Tuesday, April 20, 2010

Dayen: The Fall Of Goldman Sachs?, Whiff of Rebellion Spreads in Thailand

Hi. Can anyone send me an explanation of "they sought to make
profits by betting that securities would plunge in value"? Specifically.
Is there a Las Vegas type betting system, beyond bundling bad loans
and selling them to greedy suckers. Bill Maher joins me in being
puzzled, not to mention his entire audience and panel. I'd bet
many who get this would also appreciate clarification. -Ed

PS. Tthe quote is from Krugman's recent op-ed 'Looters in Loafers'


From: Michael W. Hathaway

The Fall Of Goldman Sachs?

by David Dayen
FireDogLake.com: April 19, 2010

The last 72 hours have left Goldman Sachs with a shattered reputation among
the people who matter to them, their customers and the politicians they have
courted. The SEC's civil fraud suit over one of their synthetic CDO deals is
bad enough, but it's just getting worse and worse for them.

Goldman Sachs, one of the most prestigious banks in the world, has issued a
detailed rebuttal of the SEC's accusation of fraud, but many assume more
investigations will follow.First of all, the SEC is not alone in
investigating the giant financial firm. Gordon Brown, fighting for his
political life in Britain, savaged Goldman's "moral bankruptcy" in an
interview and called for an immediate investigation with the UK Financial
Services Authority. Germany's Angela Merkel joined him, saying that her
nation would evaluate "legal steps." The major clients in the derivative
deal, the ones who bought long while Goldman never disclosed their hedge
fund partner Paulson and Co. was buying short, included the Royal Bank of
Scotland and the German bank IKB.

Obviously, politicians here in America are pushing each other out of the way
to find a microphone where they can denounce Goldman Sachs. You couldn't
find a speech at the California Democratic Party convention which didn't
mention them by name. The DNC bought the Google ad for "Goldman Sachs SEC,"
and Democrats are clearly wanting to use the case as a springboard for
financial reform.

And beyond the politics there are the facts of the case. Securities fraud is
pretty clear on the point that disclosure to investors must be put in
writing. "Nobody reads those statements" is no excuse. The Abacus (name of
the deal) pitchbook just never mentions Paulson's role in devising the
mortgage-backed securities that made up the deal. And while Goldman wants to
claim that this was merely one deal and they were not trying to mislead
their investors, today's NY Times just obliterates that argument:

Mr. Tourre was the only person named in the S.E.C. suit. But according to
interviews with eight former Goldman employees, senior bank executives
played a pivotal role in overseeing the mortgage unit just as the housing
market began to go south. These people spoke on the condition that they not
be named so as not to jeopardize business relationships or to anger
executives at Goldman, viewed as the most powerful bank on Wall Street.

According to these people, executives up to and including Lloyd C.
Blankfein, the chairman and chief executive, took an active role in
overseeing the mortgage unit as the tremors in the housing market began to
reverberate through the nation's economy. It was Goldman's top leadership,
these people say, that finally ended the dispute on the mortgage desk by
siding with those who, like Mr. Tourre and Mr. Egol, believed home prices
would decline [...]

With Mr. Paulson's help, Goldman created an Abacus investment that, the
S.E.C. now says, was devised to fall apart. By betting against that Abacus
investment, Mr. Paulson reaped $1 billion in profit, according to the S.E.C.
Mr. Paulson was not named in the S.E.C. complaint.

Goldman's top ranks changed its stance on housing in December 2006. In a
meeting in a windowless conference room on the executive floor, Mr. Viniar,
the chief financial officer, and Mr. Cohn, the president, gathered about 10
executives for a briefing. Mr. Sparks, the head of the mortgage unit, walked
them through the numbers. The group was unanimous: Goldman had to reduce its
exposure to the increasingly troubled mortgage market.

All the literature provided to investors said basically the opposite, that
the securities put in the CDO (which is "synthetic" because the holders of
the CDO don't own the product in question) were designed for long-term
advances. With Goldman's top executives apparently aware of what they were
doing in the housing market, they face serious criminal and civil penalties,
says Simon Johnson (he also thinks John Paulson should call a lawyer).

And Goldman's in serious, class-action lawsuit kind of trouble if this is
true:

Talk about Goldman not disclosing material information. I'm not talking
about Abacus here, I'm talking about the fact that Goldman knew as far back
as last September that the SEC was on the warpath with respect to Abacus,
and gave no hint to shareholders that there might be legal trouble afoot.
The WSJ has got its hands on — but, unforgivably, has not posted online — a
letter that Goldman Sachs sent to the SEC in September, claiming that the
Paulson's involvement in Abacus was not material … In fact, the SEC probe
dates back all the way to August 2008.
Anyone who did business with Goldman between August 2008 and last week has
reason to sue.

And what's more, this one deal is most certainly the beginning and not the
end. Thenewly vigorous SEC is actively investigating other mortgage deals.
Indeed, what they're pinning on Goldman in the Abacus deals could just as
easily be subscribed to the banks running the Magnetar deal, where that
hedge fund created CDOs on mortgage backed securities they believed would
fail.

Brad DeLong has a pretty helpful POV of the case as well. My gut feel is
that this has the potential to take down the firm, and they're going to have
to call in every chit they have around the world to avoid that.

© 2010 FireDogLake.com

***

http://www.nytimes.com/2010/04/20/world/asia/20reds.html?ref=world

Whiff of Rebellion Spreads in Thai Hinterland


By THOMAS FULLER
Published: April 19, 2010

KHON KAEN, THAILAND - The desiccated stubble of last year's rice crop pokes
through the red soil of Thailand's vast rice-growing hinterland in a flat,
lifeless panorama. This region has suffered through a harsh drought but is
anything but moribund - Isaan, as the region is known, is alive with
passionate political activism.

On this poor and rugged plateau, home to a third of Thailand's population,
farmers who say they were never interested in politics before are donating
the equivalent of hundreds of thousands of dollars, one small banknote at a
time, for the "red shirt" protest movement in Bangkok that has severely
weakened the government. In at least three northeastern cities, far from the
capital, red shirts are holding nightly rallies, sometimes drawing thousands
of people.

As in Bangkok, where red-shirted protesters are defiantly camping out in a
major commercial district, there is more than a whiff of insurrection in the
Thai hinterland.

At Red Station Radio, an anti-government FM station that operates from an
unmarked office here in the city of Khon Kaen, 450 kilometers, or 280 miles,
north of Bangkok, disc jockeys urge supporters to show up in their pickup
trucks or motorcycles to disrupt visits by senior government officials.
Earlier this month, they succeeded in driving away the transportation
minister, who was inaugurating a tunnel.

"Don't come here - that's the message," said Noi Tamrung, a D.J. at the
station. "We reject anyone from this government."

It is one measure of the depth of the crisis that Noi Tamrung is a full-time
police officer who campaigns against the government when he's off duty. (Noi
Tamrung is an on-air pseudonym; he would be fired if he used his real name,
he said.)

The anger and resentment in the Thai countryside began with the military
coup three and a half years ago that overthrew Thaksin Shinawatra, a
billionaire tycoon turned prime minister, who is seen in this region as the
first politician to have seriously addressed the concerns of the poor. Mr.
Thaksin's wealth and patronage network remain important drivers of the
protests, but the movement also appears to be taking on a more grass-roots
character, with farmers and villagers finding common cause and expressing a
new assertiveness and self-awareness.

The people of Thailand's northeastern plateau, ringed by the Mekong River,
speak dialects similar to the Lao and Cambodian languages and generally work
as farmers, manual laborers and factory workers. Today, the region, along
with the far north, is the core of the red-shirted movement, which is trying
to force the government of Prime Minister Abhisit Vejjajiva to step down.

The red shirts' rallying cry against "double standards" in Thai society -
the wealthy, the Bangkok elite and the top military brass break laws with
impunity, protest leaders say, while the poor are held to account - has
found fertile ground among farmers like Takum Srihangkod. Mr. Takum listens
to broadcasts of protests in Bangkok with a cheap Chinese-made radio he
tucks into his waistcloth, next to his slingshot.

"Abhisit doesn't want anything to do with poor people," Mr. Takum said as he
tended his cattle. Not even the most fundamental farm work interrupted the
stream of angry political rhetoric: Mr. Takum's radio stayed tuned as he
muscled out a newborn calf in a difficult birth.

Supporters of the government often portray the red shirts as a mob for hire,
mercenary protesters who receive a daily stipend. In a country with a long
tradition of vote buying, it seems likely that some protesters have received
support, possibly from their hero in exile, Mr. Thaksin. But villagers
bristle when asked whether they are being paid to protest. Local officials
and police officers describe a widespread fund-raising effort to support the
demonstrators in Bangkok.

(Click on http://www.nytimes.com/2010/04/20/world/asia/20reds.html?ref=world
for the full article.

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