Fraud, It’s Much Bigger Than Goldman Sachs

By Greg Hunter’s USAWatchdog.com 

Goldman Sachs was charged with fraud last week by the Securities and Exchange Commission.  The investment bank says the charges are “unfounded in law and fact.”  Regulators allege “Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party,” SEC Enforcement Director Robert Khuzami said in a statement.  In other words

, Goldman and a hedge fund client put together a ball of sub-prime crap designed to fail and bet against it.  Goldman also took out insurance on those same mortgage backed securities from AIG–yes, the same AIG taxpayers bailed out to the tune of $180 billion. Goldman was paid a total of nearly $13 billion from AIG at the direction of Treasury Secretary Tim Geithner.  What a mess and it is going to get much worse before it gets better.   

Plaintiff attorneys are preparing for a deluge of future lawsuits written about in this recent Reuters article: The SEC’s charges against Goldman are already stirring up investors who lost big on the CDOs, according to well-known plaintiffs lawyer Jake Zamansky.  “I’ve been contacted by Goldman customers to bring lawsuits to recover their losses,” Zamansky said. “It’s going to go way beyond ABACUS. (name of Goldman security in question) Regulators and plaintiffs’ lawyers are going to be looking at other deals, to what kind of conflicts Goldman has.”  (Click here for the full Reuters story.)   Also, the UK and German governments are asking for their own investigation into Goldman Sachs deals.   

If you think this was the only shady deal dreamed up by Wall Street banks, you have another thing coming.  All of the big banks have been selling securities called derivatives for at least two decades.  Derivatives are usually bundles of debt.  There are derivatives for mortgages, car loans, credit cards, student loans and all types of government debt, to name a few.  Derivatives are complex, but when it comes right down to it, you can sum them all up as debt bets.   

Derivatives are a $600 trillion market according to the Bank of International Settlements.  (Some say the BIS estimate of the derivatives market is actually more than $1,000 trillion!)  And here is the best part–derivatives are totally unregulated.  That means there are no standards, no guarantees and no public markets.  With no public market, there is no real way to price this kind of Wall Street alchemy.  You just have to trust the person selling the “security.”  Take the Goldman fraud case, for example.  If there was a public market, Goldman would have never been able to pack crap loans into a security and sell them.  The regulation and guarantees would not have allowed it.  After all, regulations, guarantees and a public market make selling derivatives a lot less profitable.  That’s why Wall Street has been fighting regulation of the derivatives market for years.   

Now, amplify this kind of Wild West market with all the big Wall Street banks and you get something so huge and so packed with junk that you have to suspend accounting rules to keep the system solvent.  That is what you have today.   I wrote about this in a post last year called “Can The Financial System Really Be Fixed?  Some Say No.” 

Famed investor Jim Sinclair (jsmineset.com) was setting off alarms about the massive problems derivatives can cause several years ago.  In 2005, he said, “What OTC derivatives do not do to International Investment Banks, litigation will.”  The Goldman fraud case is just the beginning of years of investor lawsuits against just about anyone dealing in the derivatives market.  So, when the news broke last Friday that Goldman was hit with fraud charges, all the big banks sold off. 

Without unregulated derivatives, we would not have had the financial meltdown, mortgage giants Fannie Mae and Freddie Mac would not have failed, and we would not have problems with Greek debt and other sovereign debt.  How can this $600 trillion dollar market be unwound?  So far, taxpayers and investors around the world have been picking up the tab.  Now it may be Wall Street’s turn to pony up some dough.  Don’t be surprised if some of them get taken down by their own toxic financial waste.

Comments
  1. erle

    All GOP Congressmen, Senators and their tea party lemmings are lined up publicly to fight ANY congressional legislative derivative reform. If the Mexican drug cartels gave as much money to our politicians as the the crooks on Wall Street do, our “Elected Official Whores” both Democrat and GOP would protect them too.

    • Greg

      Erle,
      Plenty og blame to go to both parties on this issue. Thank you for your comment.
      Greg

    • Jane

      What makes you think narco-trafickers don’t also fund our politicians? Continuing the war on drugs is EXTREMELY good for their profit margins.

      • Greg

        Jane,
        Interesting point. Nothing would surprise me now. Thank you mam.
        Greg Hunter

    • April D.

      I am a Tea Party supporter, but I say YES to financial reform! If someone sells you fire insurance, but they don’t have the money to pay you after your house burns, that would be FRAUD. But this is exactly what AIG did when it sold credit default swaps and could not pay out what it owed, and we need laws against it. Wake up people, and demand real laws to protect the American public!

      • Greg

        April,
        Agreed!!!!! Thank you.
        Greg

  2. George

    Greg,
    As I see, the only fraud greater than derivatives is Congressional accounting and the Federal Reserve.

    • Greg

      George,
      On target.
      Greg

  3. Stephen Clifton

    Greg,
    A lawyer friend of mine used that same tired excuse of, “if they didn’t bailout the banks it would have been much worse.” I chuckled and then replied that Goldman Sachs packaged these instruments, sold them then took out insurance policies from AIG to bet against them. When AIG failed and owed Goldman $13 billion they phoned their old friend Hank Paulson to engineer a bailout and used the media to sell it as “too big to fail”. He had no response. It’s sad that people just take what the mainstream media tells them without actually “following the money”.

    Stephen

    • Greg

      Stephen,
      I am sure it would have been worse for Wall Street but it would have been much cheaper to let the banks fail and just protect depositors. A Government estimate of the total cost stands at more than $23 trillion. That figure is just for America! I wrote a post called “Default Option” several months back and I still think we should have taken that path. It would have been rough but the dollar and credit rating of the U.S. would have stayed in tact but not now. Thank you for your comment.
      Greg

  4. chet z

    The more we learn of this, the messier it gets…

    We have all records. We can determine who did what/when. From the beginning of the deregulation in the 90′s to the collapse in ’08, we can determine who influenced who to do what and for what ‘reward’ (read as donation). We can follow the money trail to see where all went. These things are all on record somewhere.

    Then, if crimes are apparent, penalties should be applied generously! These are serious allegations.

    Why is it that no one will investigate this crime? We need work in the US. Perhaps we can start with an all-out investigation? It would take thousands of researchers to track it all down!

    Simultaneously, we need to take money out of politics. We should provide equal time/expenses for all Government candidates. After all, the press is a part of our commonwealth. Money corrupts.

    • Greg

      Chet,
      It will get much worse when the effect of money printing no longer works. I agree what is going on is criminal!! Thank you for taking the time to write.
      Greg

  5. J-dub

    Ejoying your website. Keep up the good work!

    • Greg

      J-Dub,
      Thank yopu for your support!
      Greg

  6. Larry S.

    How can any of this be a fraud when all the contracts were written to obtain profits in fraudulent fiat currency? If they wrote out contracts that allowed them to profit in Silver or Gold that would be an entirly different matter.

    All I see are groups of hustler’s trying to out hustle other hustler’s over the ownership rights and debt obligations of paper currencies. Which means their out running cons and creating all this fraud over nothing that has any value in the first place.

    Larry S.

    • Greg

      Larry,
      Good point.
      Greg

  7. Gary

    Bix Weir has stated that Warren Buffet is getting ready to join the litigation fun with Golman Sachs. This would be a game changer.

    • Greg

      Gary,
      If Buffet sues you can stick a fork in Goldman! I hope he does. Thank you for the heads up!
      Greg

  8. Frank T

    Your article is music to my ears. I’m so fed up with this corrupt system of collusion between Wall Street and Washington DC at the expense of the American taxpayer. This could be a wonderful country with a thriving economy — truly “a shining city on a hill”. Instead our elected and non elected “leaders” have sold their souls to the devils on Wall Street and turned the USA into a cesspool. Thank you, Mr. Hunter, for exposing what the mindless, cheerleading lamestream media will have to eventually report to the masses (albeit grudgingly).

    • Greg

      Frank,
      Thank you for your support.
      Greg

  9. Juan

    So we got the demons investgating the Devil ?? huh?

    • Greg

      Juan,
      Something like that. Thanks for weighing in.
      Greg

  10. paul maloney

    This appears to be only a civil suit currently. This is in my opinion smoke and mirrors for political reasons. Where is the judicial department in this matter. It all smells of corruption.

    • Greg

      Paul,
      I hope you are wrong but you may be right! Thanks.
      Greg

  11. OTE

    I want to make sure I understand this.

    It is all gambling. The financial houses are the house. They set up the game and make side bets on and off the table. The gamblers win and lose, but the house gets a cut of everything. The managers and individual dealers get a cut and some make side bets too.

    The questions become, “Where is the government in this inter-state gambling enterprise? Why is the IRS turning its eyes elsewhere if gambling proceeds are highly taxable? Most importantly, why are our politicians playing stupid when it was their campaign donors who were all sitting at the table or running the house?”

    Perhaps I’m just too ignorant to fully grasp the situation.

    • Greg

      OTE,
      This is a big mess and I wouldn’t be surprised if it all blew up someday. It almost did in 2008 and we could go all the way next time it happens and there will be a next time. Thank you for your point of view!
      Greg

  12. Jay

    Any kinda of accountability went out the window with the Bond Fiasco at GM.
    Rule of Law has become a FARCE
    Besides, what good is it to be paid in US Gov’t clown money that is worthless.
    Buy Silver and Lead.

    • Greg

      Jay,
      You are correct sir!
      Greg

  13. John

    Many problems start at the top. Audit the Fed.

    • Greg

      John,
      I am afraid an audit will not happen until it is too late.
      Greg

  14. Richard

    Greg,

    Great article. Looks to me like the cat is out of the bag. If the SEC was wanting to make an “example” out of Goldman Sachs, I believe it will go much farther then they intended and end up spinning out of control. It is like starting a camp fire. Easy to start, but how do you stop it when it gets out of the fire ring, lots of other things will burn at the same time. Seems like there was a better way to address the “fraud”. Assuming that “everyone” is doing it, the real question is what is going to be left after the fire is put out.

    • Greg

      Richard,
      I don’t think this is the only “Fraud” deal Goldman sold. Thank you for your insight.
      Greg

  15. Mark

    So, as I understand it, derivatives out there equal a QUADRILLION $$$$. Like 40 TIMES THE WORLD’S STOCK MARKET.
    10 TIMES the value of EVERY STOCK AND EVERY BOND ON THE PLANET.
    23 TIMES WORLD GDP.

    I’m putting 95% of my money into PHYSICAL gold and silver and the other 5% into brass and lead (and primers).

    • Greg

      Mark,
      You got it, we are in very big trouble. How do you unwind $600 trillion iin crap? Print money? When that stops working look out.
      Thank you.
      Greg

  16. BOB

    good work Greg, I just hope people wake up and make some plans for the BIG turn down.PEACE

  17. David

    seems to me that all this stock market serves is giving companys free money (interest free) to take their product’s and get more market share if they want to stay in the game,their ceo’s are rewarded with massof bonus that normally their salary would never provide,so they take their factorys overseas to produce profits throw the invester a crum or two and we lose our factorys in the process, so I blame the little guy for feeding these beast’s and destroying his own future.

    • Greg

      David,
      It is not just the little guy. It’s the big fat cat too. Thank you for the comment.
      greg

  18. Denny

    This really shouldnt be so suprising. Not to defend goldman or the derivatives market, but exactly what did the Gov expect when they forced the bank to make loans they new were likely to fail. No one should be suprised that they turned around and sold them off in bundles to large to check, so they didnt loose there butts due to Gov give aways. Of coarse they bet against them they were a loosers bet when the loan was first given. Wich is more evil the banks trying to protect themselves due to Gov interferance or the Gov that seems to interpose itself in the wrong place at every turn.

    • Greg

      Denny,
      It is a rigged game that the powers fought to keep rigged in their favor. If there was a publick market and Glass Steagall would not have been repealed we would not be in this gigantic mess. What do I expect? A fair game, not the bankster takeover of my government and country. You make some good points though!!
      Greg

  19. Frank T

    I happened to run across a site called “liberty tree quotes” about a month ago and couldn’t stop reading snippets of what our founding fathers said about the evils of a central bank and how three Presidents abolished it for fear it would turn the populace into debt slaves. Also, it provides great quotes by the Fed, essentially admitting it’s evil, and then there are quotes about banking in general that explain how they control government, which controls us for their benefit. It’s quite an education in 15 minutes or so, and the quotes are from famous people, for the most part. Interestingly, I’m well educated and never knew this stuff. I also now understand why public schools won’t touch this stuff. They would be breeding a cadre of revolutionaries if they did. In fact, Henry Ford said so. Bottom line, what’s happening today was predicted many years ago and it’s a shame so many Americans (including myself, until lately) know next to nothing about what’s really going on, the reasons why, and what’s likely to follow.

    • Greg

      Frank,
      Very good stuff!! Thank you from all “Dawg” readers!!!
      Greg

  20. David Conrad

    Greg,

    It’s slugs like Goldman Sachs that have gotten us into this mess. And they continue to make billions? I am an American and a capitalist; this sadly makes fodder for those screaming for socialism …. towards which we are now steadily marching.

    Keep up the good work you are doing, my friend.

    David Conrad

    • Greg

      David,
      Thank you for weighing in and the kind words!!
      Greg

  21. TJF

    People continue to be shocked at the collusion between Wall St. and DC. My thoughts are so-called financial “reform” if passed will be written by the banksters to their benefit. The banksters are spending over a million a day on lobbying efforts in DC and the 6 largest banks hold assets equal to 60% of our GDP. This entire financial mess has only served to make the big banks bigger and more entrenched in our government.

    I think we need to strike at the root of the problem and abolish the Fed. As long as we give the big banks the autority to control the quantity of our money we are doomed to live at their whims.

    • Greg

      TJF,
      You are right but it has never been this bad. Thank you for the comment.
      Greg

  22. Patriot Watch

    Great article as usual. When you pull weeds out of a garden you must pull the weed from the roots. The flower or top of the weed is main street. We do not have the discipline that our parents had. The stem or middle is Wall Street. They saw the seed being planted many moons ago and and decide that they would take advantage of what will soon be a sprout.

    The “root” is our government. That is where ALL this was started. The weed grew into Fannie & Freddie Mac sponsored, supported and backed by the Democratic Party. Oh NO the those conservatives have their hand in the til but liberals defended Fannie & Freddie waayyyyyy back in 1998.

    Yet some of these same liberals hold authority and cabinet positions in our government today. OBAMA promised us he would clean up WASHINGTON yet I still have to see FRANK FRANK FRANK, Dodd, Meikes, Waters, Feinstien?????????

    youtube democrats & mortgage

    • Greg

      Patriot,
      I like the way you think. Thank you for the comment!
      Greg

  23. BillyBobOchs

    The German people are angry at Merkel? They shouldn’t be angry with her or Greece. The object of their anger should be the banksters who pull Merkel’s strings and every other head of state in the Western world.

    • Greg

      BillyBobOchs,
      Very good point!
      Greg

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