman, thinking that their investment was secure. It had a rather good reputation in the past. But they may have been unethical well before their wrongdoings came to light. We need financial reform that matters. Going back to the laws that were enacted after the Depression and dismantled over the last 25 or so years is a good start.

zorro said...

Before 1999, it was against the law to sell risky investments to customers and then hedge bets by betting against the investments.
This is what Goldman Sacks did after 1999.
What happened with the economy was bound to happen with the deregulation fever still favored by the Republicans.

Judith Ellis said...

Deregulation has been a disaster, Zorro.