Goldman Sachs' Low Road to High Profits

How Goldman Secretly Bet On the U.S. Housing Crash

By Greg Gordon, McClatchy Newspapers
November 1, 2009

In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting.

Goldman's sales and its clandestine wagers, completed at the brink of the housing market meltdown, enabled the nation's premier investment bank to pass most of its potential losses to others before a flood of mortgage defaults staggered the U.S. and global economies.

Only later did investors discover that what Goldman had promoted as triple-A rated investments were closer to junk.

Now, pension funds, insurance companies, labor unions and foreign financial institutions that bought those dicey mortgage securities are facing large losses, and a five-month McClatchy investigation has found that Goldman's failure to disclose that it made secret, exotic bets on an imminent housing crash may have violated securities laws.

"The Securities and Exchange Commission should be very interested in any financial company that secretly decides a financial product is a loser and then goes out and actively markets that product or very similar products to unsuspecting customers without disclosing its true opinion," said Laurence Kotlikoff, a Boston University economics professor who's proposed a massive overhaul of the nation's banks. "This is fraud and should be prosecuted."

John Coffee, a Columbia University law professor who served on an advisory committee to the New York Stock Exchange, said that investment banks have wide latitude to manage their assets, and so the legality of Goldman's maneuvers depends on what its executives knew at the time.

"It would look much more damaging," Coffee said, "if it appeared that the firm was dumping these investments because it saw them as toxic waste and virtually worthless."

Lloyd Blankfein, Goldman's chairman and chief executive, declined to be interviewed for this article.

A Goldman spokesman, Michael DuVally, said that the firm decided in December 2006 to reduce its mortgage risks and did so by selling off subprime-related securities and making myriad insurance-like bets, called credit-default swaps, to "hedge" against a housing downturn.

DuVally told McClatchy that Goldman "had no obligation to disclose how it was managing its risk, nor would investors have expected us to do so ... other market participants had access to the same information we did."

For the past year, Goldman has been on the defensive over its Washington connections and the billions in federal bailout funds it received. Scant attention has been paid, however, to how it became the only major Wall Street player to extricate itself from the subprime securities market before the housing bubble burst.

Goldman remains, along with Morgan Stanley, one of two venerable Wall Street investment banks still standing. Their grievously wounded peers Bear Stearns and Merrill Lynch fell into the arms of retail banks, while another, Lehman Brothers, folded.

To piece together Goldman's role in the subprime meltdown, McClatchy reviewed hundreds of documents, SEC filings, copies of secret investment circulars, lawsuits and interviewed numerous people familiar with the firm's activities.

McClatchy's inquiry found that Goldman Sachs:

• Bought and converted into high-yield bonds tens of thousands of mortgages from subprime lenders that became the subjects of FBI investigations into whether they'd misled borrowers or exaggerated applicants' incomes to justify making hefty loans.
  
• Used offshore tax havens to shuffle its mortgage-backed securities to institutions worldwide, including European and Asian banks, often in secret deals run through the Cayman Islands, a British territory in the Caribbean that companies use to bypass U.S. disclosure requirements.


• Has dispatched lawyers across the country to repossess homes from bankrupt or financially struggling individuals, many of whom lacked sufficient credit or income but got subprime mortgages anyway because Wall Street made it easy for them to qualify.


• Was buoyed last fall by key federal bailout decisions, at least two of which involved then-Treasury Secretary Henry Paulson, a former Goldman chief executive whose staff at Treasury included several other Goldman alumni.

The firm benefited when Paulson elected not to save rival Lehman Brothers from collapse, and when he organized a massive rescue of tottering global insurer American International Group while in constant telephone contact with Goldman chief Blankfein. With the Federal Reserve Board's blessing, AIG later used $12.9 billion in taxpayers' dollars to pay off every penny it owed Goldman.

These decisions preserved billions of dollars in value for Goldman's executives and shareholders. For example, Blankfein held 1.6 million shares in the company in September 2008, and he could have lost more than $150 million if his firm had gone bankrupt.

With the help of more than $23 billion in direct and indirect federal aid, Goldman appears to have emerged intact from the economic implosion, limiting its subprime losses to $1.5 billion. By repaying $10 billion in direct federal bailout money — a 23 percent taxpayer return that exceeded federal officials' demand — the firm has escaped tough federal limits on 2009 bonuses to executives of firms that received bailout money.

Goldman announced record earnings in July, and the firm is on course to surpass $50 billion in revenue in 2009 and to pay its employees more than $20 billion in year-end bonuses.

THE BLUEST OF THE BLUE CHIPS

For decades, Goldman, a bastion of Ivy League graduates that was founded in 1869, has cultivated an elite reputation as home to the best and brightest and a tradition of urging its executives to take turns at public service.

As a result, Goldman has operated a virtual jobs conveyor belt to and from Washington: Paulson, as Treasury secretary, sent tens of billions of taxpayers' dollars to rescue Wall Street in 2008, and former Goldman employees populate some of the most demanding and powerful posts in Washington. Savvy federal regulators have migrated from their Washington jobs to Goldman.

On Oct. 16, a Goldman vice president, Adam Storch, was named managing executive of the SEC's enforcement division.

Goldman's financial panache made its sales pitches irresistible to policymakers and investors alike, and may help explain why so few of them questioned the risky securities that Goldman sold off in a 14-month period that ended in February 2007.

Since the collapse of the economy, however, some of those investors have changed their opinions of Goldman.

Several pension funds, including Mississippi's Public Employees' Retirement System, have filed suits, seeking class-action status, alleging that Goldman and other Wall Street firms negligently made "false and misleading" representations of the bonds' true risks.

Mississippi Attorney General Jim Hood, whose state has lost $5 million of the $6 million it invested in Goldman's subprime mortgage-backed bonds in 2006, said the state's funds are likely to lose "hundreds of millions of dollars" on those and similar bonds.

Hood assailed the investment banks "who packaged this junk and sold it to unwary investors."

California's huge public employees' retirement system, known as CALPERS, purchased $64.4 million in subprime mortgage-backed bonds from Goldman on March 1, 2007. While that represented a tiny percentage of the fund's holdings, in July CALPERS listed the bonds' value at $16.6 million, a drop of nearly 75 percent, according to documents obtained through a state public records request.

In May, without admitting wrongdoing, Goldman became the first firm to settle with the Massachusetts attorney general's office as it investigated Wall Street's subprime dealings. The firm agreed to pay $60 million to the state, most of it to reduce mortgage balances for 714 aggrieved homeowners.

Attorney General Martha Coakley, now a candidate to succeed Edward Kennedy in the U.S. Senate, cited the blight from foreclosed homes in Boston and other Massachusetts cities. She said her office focused on investment banks because they provided a market for loans that mortgage lenders "knew or should have known were destined for failure."

New Orleans' public employees' retirement system, an electrical workers union and the New Jersey carpenters union also are suing Goldman and other Wall Street firms over their losses.

The full extent of the losses from Goldman's mortgage securities isn't known, but data obtained by McClatchy show that insurance companies, whose annuities provide income for many retirees, collectively paid $2 billion for Goldman's risky high-yield bonds.

Among the bigger buyers: Ambac Assurance purchased $923 million of Goldman's bonds; the Teachers Insurance and Annuities Association, $141.5 million; New York Life, $96 million; Prudential, $70 million; and Allstate, $40.5 million, according to the data from the National Association of Insurance Commissioners.

In 2007, as early signs of trouble rippled through the housing market, Goldman paid a discounted price of $8.8 million to repurchase subprime mortgage bonds that Prudential had bought for $12 million.

Nearly all the insurers' purchases were made in 2006 and 2007, after mortgage lenders had lifted most traditional lending criteria in favor of loans that required little or no documentation of borrowers' incomes or assets.

While Goldman was far from the biggest player in the risky mortgage securitization business, neither was it small.

From 2001 to 2007, Goldman hawked at least $135 billion in bonds keyed to risky home loans, according to analyses by McClatchy and the industry newsletter Inside Mortgage Finance.

In addition to selling about $39 billion of its own risky mortgage securities in 2006 and 2007, Goldman marketed at least $17 billion more for others.

It also was the lead firm in marketing about $83 billion in complex securities, many of them backed by subprime mortgages, via the Caymans and other offshore sites, according to an analysis of unpublished industry data by Gary Kopff, a securitization expert.

In at least one of these offshore deals, Goldman exaggerated the quality of more than $75 million of risky securities, describing the underlying mortgages as "prime" or "midprime," although in the U.S. they were marketed with lower grades.

Goldman spokesman DuVally said that Moody's, the bond rating firm, gave them higher grades because the borrowers had high credit scores.

Goldman's securities came in two varieties: those tied to subprime mortgages and those backed by a slightly higher grade of loans known as Alt-A's.

Over time, both types of mortgages required homeowners to pay rapidly rising interest rates. Defaults on subprime loans were responsible for last year's housing meltdown. Interest rates on Alt-A loans, which began to rocket upward this year, are causing a new round of defaults.

Goldman has taken multiple steps to put its subprime dealings behind it, including publicly saying that Wall Street firms regret their mistakes. Last winter, the company cancelled a Las Vegas conference, avoiding any images of employees flashing wads of bonus cash at casinos.

More recently, the firm has launched a public relations campaign to answer the criticism of its huge bonuses, Washington connections and federal bailout. In late October, Blankfein argued that Goldman's activities serve "an important social purpose" by channeling pools of money held by pension funds and others to companies and governments around the world.

KNOWING WHEN TO FOLD THEM

For investment banks such as Goldman, the trick was knowing when to exit the high-stakes subprime game before getting burned.

New York hedge fund manager John Paulson was one of the first to anticipate disaster. He told Congress that his researchers discovered by early 2006 that many subprime loans covered the homes' entire value, with no down payments, and so he figured that the bonds "would become worthless."

He soon began placing exotic bets — credit-default swaps — against the housing market. His firm, Paulson & Co., booked a $3.7 billion profit when home prices tanked and subprime defaults soared in 2007 and 2008. (He isn't related to Henry Paulson.)

At least as early as 2005, Goldman similarly began using swaps to limit its exposure to risky mortgages, the first of multiple strategies it would employ to reduce its subprime risk.

The company has closely guarded the details of most of its swaps trades, except for $20 billion in widely publicized contracts it purchased from AIG in 2005 and 2006 to cover mortgage defaults or ratings downgrades on subprime-related securities it offered offshore.

In December 2006, after "10 straight days of losses" in Goldman's mortgage business, Chief Financial Officer David Viniar called a meeting of mortgage traders and other key personnel, Goldman spokesman DuVally said.

Shortly after the meeting, he said, it was decided to reduce the firm's mortgage risk by selling off its inventory of bonds and betting against those classes of securities in secretive swaps markets.

DuVally said that at the time, Goldman executives "had no way of knowing how difficult housing or financial market conditions would become."

In early 2007, the firm's mortgage traders also bet heavily against the housing market on a year-old subprime index on a private London swap exchange, said several Wall Street figures familiar with those dealings, who declined to be identified because the transactions were confidential.

The swaps contracts would pay off big, especially those with AIG. When Goldman's securities lost value in 2007 and early 2008, the firm demanded $10 billion, of which AIG reluctantly posted $7.5 billion, Viniar disclosed last spring.

As Goldman's and others' collateral demands grew, AIG suffered an enormous cash squeeze in September 2008, leading to the taxpayer bailout to prevent worldwide losses. Goldman's payout from AIG included more than $8 billion to settle swaps contracts.

DuVally said Goldman has made other bets with hundreds of unidentified counterparties to insure its own subprime risks and to take positions against the housing market for its clients. Until the end of 2006, he said, Goldman was still betting on a strong housing market.

However, Goldman sold off nearly $28 billion of risky mortgage securities it had issued in the U.S. in 2006, including $10 billion on Oct. 6, 2006. The firm unloaded another $11 billion in February 2007, after it had intensified its contrary bets. Goldman also stopped buying risky home mortgages after the December meeting, though DuVally declined to say when.

I'VE GOT A SECRET

Despite updating its numerous disclosures to investors in 2007, Goldman never revealed its secret wagers.

Asked whether Goldman's bond sellers knew about the contrary bets, spokesman DuVally said the company's mortgage business "has extensive barriers designed to keep information within its proper confines."

However, Viniar, the Goldman finance chief, approved the securities sales and the simultaneous bets on a housing downturn. Dan Sparks, a Texan who oversaw the firm's mortgage-related swaps trading, also served as the head of Goldman Sachs Mortgage from late 2006 to April 2008, when he abruptly resigned for personal reasons.

The Securities Act of 1933 imposes a special disclosure burden on principal underwriters of securities, which was Goldman's role when it sold about $39 billion of its own risky mortgage-backed securities from March 2006 to February 2007.

The firm maintains that the requirement doesn't apply in this case...

COMING MONDAY: Goldman Takes on New Role - Taking Away People's Homes

Since the economic collapse that swept millions of Americans out of their jobs and homes, Goldman Sachs has moved aggressively to recover its losses. The firm is pursuing marginally qualified borrowers into state courts federal and bankruptcy across the country and seeking to seize their homes. McClatchy examines one couple's multi-year attempt to get Goldman to admit that it had purchased their mortgage.

COMING TUESDAY: Goldman Left Foreign Investors Holding the Subprime Bag

Goldman Sachs and other Wall Street firms turned to secret Cayman Islands deals to draw overseas investors, including European banks and other foreign financial institutions, to invest hundreds of billions of dollars in securities tied to risky U.S. home loans. Unlike U.S. investors that lost money on the securities, however, these overseas institutions have fewer legal options.

COMING WEDNESDAY: Why Did Blue-Chip Goldman Take a Walk on Subprime's Wild Side?

Goldman Sachs was among the last Wall Street giants to enter the lucrative world of subprime mortgages. However, it didn't take long before the elite investment house was cutting deals with highflying firms, such as California's New Century Financial, whose lax standards would prove disastrous. Perhaps no lender was more emblematic of the subprime mortgage industry's spectacular rise and fall.

More Coverage (from McClatchy Newspapers)
Story: Mortgage crisis shows why financial regulation is needed
Story: Mystery: Why did Goldman stop scrutinizing loans it bought?
Story: How Moody's sold its ratings - and sold out investors
Graphic: Goldman's revolving door with government
Video: One couple stands up to Goldman Sachs
Video: Goldman Sachs' secret bets
On the Web: State-by-state data on troubled mortgages
On the Web: See our complete Goldman report

Report: Goldman Bet Against Own Products
22 Reasons Why this Recession is Different and Why it Will Endure
How Did America Fall So Fast?
Facing a Total Breakdown of Financial Markets
Goldman's chief executive apologizes for part in fiscal crisis
New Derivatives Legislation "Was Probably Written by JPMorgan and Goldman Sachs"
JP Morgan: Largest Provider of Food Stamp Benefits in the U.S.
Goldman E-Mail Lays Bare Trading Conflicts
Goldman admits 'improper' actions in sales of securities
Goldman Sachs accused of rigging tax vote
Discover to Pay $775 Million to Morgan Stanley in Settlement
Goldman Sachs: Don't Blame Us
On Apr. 7 Goldman Sachs will release its 2009 annual report with a letter to shareholders that will, for the first time, explicitly defend its conduct during the mortgage bubble and subsequent collapse.
U.S. Accuses Goldman Sachs of Fraud
Goldman fraud charges trigger possible wider crackdown
Senate probe: Goldman planned to profit from bust
Goldman “Sideshow” Hyped To Push Through Obama Banking Reform
Supreme Court nominuee Kagan sat on a Goldman Sachs advisory council
What is good for Goldman Sachs is bad for the world

Updated 5/12/10 (Newest Additions at End of List)

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The Plundering of the Public Treasury

One Year Since the U.S. Bank Bailout

By Barry Grey, World Socialist Web Site
October 3, 2009

One year ago today, the United States Congress passed the Emergency Economic Stabilization Act of 2008, establishing the Troubled Asset Relief Program (TARP) and authorizing the use of $700 billion in Treasury—i.e., taxpayer—funds to bail out the banking and finance industry.

The creation of TARP inaugurated the greatest plundering of the public treasury and transfer of wealth from the working class to the financial elite in history.

One year later, the analysis of the World Socialist Web Site that the bank bailout was part of a fundamental and permanent restructuring of American capitalism, whose central aim was the impoverishment of the working class, has been richly vindicated.

While the Obama administration points to an astonishing rally on the stock market and a revival of bank profits to proclaim an end to the recession, the working class is being devastated by near-double-digit unemployment, falling wages and pensions and health benefits, the collapse of family savings, record home foreclosures, and a precipitous growth of homelessness and hunger. Even as they tout the “recovery,” government officials warn that unemployment will remain at the highest levels since the 1930s for years to come.

The passage of the TARP legislation was the culmination of three weeks of closed-door crisis meetings between government officials and Wall Street bankers, combined with a public propaganda campaign depicting the bailout as the only alternative to an immediate descent into another Great Depression.

On September 7, the Bush administration announced the government takeover, at a cost of $200 billion, of the mortgage finance giants Fannie Mae and Freddie Mac. The following weekend, after round-the-clock meetings with Wall Street CEOs led by Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke, and then-President of the Federal Reserve Bank of New York (now Treasury Secretary) Timothy Geithner, the government refused to provide emergency funds to Lehman Brothers, allowing the Wall Street icon to collapse.

No credible explanation for the decision to deny funds to Lehman while rescuing Merrill Lynch and the insurance giant American International Group (AIG) has ever been offered. It is now clear, however, that this move reflected the conclusion that nothing short of a massive diversion of public funds to cover the bad debts of the banks could protect the wealth of the financial oligarchy. To create the political conditions for such an unprecedented action it was necessary to deliberately stoke up an atmosphere of panic and fear.

Lehman, the smallest of the Wall Street investment firms, was sacrificed for the greater good of the financial aristocracy. Not coincidentally, the chief beneficiary of the disappearance of Lehman and Merrill Lynch was the largest investment bank, Goldman Sachs, which Paulson had headed prior to entering the Bush administration. As for the rescue of AIG, Goldman, its largest trading partner, stood to lose at least $20 billion if the world’s largest insurer of bank assets went down.

The following weekend, once again in talks conducted behind the backs of the American people, Paulson handed congressional leaders a four-page blueprint for a $700 billion bailout of the banking system and demanded that they immediately enact it into law. On the evening of September 24, Bush went on national television and, in apocalyptic terms, insisted that if Congress did not quickly pass Paulson’s plan “America would slip into a financial panic.”

The official line was that the bank bailout was being undertaken with the greatest reluctance and for the benefit of “Main Street,” not Wall Street. Barack Obama, then the Democratic presidential candidate, immediately declared his support for the bailout, and Democratic leaders in Congress were its most vociferous backers.

The eruption of the financial crisis and the rush to enact TARP coincided with a remarkable improvement in Obama’s electoral prospects. Prior to the crisis, Obama’s campaign was foundering. His lead in the polls over his Republican opponent, John McCain, had evaporated and his campaign was in visible disarray.

But with the events of early September came a sharp shift in the media in his favor. A political decision had been taken at the highest levels of the ruling elite that the implementation of a massive bailout of Wall Street combined with sharp attacks on workers’ jobs and wages and an offensive against basic social programs would be politically more difficult under a McCain administration than an Obama White House.

Obama’s relative youth, his ethnic background, and his Democratic brand could be utilized to confuse and disorient a public that would overwhelmingly view a McCain administration as the continuation of the policies of the hated and despised Bush. A clear consensus emerged within the ruling class to push for the election of the tribune of “change you can believe in.”

They could count, moreover, on the Obama enthusiasts within the middle class liberal and ex-radical milieu to provide much needed political cover for a right-wing Democratic administration.

On September 22, 2008, the World Socialist Web Site published a statement of the Socialist Equality Party (US) National Committee entitled “No to Wall Street bailout! The socialist answer to the financial crisis.” The statement declared:

Both the plan itself and the manner in which it is being imposed are deeply undemocratic. Exploiting the breakdown in US and global financial markets, the financial aristocracy, which is responsible for the crisis, is exercising its control over the government, both political parties, and the media to implement policies of the most far-reaching character without any genuine debate or discussion. As in the aftermath of 9/11, it is seeking to utilize the crisis to push through policies that would otherwise be considered entirely unacceptable…

Make no mistake: the working people, who are the victims of the financial parasitism of the ruling elite, will foot the bill to bail out those who have enriched themselves by plundering the social wealth. The massive expansion of budget deficits and the national debt as a result of this plan will be used to justify a brutal assault on basic social programs, education, housing and the wages, jobs, pensions, and health benefits of the working class.

Not a word of this citation needs to be changed in light of subsequent developments.

The stock market continued to fall sharply in the first weeks of the new administration, reaching its low-point on March 6. This in part reflected a degree of uncertainty within the financial elite over how resolute the Obama administration would be in protecting its interests. Such doubts were largely dispelled in the course of March, when the administration emphatically demonstrated its obeisance to Wall Street.

In rapid fire, Obama intervened to scuttle a bill passed by the House of Representatives, in response to public outrage over tens of millions in bonuses awarded by AIG, which would have imposed limits on the pay of bank executives; his treasury secretary, Timothy Geithner, announced a plan to offload the banks’ “toxic assets” at public expense; and Obama rejected the turnaround plans submitted by General Motors and Chrysler, demanding deeper cuts in jobs, wages and benefits and driving the firms into bankruptcy in order to carry through an unprecedented attack on auto workers.

The markets reacted enthusiastically, setting off an extraordinary stock market rally that has thus far continued, despite the growth of unemployment and trillions of dollars in “toxic assets” that remain on the banks’ balance sheets.

The forced bankruptcy of General Motors, in particular, shored up Obama’s credentials on Wall Street. It demonstrated, first, that his industrial policy would remain completely subordinated to the interests of finance capital and, second, that he would pursue a policy of intensifying the exploitation of the working class, using mass unemployment as a bludgeon to impose wage cuts and speedup.

Since then, Obama’s domestic economic policy has been focused on the drive to slash health care costs at the expense of the working class, which he himself has presented as the spearhead of a campaign to cut spending for basic entitlement programs, such as Medicare, and permanently reduce domestic consumption (of the working class, of course, not the financial aristocracy).

The balance sheet one year since the bank bailout constitutes the most telling proof of the reactionary character of the Obama administration, the class interests it serves, and the need for the working class to initiate an independent struggle for a socialist alternative to the bankrupt capitalist system.

The New Forbes 400: Provocative Wealth Amidst Social Misery

By Tom Eley, World Socialist Web Site
October 3, 2009

The 400 richest Americans have so far weathered the second year of the deepest economic crisis since the Great Depression with a combined $1.27 trillion, according to Forbes magazine’s annual list.

The total net worth of the wealthiest 400 Americans actually declined by $300 billion in 2009, down from $1.57 trillion a year earlier.

This is hardly a tale of woe. The average net worth of the 400 richest Americans was $3.17 billion, and it took nearly a billion dollars, $950 million, in order to make the Forbes list.

The decline in the fortunes of the super-rich did not result from a redistribution of wealth. On the contrary, a spate of recent statistics demonstrates an impoverishment of workers and the middle class, alongside heightening income and wealth polarization.

Instead, the fall-off in the billionaires’ fortunes resulted largely from the souring and collapse of certain speculative financial ventures and the stock market.

This is what makes the fortunes of the richest Americans in 2009 so provocative—it is precisely their reckless gambling and insatiable greed that caused the economic crisis now subjecting masses in the US to a level of social misery not experienced in generations.

The obscene wealth of a tiny handful is proof of a dramatic misallocation of resources.

The combined wealth of the Forbes 400, $1.27 trillion, is greater by $483 billion than the entire “stimulus package,” the American Recovery and Reinvestment Act.

The combined fortune of the richest 400 Americans, who comprise just .00013 percent of the population, is greater by about 50 percent than the price of the health care “overhaul” promoted by the Obama administration, which, in the name of “controlling costs,” will carry out substantial cuts in Medicare, ration treatment to the sick and aged, and force families to purchase private insurance.

The personal fortunes of three men, computer magnates Bill Gates and Larry Ellison, and financier Warren Buffett, would each have been more than enough to resolve the 2009-2010 budget deficit of the nation’s most populous state, California, which has been met through deep cuts to social programs and public education, and the furloughing of state workers.

California is home to more than a fifth of the Forbes 400. Eighty-three California oligarchs have a combined net worth of about $234 billion, according to Forbes. That is a multiple of about eight times California’s two-year budget deficit.

Michigan’s ten billionaires have a combined net worth of about $20 billion, about seven times the state budget deficit of $2.8 billion. Among other savage cuts, Michigan lawmakers intend to save $350,000 by shutting down the state’s poison control call center, and about the same amount of money by scaling back a program that pays farmers to send their excess produce to food charities, helping to feed one million people.

New York’s 66 billionaires, 57 of whom reside in New York City, have a combined wealth of $216 billion, roughly 18 times the size of the Gross Domestic Product (GDP) of Afghanistan, whose population of 28 million the US military is attempting to subdue through a brutal counterinsurgency campaign.

In fact, the personal fortunes of individual Americans on the list are larger than the GDPs of a number of countries.

“Bill Gates, America's richest man with a net worth of $50 billion, has a personal balance sheet larger than the GDP of 140 countries, including Costa Rica, El Salvador, Bolivia and Uruguay,” Forbes notes.

And the combined wealth of the Forbes 400 is larger than the GDP of India, the world’s 12th largest economy, and home to 1.2 billion people.

The fabulous wealth that the US financial and corporate elite continue to enjoy in the midst of a financial crisis of its own making is the outcome of long historical processes.

When Forbes first published its compilation of richest Americans in 1982, the wealthiest individual listed was shipping magnate Daniel Ludwig. Ludwig’s estimated fortune of $2 billion would place him far down the list today.

The list of 1982 included names such as Ford, Du Pont, Whitney, Duke, and Harriman, to name a few. These empires were associated with the expansion of US industrial production.

It is notable that on today’s list there are few whose fortunes were built up through the production of industrial goods, except indirectly through inheritance. Two categories, “finance” and “investments,” provided the fortunes of 106 of the wealthiest Americans. Other major sources of wealth that Forbes identified include media, real estate, oil and retail.

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The Dirty Secrets of Goldman Sachs

Paulson and Goldman Sachs: A Dirty Secret of the Wall Street Bailout

By Barry Grey, World Socialist Web Site
August 11, 2009

An article in Sunday’s New York Times on the behind-the-scenes dealings between Henry Paulson, treasury secretary under President George W. Bush, and Goldman Sachs, the giant investment bank Paulson headed before joining the Bush administration, sheds a measure of light on the corrupt relationship between government officials and the banks, which underlies the multi-trillion-dollar bailout of Wall Street.

The article, based on Paulson’s official schedules for 2007 and 2008, obtained by the Times through a Freedom of Information filing, documents the close collaboration between Paulson and his successor as chief executive of Goldman, Lloyd C. Blankfein, in the course of the financial crisis of the past two years. It focuses on mid-September of 2008, the high point of the crisis, when the government decided to allocate $85 billion to bail out the failing insurance and financing firm American International Group (AIG).

The article makes clear that at the heart of the rescue of AIG was a decision to use taxpayer funds to cover dollar for dollar the billions owed by the insurance firm to Wall Street banks that held credit default swap contracts with AIG. Credit default swaps play a central role in the vast edifice of speculation upon which the banks depend to reap huge profits and reward their top executives and traders with multi-million-dollar bonuses and pay packages.

By means of the unregulated credit default swap market, banks and corporations purchase insurance against the default of bonds issued by other banks and companies. If a seller of swaps—AIG was by far the biggest—goes bankrupt, its counterparties stand to lose billions and go bankrupt themselves.

This was precisely the position of major financial firms in September of 2008, when AIG was teetering on the brink of collapse. The Times cites Paulson’s spokeswoman, Michele Davis, as saying that government officials were concerned that both Goldman and investment bank Morgan Stanley “were in danger themselves of failing later in the week...”

No firm was more exposed than Goldman Sachs, the biggest and most profitable of the Wall Street investment houses, which stood to lose $13 billion in credit default swaps and other derivative contracts with AIG.

The Times article documents the fact that Paulson, who by law and ethics rules was prohibited from maintaining undue contact with his former bank, held dozens of telephone discussions with Blankfein on and around September 16, 2008, when Paulson and the Federal Reserve Board announced the bailout of AIG.

Paulson and his collaborators in orchestrating the bank bailout (including Federal Reserve Board Chairman Ben Bernanke and Timothy Geithner, then president of the Federal Reserve Bank of New York and now Obama’s treasury secretary) were well aware of the legal implications of Paulson’s role in rescuing Goldman with public funds.

To provide themselves with a legal fig leaf, as the Times reports, Paulson obtained two ethics waivers on September 17, shortly before a conference call involving himself, Bernanke, Geithner and other bank regulators to discuss the financial crisis of Goldman, Merrill Lynch and Morgan Stanley. The waivers were issued by Paulson’s Treasury Department and the Bush White House counsel’s office.

As the Times notes:

“All told, from Sept. 16 to Sept. 21, 2008, Mr. Paulson and Mr. Blankfein spoke 24 times. At the height of the financial crisis, Mr. Paulson spoke far more often with Mr. Blankfein than any other executive, according to entries in his calendars.”

The newspaper points out that, prior to receiving any waivers, Paulson played a key role in decisions that disproportionately benefitted his former bank. In addition to covering Goldman’s bad debts with AIG, these included the elimination of Goldman rivals Bear Stearns and Lehman Brothers (and subsequently Merrill Lynch), allowing Goldman to legally convert from an investment bank to a commercial bank—giving it more access to federal financing—and a Security and Exchange Commission ruling barring investors from betting against Goldman stock by selling it short.

On the basis of such measures—and trillions of dollars in cash, virtually free loans, debt guarantees and other taxpayer subsidies—which have been continued and expanded by the Obama administration, major Wall Street banks have registered substantial profits this year and allocated massive, in some cases record, sums to provide their top executives and traders with seven and eight-figure compensation packages.

None has done better than Goldman, which recently reported a record second-quarter profit of $3.44 billion and is on track to award its employees a record $22 billion in bonuses and salaries this year.

Sunday’s Times article suggests that, in addition to legal and ethics violations, Paulson may have perjured himself in testimony last month before a committee of the House of Representatives. Challenged on possible conflicts of interest in his dealings with AIG and Goldman, the former treasury secretary told the committee:

“I want you to know that I had no role whatsoever in any of the Fed’s decisions regarding payments to any of AIG’s creditors or counterparties.”

But the newspaper cites unnamed former government officials as saying:

“Mr. Paulson played a major role in the AIG rescue discussions over that weekend [September 13-14, 2008] and it was well known among the participants that a loan to AIG would be used to pay Goldman and the insurer’s other trading partners.”

The newspaper omits mention of a further damning fact. Paulson, who, the Times notes, personally fired the CEO of AIG, appointed Edward M. Liddy as his replacement. According to Wikipedia, the man selected by Paulson to oversee the funneling of taxpayer cash from AIG to Goldman and other AIG creditors “was on the board of directors of Goldman from 2003 to 2008, when he resigned to become CEO of AIG. He was selected by Henry Paulson for both roles.” Liddy, who has since resigned his AIG post, owns more than 27,000 shares in Goldman Sachs worth over $3 million.

Reflecting the Times’ political support for Obama, the newspaper also fails to note that the current administration is well stocked at the highest levels with Goldman alumni and protégés of its former top executive Robert Rubin. These include, mentioning only two, the administrator of TARP funds, former Goldman Vice President Neil Kashkari, and Lawrence Summers, Obama’s top economic adviser. The article likewise fails to mention by name Geithner, a key organizer of the AIG bailout and current treasury secretary.

Paulson’s role in orchestrating the plundering of the Treasury to pay off the gambling debts of Goldman and, more generally, shield the financial aristocracy from the consequences of its speculative operations, is criminal in the full sense of the word. There is every basis for launching a criminal investigation, and aside from potential violations of law, the destructive social consequences for hundreds of millions of people in the US and around the world of his policies—which are being continued by Obama—are incalculable.

Paulson, however, is not an aberration. The multi-millionaire banker turned cabinet official is rather an embodiment of the domination of social and political life by a financial oligarchy, whose leading representatives partake in the revolving door between the corporate suite and the highest levels of the state. This Augean stable of reaction and corruption can be cleaned out only through the independent mobilization of the working class on the basis of a revolutionary socialist program.

Charlie Rose Interviews Morgan Stanley CEO John J. Mack, Feb 23, 2009
Charlie Rose Interviews Henry M. Paulson, Oct 21, 2008

Return to The Lamb Slain Home Page

Consolidating the Banking System into the Hands of a Few 'Financial Terrorists'

Consolidating the Banking System into the Hands of a Few 'Financial Terrorists'

CIT Crisis Threatens Wave of Business Failures and Layoffs

By Barry Grey, World Socialist Web Site
July 18, 2009

The Obama administration has refused to provide government backing for outstanding debt or other emergency aid to CIT, a New York-based bank that finances nearly one million small and midsize companies in the U.S.

The collapse of CIT’s efforts to secure government relief on Wednesday has left the 101-year-old bank teetering on the edge of bankruptcy and threatens a cut-off of funding to retailers and suppliers. That could result in a wave of bankruptcies and closures, leading to tens of thousands of layoffs.

The administration’s decision to deny aid to CIT stands in sharp contrast to its policy of providing unlimited bailouts to major banks that cater to large corporations and big investors.

It is of a piece with its decision to drive General Motors and Chrysler into bankruptcy in order to impose tens of thousands of layoffs and slash the wages and benefits of auto workers, its opposition to bailing out auto dealerships slated for closure, and its rejection of any federal aid to California or other states facing fiscal insolvency.

It is also in line with the administration’s policy of allowing weaker and smaller financial institutions to fail in order to effect a further consolidation of the banking system in the hands of a few giant Wall Street firms.

CIT is the 26th largest bank in the United States. Its bankruptcy would represent the fourth largest bank failure, by assets, in U.S. history. As of Friday, the bank was seeking to stave off filing for Chapter 11 bankruptcy protection, a development that could rapidly lead to its liquidation.

It was reportedly in talks Friday with Goldman Sachs, JPMorgan Chase, and Morgan Stanley (a spinoff of JPMorgan) on securing credit either to avert a bankruptcy filing, or secure sufficient financing to survive in bankruptcy court.

The New York Post reported that JPMorgan, the biggest U.S. bank, by assets, was interested in acquiring CIT’s factoring unit, the bank’s biggest and most lucrative business.

As the country’s largest factor, CIT buys the receivables of thousands of manufacturers and suppliers, mainly to retail businesses. For a fee, it pays its clients cash up front so they do not have to wait 30 to 90 days for retailers to pay for their supplies and inventory. It also guarantees suppliers that they will be paid even if retailers whom they supply go bankrupt.

CIT controls 60 percent of the U.S. market for factors. It is a factor for some 2,000 manufacturers and suppliers whose goods are sold at 300,000 retailers across the country.

Both suppliers and retailers fear that a CIT bankruptcy will disrupt the flow of cash and credit, disrupting supply chains and leaving businesses unable to pay their bills.

Gail Dudack, chief investment strategist at Dudack Research Group, told clients:

“The company’s collapse would certainly ripple through thousands of small and medium business that rely on CIT for trade financing and lending. This raises the risk of more bankruptcies and more unemployment and would be a significant negative for an already fragile economy.”

Roy Calcagne, CEO of Craftsmaster Furniture, said CIT’s crisis could disrupt the entire supply chain of the furniture industry.

“There could be a huge ripple effect that I’m not sure the government is fully aware of,” he said, “especially if you look at all the ways this impacts supply chains. It could be devastating for our industry.”

Jerry Reisman, a bankruptcy attorney at the law firm Reisman, Peirez and Reisman, told Reuters that he was “deluged” with desperate calls from apparel companies concerned about losing access to credit.

“The government’s decision will,” he said, “result in many companies being unable to make payroll on Friday and inability to pay suppliers. Many of these companies and their suppliers will be forced to file bankruptcy themselves, causing a further decline in the economy.”

CIT, which has an $80 billion balance sheet, has had eight straight quarters of losses, totaling $3 billion. Beginning in 2004, when its current CEO, Jeffrey Peek, took control, the bank plunged into subprime mortgages and student loans. The impact of the subprime collapse and resulting credit crunch has had a particularly crippling effect on CIT, which does not take deposits but rather relies on short-term commercial credit to finance its long-term debt.

For the past two years it has been cut off from wholesale credit markets. Last December, it obtained permission from the government to register as a bank holding company in order to receive $2.3 billion in cash under the Troubled Asset Relief Program (TARP).

CIT has $1.1 billion in debt coming due in August followed by $2.5 billion due by year’s end. The Federal Reserve Board reportedly carried out a “stress test” on the bank earlier this week and concluded it needed at least $4 billion in capital to stay afloat.

Its speculation-driven problems are not essentially different from those of giant banks and financial firms such as Goldman Sachs, JPMorgan Chase, Citigroup, Bank of America and American International Group, which have received tens of billions in taxpayer handouts and are deemed by the Obama administration “too big to fail.”

An administration spokesman said the decision to deny CIT emergency support demonstrated that Obama has “a very high standard” as to which firms can receive government assistance. More to the point, it demonstrates the degree to which the administration’s economic policies are dictated by the biggest Wall Street players.

Since the financial crisis erupted last year, the government has engineered the disappearance of Bear Stearns, Lehman Brothers, Merrill Lynch, Wachovia and Washington Mutual, immensely increasing the economic power of the strongest mega-banks, particularly Goldman Sachs and JPMorgan Chase.

There are a host of smaller regional banks that are sliding toward bankruptcy, further increasing the dominance of the biggest Wall Street firms. At a Senate Banking Committee hearing on Thursday, Senator Jim Bunning, Republican from Kentucky, said Federal Deposit Insurance Corporation Chairman Sheila Bair had told him another 500 banks could fail “unless something dramatic happens.”

The decision to deny aid to CIT came amidst spectacular second-quarter earnings reports by Goldman Sachs and JPMorgan Chase. Goldman reported record earnings of $3.44 billion and JPMorgan reported a sharp rise in profits to $2.7 billion for the quarter. Both banks reaped the vast bulk of their profits from their investment banking and trading divisions.

They are benefiting from the demise of competitors and the ongoing troubles at Bank of America and Citigroup, which gives them greater access to fees generated by underwriting stocks and bonds, while they take advantage of market volatility to place their own bets on stock and bond price fluctuations. Neither these, nor other major banks, are using the lifeline provided by government cash and other subsidies to significantly increase lending to businesses or consumers.

They continue to hide an estimated $2 trillion in toxic assets on their balance sheets, refusing to sell the nearly worthless assets at market prices or write down their value. JPMorgan, even as it reported higher profits, noted large losses in consumer loans and commercial real estate. Citigroup and Bank of America, in their earnings reports released on Friday, similarly reported growing losses in these sectors. These assets will continue to deteriorate as the impact of mass unemployment leads to more defaults on consumer loans and prime mortgages, and the recession further depresses commercial real estate values.

Goldman set aside nearly half of its quarterly revenues of $13.8 billion for salaries and bonuses, setting the stage for record compensation packages for executives and senior employees. This is in line with a general resumption by the banks of seven-and-eight-digit windfalls for top executives.

White House Chief of Staff Rahm Emanuel implicitly alluded to the bumper earnings reports by Goldman and JPMorgan in justifying the decision to cut off CIT.

“Given the sense of calm,” he said, “it is a symbol of a different phase” in the government’s rescue of the banking system.

Similarly, Obama’s top economic adviser Lawrence Summers in a speech in Washington DC declared that the U.S. financial system was “back from the abyss,” and Treasury Secretary Timothy Geithner said the financial markets were sending “important signs of recovery.”

Record pay and profits at Goldman Sachs
Goldman Sachs: Did it cause the problems in the first place?
Morgan and Goldman are the Sole Survivors
Morgan and Goldman Among Biggest Beneficiaries of $700 Billion Bailout Plan
JPMorgan Big Winner After Collapse, Becoming Megabank
JPMorgan made credit derivatives big, then backed off before they blew up
JPMorgan is one big dog in the sand box of the derivative playground
A History of Credit Derivatives
Why Markets Crash in October
CIT Group Board OKs Rescue Loan from Bondholders
The REAL Battle Over America’s Banking System



Read More...

JPMorgan Chase - Credit Derivatives, Interest-Rate Swaps

By InvestorProtection.com

JPMorgan Chase & Co. is a global financial services firm with assets of $2.1 trillion and operations in more than 60 countries. For years, the company made big profits by arranging complex investment deals involving credit derivatives for states, cities, hospitals, school districts and other entities that sell debt in the municipal bond market.

In 2007, the collapse of the subprime market and the subsequent liquidity squeeze caused many of these financing arrangements to sour, forcing countless public agencies to come up with billions of dollars to pay for increased interest payment costs.

JPMorgan also is credited with launching the credit derivatives market back in the late 1990s, a market that billionaire investor Warren Buffett has often referred to as “weapons of mass destruction.”

Holy Smokes, JPMorgan Chase Holding $92,000,000,000,000 in Derivatives

By MyProps.org

That's $92 trillion for those who aren't able to count that many zeros. Here's the complete chart if you want to see what other banks are holding. Do the math: $92 trillion is 74 times JPMorgan's assets and 7 times the entire Gross Domestic Product of the United States.

The value is a "notional value," meaning they didn't actually spend $92 trillion to acquire the contracts. Derivatives are highly leveraged (which can actually make them worse). But their "direct exposure" is a lot less than $92 trillion, as much of the derivatives are hedged.

However, no one knows exactly what derivatives JPM, or any bank, are holding (the derivative system is entirely unregulated); and as Warren Buffet pointed out in 2002, bankers cannot be trusted to just "do the right thing" with derivatives.

It's impossible that 100% of JPM's derivatives are hedged, but surely the vast majority are. But when you're talking $92 trillion, the tinniest mistake can spell doom: a 1.7% adjustment of the $92 trillion wipes out their assets.

It's interesting that JPM has yet to really tank, compared to most of its peers. That may be coming soon though. Their Chase division of course has massive exposure to consumer credit card debt, which is the next shoe to drop. Not to mention JPM acquired Bear Stearns, a cesspool of toxic waste.

Source for the data:
Comptroller of the Currency
OCC’s Quarterly Report on Bank Derivatives Activities (p. 21)
Third Quarter 2007

Goldman Sachs and the Carbon Credit Scam

In Rolling Stone Issue 1082-83, Matt Taibbi takes on "the Wall Street Bubble Mafia" — investment bank Goldman Sachs (click here to read the whole story). The piece has generated controversy, with Goldman Sachs firing back that Taibbi's piece is "an hysterical compilation of conspiracy theories" and a spokesman adding:

"We reject the assertion that we are inflators of bubbles and profiteers in busts, and we are painfully conscious of the importance in being a force for good."

Taibbi shot back:

"Goldman has its alumni pushing its views from the pulpit of the U.S. Treasury, the NYSE, the World Bank, and numerous other important posts; it also has former players fronting major TV shows. They have the ear of the president if they want it."

Here, now, are excerpts from Matt Taibbi's piece and video of Taibbi exploring the key issues.

Inside The Great American Bubble Machine

From tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression — and they're about to do it again with a groundbreaking new commodities bubble, disguised as an "environmental plan," called cap-and-trade.

By Matt Taibbi, Rolling Stone
July 2, 2009

Matt Taibbi On Goldman Sachs' Big Scam


The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.

Any attempt to construct a narrative around all the former Goldmanites in influential positions quickly becomes an absurd and pointless exercise, like trying to make a list of everything. What you need to know is the big picture:

If America is circling the drain, Goldman Sachs has found a way to be that drain — an extremely unfortunate loophole in the system of Western democratic capitalism, which never foresaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy.

They achieve this using the same playbook over and over again. The formula is relatively simple:

Goldman positions itself in the middle of a speculative bubble, selling investments they know are crap. Then they hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage. Finally, when it all goes bust, leaving millions of ordinary citizens broke and starving, they begin the entire process over again, riding in to rescue us all by lending us back our own money at interest, selling themselves as men above greed, just a bunch of really smart guys keeping the wheels greased.

They've been pulling this same stunt over and over since the 1920s — and now they're preparing to do it again, creating what may be the biggest and most audacious bubble yet.

Matt Taibbi on Goldman Sachs' Role in the Housing and Internet Busts


The basic scam in the Internet Age is pretty easy even for the financially illiterate to grasp. Companies that weren't much more than pot-fueled ideas scrawled on napkins by up-too-late bong-smokers were taken public via IPOs, hyped in the media and sold to the public for megamillions. It was as if banks like Goldman were wrapping ribbons around watermelons, tossing them out 50-story windows and opening the phones for bids. In this game you were a winner only if you took your money out before the melon hit the pavement.

It sounds obvious now, but what the average investor didn't know at the time was that the banks had changed the rules of the game, making the deals look better than they actually were. They did this by setting up what was, in reality, a two-tiered investment system — one for the insiders who knew the real numbers, and another for the lay investor who was invited to chase soaring prices the banks themselves knew were irrational. While Goldman's later pattern would be to capitalize on changes in the regulatory environment, its key innovation in the Internet years was to abandon its own industry's standards of quality control.

Goldman's role in the sweeping global disaster that was the housing bubble is not hard to trace. Here again, the basic trick was a decline in underwriting standards, although in this case the standards weren't in IPOs but in mortgages. By now almost everyone knows that for decades mortgage dealers insisted that home buyers be able to produce a down payment of 10 percent or more, show a steady income and good credit rating, and possess a real first and last name. Then, at the dawn of the new millennium, they suddenly threw all that shit out the window and started writing mortgages on the backs of napkins to cocktail waitresses and ex-cons carrying five bucks and a Snickers bar.

And what caused the huge spike in oil prices? Take a wild guess. Obviously Goldman had help — there were other players in the physical-commodities market — but the root cause had almost everything to do with the behavior of a few powerful actors determined to turn the once-solid market into a speculative casino. Goldman did it by persuading pension funds and other large institutional investors to invest in oil futures — agreeing to buy oil at a certain price on a fixed date. The push transformed oil from a physical commodity, rigidly subject to supply and demand, into something to bet on, like a stock. Between 2003 and 2008, the amount of speculative money in commodities grew from $13 billion to $317 billion, an increase of 2,300 percent. By 2008, a barrel of oil was traded 27 times, on average, before it was actually delivered and consumed.

Matt Taibbi Runs Down Goldman' Sachs Graduates with Government Positions


The history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled-dry American empire, reads like a Who's Who of Goldman Sachs graduates. By now, most of us know the major players.

As George Bush's last Treasury secretary, former Goldman CEO Henry Paulson was the architect of the bailout, a suspiciously self-serving plan to funnel trillions of Your Dollars to a handful of his old friends on Wall Street. Robert Rubin, Bill Clinton's former Treasury secretary, spent 26 years at Goldman before becoming chairman of Citigroup — which in turn got a $300 billion taxpayer bailout from Paulson. There's John Thain, the asshole chief of Merrill Lynch who bought an $87,000 area rug for his office as his company was imploding; a former Goldman banker, Thain enjoyed a multibillion-dollar handout from Paulson, who used billions in taxpayer funds to help Bank of America rescue Thain's sorry company.

And Robert Steel, the former Goldmanite head of Wachovia, scored himself and his fellow executives $225 million in golden-parachute payments as his bank was self-destructing. There's Joshua Bolten, Bush's chief of staff during the bailout, and Mark Patterson, the current Treasury chief of staff, who was a Goldman lobbyist just a year ago, and Ed Liddy, the former Goldman director whom Paulson put in charge of bailed-out insurance giant AIG, which forked over $13 billion to Goldman after Liddy came on board. The heads of the Canadian and Italian national banks are Goldman alums, as is the head of the World Bank, the head of the New York Stock Exchange, the last two heads of the Federal Reserve Bank of New York — which, incidentally, is now in charge of overseeing Goldman.

But then, something happened. It's hard to say what it was exactly; it might have been the fact that Goldman's co-chairman in the early Nineties, Robert Rubin, followed Bill Clinton to the White House, where he directed the National Economic Council and eventually became Treasury secretary. While the American media fell in love with the story line of a pair of baby-boomer, Sixties-child, Fleetwood Mac yuppies nesting in the White House, it also nursed an undisguised crush on Rubin, who was hyped as without a doubt the smartest person ever to walk the face of the Earth, with Newton, Einstein, Mozart and Kant running far behind.

Rubin was the prototypical Goldman banker. He was probably born in a $4,000 suit, he had a face that seemed permanently frozen just short of an apology for being so much smarter than you, and he exuded a Spock-like, emotion-neutral exterior; the only human feeling you could imagine him experiencing was a nightmare about being forced to fly coach. It became almost a national cliché that whatever Rubin thought was best for the economy — a phenomenon that reached its apex in 1999, when Rubin appeared on the cover of Time with his Treasury deputy, Larry Summers, and Fed chief Alan Greenspan under the headline the committee to save the world.

And "what Rubin thought," mostly, was that the American economy, and in particular the financial markets, were over-regulated and needed to be set free. During his tenure at Treasury, the Clinton White House made a series of moves that would have drastic consequences for the global economy — beginning with Rubin's complete and total failure to regulate his old firm during its first mad dash for obscene short-term profits.

Goldman Sachs' Powerful Influence


After the oil bubble collapsed last fall, there was no new bubble to keep things humming — this time, the money seems to be really gone, like worldwide-depression gone. So the financial safari has moved elsewhere, and the big game in the hunt has become the only remaining pool of dumb, unguarded capital left to feed upon: taxpayer money. Here, in the biggest bailout in history, is where Goldman Sachs really started to flex its muscle.

It began in September of last year, when then-Treasury secretary Paulson made a momentous series of decisions. Although he had already engineered a rescue of Bear Stearns a few months before and helped bail out quasi-private lenders Fannie Mae and Freddie Mac, Paulson elected to let Lehman Brothers — one of Goldman's last real competitors — collapse without intervention. ("Goldman's superhero status was left intact," says market analyst Eric Salzman, "and an investment-banking competitor, Lehman, goes away.") The very next day, Paulson greenlighted a massive, $85 billion bailout of AIG, which promptly turned around and repaid $13 billion it owed to Goldman. Thanks to the rescue effort, the bank ended up getting paid in full for its bad bets: By contrast, retired auto workers awaiting the Chrysler bailout will be lucky to receive 50 cents for every dollar they are owed.

Immediately after the AIG bailout, Paulson announced his federal bailout for the financial industry, a $700 billion plan called the Troubled Asset Relief Program, and put a heretofore unknown 35-year-old Goldman banker named Neel Kashkari in charge of administering the funds. In order to qualify for bailout monies, Goldman announced that it would convert from an investment bank to a bank-holding company, a move that allows it access not only to $10 billion in TARP funds, but to a whole galaxy of less conspicuous, publicly backed funding — most notably, lending from the discount window of the Federal Reserve. By the end of March, the Fed will have lent or guaranteed at least $8.7 trillion under a series of new bailout programs — and thanks to an obscure law allowing the Fed to block most congressional audits, both the amounts and the recipients of the monies remain almost entirely secret.

Converting to a bank-holding company has other benefits as well: Goldman's primary supervisor is now the New York Fed, whose chairman at the time of its announcement was Stephen Friedman, a former co-chairman of Goldman Sachs. Friedman was technically in violation of Federal Reserve policy by remaining on the board of Goldman even as he was supposedly regulating the bank; in order to rectify the problem, he applied for, and got, a conflict-of-interest waiver from the government. Friedman was also supposed to divest himself of his Goldman stock after Goldman became a bank-holding company, but thanks to the waiver, he was allowed to go out and buy 52,000 additional shares in his old bank, leaving him $3 million richer. Friedman stepped down in May, but the man now in charge of supervising Goldman — New York Fed president William Dudley — is yet another former Goldmanite.

The collective message of all of this — the AIG bailout, the swift approval for its bank-holding conversion, the TARP funds — is that when it comes to Goldman Sachs, there isn't a free market at all. The government might let other players on the market die, but it simply will not allow Goldman to fail under any circumstances. Its edge in the market has suddenly become an open declaration of supreme privilege.

"In the past it was an implicit advantage," says Simon Johnson, an economics professor at MIT and former official at the International Monetary Fund, who compares the bailout to the crony capitalism he has seen in Third World countries. "Now it's more of an explicit advantage."

Matt Taibbi on Goldman Sachs' Excuse


Fast-forward to today. It's early June in Washington, D.C. Barack Obama, a popular young politician whose leading private campaign donor was an investment bank called Goldman Sachs — its employees paid some $981,000 to his campaign — sits in the White House. Having seamlessly navigated the political minefield of the bailout era, Goldman is once again back to its old business, scouting out loopholes in a new government-created market with the aid of a new set of alumni occupying key government jobs.

Gone are Hank Paulson and Neel Kashkari; in their place are Treasury chief of staff Mark Patterson and CFTC chief Gary Gensler, both former Goldmanites. (Gensler was the firm's co-head of finance.) And instead of credit derivatives or oil futures or mortgage-backed CDOs, the new game in town, the next bubble, is in carbon credits — a booming trillion-dollar market that barely even exists yet, but will if the Democratic Party that it gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble, disguised as an "environmental plan," called cap-and-trade. The new carbon-credit market is a virtual repeat of the commodities-market casino that's been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won't even have to rig the game. It will be rigged in advance.

Here's how it works: If the bill passes, there will be limits for coal plants, utilities, natural-gas distributors and numerous other industries on the amount of carbon emissions (a.k.a. greenhouse gases) they can produce per year. If the companies go over their allotment, they will be able to buy "allocations" or credits from other companies that have managed to produce fewer emissions. President Obama conservatively estimates that about $646 billion worth of carbon credits will be auctioned in the first seven years; one of his top economic aides speculates that the real number might be twice or even three times that amount.

The feature of this plan that has special appeal to speculators is that the "cap" on carbon will be continually lowered by the government, which means that carbon credits will become more and more scarce with each passing year. Which means that this is a brand new commodities market where the main commodity to be traded is guaranteed to rise in price over time. The volume of this new market will be upwards of a trillion dollars annually; for comparison's sake, the annual combined revenues of all electricity suppliers in the U.S. total $320 billion.

Goldman wants this bill. The plan is:

(1) to get in on the ground floor of paradigm-shifting legislation,

(2) make sure that they're the profit-making slice of that paradigm, and

(3) make sure the slice is a big slice.

Goldman started pushing hard for cap-and-trade long ago, but things really ramped up last year when the firm spent $3.5 million to lobby climate issues. (One of their lobbyists at the time was none other than Patterson, now Treasury chief of staff.)

Back in 2005, when Hank Paulson was chief of Goldman, he personally helped author the bank's environmental policy, a document that contains some surprising elements for a firm that in all other areas has been consistently opposed to any sort of government regulation. Paulson's report argued that "voluntary action alone cannot solve the climate change problem."

A few years later, the bank's carbon chief, Ken Newcombe, insisted that cap-and-trade alone won't be enough to fix the climate problem and called for further public investments in research and development. Which is convenient, considering that Goldman made early investments in wind power (it bought a subsidiary called Horizon Wind Energy), renewable diesel (it is an investor in a firm called Changing World Technologies), and solar power (it partnered with BP Solar), exactly the kind of deals that will prosper if the government forces energy producers to use cleaner energy. As Paulson said at the time,

"We're not making those investments to lose money."

The bank owns a 10 percent stake in the Chicago Climate Exchange, where the carbon credits will be traded. Moreover, Goldman owns a minority stake in Blue Source LLC, a Utah-based firm that sells carbon credits of the type that will be in great demand if the bill passes. Nobel Prize winner Al Gore, who is intimately involved with the planning of cap-and-trade, started up a company called Generation Investment Management with three former bigwigs from Goldman Sachs Asset Management, David Blood, Mark Ferguson and Peter Harris. Their business? Investing in carbon offsets. There's also a $500 million Green Growth Fund set up by a Goldmanite to invest in greentech … the list goes on and on. Goldman is ahead of the headlines again, just waiting for someone to make it rain in the right spot. Will this market be bigger than the energy futures market?

"Oh, it'll dwarf it," says a former staffer on the House energy committee.

Well, you might say, who cares? If cap-and-trade succeeds, won't we all be saved from the catastrophe of global warming? Maybe — but cap-and-trade, as envisioned by Goldman, is really just a carbon tax structured so that private interests collect the revenues. Instead of simply imposing a fixed government levy on carbon pollution and forcing unclean energy producers to pay for the mess they make, cap-and-trade will allow a small tribe of greedy-as-hell Wall Street swine to turn yet another commodities market into a private taxcollection scheme. This is worse than the bailout: It allows the bank to seize taxpayer money before it's even collected.

If it's going to be a tax, I would prefer that Washington set the tax and collect it," says Michael Masters, the hedgefund director who spoke out against oilfutures speculation. "But we're saying that Wall Street can set the tax, and Wall Street can collect the tax. That's the last thing in the world I want. It's just asinine."

Cap-and-trade is going to happen. Or, if it doesn't, something like it will. The moral is the same as for all the other bubbles that Goldman helped create, from 1929 to 2009. In almost every case, the very same bank that behaved recklessly for years, weighing down the system with toxic loans and predatory debt, and accomplishing nothing but massive bonuses for a few bosses, has been rewarded with mountains of virtually free money and government guarantees — while the actual victims in this mess, ordinary taxpayers, are the ones paying for it.

It's not always easy to accept the reality of what we now routinely allow these people to get away with; there's a kind of collective denial that kicks in when a country goes through what America has gone through lately, when a people lose as much prestige and status as we have in the past few years. You can't really register the fact that you're no longer a citizen of a thriving first-world democracy, that you're no longer above getting robbed in broad daylight, because like an amputee, you can still sort of feel things that are no longer there.

But this is it. This is the world we live in now. And in this world, some of us have to play by the rules, while others get a note from the principal excusing them from homework till the end of time, plus 10 billion free dollars in a paper bag to buy lunch. It's a gangster state, running on gangster economics, and even prices can't be trusted anymore; there are hidden taxes in every buck you pay. And maybe we can't stop it, but we should at least know where it's all going.

The Rockefellers, Obama and the Carbon Trading Scam

The Rockefellers, Obama and the Carbon Trading Scam

Rockefeller-Owned Exxon Mobil Now Supports Carbon Tax

By Daniel Taylor, Old-Thinker News
January 10, 2009

The media is hailing Exxon Mobil's announcement in favor of carbon tax proposals as a shocking, unbelievable move. But is it really that surprising? Could well meaning environmentalists be in for a shock to find that a seemingly "grass roots" movement has from the beginning been initiated from the top down?

As the Calgary Herald reports:

"Exxonmobil Corp., the world's largest crude oil refiner, supports taxing carbon dioxide as the most efficient way of curbing greenhouse gas emissions, its chief executive said."

The announcement came from Rex Tillerson, CEO of Exxon Mobil, speaking at the Woodrow Wilson international center for scholars in Washington, which has served as a platform for discussing various globalist initiatives for many years. That Tillerson would make this announcement is interesting, due to the fact that the Rockefeller family, who built Standard Oil [Standard Oil of New York later became Mobil, a predecessor to Exxon/Mobil], recently identified him as "resistant" to "...take the threat of global warming more seriously." Are we to accept this story? Was there any real resistance in the first place?

A May 2008 article from the International Herald Tribune painted a glowing picture of the Rockefeller family in their quest to "press for change at Exxon." As reported:

David Rockefeller, retired chairman of Chase Manhattan Bank and patriarch of the family, issued a statement saying, "I support my family's efforts to sharpen Exxon Mobil's focus on the environmental crisis facing all of us."

The Rockefeller family has held a very special interest in environmental matters for decades. Population control and reduction is a central directive of many Rockefeller initiatives. The recent focus on global warming is no different. Steven Rockefeller's Earth Charter is an example.

There are countless real environmental issues such as genetically engineered organisms being released into the environment causing unknown mutations, consuming potentially dangerous cloned animal products, mass honey-bee die offs, etc. However, global warming was identified by the Club of Rome's 1991 report The First Global Revolution as a unifier to funnel the energy of citizens and businesses alike into supporting globalist initiatives. The report states:

"In searching for a new enemy to unite us, we came up with the idea that pollution, the threat of global warming, water shortages, famine and the like would fit the bill... All these dangers are caused by human intervention... The real enemy, then, is humanity itself."

Many of the "green" proposals to fight global warming will have a direct impact on your standard of living. Obama has admitted that sending "price signals" to change behavior is an option. Obama stated during a 2007 PBS interview:

"We're gonna have to cap the emission of greenhouse gasses. That means the power plants are gonna have to adjust how they generate power. They will pass on those costs to consumers."

The Chicago Climate Exchange

By Ed Barnes, FoxNews
March 6, 2009

The Climate Exchange is the brainchild of Richard Sandor, an economics professor who has worked for both the Chicago Mercantile Association and the Chicago Board of Trade. Known as "Mr. Derivative" for his work in creating interest rate futures markets, Sandor first proposed the creation of the Climate Exchange in 2000, just before the signing of the Kyoto Accord on greenhouse gas reduction. The United States subsequently refused to participate in the accords.

In 2000 and 2001, while still a state senator, Obama voted along with other members of the board of the Joyce Foundation, a Chicago-based charitable organization, to give more than $1.1 million to help the Climate Exchange get off the ground.

In 2001, when the Joyce Foundation gave more than $750,000 of the total to the exchange—a grant considered crucial to its launch—Joyce Foundation president Paula DiPerna had moved over to become president of the exchange's parent company as well as the its executive vice president, a position she still holds. Obama was still on the Joyce Foundation's board.

Obama’s Involvement in the Chicago Climate Exchange

By Judi McLeod, Canada Free Press
March 25, 2009

Good news to know that the truth will always come out—even when you’re Barack Obama.

“Obama Years Ago Helped Fund Carbon Program He Is Now Pushing Through Congress” is a FOXNews story by Ed Barnes. In short:

“While on the board of a Chicago-based charity, Barack Obama helped fund a carbon trading exchange that will likely play a critical role in the cap-and-trade carbon reduction program he is now trying to push through Congress as president.”

The charity was the Joyce Foundation on whose board of directors Obama served and which gave nearly $1.1 million in two separate grants that were “instrumental in developing and launching the privately-owned Chicago Climate Exchange, which now calls itself “North America’s only cap and trade system for all six greenhouse gases, with global affiliates and projects worldwide.”

And that’s only the beginning of this tawdry tale, Mr. Barnes.

The “privately-owned” Chicago Climate Exchange is heavily influenced by Obama cohorts Al Gore and Maurice Strong. For years now Strong and Gore have been cashing in on that lucrative cottage industry known as man-made global warming.

Strong is on the board of directors of the Chicago Climate Exchange, Wikipedia-described as “the world’s first, and North America’s only, legally binding greenhouse gas emission registry reduction system for emission sources and offset projects in North America and Brazil.”

Gore, self-proclaimed Patron Saint of the Environment, buys his carbon off-sets from himself—the Generation Investment Management LLP, “an independent, private, owner-managed partnership established in 2004 with offices in London and Washington, D.C., of which he is both chairman and founding partner. The Generation Investment Management business has considerable influence over the major carbon credit trading firms that currently exist, including the Chicago Climate Exchange.

Strong, the silent partner, is a man whose name often draws a blank on the Washington cocktail circuit. Even though a former Secretary General of the 1992 United Nations Conference on Environment and Development (the much hyped Rio Earth Summit) and Under-Secretary General of the United Nations in the days of an Oil-for-Food beleaguered Kofi Annan, the Canadian born Strong is little known in the United States. That’s because he spends most of his time in China where he he has been working to make the communist country the world’s next superpower. The nondescript Strong, nonetheless is the big cheese in the underworld of climate change and is one of the main architects of the failing Kyoto Protocol.

Full credit for the expose on the business partnership of Strong and Gore in the cap-and-trade reduction scheme should go to the investigative acumen of the Executive Intelligence Review (EIR).

The tawdry tale of the top two global warming gurus in the business world goes all the way back to Earth Day, April 17, 1995, when the future author of “An Inconvenient Truth” travelled to Fall River, Massachusetts, to deliver a green sermon at the headquarters of Molten Metal Technology Inc. (MMTI). MMTI was a firm that proclaimed to have invented a process for recycling metals from waste. Gore praised the Molten Metal firm as a pioneer in the kind of innovative technology that can save the environment, and make money for investors at the same time.

“Gore left a few facts out of his speech that day,” wrote EIR. “First, the firm was run by Strong and a group of Gore intimates, including Peter Knight, the firm’s registered lobbyist and Gore’s former top Senate aide.”

(Fast-forward to the present day and ask yourself why it is that every time someone picks up another Senate rock, another serpent comes slithering out).

“Second, the company had received more than $25 million in U.S. Department of Energy (DOE) research and development grants, but had failed to prove that the technology worked on a commercial scale. The company would go on to receive another $8 million in federal taxpayers’ cash; at that point, its only source of revenue.

“With Al Gore’s Earth Day as a Wall Street calling card, Molten Metal’s stock value soared to $35 a share, a range it maintained through October 1996. But along the way, DOE scientists had balked at further funding. When in March 1996, corporate officers concluded that the federal cash cow was about to run dry, they took action: between that date and October 1996, seven corporate officers—including Maurice Strong—sold off $15.3 million in personal shares in the company, at top market value. On Oct. 20, 1996—a Sunday—the company issued a press release announcing, for the first time, that DOE funding would be vastly scaled back, and reported the bad news on a conference call with stockbrokers.

“On Monday, the stock plunged by 49%, soon landing at $5 a share. By early 1997, furious stockholders had filed a class action suit against the company and its directors. Ironically, one of the class action lawyers had tangled with Maurice strong in another insider trading case, involving a Swiss company called AZL Resources, chaired by Strong, who was also a lead shareholder. The AZL case closely mirrored Molten Metal, and in the end, Strong and the other AZL partners agreed to pay $5 million to dodge a jury verdict, when eyewitness evidence surfaced of Strong’s role in scamming the value of the company stock up into the stratosphere, before selling it off.

In 1997, Strong went on to accept from Tongsun Park (who was found guilty of illegally acting as an Iraqi agent) $1 million from Saddam Hussein, which was invested in Cordex Petroleum Inc., a company he owned with his son, Fred.

These are the leaders in the Man-made Global Warming Movement, who three years later were to be funded by the man who was to become President of the United States of America.

If we follow the time line on where Obama was during the funding of the Chicago Climate Exchange, he was still a professor at the University of Chicago Law School teaching constitutional law, with his law license becoming inactive a year later in 2002.

It may be interesting to note that the Chicago Climate Exchange, in spite of its hype, is a veritable rat’s nest of cronyism. The largest shareholder in the Exchange is Goldman Sachs. Chicago Mayor Richard M. Daley is its honorary chairman. The Joyce Foundation, which funded the Exchange, also funded money for John Ayers’ Chicago School Initiatives. John is the brother of William Ayers...

Even as man-made global warming is being exposed as a money-generating hoax, Obama is working feverishly to push the controversial cap-and-trade carbon reduction scheme through Congress.

Obama was never the character he created for himself in the fairy-tale version in “Dreams of My Father.” He’s the agent of Change and Hope for cohorts making money down at the Chicago Climate Exchange.

The Barbarians are pushing at the gate of the Global Warming fraud, and to borrow a line from children playing Hide and Seek: Here they come, ready or not!

The Rothschilds Are on a Roll
Rothschild Investment Banking Posts Record Results
Rothschild-owned Exxon Shatters U.S. Profit Record
U.S. Economy Shrinks By Nearly 4% as Exxon Posts Record-breaking $45.2 Billion Profit
Exxon and Chevron Make $6 Million an Hour Amid Record Profits
UN: Climate-change disasters kill 300,000 a year
Video: Pelosi talks climate change in China
Slideshow: Climate Change Issues
Bill Clinton urges ’strong’ climate change bill
The Climate-Industrial Complex: Some businesses see nothing but profits in the green movement
Democrats Fast-track Cap and Trade Bill
Obama Announces First Nationwide Regulation of Greenhouse Gases
New Yorkers Subjected to “Carbon Clock” at Penn Station
Rockefeller Foundation: Climate change ‘will cause civilization to collapse’
Coca Cola CEO says supports global climate deal
Disgraced Fannie Mae CEO set to cash in for millions holds patent for carbon-trading plan

Updated 6/21/10 (Newest Additions at End of List)

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