Taking it in the Shorts

Heads we win, tails you lose

By JC

Finance regulation is all over the media recently, and it seems that some legislation is finally moving in Congress. But what do we really know about all of this? For most people, health care reform was pretty arcane stuff, but we knew that somehow it had the potential to affect us, and we paid attention and learned as we went.

Finance and financial regulation is much more arcane, and it’s adherents speak a foreign language. And somehow we are all supposed to understand enough of this to figure out what our Wall Street money-soaked crony capitalist legislators are supposed to do in D.C. in order to fix it. And the less “we” know of it, the better “they” will make out.

I’m not going to bore all of you with a lecture on derivatives, CDOs, or default swaps. But I am going to leave you with some quotes from Goldman Sachs in emails released Saturday by the Senate Permanent Subcommittee on Investigations, via HuffPo.

Consider this an open thread on the future of our financial system.

goldman sacks america

The firm made money on the upside — originating, securitizing and selling subprime mortgage-based securities to investors — and on the downside, thanks to the insurance.

“Bad news [we lost $2.5 million],” a May 17, 2007, email began from one Goldman employee to another. A security the firm had underwritten and sold had just lost value, costing Goldman about $2.5 million.

Further down in the email, the employee, Deeb Salem, wrote “Good news…we own 10mm protection…we make $5mm.”

The firm made $5 million betting against the very securities it had underwritten and sold.

In a July 25 email that year, Gary Cohn, the firm’s chief operating officer, wrote Viniar to update him on the firm’s mortgage market activities. The firm lost about $322 million on residential mortgages — but it made $373 million on its bets against the market, bets that increased in value as the market tanked.

About 25 minutes later, Viniar wrote back, “Tells you what might be happening to people who don’t have the big short.” The firm made $51 million that day.

In a Nov. 17, 2007, email, Goldman’s chief executive officer, Lloyd Blankfein, wrote to his top lieutenants in response to an upcoming New York Times story about how the firm had profited off the souring subprime market:
“Of course we didn’t dodge the mortgage mess. We lost money, then made more than we lost because of shorts.”

You want to warn something about the whole mess? Head on over to The Baseline Scenario and start reading and following Simon Johnson. It doesn’t get much clearer than his rendition of what happened in “13 Bankers,” which is next up on my reading list.

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  1. Lizard

    i expect finance reform to be the same bad joke health reform was. why? geithner and other complicit fraudsters are still holding the reins. it’s like asking a rapist to prosecute himself.

    here’s a good quote from a piece by sheldon richman, at cp.

    As Long writes elsewhere, the people who run the system con the public by portraying the marginal disputes as fundamental struggles. What’s really an internecine argument over where to move the line is represented as a monumental battle between Unfettered Capitalism and Enlightened Progressivism, or some such pair of misleading terms. Long writes,

    “Corporate liberalism functions via a façade of opposition between a purportedly progressive statocracy and a purportedly pro-market plutocracy. The con operates by co-opting potential opponents of the establishment; those who recognise that something’s amiss with the statocratic wing are lured into supporting the plutocratic wing, and vice versa. Whenever the voters grow weary of the plutocracy, they’re offered the alleged alternative of an FDR or JFK; whenever they grow weary of the statocracy, they’re offered the alleged alternative of a Reagan or Thatcher. Perhaps the balance of power shifts slightly toward one side or the other; but the system remains essentially unchanged.”

    This is why the alleged radical Barack Obama can be elected president and we still find economic policy in the hands of establishment “corporate liberals” Larry Summers, Tim Geithner, Paul Volcker, Christina Romer, Ben Bernanke, and Robert Rubin. You could see it coming, though: Obama got more Goldman Sachs-connected money than John McCain in 2008.

    there is no clearer indication that the two party system is a joke than when it comes to how the financial sector is treated. reform? if those bastards at the SEC were capable of doing their job, or if the mighty fed wasn’t totally derelict in its oversight responsibility, we never would have gotten to this point.

    as long as obama continues surrounding himself with criminals, liars, and fraudsters, no one is going to be held accountable. i’m sure there will be a few cathartic feel good moments from the “grilling” goldman execs will receive, but that’s it.

    after all, this fervor being whipped up against goldman is just a cheap political move to garner support for finance reform. the other big banks were engaged in the same level of fraud.

    real reform would put glass-steagall back in place and ban derivatives. and jail time for execs who committed fraud. obama could start with geithner. fire him for helping lehman hide its insolvency. anything less is just empty theatrics. and on “main street” the economic pain will continue.

    • Big Swede

      Should Obama also give GS back the $994K that helped to elect him?

      • JC

        Are you suggesting that donations from the financial sector are inappropriate? Like maybe we should ban contributions from industries to politicians who regulate them? Or are you calling for public financing of elections? Or banning contributions from corporations convicted of fraud, kind of like felons lose their voting rights upon conviction?

        • Big Swede

          None of the above.

          I was responding to Liz’s comment,”as long as obama continues surrounding himself with criminals, liars, and fraudsters, no one is going to be held accountable.”

          Every one else should be held accountable, not the Bamster.

          • Lizard

            are you mistaking me for someone else swede? are my comments not clear to you? do you regularly smoke rock cocaine? and are cartoons the only way your feeble mind can process complicated issues, like bipartisan corruption and large scale fraud? if so, then go back to the shallow end of the pool. the deep end is for people capable of moving beyond partisan theatrics.

            • Big Swede

              Liz, have you ever thought why no one ever engages you?

              You are humorless pariah. Every thing you write is dripping with bitterness and hate.

              What a miserable way to go through life.

              • Lizard

                since you can’t address the substance of what i say, and instead focus on your personal impressions of me, i am left to assume you just don’t get it. don’t worry, swede, you’re not the only one.

  2. Big Swede

    I like this cartoon better, the real root cause of the financial meltdown.

  3. Big Swede

    I know this is probably wasted on you JC, but some others may enjoy it.

    • JC

      Revisionist history, BS, is all I hear, in an attempt to whitewash any culpability of the right. But this piece says that more regulation would have lessened the impact of Freddie and fannie. You calling for more regulation?

      • Big Swede

        No, get the govt PC policies out of the home lending industry by basing an individual’s ability to actually make payments and hold employment.

  4. Big Swede

    Looks like whitewashing has to happen on your side too.

    • JC

      My side? And which side would that be? The anti-crony-capitalist side?

      I have no love for the Wall Street/dem connection. It is as corrupt as the Wall Street/rep connection. There’s absolutely no difference between the two parties when it comes to Wall street. They all just want to suck on that big money tit.




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