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Poll: SEC Vs. Goldman Sachs...

Based on what you have read/heard and/or what you think you know about the case of the SEC Vs. Goldman Sachs, what do you currently believe?

The SEC is playing major catch-up, possibly trying to make up for their spectacular failure re brooksley born and the commodity futures trading commission http://www.pbs.org/wgbh/pages/frontline/warning/ balls-up before the crisis.

Doesn�t mean that Goldman havent been up to no good of course, but risk management in and of itself shouldn�t be considered a crime. What have they actually been charged with, and how did their activities differ from normal risk management procedures?

The fact of the matter is, no financial institution should be able to trade AND advise clients at the same time. The Wild West of derivatives trading should also be reigned in. Honestly, how can a market that produces absolutely nothing, yet worth hundreds of trillions of dollars, be left completely to anarchy. Boggles my mind.

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Originally posted by Comrade Stalin The fact of the matter is, no financial institution should be able to trade AND advise clients at the same time. The Wild West of derivatives trading should also be reigned in. Honestly, how can a market that produces absolutely nothing, yet worth hundreds of trillions of dollars, be left completely to anarchy. Boggles my mind.

Firstly, this isn't about the Volcker Rule, it's about whether Goldman committed fraud by not disclosing to investors that a person who was involved in creating a structured product that was sold to them was bearish. Important caveats being that this information isn't anything that is typically disclosed or necessarily required to be disclosed, and there is always someone who has to take the other side of the trade so what's the big deal? Further, that John Paulson was a relative unknown when this happened, not the billionaire hedge-fund manager who correctly called housing and made a ton on it (as he is known today). Lastly, that the securities in the CDO in question were "AAA" rated.

Second, how do you propose a financial institution successfully manage its own risk if it is categorically outlawed from trading?

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Originally posted by Shakka Firstly, this isn't about the Volcker Rule, it's about whether Goldman committed fraud by not disclosing to investors that a person who was involved in creating a structured product that was sold to them was bearish. Important caveats being that this information isn't anything that is typically disclosed or necessarily required to be disclosed, and there is always someone who has to take the other side of the trade so what's the big deal? Further, that John Paulson was a relative unknown when this happened, not the billionaire hedge-fund manager who correctly called housing and made a ton on it (as he is known today). Lastly, that the securities in the CDO in question were "AAA" rated.

Bring back Glass-Steagall is all I'm saying.

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Second, how do you propose a financial institution successfully manage its own risk if it is categorically outlawed from trading?

Either be a trader or provide banking services. Shouldn't be able to do both. The institution won't have to hedge risk if they aren't trading the very products they sell.

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Originally posted by Comrade Stalin Either be a trader or provide banking services. Shouldn't be able to do both. The institution won't have to hedge risk if they aren't trading the very products they sell.

Even depository institutions have risk. Every business has risk. Is it not within their right to have tools to mitigate their risks? I'm not trying to take a side, rather just playing Devil's Advocate.

I personally don't know if I believe it was trading so much as immense leverage that left so many firms so vulnerable. They let themselves get into situations where the slightest bit of equity impairment utterly destroyed their balance sheets leaving them technically insolvent. Whether or not they could trade, they built massive piles of assets that were supported by equally huge amounts of debt with just a sliver of equity.

lol

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SENIOR employees at the Securities and Exchange Commission spent hours surfing pornographic websites on government-issued computers while they were being paid to police the financial system, an agency watchdog says. The SEC's inspector general conducted 33 probes of employees looking at explicit images in the past five years, according to a memo obtained by The Associated Press. The memo says 31 of those probes occurred in the 2 years since the financial system teetered and nearly crashed. It was written by SEC Inspector General David Kotz in response to a request from Senator Charles Grassley. An SEC spokesman declined to comment last night. The memo was first reported yesterday evening by ABC News. It summarises findings of past inspector general probes and reports some shocking findings: * A senior attorney at the SEC's Washington headquarters spent up to eight hours a day looking at and downloading pornography. When he ran out of hard drive space, he burned the files to CDs or DVDs, which he kept in boxes around his office. Start of sidebar. Skip to end of sidebar. End of sidebar. Return to start of sidebar. * An accountant was blocked more than 16,000 times in a month from visiting websites classified as "sex" or "pornography". Yet he still managed to amass a collection of "sexually suggestive and inappropriate images" on his hard drive. * Seventeen of the employees were "at a senior level", earning salaries of up to $222,418. * The number of cases jumped from two in 2007 to 16 in 2008. The cracks in the financial system emerged in mid-2007 and spread into full-blown panic by the fall of 2008.

http://www.news.com.au/breaking-new...0-1225857389770

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A senior attorney at the SEC's Washington headquarters spent up to eight hours a day looking at and downloading pornography. When he ran out of hard drive space, he burned the files to CDs or DVDs, which he kept in boxes around his office.

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Originally posted by Comrade Stalin Bring back Glass-Steagall is all I'm saying. Either be a trader or provide banking services. Shouldn't be able to do both. The institution won't have to hedge risk if they aren't trading the very products they sell.

btw, Interesting timing as I got this email today from USAA, who I use for insurance, but who also offers lending and depository services. I've mentioned them before because they are non-profit, return excess premiums paid in over claims to shareholders, and are generally one of the best run insurance companies I know of.

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Dear Mr. Xxxxxx: Rarely in our 87-year history have we turned to USAA members to weigh in with elected representatives on an issue of great importance. But, we are now. The U.S. Senate currently is considering legislation (S.3217) that would impose new rules on the nation's financial services industry, including USAA. As the leading provider of financial services to America's military community, USAA supports financial services reform. However, the current Senate bill would disproportionally impact USAA because we are a unique and fully integrated association. USAA is not like the banks and other companies that helped bring down our economy, and we never took a penny of TARP funds. We do not engage in the harmful practices this legislation seeks to resolve. If unchanged, the bill would: Prevent USAA from managing the association's portfolio as we have for the past 87 years. Jeopardize our ability to continue offering many of our competitive products. Limit our ability to return money to our members. Last year, USAA returned $1.2 billion to our members in the form of distributions, dividends, and bank rebates and rewards.* So, we are asking all USAA members and employees to urge their U.S. senators to amend a portion of the bill, known as the "Volcker Rule," to eliminate its effect on a company like USAA. Please know that this legislation does not impact individual member's investments. Regardless of the outcome of the legislation, USAA will remain a unique and enduring association that's all about you � the military and their families. Please take action on this matter by immediately contacting your U.S. senator. You may click here to access a special website that will enable you to quickly send an e-mail message to your senator. Thank you for your help and support, Josue (Joe) Robles Jr. Major General, USA (Ret.) President and CEO

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Originally posted by pkcRAISTLIN Doesn�t mean that Goldman havent been up to no good of course, but risk management in and of itself shouldn�t be considered a crime. What have they actually been charged with, and how did their activities differ from normal risk management procedures?

The charge is fraud. More specifically, as I have understood the details, they are being charged for basically not disclosing certain details of a synthetic CDO that they put together in 2007. According to reports, John Paulson (now a famed hedge fund investor who made more money on the housing crash than anyone else, and hence is now a well-known hedge fund manager), had a hand in suggesting to ACA (the company that ultimately selected the MBS for inclusion in the product) which underlying securities would be included in the CDO. According to reports, Paulson "helped" create the CDO that he planned to bet against and investors on the other side of the trade (who took the bullish stance) were not informed that a manager who was betting against the CDO had a hand in its creation. There are plenty of nuances to the story, but that is the underlying gist as I understand it so far. The securities in the CDO were rated AAA by Moody's & S&P, the investors involved in the deal were sophisticated and should have done due diligence on the contents of the CDO, it is not a normal practice to disclose information about other investors to investors in the product, etc. But the crux of the argument is a disclosure issue.

IMO, with perfect hindsight it certainly makes for sexy reading, but if you put yourself in 2007 for proper perspective, it seems like a much less compelling case. I really think it is a tool to gain greater populist support for financial overhaul given how contentious the healthcare debate got. And if that is true, it is sad.

From today's WSJ

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Disclosures Vary for CDO Deals Like Goldman's Abacus By SERENA NG Wall Street banks provided spotty disclosures about how mortgage securities were selected for deals like the one in the government's civil fraud suit against Goldman Sachs Group Inc., according to a review of marketing and offering documents for more than a dozen mortgage deals. But in a few of the deals, banks told potential buyers that they may have been created with the input of market players with contrary interests, according to the review by The Wall Street Journal. The Securities and Exchange Commission has accused Goldman of misleading investors in a mortgage deal called Abacus 2007-AC1 because the bank didn't disclose to investors that a hedge fund with a bearish view of the housing market helped select a portfolio of mortgage securities that underpinned the deal. Marketing materials and offering documents for the Abacus deal stated that a third-party asset manager, ACA Management LLC, selected the assets. Goldman, which has denied wrongdoing, doesn't deny that a hedge fund that bet against the deal helped identify the assets for the Abacus portfolio. But it maintains that "market practice did not entail disclosure of a short investor's participation," according to documents it submitted to the SEC in September 2009. Goldman also said it was common for market participants to "routinely provide input" when portfolios of securities were being assembled. The Abacus deal was one of dozens of "synthetic" collateralized-debt obligations that were created during the waning years of the U.S. housing boom in 2006 and 2007. They were called synthetic because they were largely comprised of side bets on mortgage securities as opposed to holding actual bonds. During that period, hedge funds and in-house traders at banks that wanted to make "short" bets identified many subprime mortgage securities　they thought would quickly go bad in a housing downturn. In helping to facilitate their clients' bearish trades, investment banks created some synthetic CDOs that would effectively take the opposite side of those bets. The banks sold pieces of the CDOs to "long" investors, which would lose money if defaults among the portfolios of securities rose above certain levels. There wasn't a consistent approach to how these types of CDOs were assembled, or what was disclosed about them, according to lawyers and the Journal's review of documents. "We're in untested waters here," says Joel Telpner, a partner at Jones Day in New York, who was commenting generally about disclosures in CDO offering documents. Unlike offerings of publicly traded stocks and bonds, "in the private-placement world, the rules about what has to be disclosed and where have never been as clear." In Abacus 2007-AC1, Goldman engaged ACA to be the arbiter of what assets went into the portfolio. ACA was given a list of securities originally identified by the hedge fund, Paulson & Co., made modifications to it, and conferred with Paulson in assembling the final list, according to the SEC's complaint. In 2005 and 2006, Deutsche Bank AG assembled about a half-dozen synthetic CDOs with the acronym "START" that were linked to mortgage securities that hedge funds or bearish traders wanted to short, say people familiar with the matter. No third party like ACA was involved in selecting assets for the START CDOs, and investors could reject securities they didn't like or suggest alternatives for the portfolios before they were finalized, the people said. Deutsche didn't disclose that many of the securities in the START portfolios were originally identified by hedge funds or proprietary traders with a bearish view of the market, according to people familiar with the matter and offering documents reviewed by the Journal. In a statement, Deutsche Bank said for these CDOs, "both long and short investors were given the opportunity to select the specific collateral to which they were seeking exposure and mutually agreed on the CDO portfolio." The bank added that an outside manager wasn't used, which it said "eliminated the potential for deception with respect to the role of such a manager." In other CDOs that were arranged by multiple banks and managed by third-party asset managers, a hedge fund called Magnetar Capital invested in risky parts of the deals and made short bets against parts of the CDOs. When Magnetar was looking to buy pieces of the CDOs in 2006 and 2007, executives at the hedge fund met with banks and third-party managers to discuss the deals, according to people familiar with the matter. According to the Journal's review, offering documents for several CDOs that Magnetar bought didn't mention the hedge fund's role and stated only that a named third-party manager had selected the assets. Some of the documents did state, however, that an investor holding the riskiest piece of the CDO may make bets against assets in same portfolio. Magnetar this week told its investors in a letter that it "did not control asset selection in CDOs in which it participated" but said it "often communicated" with the bank and asset managers when the deals were being put together. Other CDO marketing and offering documents reviewed by the Journal flagged potential conflicts surrounding the selection of assets. A marketing document for a synthetic CDO arranged by Citigroup Inc. called Jackson 2006 stated that the selection of mortgage securities for the deal "may have taken into account certain factors and interests that could be inconsistent with or adverse to the interests" of investors in the CDO. It isn't known if hedge funds were involved in this transaction. Goldman included 14 pages of "risk factors" in the offering circular for the Abacus 2007-AC1 deal. It disclosed all of the securities in the Abacus portfolio so that investors could make their own decisions about the risk of the assets, it told the SEC.

Sounds pretty fuzzy...

i wonder if the WSJ realise they're making a great case for more regulation.

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Originally posted by Comrade Stalin Bring back Glass-Steagall is all I'm saying.

+1

USAA is going to be fine! They operated great for 80 years under the New Deal regulations. They will operate fine with these.

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Originally posted by pkcRAISTLIN i wonder if the WSJ realise they're making a great case for more regulation.

I think this is part of what scares me. There is broad bi-partisan support for financial reform--something will get done, there is little doubt about it. However, I fear we may end up with 3,000 pages of over-the-top nonsense once the sausage finally gets made.

Wow. Wanna see the world's biggest witch hunt? Tune into CNBC, Bloomberg, or Fox Business (or probably CSPAN or any other legislative or business related news channel). I have heard our classy elected officials say "shitty" no fewer than 10 times in the last hour. Goldman, on the other hand, is exhibiting nothing but class. It is also clear that these congressional inquisitors have about as much understanding of business as your average dung beetle.

It does look pretty ridiculous. The primary question one should ask when doing a derivative trade is how the other side is going to fuck you. Not Goldman's fault that some didn't do their due diligence. So-called sophisticated investors. Sophisticated my ass...

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Originally posted by pkcRAISTLIN i wonder if the WSJ realise they're making a great case for more regulation.

You mean Murdock's new toy?

The WSJ doesn't have a clue any more, if it ever did. With a drive to generate revenue while maintaining ideology the paper is going 'populous' by focusing on issues that readers want to hear about, not what they need to hear about to make informed decisions in a world of global capital markets.

People playing in global markets need global understanding, the WSJ barely looks away from the NYSE, which is a huge mistake, and certain topics are off side, like talk of currency valuation.

I'd be very careful with using the WSJ as a guage of anything more than the sentiment of the ill informed. Still something for investors to know about because sentiment can break banks.

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Originally posted by Shakka I think this is part of what scares me. There is broad bi-partisan support for financial reform--something will get done, there is little doubt about it. However, I fear we may end up with 3,000 pages of over-the-top nonsense once the sausage finally gets made.

The bill I downloaded in Dec. 09 was 1,200 pages. Needless to say I've yet to really 'get into' that...

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Originally posted by Shakka Wow. Wanna see the world's biggest witch hunt? Tune into CNBC, Bloomberg, or Fox Business (or probably CSPAN or any other legislative or business related news channel). I have heard our classy elected officials say "shitty" no fewer than 10 times in the last hour. Goldman, on the other hand, is exhibiting nothing but class. It is also clear that these congressional inquisitors have about as much understanding of business as your average dung beetle.

I agree with this, the senators and regulators aren't looking good. But isn't this something to be expected from a long held culture of giving government little respect or funding to attract skilled people? Haven't all the brightest lights in the US been avoiding public service like the plauge for decades?

I did a read over of this about a month ago and seemed to feel that there was something not quite right in the whole set of charges. The thing that got me most was that the charges fly in the face of what has been long held as a US tenant of buyer beware. Does this open up Las Vegas to similar charges? They know that they are encouraging customers to 'invest' in games that are designed to make the customers loose.

I just spoke with a friend today about the issue and it happens that she'd actually met the G+S guy who's on trial a few times (she does that whole finance thing) She agreed that he wasn't the most pleasant of people all the time. French educated, at one of the big schools, and I think Stanford after that if I remember what she said right. One point she brought up was that the whole debate set of charges are being brought in a really suspect way.

She said that most of the charges had to do with European desks, based out of London, and investing in places like Germany. Although I might be off on the exact nature of this the point remains that she said it wasn't a US issue at all really.

I find this adds an even more crazy dimension to the whole thing. From my reading, mostly CNN + Financial Times, I was under the impression that this was a primarily US type of thing. I completely feel that it has been set up as 'Goldman + a Jerk with more than one girl friend V. the people who lost it all in the heart land of the US'. It has been held up as a continuation of the 'Banks screwed you over' narative that the media and politicians in the US are loving right now.

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