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Yet another Wall Street insider spills the beans ... on their ill-gotten gains ...


Why Greg Smith Is 'Dead Right' About Goldman Sachs
by Michael Hirsh, contributor, The Atlantic – Mar 16, 2012

[...]
Now comes Greg Smith, an apparently conscience-stricken renegade from Goldman Sachs, who tells us that not only has nothing changed in the firm's culture, but he "can honestly say that the environment now is as toxic and destructive as I have ever seen it."
[...]

Back in 2010, Blankfein admitted, in effect, precisely what Greg Smith is alleging now. In the now-famous hearings held by Sen. Carl Levin's Permanent Subcommittee on Investigations, Levin tried to get Blankfein to concede that Goldman was morally wrong to bet on the sly against securities that it had touted as solid investments to its clients. No, no, the Goldman CEO demurred, that's not how the financial system works any more. "There's been a change in the sociology of the business in the last 10 to 15 years," Blankfein explained patiently. "Somewhere along the line," he said, big clients stopped asking investment banks for good advice and started to seek them out only to set up deals for them -- merely to underwrite the transactions and be on the other side of them. [...] It also apparently gave Goldman carte blanche to shaft any helpless investor on the other side of those transactions. Liquidity was all. Nothing else mattered.
[...]

Indeed, it's no surprise that the bank lobby threw most of its energy during the Dodd-Frank legislative process into watering down rules requiring over-the-counter derivatives to trade on an open and supervised exchange. The reason is that derivatives and structured finance products traded off exchange were still a major source of Wall Street's profitability because they were not exposed to market and risk valuation. And the more complex they are, the easier it is for the banks to charge their customers huge spreads. In other words, the market is still rigged and full of scams, just as Frank Partnoy warned back in the 1990s.

Who to believe? I think I'll go with Greg Smith over Gabriel Sherman. You can take that to the bank.


If I'm not mistaken the Goldman CEO just admitted to not having their customers' best interests in mind.

Isn't that the same thing as becoming "Predatory"?


And on those rare occasions there is actual "regulative oversight" over the Bankers' "derivative spreads," the Wall Street Banks just end up paying what amounts to a traffic ticket to them, for the opportunity of bilking their customers.  They can rake in huge profits by trading "dark markets" with insider information, that never sees the light of day -- and who would be the wiser ... How do you think they got to be that Top 0.01 % anyways, in the first place?  By playing fair?

Citigroup settles for $285 million; no Wall Street exec jailed yet
by Kevin G. Hall and Greg Gordon, tri-cityherald.com -- Oct 21, 2011

[...]
The SEC alleged that Citigroup's main broker-dealer subsidiary duped investors who had bought portions of a $1 billion offshore deal known as a collateralized debt obligation. CDOs are bundles of bonds tied to the performance of mortgages and other loans. The deal in question was precisely the kind of engineered financial product that blew up in 2008 and nearly brought down the global financial system.

In the complaint, the SEC alleged that Citigroup Global Markets selected about $500 million worth of assets in the deal, but in marketing materials suggested to investors that Swiss bank Credit Suisse had conducted the selection.

That gave the appearance that it was an arms-length transaction. In reality, said the SEC, Citigroup's subsidiary selected the assets and then bet against the investors in the very product it was selling. Betting that a bond will default is known as shorting, or going short.
[...]

What's that last paragraph say?  Citigroup gave investors the "appearance of impartiality", and then proceeded to "sell short" (ie. bet against) that very same CDO fund they where touting as AAA Investment grade?

That seems kind of wrong.


Here's a refresher on "short selling" -- basically short-sellers are betting an Investment's price will be going DOWN -- even if their own actions may be part of the reason WHY that price is going down.


Short Selling

Investopedia explains Short Selling

Selling short is the opposite of going long. That is, short sellers make money if the stock goes down in price.


So why in the world would Citigroup "short" its own Mortgage-backed Security?

1) they knew the quality of the sub-prime junk loans that they mixed into them (and when those ARM reset dates were scheduled).  House of Cards -- Meet Fan.

2) they knew they could make Billions mega-quickly, simply by following the lead of other Hedge fund players.


If you're the dealer at the casino table, who gets to see ALL the cards first -- is is any wonder that you can pick the winning hands from the losing hands? ... It's not magic or luck, afterall. Rather, more like a sure thing.


Trader Of The Year: John Paulson Made Billions Shorting Subprime Mortgages
topgunfp.com -- April 8, 2008

[...]
Funds run by Paulson, a hedge fund manager, were up $15 billion in 2007 and he is estimated to have made between $3-$4 billion himself.

How’d he do it?  Paulson saw the housing debacle on the horizon long before others did and set up funds to essentially short subprime mortgage backed securities.
[...]

Paulson made a windfall the likes of which have never before been seen in the history of investing.

On Wall Street these days, John Paulson is pretty much God.  In fact, he is so revered that Treasury Secretary Henry Paulson is now apparently known as “the other Paulson”.


This hedge fund insider leveraged his knowledge to "short" the Housing Bubble -- bet against it -- right before it burst -- BIG Time!

And as a result, John Paulson has become firmly ensconced among the ranks of the Fortune 400 ... never to be unseated from his exalted perch, most likely.


The Forbes 400 -- The Richest People in America

Rank  Name   Net Worth  Age  Residence   Source

[...]

17)     John Paulson

    $15.5 B     55     New York, New York     hedge funds


Lest we forget the way Wall Street "plays us all" as former Goldman Sachs employee Greg Smith, has so cleared decried:


Sen. Levin Grills Goldman Sachs Exec On "Sh!tty Deal" - Apr 27 2010


link to video

Senator Carl Levin (D-MI) and former Goldman Sachs Mortgages Department head Daniel Sparks, Senate Governmental Affairs Subcommittee on Investigations hearing, April 27, 2010
Wow.  In Congress no less.  And still the predatory madness persists, according to one former insider who couldn't take the scamming anymore ... and Quit, with his shreds of dignity barely intact ...


There was a smart discussion on what Greg Smith resignation means and lasting effect Wall Street is still having on our Economy, which served as the motivation for this current post.  If you got the time -- they dig into the current regulatory issues, some still pending;  Some crushed by that ever present Banking Lobby, which is still as powerful as ever.


Up with Chris Hayes -- Guest Host: Ezra Klein -- March 18, 2012


link to video


Cheers!  and remember, when it comes to investing, Buyer Beware.



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