Errr... it turns out Goldman Sachs (GS) is dirty. We all knew that, but seeing it printed in the Wall Street Journal (WSJ) brings it all to the light of day. As word spread, Goldman finally broke down.
Yves over at Naked Capitalism covers the recent revelations in Quelle Surpise! Who Gained From the AIG Rescues? Goldman (and Deutsche) Tops the List (and Willer Buiter is REALLY Angry!)
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9 comments:
Ben,
Goldman's days are numbered. They were peddling commodities, private equity, hedge funds, and all sorts of other "intricate" investments to pension funds.
The only reason they managed to survive the financial meltdown is because of their sleazy politician friends who fed them goodies.
The golden years of Goldman are over. The game is over.
cheers,
Leo
Ben,your commentary on the US$ Index would be most appreciated. The weekly chart shows potential divergences in the momentum indicators.
On April 2, there will be a G20summit in London where the US Dollar hegemony will be discussed with China, Europe and Russia calling for new design 4 world reserve currency with the US$ being one of four equals. The US will refuse of course.
The charts are leading into this event.
Josh
@Leo, nothing will happen to GS as long as Geithner is funneling tax payers money to them via AIG. Fire Geithner, and we may have failed GS, until then I wouldn't bet on it. He's easily willing to spend another $150 billions on the AIG hedge fund section.
Ben,
Some very interesting info on the CDS market from Josh Marshall at TPM-Talking Points Memo:
How the Rules Were Rigged
03.06.09 -- 12:22PM
By Josh Marshall
I'm sure the knowledgeable people already know this. But it turns out that one of the features of the 2005 Bankruptcy bill was to put derivative counter parties at the front of the line ahead of other creditors in bankruptcy proceedings. Actually, from what I can tell, they don't just go to the head of the line. They got to skip the line entirely. As the Financial Times noted last fall, "the 2005 changes made clear that certain derivatives and financial transactions were exempt from provisions in the bankruptcy code that freeze a failed company's assets until a court decides how to apportion them among creditors." As the article notes, ironically, this provision which Wall Street pushed for and got to protect investment banks actually ended up hastening the collapse of Lehman and Bear Stearns last year.
Down in the article there are also the mentions of the entertainingly named "International Swaps and Derivatives Association", one of the lobbies that helped get the change in place.
Along these lines, TPM Reader GG sent in this last night ...
Respectfully, you guys are totally misunderstanding something crucial in the AIG bailout: Derivatives claims are not stayed in bankruptcy. (Yet another brilliant innovation from the 2005 bankruptcy reform legislation.)
If AIG were to go down, derivatives counterparties would be able to seize cash/collateral while other creditors and claimants would have to stand by and wait. Depending on how aggressive the insurance regulators in the hundreds of jurisdictions AIG operates have been, the subsidiaries might or might not have enough cash to stay afloat. If policyholders at AIG and other insurance companies started to cancel/cash in policies, there would definitely not be enough cash to pay them. Insurers would be forced to liquidate portfolios of equities and bonds into a collapsing market.
In other words, I don't think the fear was so much about the counterparties as about the smoking heap of rubble they would leave in their wake.
Additionally, naming AIG's counterparties without knowing/naming those counterparties' counterparties and clients would be at best useless, and very likely dangerous. Let's say Geithner acknowledges that Big French Bank is a significant AIG counterparty. (Likely, but I have no direct knowledge.) BFB then issues a statement confirming this, but stating it was structuring deals for its clients, who bear all the risk on the deals, and who it can't name due to confidentiality clauses. Since everyone knows BFB specialized in setting up derivatives transactions for state-affiliated banks in Central and Eastern Europe, these already wobbly institutions start to face runs. In some cases this leads to actual riots in the streets, especially since the governments there don't have the reserves to help out. If you're Tim Geithner, do you risk it? Or do you grit your teeth and let a bunch of senators call you a scumbag for a few more hours?
I'd be curious to hear what other knowledgeable readers think about this. But separate from the immediate financial implications related to AIG, it does point us toward the larger political economy point: the self-reinforcing cycle in which financialization leads to vast sums of money concentrated in the hands of paper-jobbers, who then mobilize that money in Washington to rewrite the laws to privilege them for even greater profits.
A final question, I'd be curious to hear from people who work in this space what even the notional rationale would be for having derivative counter parties able to skip the line in a bankruptcy proceeding.
SS
Just want to let you know, stocks could SKYROCKET after March 12th:
http://www.cnbc.com/id/29549920
i appreciate bens' and the other authors which i read, for their hard work bringing the facts to us. it is quite apparent that the thievery of the united states will not end. it's a fact. nothing is being done. nothing at all. this country is being looted right before our eyes like a third world banana republic. there is no one out there that can say to me that it's not being done and that i am wrong. i will short this market to death when the charts tell me to and i will continue to short this pig of a lie till there is no breath left inside it. it's a shame the people of this country have turned so lazy and complacent towards this behavior. the two page picture in time magazine depicted the million strong crowd for obama's inauguration. great. it now should show a million people at night with torches demanding our country back. arnold
one more thing. this country will enter the worst depression ever, it will be completely looted by the criminals of the government, banking system etc. and the american people will not wake up to it till they are smacked squarely in the forehead with a two by four. i'm sick of this.
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