Goldman may owe British taxpayers $841m

god's work indeed - snake oil salesmen might be too much of a compliment...

Now how many investigators do the insurance company have to ensure we aren't claiming for lost cameras on our holidays, sick pay when we aren't sick, stolen cars that have been given away to get rid of them, etc, etc.

Isn't it about time the rich were treated with just as much, well disbelief as the rest of us mere mortals. There is no evidence that I have seen that can show honesty correlates with income.

Still, the recovered monies might correlate and therefore offer a better return for us all.

Any enterprising retired police with a friendly accountant friend fancy establishing a new business - Banking Bounty Hunter Inc., would be a good, descriptive name.

It is about time that some criminal charges have been brought. I'm sure if they must come up with the money the governments will have the taxpayers come up with the funds. Apparently the funds lost by individuals will never be replaced but the governments will take what they can and tell everyone how they have replaced "our" money.

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That's corporate capitalism for you!

This is what our politicians want here, so what is the problem?

This little episode will merely cost the UK taxpayer more.
Droves of lawyers all tucking in.
I predicted this would happen well over a year ago.
Nothing happens untill the lawyers have had their fill.
And the real funny thing?
Where are they going to put their (our) filthy lucre?

Perhaps an economy can actually be restarted by the lawyers ranting at each other.

Did a bunch of rich people get stiffed this time? Maybe something will come from this then...

This stuff is so far above the heads of the average punter that it seems like something from a parallel universe. However, it does give you an idea of what it is exactly that those expensively educated geniuses in the securities houses do for a living. I have read a couple of books about the rise and use of derivatives and financial 'instruments' in general but although the basic principles are understandable (most of these instruments are created to allow the 'customer' to either pay less interest on their debts,reduce their tax burden or invest in risky securities 'by the back door')the actual valuation of these instruments is something of a black art..The phrase 'toxic waste' gives you an idea of what certain banking insiders believed they were peddling..

I rather think that the blame should be placed where it belongs.
The "brilliant" UK Investment Bankers.
Probably the same or similar ones still being paid obscene Bonus Payments.
What a difficult job?
Screw up and risk losing the job.Along with lucrative income.
A bit different from our front line soldiers.
They only risk losing their life.And for a fraction of our Investment Bankers income.
The highest paid people in the UK should be our front line servicemem/servicewomen.
Any chance of the highest paid people in our Country feeling the least bit ashamed of the inequality that still exists in Great Britain today?
"Support our Troops".."But keep on paying us,more than them."
This country is being driven apart.And not by Terrorists.The Holy Grail is money,money,money.The greedy amongst us want more and more money.
The majority will just have to get on with it.
There is only so much money out there.And the minority have the bulk of it.
And no Political Party can do anything about it.Anymore than you can.

Do the usual rules apply for bankers?

5% interest every day the amount isn't paid.

How about an eternal ban agreed by them and other similar groups on speculating on state borrowing interest rates and the oil, metals and food markets around the World out of pure greed.

That was an impressive piece of clarity in boiling down some complicated stuff.

Robert:

That's a lot of money; And the major question! Is the British Taxpayers going to ever received the money from Goldman....

(D)

An interesting development.

But can anyone remotely imagine a similar thing happening in the UK?

We really do need to ship in from the US a consignment of backbone to insert into our UK authorities spineless posturing on white collar fraud and insider trading.

Plea bargaining would help a lot.

Halting once and for all the revolving doors between the regulators (FSA/take-over panels etc etc) and the financial institutions themselves would be another good move.

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The complexity of these transactions really does indicate that the regulation in the USA and the UK was and is far too lax.

Yet still nobody has taken any steps to tighten regulation - why? The regulators must be in league with the devil - is the only reasonable conclusion - and they should be safeguarding the public against these market perversions - that is after all why they are paid. But it is good to see that this blatant nonsense is at last getting to court. It does leave one thinking of the merit of asset confiscation without compensation!!! They should all be joining Bernard Madoff! (and not just suffering a large fine and perhaps exemplary damages.)

"The SEC's charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation."



OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO


Of course Goldman Sacs massagers will try and avoid the SEC's charges namely that of being one of the four circum ...scribed arrows around the RBS hole in their hour of horn of plenty need .

We (taxpayers) won't see a penny.
In court today, Imps and Gallagher (and a number of retailers) have been fined millions for running a cartel. As a smoker, I've been ripped off. The compensation goes to..? the government.
Similarly, big fine on GS. Large payment to US treasury.
Payment to RBS? Forget it.

I won't hold my breath.

At some point in time Goldman, the lawyers, will point out that the elected bodies and oversight agencies were told of these measures and indicated by doing nothing (at the request of banking lobbyists)that this was all fine. A threat to show the hearings and expose what the elected knew 6 to 8 years before the collapse will dull further inquiries by the governments.. The governments were complicit in all of this.

It was about time. More than a year since Obama took office? Should we expect some investigations on this side of the pond in 2012 then? Optimistic? Perhaps. It's just a start and I wouldn't bet on SEC winning.

Oh wot a larf. Even if they do get fined. And it will be a paltry amount. Then that will be used as proof that litigation works and that there is no need for more regulation.

Wonderful thing news. Seems our Mr Pesto has read the info available on many US websites, distilled the essence and hey presto or should I say Pesto here we go again. Must not soil ones hands with investigative journalism. Thanks for telling us that RBS was possibly defrauded of X million. One only had to read the court papers filed by the US SEC to see that ABN had possibly been bowled a low ball leaving RBS with a broken wicket. These SEC papers by the way are available on CNBC and other websites, they make very interesting reading; why don't you run them? So off to the races and down the Mile End Road for a quick pie and mash at Tubbys. The magic roundabout is alive and well.

What did Goldman say to RBS that led to a good win , was it "give me your tiered and humbled ass'es yearning to be Feered."

I wonder if Paulson has taken a short position on Goldman Sachs?

Mr Peston Wrote:
'Now although lots of people are uneasy about investors that take short positions, there is nothing illegal or unethical about anything I've just described'

Oh yes there is Mr Peston:

There’s an awful lot wrong with what you have described.

The banking system having been taken to the point of destruction by such dealings, thereby threatened the stability of nation.

As a consequence this country had to bail out the said financial system.

And the money used in such a bailout could not be used to fund the treatment of those seriously ill by our NHS.

Therefore some poor souls will have paid for it with their lives.

There's an awful lot wrong with gambling with peoples lives.

So when was any one in the UK, Banker or Regulator, going to say anything about this. Perhaps we have had a hand in framing the charges but why is it that I doubt this?

Hi Robert

I am afraid you have listed the wrong link for Paulson & Co in our article. The link provided in your article opens to an Investment Company that is run by Chester Paulson.

The Paulson & Co that is referred to with regards to Goldman Sachs is John Paulson and the link to his website is:

https://services.intralinks.com/logon.html?clientID=4817913983

I acknowledge the minuscule nature of the correction but given my avid interest in Hedge Funds, I had to share this.

Regards

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24. At 8:50pm on 16 Apr 2010, Dempster

Thank you. well said.

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What we need to ask is ..... is there ANY investment bank that has not acted fraudulently at some point in this whole fiasco......and when will we see the perpetrators of mass deception brought to criminal trial...

I suspect the answers to be No and never too many are complicit in it and we havent enough jails for them......

Surely the question is about the judgement of the RBS board? Who agreed to take over ABN even though most commentators thought it was a bad deal, without things like this being known, which would surely have come to light during due diligence? How many of the original members of the RBS board still there?

Perhaps a different question should be posed here.

"Should it matter to RBS / ABN / anybody else what the view of another company is when deciding whether or not to underwrite a CDO?"

If so, then why would you even trust RBS/ABN/... to do the underwriting? If they haven't got the expertise or the self-interest to do their own analysis, they shouldn't get involved. To tie this to the fact that somebody else wanted to short the contract is simply another piece of Peston spin. The people who invested in the contract did so because they believed it was easy money; take the premium and walk away when the contract expires worthless.

As ever, the principle of caveat emptor applies.



Incidentally Dempster, I hope you're paying 100% tax, or close to it, because otherwise you too are contributing to the diversion of funds from the NHS / failing schools / (MPs expenses). Not an attempt at bank defence, just pointing out that you can't really expect to get away with such lazy argument.

Selling a product which is essentially toxic debt !
How can you sell known bad debts and not be accused of fraud or misleading the individuals investing in this financial product?
Sharks in suits the lot of them, the Ponzi scheme is reinvented LOL!
The USA has debts which they package up and sell on to a UK bank, hmm not made anything no product just selling debt!

By the time this gets to the US Supreme Court everyone will be old. The Supreme Court is mainly corporate lawyers and the majority of cases are corporate law. Think about that. This court just ruled that coporations arte to be viewed like an individual citizen for donating to campaigns...wonder who will win the case????

#23. Meandmyself wrote:
"I wonder if Paulson has taken a short position on Goldman Sachs?"

I thought Paulson _is_ Goldman Sachs.

$1B is chicken feed for the Giant Squid. I want to see the New York Attorney General get involved then we will see real fireworks. This will then be criminal charges and jail time. He takes no prisoners.

If things get sticky in the courts, can we invoke anti-terrorist laws against the US this time?

"American Bankers" should this phrase even exist? I have worked in banking and finance for 37 years (in Europe) and to see what these Colonials invent and get up to beggars belief( hedge funds, sub prime, securitisation etc etc...), these "banks" need far more Government control and alot less reliance on " we would rather try and get away with it" and fill the coffers of Legal Teams which , less be honest, is just a money making game for them.Lets get them cleaned up or closed down.
I bet they have hedged against the fall in Goldman Sachs shares!!!

#24. Dempster wrote:
>>>Mr Peston Wrote:
>>>'[...] short positions, there is nothing illegal or unethical about...'

>>> The banking system having been taken to the point of destruction by such dealings, thereby threatened the stability of nation.

>>> There's an awful lot wrong with gambling with peoples lives.

Quite true.
And if there is nothing "illegal" we better make sure it will be and quick.

Make sure we not only separate retail from investment but also _investment_ from _speculation_

And let those taking short positions play in the same industry as casino gamblers and be taxed accordingly.

I'm fascinated by the fact Paulson deliberately specified a product that they believed was going to crash and burn, so that they could hedge that product and make money out of it? Yet , they are not guilty of any fraudulent activity?! Who'd have believed that Bankers can be legally allowed to be less forthcoming than second hand car salesmen! Maybe it is best that China does replace the US as global superpower, then they can do what the US does and charge people under their laws for offences committed elsewhere. I'd pay to watch Chinese courts trying Investment Bankers!

Surely the action of hedge funds could be described as manipulation of the market.

They can place a bet on failure of a company/asset/investment/currency and then do all they can to make that happen.

This seems to have happened with the Euro in recent months, where hedge funds have taken a short postion and then done nothing but rubbish the efforts of the EU to mitigate the debt problems of Greece.

"There is nothing illegal or unethical about anything I've just described"

Whoever it is who decides what is 'ethical' in the finance world clearly has a big problem. And not illegal - let me guess they hired a very expensive but highly 'ethical' lawyer to sort it out for them?

For some reason the word 'parasites' come to mind.

Important question - did you mean Paulson & Co. or Paulson Investment Co.?
Your link leads to the latter, but as you describe a giant hedge fund, and name Paulson & Co., I suspect the link is misdirecting. John Paulson was the chap calling the bubble, not Chester L.F. Paulson...

#23. Meandmyself wrote:
"I wonder if Paulson has taken a short position on Goldman Sachs?"

The answer is an emphatic "No"!!! John Paulson has long positions in Citigroup(C:NYSE) and Bank of America (BAC:NYSE). Subsequently, his portfolio has taken a slight hammering today. I study hedge funds and have read all of Paulson's 13F fillings with the SEC and as of now he doesn't have a short position. Furthermore, apparently the SEC approached Paulson for information on the trade since 14 Jan 2010. I would think that subsequently he would be unable to trade the share as it would encroach on "insider trading".

Paulson has a long position in GS back in 2009 but that was closed as of 3Q 09.

BTW

Keep an eye out on Deutsche Bank, they were another of the Brokers Paulson used extensively to make what is the "Trade of the Century"..

And I take it Goldman Sachs would be against the rise in NI contributions then?

Saying Paulson has done nothing wrong and that the 'civil' crime was in Goldman's failure to disclose is like saying a guy who's been put in his friend's will and then deliberately chooses a faulty bungee rope for him at their next jump has done nothing wrong, and that the jump organisers should've told him his friend chose the rope. Insane.

The financial markets are built on the premise of insiders stealing wealth from passive investors: ordinary people. This stuff happens every day and there should be criminal prosecutions.

When are we going to get rid of this awful rigged market system?

Interesting. Just from Preston’s synopsis it seems Goldman’s behaved perfectly correctly throughout.

"Goldman failed to disclose to the main adviser ..."

"Goldman also failed to disclose to those who invested in the CDO ..."

Good. It is not usual practice to disclose the trading intentions of one client (Paulson) either to 3rd parties (ACA) or to other clients (the longs). In fact it would have breached rules for Goldman’s to have made a client's trading intention known to other clients. Clearly if 3rd parties had known in advance that might have affected the CDO price before the trades were made or even have prompted the illegal use of inside information.

All market trades are between consenting adults who make up their own minds about the suitability of their trades. The longs knew the CDO components and their error was to incorrectly assume they would carry on defying gravity just because they had before. No one forced these guys to buy the CDOs and whinging after the event just seems bad manners.

Well done Paulson.

About time someone was prosecuted. I am just glad I got out of shares in 2000 and bought a house which I can touch.

Robert
Once again you and your readers have been duped. The taxpayer has no interest in this since the taxpayer doesn't own any part of RBS. The Exchequer owns part of RBS but once we've paid our tax that is the end of it. Anything the exchequer gets back from RBS won't be paid to taxpayers so why do you perpetuate this myth that we own it?
Certainly the government should pursue any fraud perpetuated against it but the idea that what we pay in tax somehow belongs to us is a fallacy perpetuated by the political parties and the media. If I buy something in Sainsburys I have no claim on the money I have paid. if I am forced to pay tax to the Government I have even less claim on what I have paid.

oh perrrleeeeese this is just the tip of the iceberg $1billion is chump change compared to what has gone on. They will hope this appeases the masses or there will be some out of court settlement, and the other Wall Street Leeches are doing and have done the same thing there is mountains of evidence suggesting large scale fraud has been going on for at least a decade, and lets not forget the US government and its advisers are full of wallstreet stooges and London is in some ways worse as it is the headquarters for a multinational cast of oligarchs banks who rub shoulders with them and ministers who do their bidding.

Missed a few facts

• Goldman Sachs Lost Money On The Transaction. Goldman Sachs, itself, lost more than $90 million.

• Extensive Disclosure Was Provided. IKB, a large German Bank and sophisticated CDO market participant and ACA Capital Management, the two investors, were provided extensive information about the underlying mortgage securities. The risk associated with the securities was known to these investors, who were among the most sophisticated mortgage investors in the world. These investors also understood that a synthetic CDO transaction necessarily included both a long and short side.

• ACA, the Largest Investor, Selected The Portfolio. The portfolio of mortgage backed securities in this investment was selected by an independent and experienced portfolio selection agent after a series of discussions, including with Paulson & Co., which were entirely typical of these types of transactions. ACA had the largest exposure to the transaction, investing $951 million. It had an obligation and every incentive to select appropriate securities.

• Goldman Sachs Never Represented to ACA That Paulson Was Going To Be A Long Investor. The SEC’s complaint accuses the firm of fraud because it didn’t disclose to one party of the transaction who was on the other side of that transaction. As normal business practice, market makers do not disclose the identities of a buyer to a seller and vice versa. Goldman Sachs never represented to ACA that Paulson was going to be a long investor.

@sharpcj

The Financial industry was, is and always will be a zero sum game i.e. someone wins and someone loses. I don't believe that taxpayers money has ever gone to John Paulson. The people who got caught in the wrong side of the trade were AIG, MBIA etc. The government bailed them out because they were irresponsible not PAULSON.


Also, if a hedge fund fails it implodes i.e. the government don't bail them out. To refer to them as gamblers is a fallacy. Why would the Chinese Government contemplate investing in Paulson & Co if he is a gambler as labeled here. The art of investing is complicated and to reduce to gambling is disrespectful.

Furthermore, banning short selling achieves nothing. Personally, with derivatives these days a CDS with its limited downside i.e. premium is safer for investors than shorting a share directly in most cases.

If you look into Paulson's trade it has a definite stroke of genius.

#35. "I thought Paulson _is_ Goldman Sachs."

It looks like it's nother Paulson this time, not the former GS CEO.

@54

The Paulson you are referring to is Hank Paulson the former Secretary to the Treasury. However, no relation to John Paulson, apparently Paulson is a common surname.

#53. HedgeFund4Life wrote:

>>> "The art of investing is complicated and to reduce to gambling is disrespectful."

I agree that hedge fund speculators are clever people (some geniuses as you think Paulson is), still I beleive speculating is closer to gambling than to investment. For sure it doesn't bring any social benefit, just like gambling (and I've already heard the excuse that they regulate the market by bringing down overvalued stock, we could do without the instability they produce when they atack a maybe overvalued stock).

You cannot disagree that there is a difference between investing and speculating.

I am not surprised at all with the actions of bankers and or any other type of so-called financial wiz-kid. Success has always been mearsured by the size of a persons bank balance and celebrity status,its very quite painful to lose either. Financial instruments, the short-selling of shares are the cocainne of these people. I am amazed governments allow hedge-funds to operate,the morals of the betting shop prevail in a world where life is a gamble without the greed of these types making it even tougher.It is taking the **** when we see these people donating large sums as appeasement for their actions.

I don’t think there is much to worry about here for the following reasons:

1. Goldman is a winner and always has been.

2. The hero in the above story is of course a baddy, a QUANGO. We have a mirror image QUANGO in the UK, the FSA, and this is set to go if the Conservatives get their way.

3. Paulson made a call that house price inflation had peaked in the US. Their cosmology was correct. If some suckers like ABN, RBS and the head of the FSA thought house price bubble could go on and on then I’m sorry but they made the wrong call. You win some you loose some. Paulson won. Congratulations are in order.

4. Paulson could quite easily have been wrong and everyone else right. The ratio of av house price to av salary grew to 6 in the US. It grew to 9.3 in the UK. CE warned about UK house price inflation but the herd drowned their voice out. The historical ratio is 3 and therefore anything above three is bubble territory.

5. It is not true to say in retrospect that these bonds were toxic and both Goldman and Paulson knew this. The buyers were there in plenty with their mistaken understanding of house price inflation, which would run and run. Paulson shorted when the rest of the world went long.

6. But at least the buyers and sellers did what they are supposed do; they put their money on their call. The SEC and the FSA did not do anything because they are not stakeholders. What is their interest apart from casual interest which is worthless or worse that of self-serving QUANGOs.

Sorry Robert (and anyone else here that's pro-finance), but saying that shorting isn't unethical was just to kick up a fuss wasn't it?
I think its also relatively easy to prove that (at least morally and philosophically), in most cases, making money just from other money is unethical. Some people have value systems that consider just lending money at interest and even renting property unethical. We can, after the last 20 years, begin to see why, can't we?
But, of course, ethics and morals isn't covered by the law, so.... ...it doesn't matter, eh?

What Whitehat and HedgeFund4Life seem to be saying is that it's perfectly legitimate to tell investors only half of the story or none of it because, unlike the rest of the population, they do not consider this to be lying.

I suppose it takes all crooks, I mean sorts!

There is quite a bit of spin going on in these comments so lets get some legal clarity.
Firstly, US house prices had been falling for over 6 months by spring 2007.
Secondly, Paulson approached GS to set up the vehicle and chose the majority of the tranches with the express intention of creating a vehicle that would fail with the full knowledge of GS. Once GS represented them selves as the creator and disclosed ACA's involvement they were obliged to disclose Paulson's part as originator and Paulson's expressed intention in chosing tranches.
Thirdly, if GS were confident of the quality of this vehicle then why withhold Paulson's part and intention.

I really do feel i've been banging my head against a wall here. The so called credit crisis was nothing more than highly organised and widespread mortgage fraud by both individual home purchasers and the staff of financial business' in the UK and US. Our Govts did and still have abandoned "the rule of law". The continued failure to investigate and prosecute here might fool the electorate, but the City's best customers being actively and deliberately defrauded is not forgiven and never forgotten.

PS GS is finished.

Drexel BL were fashionable once. Catherine Zeta Jones is still good on the daring Buds of May. Greedy people will no doubt continue to queue up. Thatcher's children cause mayhem, as predicted.
Next stop China, what a bunch of overpaid twerps.

@48 - You hit the nail on the head. This kind of trading is for the big boys who know what they are doing. The longs didn't see what was coming and the shorts did - that's the game.

I'm tired of people whining and whinging about all bankers. Sure, those that did something illegal, hit them hard, but otherwise they were just doing what they were supposed to do.

Life is about buying and selling, it is just a matter of scale. From those at the top buying and selling packaged bonds, to those of us at the bottom selling our time for salary/wages. It's all a gamble of the perceived worth of what it is you are selling.

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max keiser ranting about GS last year
https://maxkeiser.com/2010/04/16/max-keiser-the-goldman-sachs-are-scum-video/

I'm sure over the next few years many many corporate fraud and unethical practices will come to light. The credit crunch will come to be known as the great corporate heist. Maybe Enron was just a trial run, and sharks like Bernie Madeoff probably thought they would slip through the net amongst the rest of the engineered mayhem.
Jedra - if you are happy for your country's wealth to be used in an elaborate rigged poker game (because that's what this amounts to!) then you obviously won't be bothered about lending me your savings to nip to the local casino... that's if you have any.

John Campbell #8 . .. well off topic there isn't it?

67
The norm in a casino is the house usually wins. Question what encompasses the house in the financial markets? Is Goldmans the house? Is Paulson the house?

Mate, a "synthetic CDO" has to be by meaning have to have a buyer and a seller. Therefore, one party wins while the other loses, unlike the casinos the probability is not lopsided. The winner this time was John Paulson the hedge fund manager of Paulson & Co.

Please, don't buy into the hype created by the mass media and rationality is the call of the day.

Robert, you are quite selective in reporting the facts of how RBS lost its money. Perhaps you are trying to follow Goldman's lead, no?

ABN, prior to their RBS takeover, entered into a back-to-back swap with Goldman (GS) and ACA. ACA, an Abacus investor, would pay ABN (RBS) if their exposure to Abacus suffered a loss. In turn, ABN (RBS) would pay GS the same loss amount (which GS passed onto Paulson & Co). ABN (RBS) intermediated the trade between ACA and GS for a small fee (0.17% p.a.) and believed that they were covered no matter what happened to Abacus. ABN (RBS) lost their money primarily because of counterparty risk when the trade blew up. That is, RBS owed GS the loss amount which they had to honour or be declared in default. Problem was that ACA defaulted and couldn't pay their amount due to RBS. They miscalculated the risk that ACA wouldn't pay up.

Whether fraud was perpetrated or not in Abacus, the fact remains that ABN or now RBS lost their money thanks to their poor judgment in ACA and them not paying up. There were many other deals done with ACA and those that were exposed to them have lost money through ACA defaulting on their obligation to pay up in full.

David Lilley sees nothing wrong with the GS and Paulson positions.
Please allow my to offer an comparison/analogy, and allow you to consider whether there is anything wrong with it?

Imagine Toyota are fully aware that in the next 12 months they are going to have to issue a general recall of many of their models. An exercise that will certainly cost them many hundreds of millions of $.
Aware of this, imagine now, they seek and purchase insurance to cover this cost.

The insurance company is assessing the risk of recall against Toyota's prior good record on engineering excellence.

Once the news regarding the recalls is releases, and the claim for these hundreds of millions of dollars is posted, the insurer has been duped.

This is insider trading, but on the insurance market.

Were I to fail to inform my life, or car insurer of relevant and pertenant facts material to my risk assessment, I know my policy will not be honoured should I claim on the policy and these missing facts are relevant to the claim.

Surely this is the exact same situation we have here.

That the claim was honoured is where the fraud occurred. Setting up this financial instrument to fail, and at the same time to leverage on the failure, is fraud.

Here lies the crux of the case and will be the reason these people and enterprises will be in the court house ... (Actually knowing the U.S legal system some quiet and unpublished settlement will happen) eventually.

Joseph Postin -- your analogy is badly mistaken in this case.

There is no allegation here of any kind of "insider trading". There is no way that GS or Paulson "knew" any better than anyone else what was going to happen in the market. Nobody is saying that material facts about the CDO or the securities backing it were withheld from buyers.

Anyone buying this CDO would know perfectly well that there was a party on the other side of the trade, and that there would be people betting against the trade. And would know that GS was an intermediary between the parties, trying to make the trade happen and make a profit irrespective of which way the market went. That is the normal and proper function of a bank.

If it is as alledged then this almost beggars belief. I can't believe it is quite that simple otherwise it would imply that a large swathe of the investment banking industry is peopled by morons and the other half are spivs.

Can it really be a perfectly legal and ethical state of affairs for an investment company to have any inpute into the design of a product and then take one side of the position without having the counterparty fully informed that the counterparty was the part-designer of the product?

It does however reiterate that the despite the complexity of these instruments they are of no practical use or value to the humanity. Just ban them and have done with it.

No. 52 Whitehat has it about right, although to say that ACA Management were duped is probably incorrect, ACA designed the security with Paulson and Co.

To say they were not told of the intention to short is to assign a level of naivety to ACA that is not reasonable.

The buyers of the securities knew the risks, they had ratings.

The CDC insurers gambled on those risks.

Had the market not crashed, Paulson would have lost and RBS would be paying out even bigger bonuses right now. This whole story has just served to hit Goldman for 10% share value and jitter the market.

Scaremongering and pandering to the paranoid.

Let's give them a fair trial and then have us a hangin'.

Seriously, I believe there is a case for bringing back the old meaning of 'outlaw'. Simply put, bankers and associated bean counters can have their salaries, bonuses, etc. However, there is a downside. If their bank/ business folds, then they are personally liable for the debts; their assets can be seized to pay. Until the debt is paid off, they have no legal rights; no protection from or recourse to law, no right to benefits for them or their families, no right to employment, and no right to protection from the police. Should aggrieved parties decide to take matters into their own hands, as happened in Germany recently, then...tough. Knowing that they will have to account for any debts personally, and that they could suffer physical violence, or worse, would - I hope - make some of these crooks think twice.

I have always distrusted Bankers and their ilk, as a person who has never invested a penny in any market/share or anything else I find it laughable that people complain when the whole thing collapses around them.
If you are going to gamble (as that is what it boils own to) then there is obviously a possibility you will lose.
To then come along a few years later and claim the game was rigged, is nothing more than sour grapes.

This will come as no surprise to anyone that has ever dealt with Goldman Sachs, if you are smart investor you avoid them. The only people to make money when dealing with Goldman Sachs is Goldman Sachs.

Take a leaf out of my book don’t deal with them.

The fact is, that paulson simply backed some horses (bonds) that it thought would fall during a race. Nothing wrong with that if you are a gambler. The idiots here are the people at the banks who didn't study the form of those horses enough.

If Paulson could identify the riskier bonds, then the banks could identify them similarly and decide for themselves if the risk was worthwhile.

So the really only sticky situation here is if somehow Paulson had knowledge that was not available to the investors/insurers. I guess thats what the GS thing is about.

Seems pretty straightforward really.

There will be the usual judgement that all Investment Banks operate with similar principles, but GS is actually an the world's biggest hedge fund wrapped round an M&A franchise. Once you understand that, much makes sense.
They are universally distrusted in other market areas such equities, fixed income etc.
This has been a long time coming, but we'll see if anything comes of it.
The lawyers will continue to make hay.
Why does no-one go on about greedy lawyers btw?

This all reminds me of the Guinness case where share prices were proped up by underhand dealings, and when the support for a false market disappears the price falls.
A more recent example of this is Quinn Group and Anglo Irish Bank.
Leave gambling to the bookies and have the banks help to create real weath, not paper wealth.

I sincerely doubt the right kind of regulation and enforcement will be instituted in the UK. The FSA has little understanding of some of these complex securitisation products, would be incapable of asking the right questions let alone creating a model to at least guess the risk, so we'll always be vulnerable. The FSA has neither backbone nor stomach for this heavy stuff.

It is more worried about admin matters like catching insider traders and things to bother with these more complex products. They're all at it in the USA and it'll come to our shores all too soon.

So one of the most important moves should be to isolate the taxpayer from any further bailouts on investment banks. Let them fall this time as Lehmans did in the USA>

I've nothing against hedge funds per se, and no criticism of GS through to RBS for their part either. They're all big boys and they all know the risks.

Just separate casino banking and this type of speculation from anything that can affect day-to-day banking and then there's nothing to rail against or bail out! Let them exist in a high-risk bubble of their own making and let that bubble be the zero sum game.

They should be free to play with their own money and they should be taxed accordingly. This would be a win-win for the state and the non-gamblers, but apparently the state doesn't govern in the interests of the simple non-gambling man.

All over the planet there are people gambling with the livelihoods and savings of citizens everywhere.Speculators are just that -gamblers who are joyous when somebody loses and they win.What kind of mentality seeks to benefit from other's misfortune?
All the huff and puff recently about Greece was fuelled by those snakes in the grass betting against the greek government.Swiss banks refused to pay over the savings of Holocaust victims to their rightful heirs without a death certificate -knowing full well they had no way of producing one. It took 50 years to get compensation for that act of callous greed.I do'nt think anyone can be happy being a banker anymore -most of us think of them as stinkers.

This story sounds like the billions of dollars of deals set up for the hedge fund Magneta which shorted the CDO's it bought as reported by American Life just last week.

https://www.thisamericanlife.org/radio-archives/episode/405/inside-job

I wonder how many other fraudulent deals there were? I doubt this alleged fraud was the only one!

A horse race is arranged, there are only a couple of runners, a man called a "bookie" gives the odds he will pay out if either one of the horses wins, you think the less fancied horse might win or has a better chance than the odds the "Bookie" is giving.

You think the horse has a 3 to 1 against chance and the "bookie" is offering odds of 5/1 against.

The choice of whether to bet and how much is yours.

That is straightforward gambling and as Peston says, neither unethical or illegal.

However, if the bookmaker offers what seems like very generous odds of say 10/1 because he has been told by the stable lad that the horse has a cough then that is the equivalent of insider trading and is unethical and in the Financial world illegal.

In general one must still adhere to " CAVEAT EMPTOR" and the maxim, if it looks too good to be true, then it probably is, so how these so called professionals saw any upside to a repackaged bundle of highly risky NINJA mortgages, and how on earth ratings agencies have not been prosecuted for simple fraud in rating them at anything other than JUNK, I can not comprehend.

As a point here, just because Goldman created this CDO as a mechanism for Paulson to buy protection on, and ultimately profit from I dont see the actual issue with what Goldman did. So long as their is transparency on the makeup of the CDO (which is not exactly easy sometimes) then its basically a Hedge Fund taking a different view to those investment banks who protected on this to start with.

I think the group responsible for the creation and selection of reference entitites that comprise the CDO is under no obligation to disclose the decisions for the makeup of the reference entities. This could quite easily have gone the other way and Paulson lost money had the references not defaulted (thus making RBS (ABN) some money). If we are honest on this point there were a lot more CDO's comprising poor quality debt that just incidentily ended up being as bad as the CDO talked about here.

The larger question is, when looking at CDO's the financial models and overall risk associated with them was nowhere near the actual valuation and risk of the CDO. I think Paulson had a very good idea, just because Goldman created this then sold it off doesnt really mean that Goldman were fraudulent. The Investment Banks who subsequently bought and protected that debt are, purely on the basis that they didnt correctly value / risk profile that CDO. I dont see the problem, and if banks are going to be accountable for the creation and justification of reference entities in collaterised obligations, thats quite dangerous.

"Now although lots of people are uneasy about investors that take short positions, there is nothing illegal or unethical about anything I've just described." - BBC Robert Peston | 18:09 UK time, Friday, 16 April 2010.

I myself and many others would beg to differ and VERY strongly disagree. This type of trading may be legal but in my opinion and that of MANY MANY experts and intelectual people it is TOTALLY UNETHICAL.

As it happens, it was the credit agencies that provided the DECEPTIVE credit ratings for the sub prime mess and near total collapse of the world banking system and this WORLD recession. Millions of lost jobs, lives and countrys economys wrecked and decades of debt being forced upon as yet unborn children as well as present populations being made to pay a heavy financial price which is going to reduce personal incomes for billions of people and reduce and damage health services, education, policing, pensions etc etc etc.

The MASSIVE MASSIVE debts and economic damage caused is also going to MASSIVELY MASSIVELY directly effect and damage the WHOLE worlds ability in dealing with climate change with a total loss of more than $3TRILLION for the world from costs incurred from this "ethical trading".

THEY, the credit agencies who are NOW demanding that countrys pay the debts incurred by the very same agencies whos actions of Robert Peston's perceptions of "ethical" deception, but in my opinion FRAUDULENT labeled and these agencies who KNOWINGLY sold attocious Sub Prime mortgage debt as a MUCH lower risk rating than was the FACT and TRUTH and aparantly "ethically" allowed much of the worlds banks, pensions and investment organisations to purchase these FRAUDULENTLY labelled debt bonds at far above their actual worth and value.

I a comparable they basically sold a shunt and chopped write off car as a good car without telling buyers the truth that they were investing in dangerous rubbish which was not worth the asking price.

These people and their new forms of trading I think is basically playing a form of Russian Roulette with the worlds wealth but loaded and manipulated in these so called "ethical" investors favour who from this report and action seem to conspire, deceive and manipulate to attain maximum profit regardless of creating financial victims. I personally would call it criminal activity.

If this was done with a car, then this is actually a criminal offence, yet where are the prosecutions in USA & Europe & elsewhere. This investigation/case of Goldman Sachs by the US financial watchdog, the Securities and Exchange Commission is still just the tip of a very HUGE but complex iceburg.

LETS NOT FORGET THAT THESE VERY SAME PEOPLE ARE THE ONES WHOS DEVIOUS NEW WAYS OF trading, -GAMBLING WITH OTHERS WEALTH & PEOPLES LIVES and WORLD SUSTAINABILITY, actually, were the MAIN CAUSE of this current world recession.

Lets get this reasonably and realistically right.

We call these new forms of trading "new markets" but in fact they are just a "NEW GAMBLING GAME" with winners and losers. They basically manipulate and funnel wealth away from those who work the fields, dig the mines and manufacture the worlds goods and necessitys, ESPECIALLY the necessitys, to enable a few gamblers to become excessively rich.

These capitalist gambing games are specifically highly complex and I believe specifically intended to dissuade regulatory bodies from fully investigating due to the sheer massive costs involved in such complex investigations, and the ONLY reason why they are being investigated now is because of the MASSIVE resultant negative outfall of complex deceit which build up over time like ANY basic criminal pyramid selling concept and has resulted in such massive losses to countrys and ordinary people. This ia ALL while many of these gamblers are going around sweeping up the remaining crumbs.

Alternatively, and as well, there are some who are financially gaining £$billions from this, there are some who have bought up and bought into a huge chunk of the worlds resources VERY cheaply and now control essential basic materials as well as transfer of manufacturing into a fews ownership. For some, this whole world recession has been very very profitable and I personally wouldnt put it past some to have maniulated a situation over time to create this present situation resulting in a planned smash & grab of the worlds economy and resources.

To say that a few mistakes were made is I think FAR from the truth.

I personally think that these responsible people should either be imprisoned for life or even executed for the damage to the world that they are hugely to blame for & which is, I believe, on par with many Nazi attrocity war crimes.

LEST WE FORGET THOSE WHO SUFFER AND CONTINUE TO SUFFER AS A DIRECT OR INDIRECT CONSEQUENCE OF THIS ongoing continued played CAPITALIST ATTROCITY, which in my opinion is far far from any decent "ethical" behaviour in ANY MORAL context.

the comparison of betting to bankers is a joke, the bankers either win or they win, thats not a bet.They are a load of money grabbing rip off merchants,my friend was surprised and upset she got £23 interest for a year in a nationwide account for £9000, if i were her i would stick the £23 where the sun doesnt shine.

Enron,
worldcom,
madoff,
stanford,
rajaratnam insider trading
FSA: Biggest-ever insider-trading raid
Lehman bankruptcy disclosures that they were hiding losses
Goldman subprime fraud
Goldman fraud regarding greek debt/bonds
Repo transactions fraud
Ambac is suing Citi over misrepresentations of the risks embedded in mortage-based assets
There are many i must have missed
How many more...When will people learn...when will people learn that nobody earns for anybody else...
The only person who wanted everybody else's good before their own was Jesus Christ...and certainly not banksters...

number 90 you forgot brown, hes trying to save the world you know...on the £9000 ,i just mentioned, i reckon you would get a better return, than 23 quid, , putting the 9 grand on west ham NOT to win the premiership,thats how pathetic the banks are.

83.
I still don't understand how this 'split off the casino' bit works.
Were Northern Rock, HBoS, B&B etc., Investment Banks?
The banks that are recovering and rebuilding capital are the Investment Banks. RBS has outperformed Lloyds for example, year to date.
'QE, free money', you all cry, but that's the point. Recapitalise them and then the lending will start again. The politicians will admit this in private.
High St banks will not get going on their own.

@HedgeFund4Life, very patronising and unappreciated.

Are you being paid by these people, because if not you should have a look at yourself, deeply. I'm surprised by the number people coming to the defense of GS and Paulson, and it is a big reason why these people get away with the frauds they commit.

I have no problem with short selling or derivatives, or even hedge funds, as long as taxpayers aren't the counterparty of last resort when the fraudulent contracts blow up. What Paulson did was collusion, where many GS managing partners and executives have material interests (indirectly through various offshore holding companies)in Paulson & Co and have benefited substantially from this and many other fraudulent contracts.

The argument that the investors were 'consenting adults', 'sophisticated' and had enough disclosure is absolutely false. It wasn't the fact that CDO's naturally have a short side it was the fact that Paulson had hand picked these securities most likely to fail, which was not disclosed. That's fraud plain and simple and Paulson is just as guilty.

When the CDO market was invented Paulson had a hand, knowing they would blow up eventually. These banks are a cartel and even if RBS knew these securities would fail they were hoping to pass them on to a greater fool, ideally a passive investor, before they blew up. But the pool of greater fools dried up and the pyramid scheme collapsed.

So HedgeFund4Life, the zero sum game is exactly why insiders have to steal from passive investors to make any money, rather than building capital and investing in production. It's wealth transfer on a massive scale and, as I've said, fraudulent. And this is just one tiny example.

Paulson is not a genius he's a crook. And it's the people who want to keep this rigged market system for themselves that get on here and defend these criminals.

I found it very illuminating to read the actual SEC complaint, which can be found at:

https://www.sec.gov/litigation/complaints/2010/comp21489.pdf

Very clear as to what is alleged to have happened.

@94 tomfairfax
Thank you, a very good link.

Reading so far, the only truly illegal act was by Tourre who stated Poulson invested 200mill.

Section E No.27 clearly shows GS advised ACA of the Poulson list. And the following paras emphasise this.

Against the backdrop of increasing property prices (bubbling up) non of this is unreasonable trading. Unfortunately.

Excellent link. thanks again.

C'mon BBC & Preston & co, use some plain speak please.

This is NOT trading or investment management it is purely GAMBLING.

It would be more honest to describe Goldman Sachs as the Ladbrokes of Wall Street.

Investment fund managers - a man or woman who uses their rent or electric money and bets it on bingo or horse racing or roulette could be regarded as an investment fund manager. NO difference.

Betting on short term highs and lows or even long term highs and lows is no more than plain gambling.

These stock exchanges are much more like a rich boys toy version of Ebay auctions..

The fact is, is that this gambling is one of the main elements which continuously drives prices up of all the worlds necessitys, products, commoditys.

Take petroleum or any singular commodity.
These gamblers basically between them buy up as much availability of any commodity as is possible from their short term access to funds, which has mainly been previously borrowed from customers money held in their accounting records or pensions funds etc.
They hold onto that commodity knowing that end users, manufacturers and retailers will eventually have to approach to replenish stocks for sale. The gamblers hold out as much as they can especially and until they are offered even a minor rise to secure supply of the commodity/product/produce, because the minor rise is quite substantial when you are dealing with large numbers.

Often, any minor excuse will be used to increase price, like if Mahmoud Ahmadinejad and Shimon Peres sneeze in the same week, or even the same day, any excuse or minor instance which can especially be used to cause alarm.
The constant daily troubles between Israel & Hammas are one of the most commonly used excuses to continually push up petrol prices. If someone in Gazza throws a larger rock than the day before, at Isreal then the paranoid button is pushed which seems to have a direct intravenous line into the veins of these gamblers who in an instant transform into replicas of the joker from Batman.

Any troubles in the middle east have the same direct consequential effect,this is especially so of words between USA & Iran.

Will USA bomb or invade Iran, will Israel bomb Irans nuke plants, will Iran retaliate and bomb Israel.

Even though these happenings are far from instant reality, any and all minor exchanges of words are used and manipulated by gamblers solely to increase petrol prices in the market of which they have bought up as much supplies as possible.
It is near impossible for smaller petrol independents to operate because if they attempt to buy direct from producers, the gamblers will just offer to pay a slightly higher price to ensure they re-gain control and so that the independants can ONLY deal with them and through them.

When the likes of Goldman Sachs are reported in the media as being an important investment bank, they are not, they are an important gambler and manipulator who's wealth gained from such attrocious practices has provided them with more power and control than that of many many governments, which is why Goldman Sachs and others can bring the whole world economic system down as easily as slicing through butter on a hot day.

Here is CNN News report and the prosecution of Goldman Sachs.

https://money.cnn.com/2010/04/16/news/companies/sec.goldman.fortune/index.htm?hpt=T2

96 Yep your right they are nothing more than gamblers, but any good gambler will tell you , you need inside knowledge to make real money.
Also if your smart you gamble with other peoples money!, then your title changes from gambler to fund manager!

This one could run and run. It falls into the grey area between insurance and banking where the industry practice defines what the contract buyer has to tell the seller. Insurance relies on 'Utmost good faith' and the buyer must tell the seller all material facts about the contract. Banking requires due diligence on the part of the seller to find out the facts.
Was it a banking transaction or an insurance transaction? If the judge decides it was insurance, GS and Paulson haven't got a leg to stand on. It will fall on GS's professional indemnity insurance because they were acting like a broker. And the PI insurance was probably written in London. Let's face it: the only people who will make a profit out of this are the lawyers.

@Sharpcj

I am currently in full time education and subsequently am not the benefactor from the generous donations of the so called "crooks", they usually tend to squander their money on politicians.

Unfortunately, you don't see the whole picture in this situation I would make it clear from the onset that I am not defending Goldman Sachs. Paulson being the buy side client HAS NO ROLE WHATSOEVER in marketing or selling these products. He simply approached Goldman who were the market makers and he worked with the ACA to establish the mortgage derivatives. Again, there is NOTHING UNUSUAL OR ILLEGAL about this and explains "WHY THE SEC IS NOT CHARGING Paulosn".

The level of innovation and complexity of these derivatives need to be appreciated before jumping to conclusions. Buy side clients often approach sell side firms like Goldman for new products.

Finally to " Fraud". My dear friend are you aware of the fact that Goldman was amongst the highest donors to President Obama's presidential campaign. Furthermore, I am led to belief that financial firms were and are equally generous to political campaigns here. I think you can read between the lines to procure where my finger points at in terms of "crooks".