Goldman Sachs appears to be testing the limits of its special talent for avoiding all accountability following revelations of its role in exacerbating the Greek debt crisis.
The bank has come under heavy criticism from European political officials over its role in helping Greece hide its debts, and on Wednesday, Greek labor unions staged a historic strike that shut down the country’s national infrastructure in response to economic policies urged by bankster elites. The European turmoil has forced US officials to take notice, and scrutiny of the bank is now coming from the unlikeliest of quarters, with Ben Bernanke telling Congress on Thursday that the Federal Reserve is looking into Goldman and questions surrounding the bank’s swap transactions with Greece.
Bernanke was vague about what, exactly, the Fed is investigating, and it is possible that the inquiry will go nowhere. But the fact that the Fed chair would make remarks that amplify concerns about Goldman’s role in Europe is a sign that the political winds have shifted significantly since Matt Taibbi’s “vampire squid” metaphor first captured the public imagination last summer. The populist outcry against bankster fraud and collusion finally shows signs of steering the authorities towards a more oppositional, watchdog role.
Today, in partnership with AlterNet, we are launching a new investigation of the class of American super-rich we’ve deemed the Bubble Barons, “a select group of American multi-billionaires who saw astronomic gains in wealth during the housing bubble, and who so far have evaded all accountability in the midst of the worst economic crisis since the Great Depression.” Read the full AlterNet article introducing the project.
We’ve identified 67 bubble barons to target with our investigation. Drawing from Forbes’ lists of the wealthiest Americans for the past ten years, we selected individuals who were worth $2 billion or more (multi-billionaires); whose business activities are mainly in the real estate and finance sectors; and who saw significant gains in net worth over the past ten years (50% or more). Who are they? How have they made their money? Where have they invested it? How have they spent it? Who are their spouses, their friends, their closest business partners?
Join the Bubble Barons research group to help find out!
In remarks before a UK parliamentary committee yesterday, Goldman Sachs executive Gerald Corrigan addressed the controversy surrounding the swap deals that his bank arranged on behalf of Greece, saying “standards of transparency could have been and probably should have been higher.”
On the heels of this transparency speech, however, Goldman Sachs has made it quite clear that it will continue to exploit regulatory loopholes to keep the public in the dark about what, exactly, it is doing in the Greek debt markets and elsewhere.
Following my writing on the rumors swirling around Goldman Sachs, John Paulson, and their role in speculative attacks on Greece, the New York Times has written about the rumors, and today reports that Greece’s National Intelligence Service has named several other investors who are shorting Greek debt: Brevan Howard, Fidelity International, and Moore Capital, in addition to Paulson & Co. The Greek daily EYP is also reporting that the agency named PIMCO, as well.
That the names of potential speculators are only identified after the Greek National Intelligence Service begins investigating them points to just how corrupt this system is; the complete lack of transparency in this “free market” forces us to rely on a *government spy agency* for information about who is making these trades. Brevan Howard, Paulson, and Moore were accused by Spain’s intelligence agency last week. How bizarre.
Brevan Howard has since released a letter to investors saying it is not shorting Greek debt, and Fidelity has commented that it only shorts debt for hedging purposes, according to Reuters. Moore Capital, PIMCO, and Paulson have not commented.
The alleged speculators share some fascinating connections, including strong ties to Goldman Sachs and the New York Fed.
The rumors of a possible partnership by John Paulson and Goldman Sachs in the speculative attacks on Greece, which I first reported on last week, are now heating up in Europe to the point where one French journalist has multiple sources corroborating them. No one can point to hard evidence, just yet, because these are opaque, unregulated markets. But the news is quickly rising above the status of rumor.
The French financial newspaper Les Echos picked up on my post on John Paulson and Greece yesterday. Here is my (rough) translation:
There is a new chapter in the Greek saga today, with news from Bloomberg that Goldman Sachs failed to disclose currency swap deals in Greek bond deals:
Goldman Sachs Group Inc. managed $15 billion of bond sales for Greece after arranging a currency swap that allowed the government to hide the extent of its deficit.
No mention was made of the swap in sales documents for the securities in at least six of the 10 sales the bank arranged for Greece since the transaction, according to a review of the prospectuses by Bloomberg. The New York-based firm helped Greece raise $1 billion of off-balance-sheet funding in 2002 through the swap, which European Union regulators said they knew nothing about until recent days.
With this bit of additional detail in the mix, Goldman’s defenders (is that you, Lloyd?) will now have a harder time making the case that the bank was acting properly in its dealings with Greece and the EU. These arguments weren’t particularly strong, to begin with; as is usually the case, those that have risen to Goldman’s defense (John Carney chief among them) have been making broad-brush arguments about standard Wall Street practices (revelation: banks hedge their bets) rather than engaging the details of this particular story or taking into account everything we know about Goldman’s past behavior.
There were, essentially, two superstars of the subprime meltdown — investors that not only won big on bets that the subprime market would crash, but got a lot of media attention for it: John Paulson and Goldman Sachs. Of course, plenty of other investors bet that the market would crash, but none of the trades were as big, and, for whatever reason, they didn’t get as much media attention as Paulson and Goldman.
But while it is frequently noted in the press that Paulson and Goldman profited from the subprime crash, the revelation that they worked together to place these bets has gotten basically zero attention. See this McClatchy series, for instance, which mentions both Goldman and Paulson, but not the fact that Goldman helped Paulson place his bets. The partnership between Goldman and Paulson was first reported in Gregory Zuckerman’s book on Paulson, as I noted yesterday, but the author basically ignores (or fails to recognize) the implications of this news, and it’s gone nowhere.
When the book first came out, however, David Fiderer explored the implications of the Goldman-Paulson partnership in an excellent post on The Moral Compass Missing from the Greatest Trade Ever. Paulson, Fiderer writes, “was dissatisfied. The marketplace had not satiated his appetite for placing bets against subprime mortgage securities. So he cooked up a scheme to issue billions more in new securities designed by him to fail.”
What is John Paulson doing in Greece?
By Kevin Connor • Feb 15, 2010 at 12:29 EST
Goldman Sachs’s Greek adventure got an in-depth look from the New York Times yesterday. The article extends on last week’s Spiegel piece, which reported that the bank helped Greece hide the true extent of its debt through the use of specialized derivative products. We first reported on the parallels between AIG and Greece in a post last week, following the lead of Zero Hedge. Entry into the paper of record means the story now has legs this side of the pond, and MIT economist Simon Johnson is arguing that Goldman Sachs is set to be blacklisted in Europe.
One question looming over this story: did Goldman position itself to profit from the Greek fiasco? Did it use its special knowledge of Greek’s hidden debt to build profitable bets on its future downfall and rescue? If the bank’s past behavior is any guide, the answer is yes. Ignoring the impending catastrophe (obvious from their vantage point), and failing to properly “hedge” (extract massive profits), would have been “irresponsible” (insufficiently greedy/corrupt) on the part of senior management.
Considering this, hedge fund king John Paulson’s role in Greece deserves far more scrutiny. I wrote about this last week, pointing out that they shared the same vulture flight pattern in Greece, but at the time did not realize that Paulson and Goldman actually partnered in executing massive and profitable bets against the subprime market. Are they doing the same with Greece?
When they were introduced, he made a witticism, hoping to be liked. She laughed extremely hard, hoping to be liked. Then each drove home alone, staring straight ahead, with the very same twist to their faces.
The man who’d introduced them didn’t much like either of them, though he acted as if he did, anxious as he was to preserve good relations at all times. One never knew, after all, now did one now did one now did one.
–”A Radically Condensed History of Postindustrial Life,” from Brief Interviews with Hideous Men by David Foster Wallace
During his now-infamous Oval Office interview with Bloomberg Businessweek Obama named FedEx CEO Frederick Smith as one of his favorite business executives. Smith is an unlikely choice to say the least. He raised more than $100,000 for the McCain campaign and was co-chair of his finance committee. He is also “fiendishly anti-union,” in the words of Doug Henwood; he has been engaged in a long-running battle with the labor movement over allowing the company’s workers (who are classified as independent contractors) to unionize. Unions were key allies of Obama during his presidential campaign.
Obama shares Wall Street’s delusions
By Kevin Connor • Feb 11, 2010 at 12:55 EST
Via Bloomberg, we learned yesterday that President Obama buys in to the Wall Street delusion that bankers actually deserve really high salaries. Speaking about JP Morgan’s Jamie Dimon and Goldman’s Lloyd Blankfein, he said this:
The president, speaking in an interview, said in response to a question that while $17 million is “an extraordinary amount of money” for Main Street, “there are some baseball players who are making more than that and don’t get to the World Series either, so I’m shocked by that as well.”
“I know both those guys; they are very savvy businessmen,” Obama said in the interview yesterday in the Oval Office with Bloomberg BusinessWeek, which will appear on newsstands Friday. “I, like most of the American people, don’t begrudge people success or wealth. That is part of the free- market system.”
Krugman’s reaction, in a blog post titled “Clueless,” pretty much sums it up: “Oh. My. God.”
The quotes paint a picture of a president who is hopelessly out of touch with the economic reality and with the public’s perceptions of Wall Street. He also seems to be experiencing some amnesia regarding the massive, taxpayer-funded bailouts that have sustained the institutions run by these businessmen.
The White House has already started attempting to walk back the comments in a remarkable blog post that purports to clear up what the president “actually” said during the interview. While offering up lengthy presidential quotes about the bonuses, say-on-pay, and so forth that put some of his words in context, the post leaves out what I see as the most important quote in the Bloomberg piece, where he says (about Blankfein and Dimon): “I know both those guys; they are very savvy businessmen.”