Blankfein (left) and Jamie Dimon (center) at the White House, March 2009
You gotta love Lloyd Blankfein for finally telling it like it is. Wall Street thinks we’re all suckers. If you don’t specifically ask whether a security or CDO is crap, shitty or junk, they have no obligation to tell you. That’s not their job. They just sell the stuff. It’s the 2010 version of “I just take orders”. There’s got to be another Milgram experiment just waiting for a post doc in yesterday’s hearings.
Here are some gems from Lloyd:
Levin asked Blankfein if Goldman has to disclose to investors in securities it sells that the firm plans to take and keep the short side of the transaction.
“I don’t think we have to tell them,” the chief executive replied. In addition, he said that when underwriting a securities offering, Goldman has an obligation to conduct thorough due diligence and provide full disclosure of the assets and risks involved in the deal.
Mortgage-related securities that Goldman underwrote and sold delivered the specific exposure that clients wanted, Blankfein explained. “There are a lot of opinions about how a security will perform against the market it’s in.
“Investors we’re dealing with on the long or the short side know what they want,” he continued. “If they ask the salesperson their opinion, they have a duty of honesty. But we’re selling securities all the time that are weak. The same securities that were the subject of those comments can probably be bought today for pennies on the dollar.”
and this from the NY Times:
Mr. Blankfein was asked repeatedly whether Goldman sold securities that it also bet against, and whether Goldman treated those clients properly.
“You say betting against,” Mr. Blankfein said in a lengthy exchange. But he said the people who were coming to Goldman for risk in the housing market got just that: exposure to the housing market. “The unfortunate thing,” he said, “is that the housing market went south very quickly.”
Senator Levin pressed Mr. Blankfein again on whether the his customers should know what Goldman workers think of deals they are selling, and Mr. Blankfein reiterated his position that sophisticated investors should be allowed to buy what they want.
Mr. Blankfein was also pressed on the deal at the center of the S.E.C. case. He said the investment was not meant to fail, as the S.E.C. claims, and in fact, that the deal was a success, in that it conveyed “risk that people wanted to have, and in a market that’s not a failure.”
Risk. That’s what Goldman Sachs was selling. It was all wrapped up in a pretty fiction of established Wall Street investment houses, where bankers arrive at their offices in chauffered limos and eat in luxurious dining facilities and work out in gold plated gyms. It all looks very clubby. But the reality was that these people were running a giant Monte Carlo casino using the hard earned retirement funds of carpenters and other working class people.
Behind the plush digs and $600 suits and cottages on The Pond are a bunch of guys with serious gambling addictions.
Sometime back in 2006 as housing prices peaked and started to decline some of them must have started to get a little concerned. In fact, Michael Lewis, who wrote The Big Short, says that outsiders looking in had the bankers’ number in 2003-2004. It was March 2007 when the money started to drain away in earnest.
So, when did Wall Street decide to short the presidential election?
Think about it: Many of the people on Wall Street should be at Gambler’s Anonymous. in 2007, they were about to lose everything if they couldn’t find suckers to play their games and cover their bets. Politics could have had a big influence on how much of a hit they actually had to take. Charlie Ledley, the garage-band head fund guy with a conscience who actually tried to explain the bets to the SEC, was concerned with his own short positions. He naively thought that if the federal government came to the rescue of homeowners, his CDS’s would be worthless. As it turned out, the government bailed out the banks instead so Charlie made out big. The CDO’s are still crap.
But if you are a Wall Street banker, you have to account for all kinds of possibilities. Picture the following three scenarios:
1.) A Republican wins. His party saw what happened during the last financial meltdown 80 years ago. That New Deal thing was a disaster for his party. He’s not going to make that mistake. Screw Keynes, enter The Great Depression 2.0. Oddly, Wall Street is probably not too keen on this idea. You can’t play the game if you don’t have easy marks on the other side of the bet. Depressions severely depress the number of easy marks.
2.) Democrat #1 wins. But she’s too much of a New Dealer type. She’s got mortgage bailout written all over her. That would mean regulation and mortgages will be adjusted and bankers will have to take a loss. That’s too much reality. She’s like frickin’ rehab. And besides, there’s always that remote possibility that the people who took out “liar’s loans” will suddenly have stupendous wage increases just in the nick of time when their 2 year teaser rate is up. It could happen. So, no, Democrat #1 is out.
3.) Democrat #2 is narcissistic one-trick pony with a pregnant mistress. Nominating him means the Republican wins. Moving on.
4.) Democrat #3. Ooooo, this one is intriguing. Did Wall Street court him or did he court Wall Street? Recklessly ambitious type. Muy simpatico. He certainly looks like he could fit into Wall Street. He wants to “form multi-disciplinary task forces to re-engineer our core processes so that we’re a world class organization”. He speaks their language. It’s meaningless, of course, and they all know that way down deep inside. It’s code. He’ll scratch their backs if they scratch his, to the tune of $900K in campaign contributions from Goldman Sachs employees alone. With Dem #3, it will be an exciting spin of the wheel. They’ll get close to the edge, probably a little too close for comfort, but in the end, they’ll be able to walk away with big profits, big bonuses and they can keep on playing. This guy is an enabler. Double down.
Obama sure made a lot of campaign money from Wall Street. His small donors accounted for something like 30% of his campaign stash. You don’t get a cool billion to run for president without making a lot of banker friends. It was their biggest short.
In light of that very real possibility, can we on the left finally dispense with the idea that Obama was the Change! agent? Lots of money will get you a very good PR firm with all of the marketing, astroturfing and social engineering you can eat. Maybe he’s not the civil rights hero, politically brilliant, 11 dimensional chess playing, post partisan Messiah everyone thought he was. Maybe he was just the best hedge Wall Street ever made and nothing more than that. You can stop pinning your hopes and dreams on him.
As Lloyd would say, “the investment was not meant to fail, as the S.E.C. claims, and in fact, that the deal was a success, in that it conveyed “risk that people wanted to have, and in a market that’s not a failure.””
The Obots bought it and made suckers of us all.
Extra: Michael Lewis has a lengthy piece in Slate where he plays his tiny violin for the bond market traders who are suddenly getting blamed for everything they do.
Simon Johnson at BaselineScenario.com has a piece about how some parts of Europe have slipped into “emerging market” status overnight and how the rest of the world is turning their eyes to Obama for comfort and guidance to stem the ensuing panic. Good luck with that.
Filed under: Bad Bank, Financial Meltdown of 2008, General, Goldman Sachs | Tagged: Barack Obama, Charlie Ledley, Goldman Sachs, Jamie Dimon, Lloyd Blankfein, Michael Lewis, Senate hearings. Ted Kaufman, The Big Short | 96 Comments »