Is the SEC Settlement Really a Win for Goldman?

By Tom Adams, an attorney and former monoline executive and Yves Smith

A common fallacy is to assume that situations are polar: win/lose, black/white, hot/cold, heads/tails. But more often, given A, “not A” is not the opposite of A.

Conventional wisdom in the financial media is that the settlement announced by the SEC over its lawsuit on a Goldman 2007 Abacus CDO is a home run for Goldman. But a closer reading suggests that Goldman’s victory is qualified, and the enthusiastic press response is in large measure due to the firm’s skillful manipulation of perceptions.

Goldman wins because they managed expectations effectively (it was only $550 million, not $1 or $2 billion bandied about) and because the SEC didn’t hit them with something more severe, such as a multi-year ban from the sector. However, Goldman’s settlement appears to be a loss for CDO banks and issuers and a potential gain for investors and plaintiffs in future actions. In fact, it is hard to see how anything in the settlement, if affirmed, would be negative for private parties considering lawsuits against sellers of CDOs.

As a close observer of the cases and allegations made regarding problem CDOs, we imagine potential CDO investors will be mightily encouraged that Goldman ended up returning the full amount of investment to the one true third party investor in the deal – IKB. While Goldman was permitted to say that they did not admit any wrong doing, the settlement amounted to the same thing: they made inaccurate statements, which were misleading and led to losses for the investor. These losses were refunded in full by Goldman presumably because the inaccurate statements were material. In addition, from the perspective of the investor, Goldman effectively paid punitive damages, in the amount of $300 million (the amount in excess of the damages awarded to IKB and RBS/ABN).

Remember, this case was always going to be a settlement, only the terms were up for discussion. In the range of possible outcomes, this settlement came out tilted against Goldman. Many observers of the SEC’s complaint against Goldman argued the case was weak: Goldman had no duty to disclose Paulson’s role (after all, he was a nobody, “everyone” knew the other side of the deal was a short, and so on). However, in the settlement agreement, Goldman concedes that it was a “mistake” not to disclose Paulson’s role in selecting the bonds and that Paulson’s interests were adverse to the investors. This would seem to imply that the SEC’s case was solid and that they played their cards well.

An investor considering bringing an action against a bank that sold them a CDO that failed (meaning virtually all 2006 and 2007 “mezzanine” CDOs) would probably be encouraged that a bank was required to pay such a large amount for making inaccurate statements about the true nature of the CDO.

1. While Goldman didn’t “admit guilt”, they said their statements misled Investors and caused them to lose money. Since Goldman’s pitchbook and offering document were completely normal for the market, many other deals likely fit in this category. Even if the SEC doesn’t bring more claims, litigants in private claims now have evidence that (a) Goldman will pay on CDOs for misstatements and (b) Goldman has admitted its misstatements misled Investors enough for Goldman to repay them in full (or pretty close).

2. The two remaining long Investors in the deal were in large measure paid back. IKB was reimbursed in full. RBS recouped a large portion of its share, since they stood in for ACA, who probably paid some amount and against whom ABN/RBS certainly had CDS protection.

So if Goldman was willing basically to fully reimburse Investors for their loss, disgorge all of their profits and pay effectively punitive damages for this “weak case”, that seems to be a decent indicator for future actions. Plaintiffs who sue CDO sellers have good reason to be optimistic. If they believe they have a reasonable argument that they were misled in the selling process. The Goldman example suggests they can push for and win major damages.

Private litigants now have good reason to hope that banks that misled them in a material way that produced losses can be pressed to reimburse those costs.

3. Goldman escaped a fraud judgment, but will now be known as the bank that paid the largest SEC penalty ever. As stated earlier, Goldman was always going to settle. They settled paying off most investor losses, admitting misleading Investors and setting a new record. Not so good for Lloyd Blankfein.

4. All the analysis in the world won’t matter if the deal seller makes materially inaccurate statements to an investor when he asks questions and does diligence. Goldman was not forced to admit they committed fraud but they admitted they make inaccurate disclosure and, by their actions (paying large amounts of money to the investors), Goldman conceded that the inaccurate disclosure was a cause of the investor losses. This stands in stark contrast to its claims in April when the SEC filed its lawsuit:

We believe the SEC’s allegations to be completely unfounded both in law and fact, and will vigorously contest this action.

• The core of the SEC’s case is based on the view that one of our employees misled these two professional investors by failing to disclose the role of another market participant in the transaction, namely Paulson & Co., and that the employee thereby orchestrated the creation of materially defective offering materials for which the firm bears responsibility.

• Goldman Sachs would never condone one of its employees misleading anyone, certainly not investors, counterparties or clients. We take our responsibilities as a financial intermediary very seriously and believe that integrity is at the heart of everything that we do.

• Were there ever to emerge credible evidence that such behavior indeed occurred here, we would be the first to condemn it and to take all appropriate actions.

• This particular transaction has been the subject of SEC examination and review for over eighteen months. Based on all that we have learned, we believe that the firm’s actions were entirely appropriate, and will take all steps necessary to defend the firm and its reputation by making the true facts known.

Paulson, by implication, earned his money on the ACA trade thanks to Goldman’s misrepresentations, rather than his shrewdness. The settlement thus tarnishes the popular myth that the subprime shorts were insightful outsiders who executed “the greatest trade ever”. Paulson’s purported $1 billion in profits from this ACA deal depended, in part, upon inaccurate statements made by Goldman for his benefit. In effect, Paulson’s gain cost Goldman $550 million while the parties on the other side of Paulson’s trade (the ones that are still around, since ACA is defunct) got most of their money back. This implies that had Goldman not made the inaccurate disclosure about the deal, the investors might not have bought the bonds and Paulson would not have made such a killing. The settlement does nothing to discourage the notion that other CDO transactions had similar inaccuracies which resulted in ill-gotten gains for the shorts and unwarranted losses for the long investors.

The reason this is good news for Goldman is that they didn’t end up with exposure for fraud or much larger monetary penalties, which could have been devastating. Despite the tough talk by Senator Levin and others at the Senate hearings earlier this year, investigators haven’t found the smoking gun for outright fraud.

But the SEC has opened the door to further inquiries into the CDO-selling business. Other investors in blown up CDOs may now be emboldened to go after Goldman and other manufacturers of CDOs. Goldman has conceded that, on this Abacus transaction, they used inaccurate statements in the offering documents to sell the CDO. With this settlement, the SEC has demonstrated that investors in such a CDO can win a recovery as a result of such inaccurate statements.

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37 comments

  1. Richard Smith

    So the SEC are leaving it to the private sector? It will be interesting to see how how much more litigation now gets started.

    If there are lots more lawsuits, my side bet is that AIG (which played roughly the role of ACA in many more deals) will be an increasingly conspicuous absentee.

  2. attempter

    I guess from the reformist point of view there’ll be endless argument over whether or not this is a win for Goldman.

    From the point of view of taking back our country from these gangsters, the only question is whether or not this was a significant step toward the complete destruction of Goldman and all casino banking.

    It sure seems not to be. On the contrary, the “best” case scenario seems to be that gamblers outside the bank hope the settlement will circumscribe the way Goldman can rig the game to their disfavor going forward.

    But the game itself, which is purely destructive from any broader point of view, is to continue in its full ferocity.

    Indeed, if the perception here is that the game will be “less rigged” vs. the client gamblers, then the settlement is a retrograde step, since one of the few good trends we’ve been seeing is the growing realization that Goldman’s a criminal against everyone including its own clients.

    So anything that seems to improve the position of the clients is bad for the American people. From our point of view, it would’ve been better if the settlement had been more obviously a whitewash. Or if Goldman had fought all the way and won. This kind of insidiousness is always worse.

    I agree that the corporate media will do all they can to spin this as a win for everyone. The SEC (Obama) got tough; “investors” will be better protected; but Goldman is also vindicated on the worst charges; and implicitly the casino is now in better shape, and the American people should have more confidence in it going forward.

    We have to fight that propaganda.

    1. ben there done that

      Attempter – I agree with you that we have to fight the propaganda. Nobody won on this one.

      But, propaganda aside, I do think this settlement will have some modestly positive outcomes. There will be no pound of flesh but I predict there will be a (temporary) change in behavior because a new level of acceptability and accountability has been rendered. Just like your basic ole criminals, there will always be a bad lot and those too brazen or too stupid to get on the deterrent bandwagon. So as long as everybody plays fair for 3 years……….
      That gives the brazen a couple of years to figure out how to come up with the next innovation!

    2. Sgetz99

      Attempter,

      I agree overall w/ your statement but the other clearly indicates its up to private attorneys to bring subsequent suits and use this precedent favorably. I’m an attny but not a securities one, I don’t think you can use a settlement agreement as precedent but it does have a jurisprudential effect nonetheless.

      What the author also acknowledges is that this was ALWAYS going to be a settlement. Thats a highly disappointing truth to acknowledge. Big finance and no one bigger than goldman have great great influence on congress and regulatory bodies like the SEC. The only way for the fed gov to go after these guys if for a sustained a public outcry to hold their feet to the fire. Congress/pres have no interest in going after big finance as they finance their elections. As thats unlikely to happen, private attnys will go after these predatory capitalists and that will be the only reckoning. Which now leads us to wallstreets other defender, all the judiciary appointments to fed and appellate benches by Bush that will no doubt be very unfriendly to these suits being brought. Ugh, I hope the SEC does get more of an enforcement bend. i guess we just have to keep pressure on the goldmans.

    1. Neil D

      Answer? Like every gambler, they alway believe they can beat the house and in this case, they almost always can because the “house” is the taxpaying public.

    2. Sgetz99

      Neil,

      Exactly, what investor would purchase anything sponsored by Goldman or their ilk? They offer products to clients as a mechanism to create the other side of a favorable trade for themselves or their friends at the expense of the client. You would think self interest enlightened by this settlement alone would cause goldman to be scorned.

  3. K Ackermann

    I feel a little better after reading this. It’s something I hadn’t really considered.

  4. Richard Kline

    I have long felt that the best odds for tipping the zombie banks onto the the slope down tot he fire pit lie not with any branch of government but in the courts. The gears grind slow there, but once they snag on material facts they can snack off falsehood from fact. Also in the courts, the public via the media gets to see actual victims and actual practices, unlike in legislatures where one witnesses hirelings spinjacking with bloviators; the public just doesn’t get exercised about the sausage of law.

    More yegss in the docket, that’s the ticket. Sez I. (Before motoring off for a vacation far, far away from the most of it all for a few days. I love a northern summer.)

  5. ben there done that

    The fundamental difference in this case was the outright misrepresentation by the disclosure party, Goldman, that ACA selected the assets. That is the only fact that matters in this case and Goldman was made to pay.

    It is easy and tempting to get hung up on the ins and outs of complex CDO transactions, but at the heart of all good and successful litigation is a simple fact that cannot be denied. Perhaps to bring it home and slap Goldman around a little bit more, the SEC in the Consent precludes Goldman from arguing that it did not violate the federal securities laws as alleged in the Complaint (see para 6). Yes they also had to admit a “mistake” but they also are basically estopped from arguing they settled for the mere convenience of being done with it.

    As for other potential loss claims by Investors in other CDOs, I am not convinced that this case opens the door any wider than it has always been. You basically cannot knowingly lie/misrepresent the material terms of a deal. Nothing new here. There will be a few more cases that emerge but not because the Goldman settlement reached too far. The settlement finally reached far enough.

  6. lambert strether

    So, the settlement is a win for the public because the government gave them ammo for their own law suits?

    Sounds like another bank shot from The Big O to me. Once, just once, it would be nice to see the administration go in for the kill on something, instead of “nudge,” “nudge,” “nudge.”

    And no CEOs in orange jumpsuits doing the perp walk for accounting control fraud? Total win for Goldman.

  7. Siggy

    Goldman lost the day the suit was brought. This settlement is loss mitigation. Goldman is will continue to have problems for some time.

    For the SEC, this settlement is an, ‘it’s about time moment’.

  8. lambert strether

    Randall Wray:

    Goldman Sachs was fined $550 Million for duping customers. We do not need to recap the charges in detail. Goldman helped hedge fund manager John Paulson pick toxic waste sure to go bad for collateralized debt obligations (CDOs) that Goldman would sell to its own patsy clients. Goldman and Paulson then bet against the clients. Since Paulson had picked “assets” guaranteed to go bad, it was a sure bet that Paulson and Goldman would win and that Goldman’s clients would lose. Oh, and by the way, although Goldman let Paulson meet the patsies, Goldman never told the patsies that Paulson arranged the deals and would win when they failed. Business as usual on Wall Street. In the SEC’s settlement, Goldman agreed that this was “incomplete information”—ie the patsies might have liked to know that Goldman and Paulson worked together to ensure the bets were rigged and the patsies would lose. Duh. For Goldman it was a tiny slap on the wrist—it still controls the Obama administration, with its moles, Timmy Geithner and Larry Summers still in charge of fiscal policy, thus prepared to funnel whatever money is necessary to prop up their firm—and the fine amounts to just 14 days of Goldman’s earnings. Time to celebrate—which Goldman did, as its stock rallied on the news that it had been found to have screwed its customers. Is there a better reason to party?

    So, Is the SEC Settlement Really a Win for Goldman?

    Simple answers to simple questions:

    Yes.

    1. Doug Terpstra

      Surely it was a rhetorical question, Lambert.

      Ah, but nothing “in the settlement … would be negative for private parties considering lawsuits against sellers of CDOs.”

      The good news: there will be maximum employment in legal services and future employment for SEC collaborators, but sadly, little for the productive economy, the Main St commonwealth, or wealth creation overall. Parasitism* in society thus remains undiminished, and the corrupt system undaunted. Godman Blankfein shrugs off the cost-of-business fine representing a fraction of taxpayer-funded bonuses (14 days earnings?), while GS stock soars and he and the lawyers laugh all the way to the Treasury vault.

      (*Apologies to bloodsucking leeches, vampires, and eels.)

      1. Sgetz99

        Terpstra,

        in defense, as an attorney, when the gov abdicates it regulatory role, which its done for decades, the only parties who enforce public policies against predation and negligence on the consuming public are private attnys. whether it be securities fraud or dangerous drugs or product liability the gov does little to protect people from industry. I tried to get a job w/ the SEC in the enforcement division and 5 yrs ago they had no interest in a litigation attny w/ a background in econ and financial industry. Why, because they really don’t want enforce securitires law. Its up to the private attnys to enforce the law to make the goldman’s hemorrage so much cash and drag their rep through the mud that they act honorably or go out of biz. Fact is, we’re your only hope.

  9. jdmckay

    I’d remind Merrill paid some hefty fines to Spitz a few years ago, while “admitting no wrongdoing”. Not only did it not slow them down, they accelerated while driving through that little loophole, pretty much to their demise (w/out fed arm twisting for their BofA bailout).

    Given the scope of what happened w/these things (CDO’s), personally, I find this ongoing SEC practice of extracting a pound of flesh while allowing said company to “admit no wrongdoing” more or less erodes a proper acknowledgment of the practice-in-question’s disrepute.

  10. Jackrabbit

    Other interesting things about this settlement:

    1) The SEC can still go after the Fabrice. What might they dig up about Goldman or others?

    2) Goldman has a permanent injunction. They will not be able to plead to a simple “mistake” again.

  11. Blurtman

    Can someone please exp0lain why Goldman Sachs is allowed to register as a bank holding company? I understand the benefits to GS, but why was this allowed?

    1. attempter

      Allowed? Bush/Paulsen/Bernanke wanted to rescue them. Bail them out. There was never even any ambivalence there, let alone repugnancy.

      Indeed I’d bet it was simple disaster capitalism, the administration seizing the opportunity to let Goldman help itself to cheap public money, something they’d always wanted to do but felt they’d have trouble justifying in the absence of a crisis to shock everyone.

    2. Sgetz99

      attempter is right and the fed reserve exists to help the banks and big financial operators not stabilize the monetary supply. Geitner summers are borne from financial industries and are students and holdovers of clintonian rubinitess who championed the futures modernization act and final death blow to glass stegal with the citi merger. they are dedicated supply siders. congress and pres are beholden to big finance. politics is the shadow cast over society by big business. thats why we all should support vocally keeping elizabeth warren in the mix, she’s the only one who has spoken truth to power. Barnie frank and bernie sanders are too embattled in congress to be but a minority voices from the bottom of the well.

  12. Tao Jonesing

    All of Wall Street won the moment the SEC brought its civil fraud lawsuit against Goldman Sachs precisely because it signalled the beginning of the end of any government investigation into the fraud that brought our economy to its knees.

    I have little doubt that anybody with subpoena power and an inclination to look for evidence of crimes on Wall Street, and at Goldman Sachs in particular, would be overwhelmed by the volume of crimes that could be documented. Think about it. What happened this time was the S&L scandal writ large (yes, there are big differences, but control fraud remains at the heart of everything), and Bill Black and his people brought hundreds if not thousands of criminal prosecutions.

    Instead, Obama stuck to embracing the soft bigotry of low expectations of what he can achieve politically, striking at the capillaries of Wall Street. To remind everyone, Obama’s playbook is always to (1)talk big, (2) compromise significantly in the opening bid, and (3) declare victory when he accepts a final result that does not meet or even defeats the objectives he laid out when he was talking big.

    The GS civil lawsuit was the compromised opening bid. The settlement is the “final result.” We’re done with investigating Wall Street. So who won?

    1. Doug Terpstra

      You nailed it. Wall Street won big. But, as Adams notes, don’t forget the lawyers; corporate and trial lawyers win big too. Obama takes care of his investors all around.

    2. newsfrombelow

      nicely stated about obama’s approach: talk big, make the first step backward in the negotiations, then settle for even less, then brag about the results….what was left missing in this comment on obama and financial reform is how
      your “opposition” in the other political party complains that you are “over-regulating” the private sector and hence undermining efficiency and economic investment in growth etc…the beauty of washington is how the media presents both sides as being honest in their depiction of reality, when both dems and repubs are habitual liars, the dems say they are really cracking down on the bad capitalist criminals and thieves, and the repubs complaining they are only trying to protect the greatness of a free market system. in truth, this is a dance between two severely compromised corporatist party elites….the difference is the dems fear their base which wants serious reform, the repubs embrace their base, which truly believes in the alan greenspan view of the magical marketplace.

  13. cdosquared5

    “Paulson, by implication, earned his money on the ACA trade thanks to Goldman’s misrepresentations, rather than his shrewdness. . . Paulson’s purported $1 billion in profits from this ACA deal depended, in part, upon inaccurate statements made by Goldman for his benefit”

    this is ludicrous. These two statements are inconsistent simply on face value. He “earned” , without any qualifier like “some” , yet that the profits from the ACA deal were only “in part” due to inaccurate Goldman statements.

    What were the total profits of Paulson sponsored funds in 2008 and what % of this does Abacus represent? Any idea the difference in performance between the ultimate Abacus reference portfolio and the initial ACA suggested portfolio or mezz subprime generally of that vintage? Think it took any discipline from Paulson to hold out until max pain when he covered his shorts? How about piecing together that the next trade after subprime was to buy cds on broker-dealers – – any shrewdness involved there? Or did the Goldman prop desk tell him and only him about margins calls on Bear and Lehman?

    Have at least a modicum of intellectual integrity and rigor so you don’t look like a completely politicized hack. go F yourself.

    1. Tao Jonesing

      @cdosquared5,

      There’s no need for ad hominem attacks.

      Turning to Paulson, the fact that there are risks and shrewdness involved in cheating doesn’t mean that it isn’t cheating if you pull it off. Imagine the discipline it takes to take that ace from up your sleeve in front of everybody at the table. You have to do it at just the right time when nobody is looking. It requires nerves of steel and shrewd judgment.

      Intellectual integrity is one thing. Morality is another. Tom’s analysis displays both. Cheating is not okay if you get away with it simply because it’s “hard” work that requires being smart.

      1. cdosquared5

        Any idea the difference in performance between the ultimate Abacus reference portfolio and the initial ACA suggested portfolio or mezz subprime generally of that vintage?

        1. ben there done that

          I posted many months ago and am paraphrasing here but cdosquared5 practically makes the case for me.

          A common tactic by structurers and traders was and still is to berate those who legitimately and perceptively question how a deal is done and what economic outcome is desired for each party. Somehow, they ended up believing they were the only ones who understood the complexity and intellectual rigor required to mastermind such an innovative and risk-adjusted product. Well, they ended up believing it because the cash register just kept going ca-ching. The man with the gold ruled. Well, nice job guys, you spoiled it for all the rest of us.

          By the way, I hope you don’t seriously think that someone who can sweat out a tough trade merits sympathy, respect or adoration.

          with love,

        2. Tao Jonesing

          You’ve changed the topic twice now. First, you went ballistic over a throw away line about Paulson’s unsavory behavior. Now, you try to pull us back once again as to the actual performance of the Abacus reference portfolio, which is irrelevant to whether Paulson and GS attempted to cheat the system.

          Again, the fact that it is sometimes difficult to cheat and get away with it doesn’t make it something other than cheating.

          The facts laid out in the complaint show a clear intent to mislead by ommission and misdirection in order to gain an unfair advantage, i.e., to cheat. Well, as Justice Scalia once said in an opinion regarding a criminal case, quoting the Bible, “The wicked flee when no man pursueth: but the righteous are bold as a lion.” If Paulson and GS were righteous, they would have been above board with everybody. They weren’t righteous because they knew they were wicked, they furtively hid Paulson’s involvement for some reason, right? The only reason that comes to mind is because they thought it would matter to the purchasers, that they might not have made the sale.

          It is sad that Wall Street breeds and attracts sociopaths with no sense of right and wrong. The fact that you might get away with doing the wrong thing does not make it the right thing. Likewise, the fact that successfully doing the wrong thing is hard does not make it the right thing.

  14. readerOfTeaLeaves

    Random observation: this covers Goldman’s refusal to come clean, reliance on secrecy, and apparent sleazy conduct, no matter what the lawyers and pr spinners want to claim.

    I happened to click on over to the UK Guardian, where, lo and behold they are live-blogging Apple’s CEO Steve Jobs answering questions about problems with the iPhone, and how Apple plans to address the problem: http://www.guardian.co.uk/technology/blog/2010/jul/16/apple-iphone-4-press-conference

    Personally, I can’t even imagine Lloyd Blankfein saying anything remotely like this:

    7.02pm: Jobs: “We were stunned and upset and embarrassed by the Consumer Reports stuff that came out this week, but we didn’t need that to tell us to take care of our customers.

    “If we’d have done this [press conference] a week and a half ago, we wouldn’t have had half the data that we shared with you today.”

    Not to say that Apple doesn’t have secrets, or encounter problems.
    But the contrast between Goldman’s adament denial and appearance of sanctity in both FCIC and Senate hearings is a stupifying contrast with the way Apple is approaching a problem with its customers.

    I realize that Apple isn’t in finance and (arguably) GS doesn’t make software. But on a human level, Apple’s showing a lot more guts.

  15. MichaelC

    Excellent analysis, and glad to see Barry Ritholz at the Big Picture (http://www.ritholtz.com/blog/2010/07/who-steered-you-wrong-about-the-goldman-sachs-case/)
    points out that your takeaways need to be read in tandem with his equally good summary.

    (And you both must have gotten it right since Tavakoli, in comments on Barry’s site, tags along)

    Seriously though, this is a watershed event. It may not be perfect but I think the SEC deserves kudos for picking the perfect target and the perfect charge. They are persuing other big fish, each is a poster child for the investigation assigned to it. I’m encourgaged progress is being made. The masks have slipped a little too much on the faces of the IBs and they are running scared, (to a point) despite all their bluster, and MSM fawning.

    And oh yeah, here’s a pat on the back for the continuing coverage here. No doubt it was a factor in getting to this point.

  16. Booer

    [Quote]…”the SEC didn’t hit them with something more severe, such as a multi-year ban from the sector. However, Goldman’s settlement appears to be a loss for CDO banks and issuers and a potential gain for investors and plaintiffs in future actions. In fact, it is hard to see how anything in the settlement, if affirmed, would be negative for private parties considering lawsuits against sellers of CDOs.”[/Quote]

    It would have been better had GS been given a multi-year ban and that all parties involved were recommended for public censure (in the least). That would have been a true victory for the SEC and one not subject to the usual BS or petty manipulations in language.

    The SEC collected a lot of evidence and information, about other cases than ABACUS that were managed by this department inside Goldman Sachs Group, and or other departments. ABACUS was a cookie-cutter type activity that was being replicated. There were variations and different levels of severity of the fraud or omission; this one ABACUS-labeled-product happened to have a misleading cover page or promotional materials whereas others than Fabrice may have relied upon verbal deceptions. The end result was the same to misguide “knowledgeable” buyers. This is sometimes called Fraud in the Inducement.

    I express genuine concern similar gambits or exactly identical activities occurred under different names, involving different “talent” or securities brokers, under the similar overseers and likely involved different outside third party hedge fund personalities.

    This settlement does not go far enough because a lot of other evidence, involving Goldman is being held down or concealed, trying to “save” Goldman further pr-damage, heart ache and loss to its reputation. No offense to Jesuit or Catholics believers, but if GS was a Muslim financier, the SEC would surely horse-collar and drag the firm down – suspend or ban the company from activity in U.S. markets, and we would be reading the media rally around it, denouncing the firm and its bad faith practices in U.S. markets – fomenting false demand in real estate markets and oil trading. The firm would not have been spared, but rather would have been seized and investigated by the CIA, Department of Justice, Homeland Security and FBI jointly. As it is these many bad faith practices during a war time economy are kosher.

    Take note of the feeder-activity. This is where lending standards are reduced in order to feed Wall Streets appetite for brokering the loans in securitization markets.

    When supply ran dry and demand was still being measured and fomented by Wall Street, the lending standards mysterious went lower and lower. At the same time, to incorporate many of these bad loans into the bundles created by firms like Goldman Sachs Group and Morgan Stanley, Lehman and JPMorgan – rating agencies were corrupted in parallel fashion. …There was no other way for corrupt firms like GS to include these bad sub-prime loans, unless the ratings agencies played a key role.

    So to feed demand, Wall Street and Goldman too, ushered in a time of reduced lending standards, encouraged same an propped up the demand for these instruments with bad loans and paper it knew would be eventually “insured” by AIG and then backstopped by the U.S. government, FDIC or Treasury.

    They even compromised and sabotaged John Snow’s tour at Treasury, along side the compromise in lending standards and assuring ratings agencies were corrupt. This opened the door for Henry Paulson who then was in a position to MAKE sure the bad faith deceptions and falsified triple AAA ratings would be insured or taken into the Treasury, FDIC or Federal reserve.

    Make no mistake: Goldman was operating in a black-operational business model. This was as black as any enemy of the United States could have been if it was allowed to do business here in the United States, while the country was at war no less.

    The SEC has all the leverage in the world, and could have stacked many more instances of ABACUS-like activity, like boxes, one after another to show the pattern abuse and patterns, multi-layers of fraud. This “stacking” of many counts would have set the SEC Enforcer as a tower on top of all executives and the CEO and CFO of Goldman. He would have had so much leverage they could be made to shine his shoes and kiss his hand.

    Goldman Sachs – powned.

    And a menace to society removed once and for all.

    If the lead chair really wanted to serve out a correct measure of deterrent, she or he would have pressed further to get more concessions.

    I saw an interview with Chris Whalen on tech ticker (financedotyahoo) and he half jokingly said he would have gone for another zero. ($5,550,000,000.00 five point five billion instead of 550m). This was said lightly and was not meant to tarnish the efforts of the SEC, but Whalen is right here. And this is why:

    The feeder-activity and compromise occurring in the background, in efforts to get Goldman Sachs fed with steady stream of bad loans to bundle and securitize with good. There is a “menace to society” factor, in creating hardships for people, generally, other than direct victims of ABACUS.

    There was a reduction in lending standards that started and accelerated in 2004-2006; this goes to the background of ABACUS products. By the time the voodoo-loans were harvested by large brokerage firms, the turpitude and ill effects to society (of feverish lending) was being reduced, marginalized and converted into a high-brow brokerage fee with false-prestige given to firms like GS, for having sold the voodoo-chile-mix, for the best margin over cost (price mark-up). What I heard in an interview recently, Tavakoli imply was the “pride of wall street or pride in the history” and other BS because if the firms really had pride in their history they would not have been encouraging the reduction in lending standards during a war time economy, in order to feed the ABACUS-alike activity nor foment a real estate boom with demand for partially falsified product. Goldman knew would the reduced lending and foment in demand, would result in a bust, because they installed Paulson in Treasury for the sole purpose of offloading its bad loan portfolio on people who did not sign for those loans, nor speculate in real estate (the other 68 to 86 percent of Americans New York media is shy to write about – did not speculate in real estate – PERIOD – DID NOT).

    Dramatic reduction in lending standards did occur, in the same period on a time line as when ratings agencies where corrupted. Some ratings agencies were sold and repurchased to help shelter or possibly conceal the corruption and make important documents more difficult to obtain. But it cannot be denied the two affronts in lending and ratings agencies were simultaneous. This again goes to background feeding ABACUS its core-essential product.

    This background is better emphasized and FULLY denounced by a larger agency such as the SEC or Justice Department. Many public and some private corporations may not be willing to focus their resources to expose the severity and detriment to society overall (and even if they did, it would not get as much media as it would if properly developed by the SEC – in conjunction with the Department of Justice).

    From the Mission Statement of the SEC:
    “Mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly and efficient markets… The SEC oversees the key (emphasis added) participants in the securities world, including securities exchanges, securities brokers and dealers, investment advisors, and mutual funds. Here the SEC is concerned primarily with promoting the disclosure of important market-related information, maintaining fair dealing, and protecting against fraud.”

    The SEC in this settlement is actually NOT going far enough in its mission to protect the markets and hold key market makers who perpetrate egregious layers of fraud, accountable.

    The fomenting or frenzy of bad lending standards, to feed bad loans up to Wall Street’s largest banks, does qualify as “important market-related information … toward maintaining a fair market environment and protecting folks against high market frauds.” (and the burden such frauds impose on the greater society).

    It would not hurt the reputation of the SEC to further develop this background in this case dealing with Goldman, exclusively or for the purpose of handing off this part (knowledge and evidence of feeder activity) to the Department of Justice or to the U.S. Attorney General’s Office, for criminal prosecutions (prosecuting beneficiary firms of the feeding-crazed-activity, bad-loans placating the appetite of high securitization markets and executives who are shown in the ABACUS case to have turned lemons into “complex financial products” that were falsely presented to buyers for a premium triple AAA rated fee).

    In conclusion, I am concerned the SEC has a tether on its enforcer. The SEC should be swinging an aluminum plated bat, so the public does not have to.

    Think about it, who would financiers in Wall Street rather have with a bat in their hands. The SEC or the public filled with indignation over this back ground activity?

    The SEC needs to turn its Enforcer loose. He looks like he could make a much stronger case and I am left amazed and dumbfounded he would come up so short as if GS is short-selling and making side bets against his competence and workmanship.

    The guy looks like a powerful prosecutor. He should be let out further and allowed to crush the mouth of Goldman as they are smiling all the way to the back and mixing words in the media to make it out like they are “victors”

    Let Tavakoli take a full swing when he comes up to the plate. I vote one in support remove from him the ties that restrain him and let him smash the bigger vermin which is GS.

    A true menace to society – during a war time economy. They should be given no quarter!! Put Henry Paulson in prison for his high up treason, sedition and fraud.

    = = = =

    End note: figure of speech with the bat. Lets not condone violence against bad faith operators. Prison is reserved for such as these.

    It is more at the metaphor the President uses to describe “athleticism” of high-market manipulators and fraudulent actors whom he apparently adores like his baseball players. (Poor Obama did not have a father figure and mistakes purveyors of fraud as his “athletic” role model.)

  17. Brooer

    End note: Lets not condone violence against bad faith operators. Prison is reserved for such as these. Please no retaliations let the Justice Department handle it if SEC continues to double dribbler here. I am serious you guys who are correctly moved to indignation. We cannot have our towns being over-run with bad faith eye-for-an-eye avenger moods. No violence toward bankers. Let the authorities get off their thumbs first, and then if THEY are negligent they yes, we have just cause and we will have a duty, to take back our country from menacing firms like Goldman Sachs who create trouble for us here at home by how they treat the lower and middle class badly and also bring trouble to our shores by how the treat others in foreign markets as badly. as they treat us (probably worse over there).

    Okay I ramble. Sorry. No violence you all. Try to think of it as more a lampooning of the President’s metaphor, the one he used to describe “athleticism” of high-market criminal actors in fraud He apparently adores them like his baseball players, or he was picked for being naive about who they really are. (Poor Obama did not have a father figure and mistakes purveyors of fraud as “athletic” role models for American children and man-children alike.)

  18. Brooer

    End note: Lets not condone violence against bad faith operators. Prison is reserved for such as these. Please no retaliations let the Justice Department handle it if SEC continues to double dribbler here. I am serious you guys who are correctly moved to indignation. We cannot have our towns being over-run with bad faith eye-for-an-eye avenger moods. No violence toward bankers. Let the authorities get off their thumbs first, and then if THEY are negligent then yes, we have just cause if they are negligent. At that point, we will have a duty to take back our country from menacing firms like Goldman Sachs who create trouble for us here at home, by how they treat the lower and middle class badly and also bring trouble to our shores by how they treat others in foreign markets as badly. as they treat us (probably worse over there).

    Okay I ramble. Sorry. No violence you all. Try to think of it as more a lampooning of the President’s metaphor, the one he used to describe “athleticism” of high-market criminal actors in fraud He apparently adores them like his baseball players, or he was picked for being naive about who they really are. (Poor Obama did not have a father figure and mistakes purveyors of fraud as “athletic” role models for American children and man-children alike.)

  19. Brooer

    Confounding wordpress. I messed up double posting. I am so sorry. Please accept my regrets for unintentional mistake.

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