Goldman admits to that its honesty and integrity is mere “puffery” (Judge insults George Orwell)
Do you ever wonder who you can trust regarding how to invest your financial resources? Of course you do! We all do.
A June decision from U.S. District Judge Paul Crotty may prove helpful to you in that regard. The judge’s decision related to the actions of Goldman Sachs between 2006 and 2008, when it “brokered” the creation of “synthetic collateralized debt obligations” and somehow managed to make millions of dollars on both sides of the transaction. Here is a brief summary of the facts:
1) In 2006, hedge fund manager John Paulson tells Goldman he wants to bet against risky subprime mortgages;
2) Goldman creates a synthetic subprime mortgage security and persuades bond insurer ACA Management LLC to “insure” the security issue, without disclosing Paulson’s intent to short it;
3) Goldman markets the issue, once again not disclosing Paulson’s intent;
4) German bank, IKB, purchases $150 million of the securities in April of 2007;
5) Paulson sells $1 billion of the securities;
6) Goldman pockets $5 million in fees
Photo credit:takomabibelot, licensed through Creative Commons (on flickr.com)
7) All during this period of time, Goldman represents itself in flowery terms such as:
a. “dedicated to complying fully with the letter and spirit of the laws, rules, and ethical principles that govern [it]”;
b. its “clients' interests always come first”;
c. it is sensitive to avoiding conflicts of interest.
The record shows that Goldman not only made money from fees paid by Paulson (and others) for the creation and marketing of the securities, but also from shorting the securities itself. Some might describe that as “double dealing”.
Not surprisingly, those who lost money from these securities (such as IKB, that lost their entire $150 million) took exception to Goldman Sachs and sued. Judge Paul Crotty’s opinion issued in June of this year was related to one of many such lawsuits.
The judge’s opinion included a footnote that addressed Goldman’s incredible admission that its own public representations of honesty, integrity, and putting “client interests first” are merely “puffery”… “non-actionable statements of opinion” – ie. meaningless hot air. Regarding that admission, the judge wrote:
“Goldman's arguments in this respect are Orwellian. Words such as ‘honesty,’ ‘integrity,’ and ‘fair dealing’ apparently do not mean what they say; they do not set standards; they are mere shibboleths. If Goldman's claim of ‘honesty’ and ‘integrity’ are simple puffery, the world of finance may be in more trouble than we recognize.”http://nymag.com/daily/intel/2012/06/judge-calls-goldman-sachs-orwellian.html
Good for the judge!! He had the courage to call Wall Street duplicity what it is… fraud, misrepresentation, and plain, ordinary, unfettered and unconscionable greed! Unfortunately, the judge insulted Orwell in the process, by tying him and his literary masterpiece with the soulless corporate culture of Goldman Sachs.
What just occurred this month (August) will be of little comfort to those who were wronged by Goldman in 2007-08, but it does demonstrate the truth that “the rain falls on the righteous and the wicked alike.” According to Bloomberg News, Goldman increased its stake in U.S. (Chicago based) stock market maker, Knight Capital Group, by 73% (bringing its total investment to $28.5 million) just before Knight lost $440 million on August 1 due to a “computer glitch”. Observers doubt that either the judge’s harsh words or the Knight debacle have taught Goldman any lasting lesson!
Submitted by Thomas Petty www.Examiner.com
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