- Today's Senate hearings, carried on CNBC, Bloomberg,
and C-SPAN, represent the first major exposure of the American people to
the scandalous frauds of the derivatives casino, including synthetic collateralized
debt obligations (synthetic CDOs or CDO2). These are things most people
have heard very little about. They begin to open up the shocking reality
behind such shopworn euphemisms like "toxic assets," "exotic
instruments," and "troubled assets." Reactionaries in general
and Republicans in particular have done everything possible to hide the
role of derivatives, which must be considered the main cause of the financial
panic of September 2008 which brought down Lehman Brothers, Merrill Lynch,
and AIG, after felling Bear Stearns in March of the same year. The reactionary
legend, repeated yesterday on the Senate floor by financier minion GOP
Sen. Gregg of New Hampshire, is that the crisis was caused by poor people
taking out subprime mortgages and then defaulting, bringing down the entire
Anglo-American banking system and triggering the bailouts. Either that,
or too much government spending was too blame.
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- A mass of kited derivatives blew up in September 2008
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- This Big Lie has come from such propaganda sources as
the Limbaugh Institute of Retarded Reactionary Ranting. But the $1.5 trillion
in subprime mortgages were dwarfed by the $15 trillion US residential real
estate market, to say nothing of the $1.5 thousand trillion world derivatives
bubble. But, starting with Bush-Goldman Sachs Treasury Secretary Henry
Paulson, the talk has been of a "housing correction," not a derivatives
panic. It must be pointed out that derivatives are nothing but wagers,
bets placed from a distance on securities which themselves are often not
mortgages, but rather other derivatives. The bettor buying a synthetic
CDO or CDO2 does not own the underlying mortgages or mortgage-backed securities,
any more than someone who bets on a racehorse owns part of the horse. Blankfein
and others tried to portray derivatives as a service to hedgers and end-users,
but it's clear that the vast majority of derivatives involve neither hedgers
nor users, but only bettors on both side of the transaction. It is in any
case this mass of kited derivatives which blew up in 2008, bringing on
the present world economic depression.
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- Goldman Sachs executives are babbling cretins
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- The mystique of Goldman Sachs is based in large part
on their reputation as the smartest financiers on Wall Street. After today's
hearings, this mystique has permanently dissipated. The Goldman executives
babbled. They sounded dumb. They stalled and stammered and went into contortions
to avoid giving straight answers to simple questions. They were mendacious
and evasive when they did speak. Financial powers around the world will
note carefully the refusal of three out of four Goldman executives on one
panel to state that they had a duty to defend the interests of their clients.
Who will want to do business with such a gang? Goldman Sachs got $10 billion
of taxpayer money in low-interest loans under the Bush-Paulson TARP. Part
of that money went to pay for obscene bonuses for Goldman executives like
the ones on display today. The argument for bonuses is that they must be
paid to retain the highly talented personnel, virtual geniuses, who are
indispensable for Wall Street speculative success. But these are no geniuses,
they are imbeciles. No more bonuses should be paid by banks saved through
public money.
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- Don't buy any used cars from Lloyd Blankfein
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- Sleaziest of all was Goldman's risk-monger in chief,
Lloyd Blankfein, who pretended not to know that derivatives are often kept
hidden off balance sheet. The morally insane Blankfein testified that his
role was to provide the firm's clients with "the risk they wanted."
Other GS witnesses represented the firm's role as "distributing risk."
But it turned out that they were manufacturing risk through the very existence
and activities of Goldman Sachs, which had the result of pyramiding the
total risk of the US financial system into intergalactic space. It is time
to regulate much of that unbearable risk out of existence with appropriate
regulatory legislation. In the meantime, no sane person would buy a used
car from Blankfein. Nor should they believe his assurance that the "recession"
has ended.
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- But when at the end of the day Blankfein finally suggested
to Sen. Tester that synthetic CDOs might be outlawed, we should accept
his proposal immediately.
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- Today's hearings reveal the Goldman Sachs gunslingers
and whiz kids as ignorant gangsters and con artists, notable only for their
ability to practice massive fraud with impudence. These sleazy mediocrities
do not deserve bonuses paid for by taxpayers. Rather, it is time to shut
them down and put them in the dock.
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- If Goldman Sachs had cared about is clients, it would
have urgently warned them to unload their subprime risk by late 2006 or
thereabouts. Instead, Goldman was busily increasing its clients' risk by
selling them more toxic CDOs out of its own inventory warehouse.
- Goldman Sachs: bookies who stack the deck and fix the
games
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- As the philandering Sen. Ensign pointed out, comparing
Wall Street to Las Vegas is a slander on the croupiers of Las Vegas, where
everyone knows or should know that the game is rigged so that the house
always wins. To use the comparison introduced by Sen. McCaskill, Goldman
Sachs was operating as the gambling house, or the bookie. At the same time,
Goldman was betting for their own account. But much worse was the fact
that Goldman was stacking the decks, loading the dice, fixing the games
on which the bets were placed, and bribing the umpires.
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- As Ensign put it in a rare moment of lucidity, the subprime
mortgage was bad. But the collapse of subprime would not have had anything
like its actual destructive effect on the US economy if it had not been
compounded by the mass of synthetic derivatives that were piled on top
of subprime.
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- No national or social purpose served by Goldman Sachs
and toxic derivatives bets
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- The broader issue raised by today's hearing is: what
human purpose is served by the existence of Goldman Sachs, which concocts
toxic synthetic CDOs for the purpose of allowing speculators, who are often
lied to and duped, to bet for or against them. Goldman Sachs can only be
described as a speculative parasite which promotes the activities of other
speculative parasites, such as the John Paulson hedge fund at the expense
of the public and of its other clients. It was a crime to inject $10 billion
of Treasury money into Goldman Sachs. It was another crime for the Fed
to lend Goldman untold billions (just how many billions Bernanke still
refuses to disclose) to keep them afloat and enable more predatory profits.
These crimes must stop, and the public money must be clawed back. Most
important, it is time to shut down the derivatives rackets.
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- Goldman got $12.5 billion from taxpayers for AIG credit
default swaps
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- Useful questions from GOP Sen. Coburn pointed to another
kind of derivative: the infamous credit default swap (CDS). These CDS are
what brought down AIG, whose London hedge fund had issues $3 trillion in
derivatives. When the government bailed out AIG, part of that $180 billion
of taxpayer money was used for payouts to the CDS counterparties of AIG,
biggest among them Goldman, which got $12.5 billion from the US taxpayer.
That was 100 cents on the dollar on a mass of toxic CDS. Coburn wanted
to know why Goldman got all their money back, while GM bondholders took
a bath as GM went bankrupt. That was, of course, a matter of Goldman's
political clout through GS alum Henry Paulson and Obama Car Czar Steve
"The Rat" Rattner, backed up by the historic preponderance of
finance capital over industrial capital in this country since Andrew Carnegie
sold out to JP Morgan over a century ago.
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- Derivatives and zombie banks: the toll
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- Thanks to Goldman Sachs, the other Wall Street zombie
banks, and their derivatives, the financial panic of 2008 has turned into
a world economic depression of unimaginable proportions. The unemployed
and underemployed in the US alone are surely in excess of 20 million. Five
to six million home foreclosures are already done or in the pipeline, throwing
tens of millions of Americans out of their homes. World trade has been
seriously impacted. The budgets of California, New York, Illinois, and
many other states are in crisis, with massive layoffs of teachers and other
state employees. An entire generation is being destroyed. Now, Greek bonds
are trading at junk levels under the attack of speculative predators including
Soros, Greenlight Capital, SAC, and the protagonists of today's hearings
Paulson and Co and Goldman Sachs itself. The attack on Greece and
the euro represents the leading edge of the second wave of the depression,
which is now arriving in much the same way that the second wave of the
1930s depression was unleashed by the Vienna Kreditanstalt bankruptcy in
May of 1931, about 79 years ago and just a year and a half into that depression.
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- The goal of the Republicans is to portray themselves
as stern judges of Wall Street, even as they line up in a unanimous phalanx
to protect the finance jackals from any meaningful regulation whatsoever
- as seen in yesterday's vote to block cloture on derivatives re-regulation
and reform. The goal of the Democrats is to expose the sociopathic evil
of Goldman Sachs and the rest of Wall Street while preening themselves
as defenders of the public interest, without however banning credit default
swaps, banning synthetic CDOs, and imposing a Wall Street sales tax on
all remaining derivatives and asset transactions.
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- To this degree, today's hearings are being conducted
in bad faith by both major parties. However, the dynamic of the resulting
spectacle has the result of educating and mobilizing public opinion against
the predatory practices which are the essence of Wall Street, even a year
and a half after the banking panic of September 2008 and the monster bailout
of zombie banks which soon followed. What is required is a new edition
of the anti-banker sentiment set off by the Senate Banking Committee hearings
conducted from January 1933 to May 1934 by committee counsel Ferdinand
Pecora, which unmasked the corruption of Wall Street. Persons of good will
need to get active now to push this process as far as possible while these
social dynamics are working. It is time to hit the zombie banks, the hedge
funds, and their derivatives as hard as possible, before the second wave
of the depression hits. The program necessary to fight the depression and
break the strangle-hold of Wall Street on the US economy and political
system is given on my web site.
- Mitch McConnell on the bailout: "Harry, I think
we need to do this, we should try to do this, and we can do this."
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- During a break the senators filed out, and the GOP reactionary
lockstep once again blocked cloture for a final debate on the Wall Street
reform bill, weak as it is. Many activists of the Tea Party naively believe
that they have been fighting for a year and a half that they have been
fighting to take back the Republican Party. If that is what they believe,
today's second cloture vote proves that they have gotten nowhere in their
efforts. Despite their charades, the GOP are the bodyguards of the Wall
Street predators. Tea baggers who think they can break the Wall Street
grip on the Republicans are pathetic dupes, and they need to wake up, pronto.
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- When Paulson went to the leaders of Congress to demand
a $700 billion bailout for Goldman and his Wall Street cronies, GOP Senate
majority leader Mitch McConnell was "deeply frightened" by the
apocalyptic briefing delivered by Paulson and Bernanke. When Democratic
Majority Leader Harry Reid started talking about how difficult it would
be to get so much money in a hurry, McConnell urged an immediate bailout,
saying: "Harry, I think we need to do this, we should try to do this,
and we can do this." (Andrew Ross Sorkin, Too Big to Fail [New York:
Viking, 2009], p. 442) The GOP was the original party of the bailout, and
they have not repented, as best seen through the continuance of McConnell,
one of the key midwives of the bailout, as Republican Senate Majority Leader.
This is the same McConnell who went to Wall Street recently to meet with
zombie bankers and hedge fund hyenas, pledging to block derivatives reforms
in exchange for big bucks contributed to the GOP's campaign coffers. Tea
baggers who think the GOP has changed or is moving to their side are sadly
deluded.
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- Today, the market fetishism of the crackpot Austrian
school has taken a severe blow. Now that Blankfein's public image has been
soiled by Goldman's scurrilous and scatological emails, the time is ripe
for the radical reform of derivatives and the zombie banks. This is a matter
of national survival.
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- Now that Goldman Sachs is masquerading as a bank holding
company, it is subject to FDIC rules. If Goldman's derivative hoard is
marked to market, it is bankrupt. The FDIC should therefore seize Goldman
and liquidate it under chapter 7 of the US Code. Sheila Bair should not
wait for Friday.
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- http://tarpley.net/2010/04/27/seize-and-liquidate-goldman-sachs/
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