It's all Goldman Sachs' fault says Matt Taibbi

[Jan Klimkowski]

Masters of the Universe?

Or vultures picking on the taxpayer's flesh until mere bone remains?

Goldman Sachs, which makes more money from trading than any other Wall Street firm, also disclosed that its traders generated $100 million or more on 35 days during the first quarter and lost money on no days. The firm set a record when it made $100 million or more on 46 days in the second quarter.

http://preview.bloomberg.com/news/2010-0...-cdos.html

[Jan Klimkowski]

In the board game Monopoly, it's known as a Get Out of Jail Free card.

If you're as crooked as Goldman Sachs and other major banks, it seems like the so-called Regulators are quite happy to hand you a couple.

In U.S. Bailout of A.I.G., Forgiveness for Big Banks
By LOUISE STORY and GRETCHEN MORGENSON
Published: June 29, 2010

At the end of the American International Group’s annual meeting last month, a shareholder approached the microphone with a question for Robert Benmosche, the insurer’s chief executive.

“I’d like to know, what does A.I.G. plan to do with Goldman Sachs?” he asked. “Are you going to get — recoup — some of our money that was given to them?”

Mr. Benmosche, steward of an insurer brought to its knees two years ago after making too many risky, outsize financial bets and paying billions of dollars in claims to Goldman and other banks, said he would continue evaluating his legal options. But, in reality, A.I.G. has precious few.

When the government began rescuing it from collapse in the fall of 2008 with what has become a $182 billion lifeline, A.I.G. was required to forfeit its right to sue several banks — including Goldman, Société Générale, Deutsche Bank and Merrill Lynch — over any irregularities with most of the mortgage securities it insured in the precrisis years.

But after the Securities and Exchange Commission’s civil fraud suit filed in April against Goldman for possibly misrepresenting a mortgage deal to investors, A.I.G. executives and shareholders are asking whether A.I.G. may have been misled by Goldman into insuring mortgage deals that the bank and others may have known were flawed.

http://www.nytimes.com/2010/06/30/busine...&th&emc=th

[David Guyatt]

Goldman Sachs annual profits have just been announced and are down by 37%

Staff and partner remuneration is, in comparison, down by 5%.

However did the idea gain a foothold that performance bonuses were performance related?

Fuck up and still get handsomely rewarded.

That's market ethics for you.

[Peter Lemkin]

Goldman Sachs annual profits have just been announced and are down by 37%

Staff and partner remuneration is, in comparison, down by 5%.

However did the idea gain a foothold that performance bonuses were performance related?

Fuck up and still get handsomely rewarded.

That's market ethics for you.

Thanks David, I wasn't aware they had any ethics - now I know they have 'market ethics' [Enron ethics] :thumbsdown:. But don't worry, they're 'too big to fail'...just as the average Pleb [alone and as a group] are 'too little to bother saving'.....

[Jan Klimkowski]

Yet again, these criminals demonstrate that they have no shame, no respect, and will continue to loot and pillage forever and ever amen - praying to mammon.

Goldman Sachs bankers to receive $15.3bn in pay and bonuses

Goldman Sachs revenues fall 13% but pay pot down only 5%
Average pay drops as number of Goldman employees rises
'Compensation ratio' rises to 40% from 35.8% last year

Jill Treanor guardian.co.uk, Wednesday 19 January 2011 16.28 GMT

Goldman Sachs has set aside $15.3bn (£9.5bn) to pay its staff in 2010 an average of $430,000 each in a move that re-ignites the controversy over City pay and bonuses at a time when youth unemployment is hitting record highs in the UK.

The best known of all the Wall Street firms did not attempt to show the restraint of last year when it reduced the amount being paid into its bonus pool in the fourth quarter of 2009 to make a $500m public donation to a charitable foundation, Goldman Sachs Gives.

The $15.3bn set aside for bonuses and salaries was down 5% on the $16bn for the previous year but did not fall as fast as revenues, which dropped 13% to $39.1bn in 2010.

The bank set aside $2.2bn in the fourth quarter alone even though revenue halved to $2.4bn during this period. Goldman has used 40% of its revenue to pay staff, some 5,500 of whom work in the City and will begin to learn in the coming days about the size of their 2010 bonuses.

In 2009 the bank cut this so-called compensation ratio to 35.8% the lowest since it went public in 1999 in attempt to demonstrate restraint.

David Viniar, finance director of Goldman Sachs, defended the pay arrangements. "We don't target a ratio. We pay our people fairly, based on their performance," he said.

But the Goldman figures came just hours after data in the UK showed that youth unemployment had hit a record high of close to 1m, sparking fury from unions.

The general secretary of the TUC, Brendan Barber, said: "Goldman Sachs has stuck two fingers up to austerity Britain by shelling out mega bonuses again. These earnings would make Gordon Gekko blush.

"Bankers are toasting their telephone-digit bonuses while the rest of the country reels from more than a fifth of young people being out of work. This government is overseeing a fast return to the worst excesses of the 1980s. The chancellor must use the upcoming G20 meeting and budget to make good the coalition agreement to tackle unacceptable bonuses."

Goldman confirmed that its total bill for former chancellor Alistair Darling's one-off bonus tax last year was $465m. His successor, George Osborne, has decided not to implement another bonus tax.

Lloyd Blankfein, chairman and chief executive of Goldman, said: "Market and economic conditions for much of 2010 were difficult, but the firm's performance benefited from the strength of our global client franchise and the focus and commitment of our people.

"Looking ahead, we are seeing signs of growth and more economic activity, and we are well-positioned to help our clients expand their businesses, manage their risks and invest in the future."

The bank now employs 3,200 more staff that it did a year ago, an increase of 10%, which might explain why the compensation pool has not fallen by as much as revenue. Per head, the average payout has fallen from $498,000.

The firm said that $320m of its charitable contributions for 2010 were to Goldman Sachs Gives and that compensation had been reduced to fund this charitable contribution.

This year has not started well for Goldman: earlier this month it was forced to pull out of a private placement deal to enable its wealthy US clients to invest in Facebook.

In 2010, the firm was fined $550m by the Securities and Exchange Commission in the US, and £17.5m by UK's Financial Services Authority over the Abacus sub-prime mortgage product and the activities of Fabrice Tourre, a London-based employee.

Last April, Blankfein was subjected to a grilling by the US Senate over its activities in the mortgage market before the credit crunch in 2007.

The sharp fall in Goldman's revenues in the fourth quarter was the result of a 10% fall in the investment banking area where fees from advising on mergers and acquisitions were down and a 31% fall in revenue from fixed income, currency and commodities, where anxiety about a sovereign debt crisis in Europe may have held back activity.

Viniar said: ""In the month of December, things were just dead [in the fixed income division]. There was little activity".

http://www.guardian.co.uk/business/2011/...ay-bonuses

[Ed Jewett]

Matt Taibbi, "The People vs. Goldman Sachs"
http://www.rollingstone.com/politics/new...s-20110511

[Jan Klimkowski]

From Taibbi's latest:

Another extraordinary example of Goldman's penchant for truth avoidance came when Joshua Birnbaum, former head of structured-products trading for the bank, gave a deposition to Levin's committee. Asked point-blank if Goldman's huge "short" on mortgages was an intentional bet against the market or simply a "hedge" against potential losses, Birnbaum played dumb. "I do not know whether the shorts were a hedge," he said. But the committee, it turned out, already knew that Birnbaum had written a memo in which he had spelled out the truth: "The shorts were not a hedge." When Birnbaum's lawyers learned that their client's own words had been used against him, they hilariously sent an outraged letter complaining that Birnbaum didn't know the committee had his memo when he decided to dodge the question. They also submitted a "supplemental" answer. Birnbaum now said, "Having reviewed the document the staff did not previously provide me" his own words! "I can now recall that ... I believed ... these short positions were not a hedge." (Goldman, for its part, dismisses Birnbaum as a single trader who "neither saw nor knew the firm's overall risk positions.")

When it came time for Goldman CEO Lloyd Blankfein to testify, the banker hedged and stammered like a brain-addled boxer who couldn't quite follow the questions. When Levin asked how Blankfein felt about the fact that Goldman collected $13 billion from U.S. taxpayers through the AIG bailout, the CEO deflected over and over, insisting that Goldman would somehow have made that money anyway through its private insurance policies on AIG. When Levin pressed Blankfein, pointing out that he hadn't answered the question, Blankfein simply peered at Levin like he didn't understand.

But Blankfein also testified unequivocally to the following:

"Much has been said about the supposedly massive short Goldman Sachs had on the U.S. housing market. The fact is, we were not consistently or significantly net-short the market in residential mortgage-related products in 2007 and 2008. We didn't have a massive short against the housing market, and we certainly did not bet against our clients."

Levin couldn't believe what he was hearing. "Heck, yes, I was offended," he says. "Goldman's CEO claimed the firm 'didn't have a massive short,' when the opposite was true." First of all, in Goldman's own internal memoranda, the bank calls its giant, $13 billion bet against mortgages "the big short." Second, by the time Sparks and Co. were unloading the Timberwolves of the world on their "unicorns" and "flying pigs" in the summer of 2007, Goldman's mortgage department accounted for 54 percent of the bank's risk. That means more than half of all the bank's risk was wrapped up in its bet against the mortgage market a "massive short" by any definition. Indeed, the bank was betting so much money on mortgages that its executives had become comically blasé about giant swings on a daily basis. When Goldman lost more than $100 million on August 8th, 2007, Montag circulated this e-mail: "So who lost the hundy?"

This month, after releasing his report, Levin sent all of this material to the Justice Department. His conclusion was simple. "In my judgment," he declared, "Goldman clearly misled their clients, and they misled the Congress." Goldman, unsurprisingly, disagreed: "Our testimony was truthful and accurate, and that applies to all of our testimony," said spokesman Michael DuVally. In a statement to Rolling Stone, Goldman insists that its behavior throughout the period covered in the Levin report was consistent with responsible business practice, and that its machinations in the mortgage market were simply an attempt to manage risk.

It wouldn't be hard for federal or state prosecutors to use the Levin report to make a criminal case against Goldman. I ask Eliot Spitzer what he would do if he were still attorney general and he saw the Levin report. "Once the steam stopped coming out of my ears, I'd be dropping so many subpoenas," he says. "And I would parse every potential inconsistency between the testimony they gave to Congress and the facts as we now understand them."

I ask what inconsistencies jump out at him. "They keep claiming they were only marginally short, that it was more just servicing their clients," he says. "But it sure doesn't look like that." He pauses. "They were $13 billion short. That's big 50 percent of their risk. It was so completely disproportionate."

Lloyd Blankfein went to Washington and testified under oath that Goldman Sachs didn't make a massive short bet and didn't bet against its clients. The Levin report proves that Goldman spent the whole summer of 2007 riding a "big short" and took a multibillion-dollar bet against its clients, a bet that incidentally made them enormous profits. Are we all missing something? Is there some different and higher standard of triple- and quadruple-lying that applies to bank CEOs but not to baseball players?

This issue is bigger than what Goldman executives did or did not say under oath. The Levin report catalogs dozens of instances of business practices that are objectively shocking, no matter how any high-priced lawyer chooses to interpret them: gambling billions on the misfortune of your own clients, gouging customers on prices millions of dollars at a time, keeping customers trapped in bad investments even as they begged the bank to sell, plus myriad deceptions of the "failure to disclose" variety, in which customers were pitched investment deals without ever being told they were designed to help Goldman "clean" its bad inventory. For years, the soundness of America's financial system has been based on the proposition that it's a crime to lie in a prospectus or a sales brochure. But the Levin report reveals a bank gone way beyond such pathetic little boundaries; the collective picture resembles a financial version of The Jungle, a portrait of corporate sociopathy that makes you never want to go near a sausage again.

Upton Sinclair's narrative shocked the nation into a painful realization about the pervasive filth and corruption behind America's veneer of smart, robust efficiency. But Carl Levin's very similar tale probably will not. The fact that this evidence comes from a U.S. senator's office, and not the FBI or the SEC, is itself an element in the worsening tale of lawlessness and despotism that sparked a global economic meltdown. "Why should Carl Levin be the one who needs to do this?" asks Spitzer. "Where's the SEC? Where are any of the regulatory bodies?"

This isn't just a matter of a few seedy guys stealing a few bucks. This is America: Corporate stealing is practically the national pastime, and Goldman Sachs is far from the only company to get away with doing it. But the prominence of this bank and the high-profile nature of its confrontation with a powerful Senate committee makes this a political story as well. If the Justice Department fails to give the American people a chance to judge this case if Goldman skates without so much as a trial it will confirm once and for all the embarrassing truth: that the law in America is subjective, and crime is defined not by what you did, but by who you are.

Taibbi: "if Goldman skates without so much as a trial it will confirm once and for all the embarrassing truth: that the law in America is subjective, and crime is defined not by what you did, but by who you are."

In fact, it's much worse than that.

This principle that "crime is defined not by what you did, but by who you are" is not an embarrassing truth. Instead, it lies at the very heart of Power and Hypocrisy through the centuries.

Goldman Sachs, and their masters, have used the fatal flaws of global financial capitalism to loot and plunder ordinary, decent, hardworking people across the world.

And Goldman will get away with a slapped wrist and the sacrifice of a couple of pawns before it undergoes yet another Sirenesque metamorphosis.

Wall Street is simply a modern manifestation of Sirenum scopuli.....

[Jan Klimkowski]

Goldman and the Big Lie of super efficient, entirely transparent, global market capitalism nailed:

Goldman's business model is designed around the exploitation of secrecy. Secrecy is the organizing principle that governs modern credit markets. Credit default swaps, privately placed structured securitizations (e.g. CDOs), and hedge funds have all flourished-- they dominate the debt markets--because they are all designed to exploit secrecy. They all create extraordinary profits by keeping the rest of us in the dark.

So in late 2006, if you wanted to find out what was happening in this newly created synthetic RMBS market, you couldn't find out much of anything. You couldn't find out anything about who bought or sold any CDO, or what was in any CDO, or how any CDO performed, unless Goldman or some other CDO underwriter deemed you sufficiently worthy of their selective disclosures.

Goldman's Disinformation Campaign: Drilling Down Into The Documents

By David Fiderer

Goldman's Disinformation Campaign: Drilling Down Into The Documents

In his latest Bloomberg column on Goldman Sachs, William Cohan makes an important point:

"Goldman hasn't made its internal analysis public, nor does it intend to, but it has showed the documents around town (including to me)."

In other words, the answer shall remain secret. Only those deemed worthy by Goldman may see its data, which purportedly refutes the Levin report. The rest of us are kept in the dark. We cannot challenge Goldman's claims, because we cannot see what they see. They know what they are talking about; we do not. Instead, we must rely on Andrew Ross Sorkin, Holman Jenkins, Dick Bove, and others to reveal the truth.

Except you don't need to read these secret documents to figure out what's going on. You need simply read the publicly disclosed documents to see how Goldman's defense is built on sand. Consider Goldman's accusation, dutifully reported by The Wall Street Journal, that Levin's subcommittee used "sloppy math and incomplete analysis" too determine Goldman's net short positions. That's not really true. Senate staffers used no math and performed no analysis. They simply copied Goldman's numbers.

Copying Goldman's Numbers

The Senate subcommittee referenced Goldman's own "top sheets," which were daily reports prepared for the benefit of Goldman's head of the mortgage unit, Dan Sparks, who wanted a single-page summary of the firm's most critical mortgage risk concentrations. As the Levin report makes clear, these top sheets represented a comprehensive measure of "the Mortgage Department's net positions in various asset classes." Contrary to the false insinuations made in the media, the subcommittee carefully avoided any suggestion that these top sheets captured all of Goldman's positions in all types of mortgages. Nor did the subcommittee state that the top sheets used the exact same categories of mortgage exposure over time.

During the investigation, Goldman made a critical point, which the subcommittee acknowledged in its report. Not all mortgages are created equal. A long position in prime mortgages does not offset a short position in subprime. A triple-A tranche does not offset a triple-B tranche. Therefore, no single dollar amount, long or short, adequately captures all that's going on in a mortgage portfolio. Goldman trader Josh Birnbaum suggested that the number should be "beta adjusted." While noting Goldman's important caveat, the subcommittee also noted that the top sheet totals were regularly referenced in contemporaneous correspondence, and that, at the time, Goldman had no other comparable calculation for companywide exposures. So the subcommittee determined that the internally generated top sheet totals represented the best available proxy for how Dan Sparks was evaluating his firm's overall long or short positions. Investigators conspicuously declined to apply any math or analysis to put everything on an apples-to-apples basis, which might have invited criticism about manipulating the evidence. Unlike Goldman, the subcommittee was upfront about what it did. It never held anything back.

Anyone reviewing the top sheets published by the subcommittee in April 2010 can see that, over time, Sparks wanted additional categories added to his one-page summaries. Some commercial real estate securitizations were added in June 2007, and by September 2007 prime mortgages were added as well. That made sense, because investor distaste for residential securitizations began to spill over into commercial deals. Sparks was very aware that CMBS CDOs are stuffed with subprime bonds and vice versa. In addition, home prices decline throughout 2007 meant that problems in the subprime sector could migrate into prime markets.

So the Journal writes, " For June 25, 2007, Goldman officials believe Senate investigators didn't take into consideration more than $5 billion of prime, or high-quality, mortgage-backed bonds held by the firm at the time, another document shows." Andrew Ross Sorkin references the same document, and goes further to impugn the subcommittee:

"But in studying the document, the subcommittee may have mixed apples and oranges. It added in $4.1 billion worth of short positions for commercial real estate to residential real estate. And the subcommittee ignored the footnote on the bottom of the document that the 'top sheet' had not included long positions in other parts of the business that people close to the firm said were in excess of $5 billion."

As it happened, some staffer made one of those dumb typographical mistakes with regard to this particular top sheet. He accidentally doubled the top sheet total, which showed a net short of just over $6.9 billion, and presented it as $13.9 billion. Embarrassing, especially since the mistake had been hiding in plain sight since April 27, 2010.

Net Totals Are For Dummies

Birnbaum was right. No singular net number adequately captures all that what is going on. The suggestion that the inclusion or exclusion of prime loans somehow debunks the Levin report or vindicates Goldman is, to put it charitably, a red herring. Suppose gas trader Brian Hunter said: "I have been unfairly maligned by the Levin report, which accuses me of destroying my employer, Amaranth Advisors. The report says I took enormously risky bets on the price of gas, I can point to evidence showing that the opposite was true. Whenever I bought gas futures for January 2007, I simultaneously sold futures for November 2006. In other words, I was fully hedged!"

No gas trader would be stupid enough to believe that, and no mortgage trader would be stupid enough to believe, as Goldman now suggests, that a long position in prime mortgages represented any kind of hedge against a short position in subprime mortgages. As noted here earlier, the difference between prime mortgages and subprime mortgages is like night and day.

It's All About The Triple-Bs, Stupid

But there's a far more salient point, which Birnbaum noted and which Goldman's defenders now choose to overlook. Even within the same subprime mortgage securitization, a long position on the triple-A tranche can never effectively hedge a short position on the triple-B tranche. A lot of these "correlation trades" are oxymoronic. The triple-B tranches are heavily reliant on excess spread, which can be wiped out in a heartbeat. (Excess spread is the cash left over after: (a) the interest coupon for all the tranches is fully paid, and (b) all the principal for the 94% of all debt senior to the triple-Bs is fully paid.) Subprime deals were set up so that the size of the initial equity cushion below the triple-Bs was always smaller than the expected losses on the collateral. If the mortgage pools prepaid faster than expected, or if delinquencies spiked faster than expected, the excess spread got wiped out, so that the triple-Bs got wiped out. Conversely, the triple-As, with at least six times the equity cushion of the triple-Bs, had almost no prepayment risk; early prepayments meant these investors got their cash back sooner rather than later.

All this media noise distracts away from the important evidence about Goldman's role in cornering the market for mortgage synthetics. Remember, The Big Short--which paid off handsomely for Goldman, John Paulson, Greg Lippmann, Magnetar, Blue Mountain Capital, Steve Eisman, and others--was concentrated almost exclusively in those deeply subordinated--but still investment-grade--tranches of subprime mortgage bonds, the triple-Bs (BBB+, BBB or BBB-). The way the math worked, to be discussed elsewhere, the payout became a sure thing as soon as the real estate bubble ended. It didn't matter if the housing bubble were followed by a crash or the gentlest of soft landings; the triple-B defaults were a virtual certainty. (Yes, it was an open secret that the credit ratings were bogus.)

During 2005 and 2006, there were about $900 billion in subprime mortgage securitizations, of which a tiny 3% sliver, maybe $30 billion, were tranches rated, either BBB+, BBB or BBB-. And about 90% of those triple-B tranches were unavailable to be traded; they were taken off the market and stuffed into CDOs. And that would have been the end of it. The economic damage from those toxic triple-B subprime investments, either as bonds or repackaged into CDOs, could never have been more than $30 billion, give or take a couple of billion, had it not been the schemes devised and spearheaded by Goldman.

As Goldman is quick to remind everyone, the firm was only a single player in the market. Though it frequently acted as a market maker, it wasn't the entire market. But consider the activity of this single player in the market for triple-Bs. Look at Goldman's top sheet for September 25, 2007, (Footnote exhibits page 3778), which drills down a bit further to show both the long and short positions within different categories. In the category that lumps together subprime and 2nd lien mortgages, Goldman had insured $31.7 worth triple-Bs, and held swaps insuring $34.5 worth of triple-Bs, or trades totaling $66.2 billion. More than three-quarters of all credit default swaps in the subprime/2nd lien category were concentrated in the triple-Bs.

Or consider the schedule titled, "RMBS CDS Trade History 19-Han06 19Mar07," prepared for Birnbaum (Footnote Exhibits Page 4147). Again, more than three-quarters of the trading volume, $34.5 billion out of $43.3 billion, was concentrated in that tiny sliver of the RMBS capital structure, the tranches triple-B and triple-B-minus. The triple-Bs were where the action was.

Or consider the dollar amounts compiled by ProPublica with regard to the mezzanine CDOs (i.e. triple-B portfolios) issued from May 2006, when it became obvious that real estate bubble had stopped expanding, through July 2007, when Moody's announced the first wave of downgrades and shut the subprime market down. That's $114 billion worth of toxic CDOs, which never would have been issued but for the schemes spearheaded by Goldman Sachs.

Goldman Invented and Cornered the Market in Housing Shorts

Contrary to the myth prevailing in some circles, the "market" for synthetic mortgage products was not something that predated the real estate bubble. Nor was it ever something that grew organically out the normal dynamics of supply and demand. Goldman invented this market and it cornered this market in order to short triple-B bonds on a massive scale.

As we learned from Michael Lewis's book, hedge fund manager Dr. Michael Burry was the pioneer who bought naked shorts on triple-B subprime bonds in early 2005. At that point, banks were unable to replicate that strategy on a larger scale, because mortgage securities are not like corporate bonds.

If a corporation becomes insolvent, it is forced to declare bankruptcy, at which point all bonds immediately become due and payable, meaning they are in default. But mortgage securitizations do not file for bankruptcy. When it becomes obvious that the mortgage pool will run out of cash before all the investors are repaid, nothing happens. Or at least, nothing happens for a long time. All of these private label deals were set up so that no principal becomes due and payable for at least 30 years. The way their cash waterfalls work, it can take years and years, long past the point when everyone knows that the subordinate tranches will lose every dime of principal, before a subordinate tranche formally defaults on an amount that is due and payable.

Generally, if you buy a naked short on a bond, you don't want to wait years and years to collect on your payout. So Goldman invented a new type of "credit default" swap, one that provided a payout before the mortgage bond actually defaulted. It came to be known as the "pay as you go" or PAUG credit default swap, and the standardized ISDA template was first published on June 21, 2005.

Goldman didn't invent the PAUG all by itself. Thanks to the pioneering reporting of the late great Mark Pittman, we know that in February 2005 Rajiv Kamilla of Goldman Sachs sat down over Chinese food with Greg Lippmann of Deutsche Bank and Todd Kushman of Bear Stearns, along with bankers from Citigroup and JPMorgan, to hammer out the form and structure of the PAUG CDS. Without the PAUG, Goldman's massive trading operation in mortgage synthetics--credit default swaps on individual bonds, plus CDOs comprised of PAUG swaps, plus swaps referencing market indices-- would not have been possible.

Soon after the PAUG template went live, Goldman went into action, selling billions of dollars of PAUG CDS to AIG. The swaps were embedded within synthetic CDOs that insured subprime mortgage bonds and subordinate tranches of CDOs. The first of these deals, Abacus 2004-1, closed on August 8, 2005.

Simultaneously, Greg Lippmann was putting the finishing touches on his famous flipbook presentation, "Shorting Home Equity Mezzanine Tranches," which he proceeded to hand out to a couple of hundred hedge fund managers. And, wouldn't you know, it turns out that the secret schemes designed to enrich hedge funds like Paulson & Co. and Magnetar became the norm in the CDO market. The majority of CDOs issued immediately after the end of the real estate bubble, during the last half of 2006, were arranged so that the hedge fund investing in the tiny equity tranche would also, secretly, take a much larger short on the rated tranches.

The Organizing Principle of Modern Credit Markets Is Secrecy

So let's circle back to William Cohan's column, which makes a passing reference to Goldman's attempt to trash the Levin report by relying on secrecy. This is more than a metaphor. Goldman's business model is designed around the exploitation of secrecy. Secrecy is organizing principle that governs modern credit markets. Credit default swaps, privately placed structured securitizations (e.g. CDOs), and hedge funds have all flourished-- they dominate the debt markets--because they are all designed to exploit secrecy. They all create extraordinary profits by keeping the rest of us in the dark.

So in late 2006, if you wanted to find out what was happening in this newly created synthetic RMBS market, you couldn't find out much of anything. You couldn't find out anything about who bought or sold any CDO, or what was in any CDO, or how any CDO performed, unless Goldman or some other CDO underwriter deemed you sufficiently worthy of their selective disclosures. You couldn't learn anything from the sales or trading activity of mortgage bonds, because the related trading in credit default swaps was kept hidden beneath the surface. You didn't know anything about the trading activity related to the ABX indices, since that, also, was kept secret. And since the privately-held company that owned the ABX, CDS IndexCo LLC, operated in total secrecy, and since the privately-held company that published the price of the ABX, Markit Group Limited , operated in total secrecy, you had no way of knowing the extent to which the price of the ABX was manipulated through round-tripping, side deals with synthetic CDOs, or anything else. The only thing you knew, your only link to the illusory "reality " of market sentiment, was the quoted price of the ABX. And you might happen to know that the Chairman of CDS IndexCo was Brad Levy, a managing director at Goldman, which, along with a handful of other banks, controlled CDS IndexCo and Markit Group.

Both the FCIC and the Levin subcommittee disclosed a wealth of information that others with a more skeptical bent can scrutinize in depth. This information poses a direct challenge to Goldman's dissembling, and to the moral hazard of access journalism, which is no substitute for the full transparency of a free and open marketplace of ideas.

Source.

[Jan Klimkowski]

Via ZeroHedge with screen grab here.

Here Are The Most Actively Traded Names In Goldman's Dark Pool (Or Why Is The Big Money Fascinated With Italy?)

Submitted by Tyler Durden on 06/27/2011 13:43 -0400

Courtesy of recent disclosures, the common man (as in anyone who does not pay millions in kickbacks, er, soft dollar fees to GS) can now observe what is being traded on Goldman's Dark Pool, better known as Sigma X.

Why is this important? Because as Themis Trading presented last week, only 30% of all trading occurs on open exchange venues, meaning the bulk of actual shares change ownership behind the scenes, in places such as Sigma X, Chi X, and the dark pools of Credit Suisse, Citi, and various other banks, not to mention numerous other secondary ATS, where very little if any of the daily trading detail is released for general observation.

This means that while HFT algos drive up the volume of numerous top 10 stocks merely for the sake of collecting rebates, the real action is in the most actively traded dark pool names, where the big boys are actively trading risk, where HFTs are non-existent, and the companies that represent the top 5 is what investors, speculators, and vacuum tubes should be focusing on. Not surprisingly, today's most active names are Banca Monte dei Paschi di Siena, Unicredit and Intesa Sanpaolo. Translation: someone is actively positioning for serious action in Italy shortly.

[Magda Hassan]

Interesting. I wonder what's up there?