Charges Of Fraud And Strategic Default At Goldman Sachs

By
Services for Real Estate Pros with TheHousingGuru.com

An article in the Wall Street Journal has reported that Goldman Sachs Group and one of its vice presidents, Fabrice Tourre, have been charged with fraud in a civil complaint filed by the SEC. The complaint alleges that Goldman failed to disclose to purchasers of CDOs, collateralized-debt obligations, that the selection of the underlying mortgage backed securities had been influenced by Paulson & Company. With the bursting of the housing market bubble, the CDO investors lost $1 billion, Paulson raked in profits of $1 billion, and Goldman earned $15 million for handling the transactions.

 

Wall Street Shell GameAnd while the stock market and business writers are focused upon this story, an article in the Financial Times is, for me, far more interesting as it pertains to current issues in the housing market. It seems that a real estate fund managed by Goldman Sachs has lost 98% of its $1.8 billion in equity. Adding an interesting twist to the story is the fact that Goldman has chosen to return the keys to some of its investments back to the creditors, in effect choosing “Strategic Default,” an oft criticized option when chosen by defaulting homeowners.

 

To complicate matters for those who speak of the “morality” of not honoring one’s obligations, it was Lloyd Blandfein, CEO of Goldman Sachs, who recently described the efforts and actions of his company as “doing God’s work.” If Blankfein’s assessment is correct, then, it would seem that the question of the “morality” of strategic default may have been resolved for all of us.

 

Finally, while the SEC “appears” to be vigorously pursuing the case against Goldman Sachs, some might ask how the regulators were able to miss the offenses when they were committed. And what many would like to see is “perp walks” by the heads of companies who enriched themselves and their cronies at the expense of millions of homeowners and investors; but such action seems unlikely, with perhaps only a few “scapegoats” suffering for the misdeeds of their companies. It is good to see some action being taken, but it would be far better if our regulatory bureaucrats and politicians would do their jobs by providing the oversight and enforcement of the regulations already in place.

 

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Re-Blogged 7 times:

Re-Blogged By Re-Blogged At
  1. D B 04/16/2010 11:47 AM
  2. Bob Hertzog 04/16/2010 12:36 PM
  3. Mark Rienzie 04/17/2010 01:59 AM
  4. Ian Lazarus,CRB CRS 04/17/2010 02:13 AM
  5. Cliff Kavanaugh 04/17/2010 03:57 AM
  6. Rob Arnold 04/17/2010 05:21 AM
  7. Johnny Sarkis 04/17/2010 01:24 PM
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Rainmaker
196,498
Ben Yost - 303-587-4297
First Time Home Buyer, Mortgage Rates, Pre-Approval - Denver, CO
FHA, VA, Conventional - Mortgage Loans in De

Hold on you haven't seen anything yet!

Apr 18, 2010 02:54 AM #92
Rainmaker
455,517
John Mulkey
TheHousingGuru.com - Waleska, GA
Housing Guru

Ben - I suspect you're right; I just hope what we see will benefit the public.

Apr 18, 2010 03:11 AM #93
Rainmaker
1,846,440
Jay Markanich
Jay Markanich Real Estate Inspections, LLC - Bristow, VA
Home Inspector - servicing all Northern Virginia

Democrats never get perp walked.

Apr 19, 2010 01:27 AM #94
Rainer
6,813
Norman Moran
Keller Williams Main Line Realty - Lafayette Hill, PA

Don't get too excited about heads rolling at GS. Too many ex alumni in all the right places of our governement. This 31 year old vp is being offered as a sacrificial lamb for the current adminstration to push their financial regulatory agenda thru. They will end up making money and probably already shorted themselves knowing this was coming months ago. The banks own both the dems and republicans. Goldman Sachs was Obama's #2 contributor as well. http://www.opensecrets.org/pres08/contrib.php?cycle=2008&cid=n00009638

 

Apr 19, 2010 02:09 AM #95
Rainer
45,359
Dennis Erickson
Berkshire Hathaway Home Services Montana Properties - Bozeman, MT
My Best..., Always!

Republican, Democrat, it doesn't matter any longer, they've all bowed down to the almighty dollar.  At the same time they have disconnected from us, average Americans.  Hank Paulson, former Goldman Sachs exec hands $700 billion to his former GS protege Neil Kadashian (sp?) to distribute "as needed" to failing financial institutions WITHOUT ANY ACCOUNTING OF WHERE THE MONEY WENT!  Can you see the crime there?  I can.  Barney Franks, Chris Dodd, guilty of negligence and more.

The solution is this, in my opinion:  The whole congress is tainted.  Both sides.  They all need to go starting this November.  In their place we should elect heavily vetted independent candidates who will endure a vigorous public scrutiny on a local, state and national level just so we know what they INTEND to do in Washington, state capitol or local school board.  Then we need to petition the Congress to adopt a recall procedure so we can recall and essentially fire our representatives if they turn in to creeps while in office.  In an electronic era, this is easy to do.  This idea of waiting in 2, 4 and 6-year cycles to get someone out of office is an antiquated idea rooted in an era when a letter took a month to get from one party to the other.  An electronic vote of "no confidence" is relatively easy to achieve and would result in getting the bums out NOW before they can do more harm.

We can change things, one step at a time.  Let's get started.

Apr 19, 2010 05:09 AM #96
Rainer
64,064
Nicole Donaghy
Re/Max Purpose Driven - Lexington, SC
Helping Families Home in Lexington and Columbia

Great post -- you have an interesting point.

Apr 19, 2010 05:21 AM #97
Rainmaker
455,517
John Mulkey
TheHousingGuru.com - Waleska, GA
Housing Guru

Jay - It's politicians in general, makes no difference.

Norman - You're probably right about GS profiting from this; they've known it was coming for months.  They're also on board with "financial reform" which will make it more difficult for their competition.

Dennis - I've had "no confidence" in DC for years.

Nicole - Thanks for the visit.

Apr 19, 2010 06:13 AM #98
Rainer
31,350
George Wilson
Lincolnton, NC - Lincolnton, NC

John, This is one of the best blogs I've seen in a while discussing "the business" of Wall Street. I read most ofthe responses (agree heartily with Thomas #39 & Nathan #35) but generally most are happy to see GS "business practices" brought into the light. IMHO this is about all we will see and it's funny that it coincides with the 2010 election. Companies like GS have been doing this for awhile.  I don't think there will be real damage done to GS by SEC but it might set them up for civil liabilities from stock holders & investors. The Fed has a poor record of prosecuting the BIG criminals (ie income tax evasion; moving income to off shore accounts) and GS said today that SEC was suppose to inform them of the charges prior to making them public so that they could respond to the charges first. This is just a tip of the iceberg and we will never see the bottom until Congress stops taking money from wall street & rich investors (Yea Right, LOL)

Also for Peter #48 while its true that most government employees are underpaid, some do enter into government service in hopes of serving the general good. As for the current federal reserve officers & regulators, almost all of them worked for the financial institutions they were suppose to be monitoring; I guess they couldn't get a "real world" job either so they ended up working for the federal reserve. An old saying but true: "Put a fox to guard the hen house". Military procurement officers can't work for the civilian companies they interact with for 6 Yrs (?) after leaving the service; maybe same thing needs to be done with regulators & Federal reserve officers?

John, I don't know if you follow Dylan Ratigan on MSNBC but I think you both maybe reading the same script. He's been running a commentary on Wall Street & the bailout since last year hitting almost the same points you made here. An idea: Why don't you & him run on a ticket together 'cause I'm sure most AR's would vote for you. LOL

Apr 19, 2010 07:31 AM #99
Rainmaker
455,517
John Mulkey
TheHousingGuru.com - Waleska, GA
Housing Guru

George - Thanks for your comments. Quite honestly, I think this is much more for political show and for boosting the chances for passage of financial reform.  And while the SEC may be taking more of a "hard line" against Wall Street abuses, their past record is pretty dismal.

Apr 19, 2010 08:29 AM #100
Anonymous
Anonymous

John, you're crazy.  Crazy as in "optimistic." A characteristic I appreciate in all things not pertaining to Wall Street:)  

The SEC's can't regulate GS, they can regulate the markets in which GS plays.  The market then regulates the quality of these products. The SEC can't regulate these unlisted fake securities.  NO ONE can, but bureaucrats seem like an especially unlikely solution.

List these complex products on an exchange.  No one sniffs out a rat better than other rats.  Let Wall Street sort these out.  That stuff is far too complex for you and me...or at least me.  

I'd just like to know my neighbor put some money down and his rate won't adjust by 5%. The market wouldn't have bought that tranche with full disclosure.  

BTW...I'm looking forward to your follow-up on the Goldman/Greece thing...THAT'S the real story if any part of it is true.

Apr 19, 2010 09:44 AM #101
Rainer
60,622
Pam Turner, REALTOR®, e-PRO®, SFR
Century 21 Belk Realtors Dalton GA - Dalton, GA

Lie, deny and counter-accuse (my girlfriend's favorite saying!) - seeing a lot of that these days - even after they get caught!

Apr 19, 2010 01:37 PM #102
Rainmaker
455,517
John Mulkey
TheHousingGuru.com - Waleska, GA
Housing Guru

Anonymous - Ultimately the real winners will be those companies who are actually directing all this farce.  The "investigations" are nothing more than political theater intended to pacify a public eager to jump on Wall Street excesses. 

Pam - Sounds a lot like Congress :  )

Apr 20, 2010 01:31 AM #103
Rainmaker
135,650
Paul Francis
Francis Group Real Estate - Las Vegas, NV
Las Vegas Real Estate Agent - Summerlin Homes

@ John:

"I agree that this is mostly "show" and I also agree that firms should be allowed to fail, but that won't happen."

Just a thought... start promoting the right people that will end this nonsense. For me... it's Sharon Angle against Harry Reid in Nevada. You have a better idea of what is going on then 90% of the real estate agents out there.. Use your knowledge and talent for some real change...

 

 

 

 

 

 

 

Apr 20, 2010 12:49 PM #104
Rainmaker
455,517
John Mulkey
TheHousingGuru.com - Waleska, GA
Housing Guru

Paul - We all must be involved both locally and nationally.  That's the way to bring about real change.

Apr 20, 2010 03:17 PM #105
Rainer
17,100
Joey Arce
NUllennium Realty/NUllennium Lending - Huntington Beach, CA

Great post. Just ridiculous that it has taken so long. Maybe a little strategic dog and pony show for the current administration? I won't hold my breath for any prosecutions for the many cronies up there. Terrible that failure is forbidden for some! Great post again!

J. Arce/NUllennium Realty

Apr 21, 2010 05:01 PM #106
Rainmaker
455,517
John Mulkey
TheHousingGuru.com - Waleska, GA
Housing Guru

Joey - Thanks. Yes, don't hold your breath; you might suffocate!

Apr 22, 2010 12:25 AM #107
Rainer
288,231
Leslie Helm
Tennessee Recreational Properties - Jamestown, TN
Real Estate For Trail Riders

Hi, John. It's amazing what the "big boys" get away with!

Our house in Florida is under contract as a short sale. We originally got a mortgage with a local bank but it was sold to Countrywide before we were out of the parking lot so now we're stuck with Bank of America. A payoff statement was requested two months ago. There is $16,000 in escrow for "insurance" (HUH??that's 8x what insurance actually costs!) as well as "processing fees" and "other fees" which are neither explained nor removed. We won't sign off until they are. You never get to talk to the same person twice and you never get the same answer twice. I'll bet that if Mr. Obama had to endure this, he'd be "regulating" the financial industry alot faster!

Apr 22, 2010 02:32 AM #108
Rainmaker
455,517
John Mulkey
TheHousingGuru.com - Waleska, GA
Housing Guru

Leslie - The "big boys" are in bed with the DC boys.  Their shenanigans will continue to amaze.

Apr 22, 2010 03:20 AM #109
Rainer
135,632
Matt Robinson
Professional Investors Guild - Pensacola, FL
www.professionalinvestorsguild.com

Wow, Goldman Sachs doing something questionable or unethical?  I don't believe it!  (sarcasm intended)

Jan 20, 2011 04:20 AM #110
Rainmaker
455,517
John Mulkey
TheHousingGuru.com - Waleska, GA
Housing Guru

Matt - They're not called the giant vampire squid without reason.

Jan 20, 2011 05:32 AM #111
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