Far from reducing risk, derivatives increase risk, often with catastrophic results.
—Derivatives expert Satyajit Das, Extreme Money (2011)
The “toxic culture of greed” on Wall Street was highlighted again last week, when Greg Smith went public with his resignation from Goldman Sachs in a scathing oped published in the New York Times. In other recent eyebrow-raisers, LIBOR rates—the benchmark interest rates involved in interest rate swaps—were shown to be manipulated by the banks that would have to pay up; and the objectivity of the ISDA (International Swaps and Derivatives Association) was called into question, when a 50% haircut for creditors was not declared a “default” requiring counterparties to pay on credit default swaps on Greek sovereign debt.
According to his September 2009 bio:
Peter Sutherland is chairman of BP plc (1997 – current). He is also chairman of Goldman Sachs International (1995 – current). He was appointed chairman of the London School of Economics in 2008…. Before these appointments, he was the founding director-general of the World Trade Organisation. He had previously served as director general of GATT since July 1993 [and was] chairman of the Board of Governors of the European Institute of Public Administration (Maastricht) 1991-1996.
Sutherland resigned as BP’s chairman in 2009, but apparently still serves in various key capacities.
By David DeGraw, AmpedStatus Report (ampedstatus.com) Not only did Goldman Sachs profit on betting against CDOs they designed to fail; more importantly, they insured them through AIG which led to a $182 billion taxpayer bailout. Have you heard the news? It’s everywhere! The SEC and Congress have all of a sudden sprung to life and [...]
How a Computer Program Designed to Save the Free Market Turned Into a Monster
by Ellen Brown
Web of Debt
April 21, 2010
While the SEC is busy investigating Goldman Sachs, it might want to look into another Goldman-dominated fraud: computerized front running using high-frequency trading programs.
Market commentators are fond of talking about “free market capitalism,” but according to Wall Street commentator Max Keiser, it is no more. It has morphed into what his TV co-host Stacy Herbert calls “rigged market capitalism”: all markets today are subject to manipulation for private gain.
Keiser isn’t just speculating about this. He claims to have invented one of the most widely used programs for doing the rigging. Not that that’s what he meant to invent. His patented program was designed to take the manipulation out of markets. It would do this by matching buyers with sellers automatically, eliminating “front running” – brokers buying or selling ahead of large orders coming in from their clients. The computer program was intended to remove the conflict of interest that exists when brokers who match buyers with sellers are also selling from their own accounts. But the program fell into the wrong hands and became the prototype for automated trading programs that actually facilitate front running.
It is a truth universally acknowledged that predatory bankers in possession of great fortunes are in want of media lackeys, especially after savaging the American Dream. Actually not, considering the corporate media outlets reinforcing the clownish social gospel from Lloyd Blankfein of Goldman Sachs: conglomerates do good, indeed “God’s work.”How would any CEO richer than Midas know God’s mind or presume entry to heaven, according to a more reliable source, any more likely than a camel through the eye of a needle?
Propaganda aside, hear the hosannas this Great Recession isn’t so bad, no national tragedy, no generational plague, barely involving predatory lending. When viewed correctly this healthy downturn “will improve all of our lives by bringing us back to the original vision of the American Dream.” In the meantime, hard times cleanse debtors and clear books: thus, mystical free markets self-balance, punishing those lovers of excess and betrayers of contracts. Verdict; blame consumer spendthrifts for toppling our shining city on the hill. Rich people, not so much.
The media loves tough love that regains more than lost affluence but transcendent virtues: self-control, family togetherness, even, brace yourself, Yankee introspection. This Sunday CNN blessed us with its Pollyanna sermonette, profiling a perky Bernie Madoff survivor happier than ever. She’s not bitter towards this thug, so outlandish he dared capture, awash instead in wise acronyms, like SNT – Stop Negative Thinking. Unfortunately, no empty platitudes wash away unarguable research testifying joblessness and foreclosure can kill, with an array of anxiety disorders sharpened by depression, addictive and abusive behavior, divorce, even suicide – no endorsement for positive thinking. Note, those justifying pain always have jobs.
By Ellen Brown
Rumor has it that Timothy Geithner is on his way out as Treasury Secretary, due to his involvement in the AIG scandal that is now unraveling in hearings before the House Oversight and Reform Committee. Bob Chapman writes in The International Forecaster:
Each day brings more revelations of efforts of the NY Fed and Goldman Sachs to hide the details of the criminal conspiracy of the AIG bailout. . . . This is a real crisis on the scale of Watergate. Corruption at its finest.
But unlike the perpetrators of the Watergate scandal, who wound up looking at jail time, Geithner evidently has a golden parachute waiting at Goldman Sachs, not coincidentally the largest recipient of the AIG bailout. At least that is the rumor sparked by an article by Caroline Baum on Bloomberg News, titled “Goldman Parachute Awaits Geithner to Ease Fall.” Hank Paulson, Geithner’s predecessor, was CEO of Goldman Sachs before coming to the Treasury. Geithner, who has come up through the ranks of government, could be walking through the revolving door in the other direction.
Thatis only rumor, but the situation is disturbing enough to warrant a close look. Geithner has been under the House microscope for the decision of the New York Fed, made while he headed it, to buy out about $30 billion in credit default swaps (over-the-counter derivative insurance contracts) that AIG sold on toxic debt securities. The chief recipients of this payout were Goldman Sachs, Merrill Lynch, Societe Generale and Deutsche Bank. Goldman got $13 billion, roughly equivalent to its bonus pool for the first 9 months of 2009. Critics are calling the New York Fed’s decision a back-door bailout for the banks, which received 100 cents on the dollar for contracts that would have been worth far less had AIG been put through bankruptcy proceedings in the ordinary way. In a Bloomberg article provocatively titled “Secret Banking Cabal Emerges from AIG Shadows,” David Reilly writes:
[T]he New York Fed is a quasi-governmental institution that isn’t subject to citizen intrusions such as freedom of information requests, unlike the Federal Reserve. This impenetrability comes in handy since the bank is the preferred vehicle for many of the Fed’s bailout programs. It’s as though the New York Fed was a black-ops outfit for the nation’s central bank.
The Battle of the Titans: JPMorgan vs. Goldman Sachs, or Why the Market Was Down for Seven Days in a Row
Saturday 30 January 2010 by: Ellen Hodgson Brown J.D.,
We are witnessing an epic battle between two banking giants, JPMorgan Chase (Paul Volcker) and Goldman Sachs (Geithner/Rubin). Left strewn on the battleground could be your pension fund and 401K.
The late Libertarian economist Murray Rothbard wrote that US politics since 1900, when William Jennings Bryan narrowly lost the presidency, has been a struggle between two competing banking giants, the Morgans and the Rockefellers. The parties would sometimes change hands, but the puppeteers pulling the strings were always one of these two big-money players. No popular third party candidate had a real chance at winning, because the bankers had the exclusive power to create the national money supply and therefore held the winning cards.
In 2000, the Rockefellers and the Morgans joined forces, when JPMorgan and Chase Manhattan merged to become JPMorgan Chase Co. Today the battling banking titans are JPMorgan Chase and Goldman Sachs, an investment bank that gained notoriety for its speculative practices in the 1920′s. In 1928, it launched the Goldman Sachs Trading Corp., a closed-end fund similar to a Ponzi scheme. The fund failed in the stock market crash of 1929, marring the firm’s reputation for years afterwards. “Former Treasury Secretaries Henry Paulson and Robert Rubin came from Goldman, and current Treasury Secretary Timothy Geithner rose through the ranks as a Rubin protégé.”
Goldman’s superpower status comes from something more than just access to the money spigots of the banking system. It actually has the ability to manipulate markets. Formerly just an investment bank, in 2008 Goldman magically transformed into a bank holding company. That gave it access to the Federal Reserve’s lending window; but at the same time it remained an investment bank, aggressively speculating in the markets. The upshot was that it can now borrow massive amounts of money at virtually 0 percent interest, and it can use this money not only to speculate for its own account but to bend markets to its will.