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Wow! The SEC Formally Charges Goldman Sachs With Fraud

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Wow!  Just when you think the U.S. government is entirely incompetent and toothless when it comes to controlling the corruption on Wall Street something like this happens.  For those who have not heard yet, on Friday the Securities and Exchange Commission filed a civil suit accusing Goldman Sachs of securities fraud.  We’ll get into the details below, but first it is important to note how stunning all of this is.  Goldman Sachs has had an extremely chummy relationship with the U.S. government over the past couple of decades.  A whole host of former Goldman Sachs executives have been appointed to key government positions by both Republicans and Democrats in recent years.  In addition, Goldman Sachs was Barack Obama’s number one campaign donor, and its employees gave $981,000 to his campaign.  But in spite of all that, the SEC has decided to go after Goldman Sachs.

Someone out there has a lot of guts.  Although to be honest it is far too soon to pass final judgment on this while thing.  Let’s see how it plays out.  It could end up being a “white wash” after all.  But at least this is a hopeful sign that justice will be done.

You can see a copy of the official charges filed by the SEC right here.

These charges are a huge blow to the reputation of what is widely regarded as the most powerful firm on Wall Street.  Goldman Sachs earned a record $4.79 billion last quarter, and for years it has seemed as if they could do no wrong.

But all of that has suddenly changed.

After the announcement of these charges by the SEC, Goldman’s shares fell more than 13 percent.

The heart of the charges involves the failure by Goldman Sachs to disclose conflicts in the 2007 sale of a collateralized debt obligation.  According to the SEC, investors in the collateralized debt obligation ended up losing approximately 1 billion dollars.

So what did Goldman Sachs do that was so wrong?

Well, it turns out that Goldman Sachs allowed hedge fund Paulson & Co. (run by John Paulson – not related to Henry Paulson) to help select the securities that were to be included in the CDO.

The SEC says Paulson & Co. paid Goldman around 15 million dollars in 2007 to put together a collateralized debt obligation that included mortgage-related securities that Paulson & Co. believed were very likely to decline in value.  Then Paulson & Co. placed huge bets against the CDO.

When Goldman Sachs presented the collateralized debt obligation to potential investors, they did not tell them that Paulson & Co. was shorting the CDO.

In essence, what happened is that Paulson & Co. helped select mortgage-related securities for the CDO that they thought would definitely fail and then they bet big money that they would fail.  Then Goldman went out and marketed the CDO as a worthy investment to investors and did not tell them that Paulson & Co. were betting big money that the CDO would fail.

When the value of the CDO plunged dramatically just a few months after it was issued, Paulson & Co. walked off with about a billion dollars.

According to the SEC, within 6 months of the issuance of the CDO, 83% of the residential mortgage-backed securities in the portfolio had been downgraded.

Within nine months of the issuance of the CDO, 99% of the residential mortgage-backed securities in the portfolio had been downgraded.

Two major European banks were left holding the bag. ABN Amro, a major Dutch bank, and IKB, a German commercial bank, combined to lose nearly a billion dollars.

The SEC says that it is trying to recoup profits reaped on the deal.

Also being charged by the SEC is a 31 year old Goldman Sachs vice president, Fabrice Tourre.  The SEC alleges that he was principally responsible for putting together the deal and marketing the securities.

You see, this is what happens when you let a young kid play around with hundreds of millions of dollars.

In an almost unbelievable email to a friend, Tourre described himself as “the fabulous Fab standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!”

That is the level of maturity that we can apparently expect from Wall Street executives these days.

No wonder our financial system is falling apart.

In a statement, Goldman Sachs responded to the SEC charges by saying the following: “the SEC’s charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation.”

But of course Goldman Sachs never admits that they are wrong.

“Our short positions were not a ‘bet against our clients,”‘ Goldman Sachs said in a recent letter to shareholders that discussed Goldman’s behavior during the recent housing crash. “Rather, they served to offset our long positions. Our goal was, and is, to be in a position to make markets for our clients while managing our risk within prescribed limits.”

But other financial analysts are applauding this action by the SEC….

In a note to his clients on Friday, Chris Whalen, a bank analyst at Institutional Risk Analytics noted the following….

“This litigation exposes the cynical, savage culture of Wall Street that allows a dealer to commit fraud on one customer to benefit another.”

A brief video news report about these charges against Goldman Sachs is posted below….

So will there be additional charges against Goldman Sachs?

Let’s hope so.

The truth is that the misbehavior documented above is just the tip of the iceberg.

Goldman Sachs helped create the housing collapse by selling mortgage-related securities that were absolute garbage to trusting clients at vastly overinflated prices.  Then Goldman Sachs placed huge bets against those same mortgage-related securities and also placed huge bets against the U.S. housing market.  When the U.S. economy collapsed in 2008 and 2009 they ended up making huge profits.

“The simultaneous selling of securities to customers and shorting them because they believed they were going to default is the most cynical use of credit information that I have ever seen,”Sylvain Raynes, an expert in structured finance at R & R Consulting in New York, told The New York Times. “When you buy protection against an event that you have a hand in causing, you are buying fire insurance on someone else’s house and then committing arson.”

Even with today’s action by the SEC, it still seems extremely unlikely that Goldman Sachs will ever be held fully accountable for all that they have done.  They are just too big and too powerful and they have too many big and powerful friends.

But at least today is a beginning.

For years Goldman has been considered almost untouchable.  They have been considered an almost “all-powerful” financial monster that pretty much does whatever it wants.

An article in Rolling Stone described it this way….

The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.

But perhaps today will start to change that.

Let’s hope so.

For much more on Goldman Sachs and all of the mischief that they have been involved in, please read our recent article entitled “How Goldman Sachs Made Tens Of Billions Of Dollars From The Economic Collapse Of America In Four Easy Steps”.

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  • tyler

    I would pay money to see someone from goldman go to jail. I think they will have to pay a fine and won’t do jail time.

  • thomas

    Does this have to do with the obama bill. My guess it is so. Anyway just put them in jail and close the whole firm. When someone is stealing in real life he gets jail why does that not apply to wall street?

  • Lenny Pike

    They are nervous. This is a vote getting scheme.

  • This thing is all smoke and mirrors. It’s merely throwing the Serfs a bone to make us think that the puppets in DC are on the job and PROTECTING us. The FED owns Goldman. The probable motive for this is to let China and others think that “there’s a new sheriff in town” or to use as a diversion for some other scam they’re running on us. This is an agreed upon ploy.

  • Rick

    Ha, the SEC charging anyone with anything is the old “pot calling the kettle, black”. It’s a little late for the SEC to be doing anything. The SEC is another feckless regulator.

  • Dan

    As the author admits, this is the tip of the iceberg.

    If this is a serious development, the market should fall dramatically this week as the mass media tries to play down the significance. However, more likely is the precise opposite scenario – lots of mass media coverage with choppy, stable or even rising markets. If the latter, this development probably constitutes little more than throwing the dogs a bone and so much political theater.

    Sometimes Wall Street does seem to like punish the market temporarily when it appears the government is getting a little too uppity, so it will be interesting to see how this internecine power play among the major factions of the elites plays out.

  • Why pick on the SEC? I don’t doubt there are hard working folks at that institution who want to do their job. Problem is, the Washington elite don’t really want to fund an agency to go snooping around their questionable doings. Don’t think the SEC, FDA, or other regulatory bodies are swimming in cash and employees….

  • Matt

    MAXFAN is 100% correct – its ploy to make it appear that “something is being done” to quell the restless masses – it was planned out weeks, months in advance by The Syndicate comprised of DC + Wall Street.


    Just as MAXFAN and Matt agree it is nothing more than the sacrificial lamb.

    If you have not realized that everything, the market, presious meatals, etc is rigged you have already lost. No matter what you think I hope you are putting supplies away for the times that are coming.

  • Matt

    So now how does a Goldman customer know that Goldman isn’t trying to rip him off?

  • Joe

    This is just kabuki stuff to funnel the anger of the people. They can now say something like “look, we are going after the bad guy. By the way, we need new laws to help be even more serious.”

    This is BS.

  • Dan

    The market reacted with a shrug so far this week as financial stocks generally rebounded significantly from Friday’s retrenchment. No criminal charges are in the offing. At most GS will probably have to pay a fine of a several million dollars – a drop in the bucket for them.

    Of course, the GS customer cannot be sure that GS or any number of other similar institutions are not actually trying to ‘rip him off.’ This speaks to the basic reason for the action of the SEC and similar rumblings from other governments in Europe – to provide the appearance that something substantial is being done to correct the actions of a few ‘bad-apples’ in order to preemptively reassure the markets.

    All in all, a tempest in a teapot.

  • Lenny Pike

    And now the story of SEC employees surfing pornography sites is constantly being run on all of their media outlets (which is all media outlets in existence) to divert attention away from the fact that there is no regulation. They know the American People very well to choose a story like this to divert attention. Americans will be very interested. Also the fact that only 1 Billion is allocated to run the SEC yearly has been thrown out there as a reason. Yep, with 5 billion yearly something would have been done. Our government has been overthrown through the power of the masters ability to create money from nothing and our country has been allowed to be invaded not so much for the cheap labor but for America’s planned destruction so that through a world government they can completely run the planet. My estimate is that there are close to 100 million invaders. This number was arrived at by the ratio of foreigners to Americans I see on the street. I don’t only use racial profiling because a more accurate result can be obtained combining it with nationality profiling. Germans, Russians, French, Scandinavians etc. are all considered Caucasian but their facial and physical traits are different. Descendants of all these nationalities have lived in the United States for centuries so how do I know they are recent immigrants? Because their numbers have exploded upward in a very short time period and it is impossible for people to be born and mature into adults in that short period of time. What do all of these new immigrants legal or illegal know or care of the 2nd Amendment? We will see in the end that this is the main reason that they are here. We are the last country on the planet that the NWO has a huge problem with due to an armed population. Something happens every day at the U.N. with absolutely zero news coverage about it. Why is that? Ever wonder? Let’s just sit there doing nothing. Currently voting is the same as doing nothing. Maybe if 100% of incumbents are voted out at once then a change would occur, but what are the chances that will happen when most Americans will fall for this diversionary news story. What do all of these other topics have to do with the article about the SEC and Goldman Sachs?Everything that happens now in the U.S. may not seem to be related but it is because they are in almost complete control of everything and marching forward to their goal. They were forced to make us think that Goldman Sachs is going to be punished. It is all about a one world government run by heartless people who think they are higher and more important beings and have all of the answers. In one big prison they just might have them. Ever noticed those kind of people who think they are more important and intelligent than you? That be them. Some of them will see the errors of their ways and change, but the rest never will and it makes me wonder if they were born with out the ability to do so.

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