Being Goldman Sachs

In her article "Why a Criminal Case Against Goldman Sachs Matters and Why Charges Could Stick" Pam Martens makes her case clearly. Here is a large portion of the article:

The first Goldman Sachs panel to line up before Senator Carl Levin’s subcommittee on April 27 consisted of Daniel Sparks, Joshua Birnbaum, Michael Swenson and Fabrice Tourre. Mr. Sparks headed the Mortgage Department and supervised the other three who worked in the Structured Product Group at the time the SEC has alleged the securities fraud occurred.

To hear these four tell it, their jobs included trading for Goldman’s benefit (proprietary trading), originating investment products, selling the products to customers once they were created (distribution), and, in Mr. Tourre’s case, even speaking with the rating agency that would transform these subprime bets into AAA derivatives. And how did they sum up all of this as a job description? They testified, under oath I might add, that they were “market-makers.” In a sane world, a market maker is an entity that matches buyers with sellers and profits from capturing a portion of the spread (bid and ask) on the buy and sell price of securities.

To a lay jury, this might fly as legitimate conduct; something akin to a short order cook who shops for the groceries, whips up the omelets, throws a little parsley garnish on the plates, serves the diners, and tallies up his P&L at the end of the day. If he overbought on ground beef, he might have to have three days of specials like Shepherd’s Pie, Hungarian Goulash, and Spaghetti with Meat Sauce to “flatten” his position and “get closer to home.” Nothing criminal going on here; just good ole American know-how and innovative workouts.

The major problem with this analogy, and most others in defense of Goldman, is that the short order cook wasn’t trying to pass off E. coli beef for prime rib. Another problem for Goldman is that embedded in the heart of every securities law is the principle that the customer must be treated honestly and fairly and any mechanism or device to deceive, manipulate or defraud is patently illegal. Remember, securities laws grew out of the ingrained Wall Street corruption exposed in two years of Senate hearings in 1932 and 1933.

It is difficult to see how one can be engaging in proprietary trading for the benefit of the firm at one moment, acting in an agent capacity for the benefit of the customer the next moment, and creating investment products designed to fail on a latte break. Sparks, Birnbaum and Swenson all had principal licenses to engage in investment banking activities like underwriting as well as the Series 7 license to trade securities. Mr. Tourre had only the Series 7 and Series 63 licenses to trade securities. He had no principal license according to his regulatory file available online. That could be a big legal issue for Goldman as a firm, for Mr. Sparks who supervised him, and for the controlled-demolition investment product he assisted in creating without a principal license. Failure to supervise is one of the first areas security lawyers review in assessing a firm’s liability.

Please find the entire article here. Ms. Martens worked on Wall Street for 21 years.

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.

Being Warren Buffett

Warren Buffett has never been out so much on television as he has been in the last two years. Usually, we see him once a year during his annual quirky shareholders' meeting in Omaha. The interesting thing is that Berkshire has never been in such a dubious position as it has been over the same period. Yes, I'm aware that Berkshire has been profitable lately. Do you remember how much Buffett was insisting on the need for bank bailouts? He had vested interests, real skin in the game.

There seems to be a correlation with the once reclusive billionaire investor and the now very talkative one. Buffett talks health care today as a typical politician in a back and forth wiggle room position, rejecting the current bill while saying that other countries--mostly socialized countries I might add--do it better. The world pays about 9 percent of their GDP on health care he noted. We pay 17 percent.

Buffett says that we should "attack cost cost cost" as "jobs jobs jobs." But he doesn't suggest how these things might be done. Real lawmakers, not obstructionists, are in the real position of dealing with how things are done. Often times, comprises are necessary. I did not like the tone Buffett took on President Obama's effort of bipartisanship and beginning anew with that infamous "white sheet of paper" is out of the question.

Regarding the health care bill, Buffett says that he would prefer a Plan C as opposed to the current A or B but he doesn't say how this Plan C would look or why his ideas--whatever they are--could be added to the current bill. His uncertainty or inability to actually express what he means did not instill confidence.

The Oracle of Omaha seemed to be a bit of red meat for the giddy often ill-informed CNBC analysts who tried to force him to say what he was actually saying as opposed to dancing like an inept dancer. Perhaps Buffett felt as if he needed to make a television appearance as George Soros' did brilliantly yesterday on Fareed Zakaria GPS. It did not work well for him.

An article in the Huffington Post reports that "Berkshire owns clothing, furniture, jewelry and corporate jet firms, but its insurance and utility businesses accounted for one-third of the company's profit last year. It's net income jumped 61 percent in 2009 to $8.1 billion largely because the value of its investments and derivatives rose sharply."

As I read this I couldn't help but to wonder if Berkshire is so very profitable as Goldman Sachs now is through government bailouts of Wall Street firms. (Yes, I understood the necessity of the bailouts, although not the lack of accountability.) Goldman Sachs is now also reporting record profits. After all, Berkshire was heavily invested in Goldman Sachs and Goldman Sachs heavily insured by AIG. As indicated above "insurance and utility accounted for one-third of the company's profits last year." A question: Are banks essentially utilities?

What a web we are all in. But some of us get caught therein while others win big, lecturing us on what we need to do without offering any real solutions on how to do it. There is cost control containment in the current health care bill, although perhaps there could be more. Some would say that the public option would insure greater cost containment.

While being for the public option, it is not a deal breaker for me in this first stage of health care reform. Changes to Medicare has also occurred over time. But if Warren Buffett has an opinion on what needs to be further included in the current health care bill he should say so or otherwise not comment at all. After all, he is known to be the Oracle of Omaha and some might just listen to him. But in this CNBC interview what has he really said?

Being George Soros

On Fareed Zakaria GPS respected billionaire global financier George Soros said that although President Reagan is highly regarded "something went terribly wrong when Reagan and Thatcher" were in office. During the Reagan years deregulation was championed and continued under President Clinton which included unfair trade and globalization policies. With the major collapse of the global economy it is clear that Soros is well-respected for a reason. When asked if banking reform is necessary he said yes but it is most important to get it right.

It's not difficult to find Soros to be admirable. He gives $500 million dollars, which he noted is steadily increasing, annually to his foundation, Open Society Institute, to consider "issues confronting humanity such as climate change" and helping the "vulnerable" in the world. Like is contemporary Warren Buffett, Soros is deeply dedicated to global human causes. For this, both should be resoundingly praised. But Soros seems to not have lost his edge as it is believed Buffett may have.

George Soros' pulse on economic issues remains vibrant. I wonder if it has to do with positioning. How has he managed to be so accurate for so many years? His position as a hedge fund manager demands constant immediate attention that includes out of the box decisions and outlook. Unlike Buffett, Soros did not lose big with bogus alphabetical financial instruments such as CDOs, CDO squareds, CDSs, ABXs, CMBXs, etc that nearly brought the global economy to near collapse.

Berkshire Hathaway, Inc., Buffett's company, invested in some of the aforementioned financial instruments and lost its coveted Triple A credit score. As the founder and chairman of the Soros Fund Management, LLC, Soros undoubtedly bet against the subprime housing market, recognizing it as a bubble. Wherever there is a bubble, Soros seems likely to capitalize on it. This should keep some on their toes, but it doesn't seem to matter largely. Boom and bust seems built into the system. The problem is that with technology the potential for global collapse is greater. I wonder how Soros sees his role as the chairman of a successful hedge fund which is often oppositional to government. Governments (international and local) often depend on the investment advice of others such as Goldman Sachs to do their bidding. How might Soros see this?

Being Warren Buffett IV

I'm no financial expert, but it looks like the Oracle of Omaha has lost his touch. He once looked at debt as disease, now he is just as excessively leveraged as many others with his hand out like all others who others who indulged in bogus derivatives. Berkshire lost its coveted Triple A credit rating, although much later than others. Positioning seems to have its privilege whether deserved or not.

Reuters reports that

"yesterday Buffett came out against Obama’s proposed bank tax, but his comments were inconsistent. On one hand he’s always maintained banks needed to be bailed out, yet he opposes ways to make them pay for it. At this point, financial giants in which Buffett has large stakes — Wells Fargo, Goldman Sachs and General Electric — all benefit from an implicit too-big-to-fail government insurance policy. How can Mr. Buffett, an insurance executive, argue that it’s inappropriate to charge them for it?

This is just the latest example of Buffett talking his book.

Buffett also lobbied for and profited greatly from the bailouts. He spoke publicly that his investments in Goldman and GE were predicated on the passage of the Troubled Asset Relief Program, saying that he trusted Congress would "do the right thing."

Later he mocked the stress test, which had over-leveraged banks raise needed capital. This was bad for Buffett because it diluted his stakes in banks.

Isn't it extraordinary that Buffett and his ilk had their hand out for government welfare as an unwed unemployed uneducated mother might, only that her need would not equal nearly one trillion dollars?

Being Warren Buffett III

The AP reports that Warren Buffett's Berkshire today "agreed to buy Burlington Northern Santa Fe Corp., making a $34 billion bet on the future of the U.S. economy." This made me feel really good in that there is investment in America again that is other than what is occurring in Silicon Valley. Twitter, Facebook, Youtube, MySpace et al will not be enough to sustain a diverse economy and we need to begin again to invest in our infratstructure and make America great industrial nation again. I suspect that Buffett is not only thinking of moving products built here but those built abroad as well. But my desire is that we will again become an industrial nation. We are too big to be a technology and service company alone. The economy needs diversity and robustness, not to mention companies that employ people. I have been critical of Buffett's investment in bogus derivitates that eventually cost the company its triple-A credit score rating. You can read these posts here. But with this investment I praise him. I feels like an investment in America. Let's hope others will follow suit and put Americans back to work.

Being Warren Buffett II

Warren Buffett and Charlie Munger, partners in Berkshire Hathaway, have finally come around to what Nassim Nicholas Taleb has been saying for years now. VAR models are dangerous, though they are taught widely in business schools and used on Wall Street. Mr. Munger even now talks about the risk of such mathematical theories being taught in business schools. While Mr. Buffett and Mr. Munger seem to be late to the game, better late than never--I guess.

Perhaps Mr. Buffett needed to speak out now as the Oracle, whom I like as a person who lives moderately and seems like a basically good guy, after Berkshire lost big over the last year and a half, even its coveted triple-A credit score rating. Berkshire has a 24% stake in Moody's Investor Service, the credit scoring company that gave Wall Street companies that engaged in credit default swaps and the like triple-A ratings, even after it was obvious that such a rating was not deserved. Does this feel like collusion?

Some might wonder if Berkshire's rating did not go down until early this year because of its stake in Moody's. After all, Berkshire seems to have itself written complicated financial instruments that have been hammered for some time now. Berkshire has gone down 39% since December 2007. Oh, what a racket it all seems to be, even among the seemingly good guys. Because of this, the mere whiff of impropriety, the public's ire musn't wane. Arianna Huffington has been hitting Wall Street banks hard and rightfully so!

Below Mr. Buffett and Mr. Munger speak about the dangers of mathematical theories, making it clear their mistrust of the use of "higher-order mathematics in finance." But where were they before now? I have not heard them speak against such while Berkshire had its triple-A credit rating or when they were writing these complicated financial instruments. I don't mean to be accusatory, as I am most certainly no financial expert. But it all just feels so incredibly wrong right about now considering this harrowing time on Wall Street.

"There is so much that's false and nutty in modern investing practice and modern investment banking, that if you just reduced the nonsense, that's a goal you should reasonably hope for," Mr. Buffett said. Regarding complex calculations used to value purchases, he said: "If you need to use a computer or a calculator to make the calculation, you shouldn't buy it."

Said Mr. Munger: "Some of the worst business decisions I've ever seen are those with future projections and discounts back. It seems like the higher mathematics with more false precision should help you, but it doesn't. They teach that in business schools because, well, they've got to do something.

Mr. Buffett said: "If you stand up in front of a business class and say a bird in the hand is worth two in the bush, you won't get tenure....Higher mathematics my be dangerous and lead you down pathways that are better left untrod."

Here is Mr. Buffett on Moody's credit agency. But this too doesn't seem right, especially with Berkshires stake in Moody's. It also seems like a whole lot of people should go to jail. (The reference here is not specifically with regards to Mr. Buffet or Mr. Munger.)

Mr. Buffett was asked about Moody's, which gave a triple-A rating of billions of dollars to mortgage backed securities that subsequently lost value.

"Basically, four or five years ago, virtually everybody in the country had this model in their heads, formal or otherwise, that house prices could not fall significantly," Mr. Buffett said. He later added that "it was stupidity and the fact that everyone else was doing it."

He said that if Moody's had started to take a negative view on residential real estate, the ratings provider would have been hauled before Congress to testify about why it was hurting the U.S. economy with its bearish ratings. "They made a huge mistake, and the American people made a huge mistake," he said.

Nassim Nicholas Taleb and Arianna Huffington are clear voices that can help guide us out of this Wall Street morass. Taleb's firm did not engage in such because "everyone else was doing it." Is this really an excuse for such? Sometimes even oracles are misguided. Who am I to say such a thing?

Being Tom Peters

In a recent post Tom Peters includes the new forward for a 2009 edition of his awesome imaginative book, Re-Imagine. I have written of Tom Peters quite often on this blog for his leadership in management and his passion for excellence. The forward, however, sparked me to create a post in appreciation for his many years of service to business and for inspiring so many people worldwide to think and do things differently. Re-Imagine is pure beauty, a creative business book and the new forward is relevant and expansive.

The overall tenet of the forward is so central to what's happening today that it clarifies and sets direction by, nonetheless, returning to the basics of forever beginning anew the fundamentals which will keep us in good stead in 21st Century. Excellence is Tom Peters' mantra. Excellence is and will always be the forever standard, for it is the basis of love. Anything that is done with excellence is done with love. There is nothing that we have ever done that is of significance that lacks love and excellence, no matter how small or large the feat or accomplishment. Thanks for this reminder.

Recently, I have written on this blog and on the Huffington Post using Peters' "managing by wandering around" to explain President Obama's leadership style. Yes, we all know that it will ultimately be the outcomes of his leadership that will matter most, but what we can say for sure is that it resembles Peters' MBWA which is essentially being present.

The President is seen everywhere. He has aimed high, created a plan, assembled a team, and manages by wandering around. Peters presents a series of E's that is also indicative of the President's leadership style: Engaged. Electronic. Encompassing. Emotion. Empathy. Experience. Eliminate. Errorprone. Evenhanded. Expectations. Eudiamonia. Excellence. The President has such high approval ratings for being and doing these things to a lesser or greater degree in his first 50 days. Let's hope he succeeds.

Peters writes of an "open and deliberate fashion, to helping people-e.g. the single mother trying to raise two kids on a receptionist salary-achieve their dreams." I so appreciate the example of the single working mother with children. Sometimes a mere image, as that of that single working mom with kids, breaks through in ways that printed words on a wall-plaque of set core values elude. The image breaks through the staid example of men in the workplace that we are so accustomed to embracing and allows for a greater sensibility to what others are experiencing and perhaps will change the dimension of ethics in the workplace as well as variance. This will affect what and how things are done.

Men, by and large, ran the global financial markets off the cliff. Men largely brought on this financial "Pearl Harbor," spoken of by Warren Buffett. I cannot help but to wonder would such have been the case with the inclusion of more women in decision-making. With or without approval change is coming, nationally and internationally. There is a beautiful necessity of the old-fashioned example of women being a help to men.

I'm sure some women may be railing right now at the above thought and some men perhaps thinking that they don’t need such help. But we are helpers one to another and everything needs to be taken in its context and in the light of everything else. Women may have made the difference. What are we doing in moving forward? Will we continue the same old same old in likeness and structure? How much change occurred after the S&L scandal?

While there are other models out there, when we think of organizational excellence we often think of the Welch model, especially those of a certain era. I have read Mr. Welch's books and have appreciated the principles therein. But it also may not be by coincidence that the large companies that have followed the GE model such as Home Depot and now Chrysler, where the leaders have been groomed in a particular management style and structure, are in such dire straights now. I really dunno. I'm no expert. This is just a mere observation. Maybe it's just the time.

Perhaps GE is in such straights because of GE Financial which seems to have engaged in bogus derivatives like the big Wall Street banks. Producing things seem to have become a side gig for this once great product producer. (Maybe bigger is not always better.) I also wonder about any leadership model that does not focus on small things and whose leaders are essentially cut from the same cloth, following the same model, industry after industry. Excellence is not a model; it's a forever pursuit, though I'm aware that structure is necessary.

Technology is becoming more and more of an intense interest to me for its ability to constantly create and innovate. It does not seem like a model but a constant necessity of change and continuous improvement—science on steroids, in fact. There is a pulse created that evades typical business models, though I'm sure that a structure of such exist in the thick of this culture. But the focus on pure innovation based on the desires and needs of people is most relevant and its impact in ways that Van Jones writes and speaks of is most important. Recently Peters wrote a post about the need for optimisim which included a look at what's happening in Silicon Valley; it was great for its insistence on innovation.

The model of innovating is invigorating. While technologies are being created, it is people who are doing so and jobs being created for the enjoyment and betterment of people in various industries worldwide, including the health industry. It is also a forever brand new world of seeing things differently. It is essentially one of science, one of discovery. Detroit has lagged behind in this and is now reaping the whirlwind. (Education nationwide is reaping such too! Bob Foster has a great piece about this on his blog, US Falling Behing in Innovation-Part 1". If nothing else, the pulse of the tech industry is needed, not to mention the science needed for its continuous development.

Tom Peters' new forward to an already incredible book is pure beauty and brilliance.

Being an Oracle, Whiz and Rapper

There is just something enjoyable about these three, Buffett, Gates and Ludacris, sitting courtside.

Three generations of variance, but perhaps some sameness.

I like the image.

Being for the Stimulus Package III

Some who are against the stimulus package are so because of an ill-conceived ideology that the poor will be living large on their hard earned dollar. There are a few business blogs that I follow and contribute to; Tom Peters' blog is on of these. Recently there in a discussion regarding President Obama's support of the $500,000 cap on CEOs whose companies receive a bailout, I told a commentator that the joke was on him for not supporting this initiative. He responded, "Judith you are correct to say that the joke's on me. Taking my money, at the point of a gun, and then turning around and handing it to people that haven't earned it is sad. Oh wait, they call that welfare and we have been that for a very long time. So instead of sending a millions dollars to 10,000 lazy people, we send it to one."

The commentator appears to be one of those dittoheads living in a fantasy land of the far Right who is tettering on a kind of poor folks and racist ideology that blankets welfare recipients as lazy when, in fact, many who receive some form of welfare are the working poor who pay taxes; the biggest flaw in your argument is your blinders which produce a kind of insipid ideology which does nothing to correct the problem but inflame it indeed. His comment is lame for its one-sidedness and handicap for its inability to embrace the whole. It's a shameful stupid comment.

Although living in England, he seems to have been listening to Limbaugh and other extreme right comedic pseudo politicians who inflame instead of inviting, who blame instead of understanding, who are full of themselves who actually berate average guys, doping them into believing that he is speaking for them as they find relief in fantasy while being barely able to pay their gas bills. As they struggle to pay their bills, Limbaugh laughs all the way to the bank. (It's sort of like the new leader of the Republican Party, Joe the Plumber, speaking out against policies that he himself would benefit from. But in his mind he and Limbaugh are on the same level. Right! He too is a joke.) We do not need more of that inane ideology.

This is, in part, the fantasy about which I speak. Yes, we can spend billions upon billions on Wall Street banks and no money for the little guy, even that ideological one who is just at the poverty line, listening and laughing to the likes of Limbaugh. Well, I guess, at least, they can laugh. But many of them need to be crying. Escapism is a serious drug. Yes, we should strip away wasteful spending but tax cuts alone have not helped the working poor and neither have the trickled down laissez-faire economics without corporate responsibility.

These are extremely difficult times. I hope that he will not find himself on the dole after a while. During the Depression a great many very wealthy prosperous people found themselves without and needing the support of the government. (Nassim Nicholas Taleb says that the very wealthy have been hurt the most by this crisis.) Many stood in soup lines; many jumped out of buildings to their deaths. One bad investment could ruin a great many people in these difficult times. It is no time for stupid insipid ideological comments. This stuff is for real. Yes, we need to get things right, but let's not overlook the real problem that America and the whole world faces right now. Let's focus long-term and short-term stimuli, such as infrastructure, green technologies, education, and welfare reform. But we need a shot of some form of stimulus right now.

By the way, the commentator has done right to call what we are doing welfare; I have written of this repeatedly on this blog and on the Huffington Post. It is not called welfare when big corporations are in need of assistance. But when the single mother needs assistance to care for her children, even when she is working, it is despairingly labeled as welfare. No amount of welfare already received by the thousand and thousands of mothers across this great country will add up to the many billions that we have already spent on bailouts for private industries. I'm not complaining. But tax cuts alone will not do it. We've been there and done that. Look at where we now are after 25 years.

If he said anything of value it is his proper labeling of what we are actually doing here. These companies are receiving welfare. I know that some might say that the difference is that we will be paid back with interest. This is our hope. We also hope that the single mother would be able to make things right and be able to one day pay taxes. We also hope that her children will also rise up and call her blessed and seek ways out of the hills of Tennessee or the ghetto of urban America and be contributing citizens to this great country that we all love. Now, if someone can only open his head and pour therein a touch of sensitivity and reality that would be good. Good luck to the one who seeks to do this.

As Warren Buffett, Donald Trump, Paul Krugman and many other economists on the Right and Left, I am in support of the stimulus package.

Being for the Stimulus Package

Susie Gharib interviewed Warren Buffett for an airing on Nightly Business Report and among other things, I found this quote particuarly interesting with regards to economists and the need to act now.

"Economists like to talk about it, but in the end they’ve been very, very wrong and most of them in recent years on this. We don’t know the perfect answers on it. What we do know is to stand by and do nothing is a terrible mistake or to follow Hoover-like policies would be a mistake and we don’t know how effective in the short run we don’t know how effective this will be and how quickly things will right themselves."

--Warren Buffett

President Obama's 100 hours have been a major push to get the economy moving with a multi-billion dollar stimulus package and tax cuts.

What are your thoughts?

Being Warren Buffet

Here are the words of the great Warren Buffett in the New York Times today:

"Buy American. I Am"

Can I get a loan, sir?