Slashdot Mirror
The Secret Goldman Sachs Tapes
An anonymous reader writes: The radio program "This American Life" has published an extraordinary investigative report on how the U.S. government regulators in charge of keeping an eye on the banks actually interact with powerful financial institutions (podcast here). Financial journalist Michael Lewis describes the report thus: "The Fed failed to regulate the banks because it did not encourage its employees to ask questions, to speak their minds or to point out problems. Just the opposite: The Fed encourages its employees to keep their heads down, to obey their managers and to appease the banks. That is, bank regulators failed to do their jobs properly not because they lacked the tools but because they were discouraged from using them. The report quotes Fed employees saying things like, 'until I know what my boss thinks I don't want to tell you,' and 'no one feels individually accountable for financial crisis mistakes because management is through consensus.'"
Obama or Biden a former GS executive ? I'd like to meet your crack dealer.
Timothy Geithner never worked for Goldman Sachs and off the top of my head I can also see Warren Buffet never worked for Goldman Sachs or the Obama administration, Robert Rubin never worked for Obama, Rogert Altman has neither worked at Goldman Sachs or the Obama administration.
Might want to check that list again to see what other missteps are there.
We will bankrupt ourselves in the vain search for absolute security. -- Dwight D. Eisenhower
oh I am pissed charlie. While america was burning, the suits in washington thought it made more sense to give money to the banks, without thinking about the people.
the banks got the money to cover the bad loans (that the government mandated be made) without even thinking once you know, how about we give it to the people to pay the back bills, the banks get their money AND the people can keep their homes. but of course not. it didnt work out that way. america is in a worse spot than it was prior to the housing and financial collapse (unless you are a banker or politician)
have you seen my sig? there are many others like it but none that are the same
Our government clearly lacks the balls to regulate the banks and provide leadership. This is just sad.
I disagree. It's not lack of balls, but a combination of regulatory capture and (generally legal) bribery.
This American Life is as factual as Top Gear, i.e. they are entertainment....
You have no idea what you're talking about. It's a show of taped interviews with people. You can't get any more factual than that.
He did this in 2008, http://online.wsj.com/articles..., an easy $500 million that no one else would be able to get.
Goldman Sachs has captured something much much bigger than a regulatory agency. The Federal Reserve is a massive financial operation with a charter from the people of United States to maintain the monetary conditions for a stable and robust market economy.
Goldman got the General Counsel of the New York Fed to force the dismissal of an investigator who was brought in specifically to stop the kowtowing. She was fired for asking follow-up questions and telling her superiors to change her reports themselves if they wanted them changed.
In the background of this scandal, Goldman Sachs was engaged in a transaction with the sole purpose of allowing a European bank to pretend that it was not overextended and so avoid recapitalizing to meet European-Union capital requirements. In other words, a European bank was risking an economic catastrophe that would have forced the EU to conduct a too-big-to-fail rescue, and Goldman Sachs enabled that bank to circumvent European banking authorities.
Every investment in securities involves risk, and risk reduces the price at which paper trades. The Fed is now a guarantor of financial investments, making them more valuable than they might be if true risks were incorporated into the pricing. And the Fed is just one of the sovereign assets controlled by Goldman's posse of financial institutions.
Meanwhile, we have neither a stable nor a robust economy. We just have incredible liquidity for investors in securities.
Let's not the forget the stupid risks those other institutions took included insuring overvalued GS securities that GS knew would make a loss. Who insured most of the GS securities? AIG. What happened to GS for conducting large-scale insurance fraud? Their debts were covered by the US government, nothing more.
Summary of the GFC: An influx of customers allowed banks to create a massive tranche of debt securities, causing profits to rise. Many institutions wanted to re-invest their profits in AAA-rated securities, increasing demand. To satisfy this demand banks created more debt securities using NINJA borrowers and pretended they were AAA-rated. Financial institutions created other unsound investments to increase their profits during this glut of money. When the fake securities didn't pay-out, the unsound investments also didn't pay-out, magnifying the losses.
We saw it at Arthur-Anderson, Enron & WorldCom, and GS: When the profits are above average, the rule-book is thrown away. Corporations silence conflict of interest, risk management, even legal constraints, when the money says "you can't lose". And if they didn't break a lot of laws, corporate welfare can be bought cheap.
(that the government mandated be made)
This is a persistent myth. The total value of the loans that are proscribed to demonstrate a bank is not involved in red-lining was very small, a small fraction of the total loan market pre-crash. They were a disproportionately small slice of the total defaults.
Yawn. I am so not impressed with that argument. Can you tell me why this is so bad? Most of the time to goes to dark conspiracy theories with people burning down companies just for the insurance money but nobody can point to an actually case.
Here is the truth. CDS are insurance contracts on credit instruments. Portfolio managers can buy them for bonds that they hold. The problem with buying exactly the credit protection on the bonds they own they need to write a custom contract with a counter party. This is expensive to buy and hard to liquidate if a portfolio manager changes their holding. Or they can buy a generic CDS that does not exactly cover what they need but is close enough. That cuts their fees by 90% and can be traded.
No, the issue was that they priced the insurance too cheaply. It was a quick way to juice the returns. A example would be insurance companies offering cheap earthquake insurance. All of the premiums they take in is free money until the big one hits. Then they all collapse. Which speaks to a different type of regulation.
Absolutely false.
-> In America there have been just a handful of criminal charges brought against senior executives of banks, and even fewer successful convictions. This is very different from the response of prosecutors in earlier banking crises, such as the meltdown of Savings & Loans institutions in America in the 1980s. In that case more than 1,000 bankers were convicted for their misdeeds.
-> William K. Black [senior regulator who pursued offenders during the savings and loan crisis] tells Bill Moyers on the JOURNAL that the tool at the very center of mortgage collapse, creating triple-A rated bonds out of "liars' loans" — loans issued without verifying income, assets or employment — was a fraud, and the banks knew it. And while there is no law against liars' loans, Black points out that there are, "many laws against fraud, and liars' loans are fraudulent. [...] They involve deceit, which is the essence of fraud. "
-> Winner of the Oscar for Best Documentary in 2010, The Inside Job chronicles the fraud behavior which led to the financial crisis of 2008 and the recession.
The key word is "control fraud."
Can your say conflict of interest? I knew you could.
Although TIME Magazine had him as runner up for the Person of the Year in 2008 they also listed him as one of the "25 People to Blame for the Financial Crisis"
Why is Snark Required?
The Fed is "independent within government". It is explicitly chartered to work in the public interest, as no private corporation is. It is not-for-profit, returning all interest profit to the Treasury each year.