Perhaps the most glaring example of
deliberate financial fraud by an informed elite group can be found in the
example of Abacus, created by Goldman Sachs employee Fabrice Tourre and the
hedge fund Paulson & Co. in 2007 default.[i] Abacus
consisted of synthetic collateralized debt obligations selected and packaged by
Tourre and Paulson that Goldman sold to its clients, while assuring them that
the underlying mortgages were unlikely to default. Meanwhile, Paulson & Co
shorted or bet against Abacus by purchasing credit default swaps from the Royal Bank of
Scotland, which incurred a $840 million liability from backstopping the hedge
funds deal.[ii] Goldman
told clients like did not tell its clients it was betting against the same CDO
package it was selling them. ACA Financial Guarantee Corp filed suit against
Goldman in 2011 for deliberately misleading the company about the Paulson’s
investment in Abacus. Goldman
allegedly told ACA that Paulson & Co (one of Goldman's clients) "was
betting on a deal, when in fact Paulson was betting against it."[iii]
Goldman claims it didn’t mislead ACA and other investors, despite incriminating
evidence that surfaced in the form of Fabrice Tourre’s emails to his
girlfriend. In these emails, Tourre referred to himself "fabulous
Fab" and described creating "Frankenstein" products that were
nothing more than "pure intellectual masturbation" sold to naive
widows and orphans.[iv]
Despite
blatant evidence of intent to deceive, the SEC failed to seek criminal charges
against Goldman.[v]
Instead, Goldman settled a civil fraud suit by paying $550 million. Journalist
gadfly and would-be reformer Matt Taibbi recently penned an indignant letter
about government’s failure to right the wrongs of Wall Street’s many
transgressions, titled, “The federal rescue of Wall Street
didn’t fix the economy – it created a permanent bailout state based on a
Ponzi-like confidence scheme. And the worst may be yet to come.”[vi]
Taibbi expresses outrage shared by many Americans over the consolidation of wealth that has resulted from the
financial crisis. Emerging in the aftermath of the global financial crisis that
began in late 2007 is a world order dominated by a few governments and
corporations that have unprecedented control over global resources. Government prioritization of corporate
interests over public welfare during the financial crisis was reflected in the
lopsided allocation of funds to banks, including the bailout of investment
banks that should not have been eligible for relief, and the unlimited
backstopping of AIG’s credit default swaps while average Americans, who saw
work hours and income collapse, received little-to-no support. During
the height of the great financial crisis, secret Federal Reserve loans to the
biggest banks totaling $7.7 trillion enabled them to reap $13 billion in profits.[vii] U.S homeowners, who faced around $6.5
million in delinquent and foreclosed mortgages, saw little to no relief.”[viii]
In 2009, Graham Bowley reported in The New York Times that the federal
financial “bailout helps fuel a new era of Wall Street wealth” enabling “hefty
bonuses” to corporate Wall Street executives.[ix]
Goldman Sachs alone received $70 billion in combined funds from TARP, the
Federal Reserve, AIG, and the FDIC.[x] As of 2010, six U.S.
banks, held assets in excess of 63 percent of the U.S. Gross Domestic.[xi]
Perhaps most telling, the US government largely declined to prosecute those
financial agents responsible for the crisis within these monopolists, many of
which profited from rampant foreclosure fraud in the wake of the crisis. Reflecting on these data, Economist Simon Johnson observed: "The
US increasingly displays characteristics that we have seen many times in
middle-income “emerging markets” – new dimensions of vast inequality, forms of
financial instability that benefit the best connected, and consistently easy
credit for the privileged."[xii]
[i]
A. Clark, “Lloyd Blankfein Admits Goldman Sachs Failed to
Raise the Alarm Bank’s Boss Tells Senate its Derivatives Deals Fuelled Image of
Wall Street Out of Control,” The Guardian
April 27, 2010, http://www.guardian.co.uk/business/2010/apr/26/goldman-sachs-sec-senate-hearing.
[ii]
Z. A. Goldfarb and T. M. Tse “SEC
Sued Goldman Sachs to Break an Impasse,” The
Washington Post, April 20, 2010, A1.
[iii] J.
Chung, “Goldman: Insurer Knew Paulson was ‘Shorting,’” The Wall Street Journal, January 14, 2013, C3
[iv]
A. Clark, “Goldman Sachs banker Fabrice Tourre Faces the Music London-based
banker says he has been the target of unfounded attacks,” The Guardian, April 27, 2010, http://www.guardian.co.uk/business/2010/apr/27/goldman-sachs-fabrice-tourre.
[v] Reed
Albergotti and Elizabeth Rappaport “U.S. Not Seeking Goldman Charges,” The Wall Street Journal, August 10, 2012
p. C1
[vi] Matt
Taibbi, “Secrets and Lies of the Wall Street Bailout,” The Rolling Stone, January 8, 2013, http://www.rollingstone.com/politics/blogs/taibblog/secrets-and-lies-of-the-bailout-one-brokers-story-20130108.
[vii] Bob Ivry, Bradley Keoun and Phil
Kuntz, “Secret Fed Loans Helped
Banks Net $13B,” Bloomberg.com 27
November, 2011,
http://www.bloomberg.com/news/2011-11-28/secret-fed-loans-undisclosed-to-congress-gave-banks-13-billion-in-income.html.
Bradlye Keoun and Phil Kuntz “Wall
Street Aristocracy Got $1.2 Trillion from Fed,” Bloomberg, August 22, 2011, http://www.bloomberg.com/news/2011-08-21/wall-street-aristocracy-got-1-2-trillion-in-fed-s-secret-loans.html.
Graham Bowley “Bailout Helps Fuel a
New Era of Wall Street Wealth,” The New
York Times 17 October, 2009, http://www.nytimes.com/2009/10/17/business/economy/17wall.html?_r=1&th&emc=th.
Dylan Ratigan, “Goldman Sachs” Black
Magic, Here’s How They Did It,” The
Huffington Post, October 16, 2009, http://www.huffingtonpost.com/dylan-ratigan/goldman-sachs-black-magic_b_324095.html.
[xi]
Bill Moyers, Simon Johnson and
James Kwak, Bill Moyers Journal [on-line]
April 16, 2010, http://www.pbs.org/moyers/journal/04162010/profile.html.
Simon Johnson “Who is Carlos Slim,” Baseline Scenario, October 17, 2009, http://baselinescenario.com/2009/10/17/who-is-carlos-slim/.
hello good post and thanks for the info regarding the abacus products and many more.
ReplyDeletethank you