Tag Archives: Goldman Sachs

SEC Said to Vote 3-2 to Sue Goldman Sachs Over CDO

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With this vote along party lines Dems will look very bad if they don’t win it.

>   
>   (email exchange)
>   
>   On Mon, Apr 19, 2010 at 2:37 PM, wrote:
>   
>   the vote was close but I’m not sure it changes much. However the political angle
>   in light of the Administration’s efforts at financial reform cannot be avoided.
>   Government leverage vs. bank leverage…
>   

SEC Said to Vote 3-2 to Sue Goldman Sachs Over CDO Disclosures

By Jesse Westbrook

April 19 (Bloomberg) — The U.S. Securities and Exchange
Commission split 3-2 along party lines to approve an enforcement
case against Goldman Sachs Group Inc., according to two people
with knowledge of the vote.

SEC Chairman Mary Schapiro sided with Democrats Luis
Aguilar and Elisse Walter to approve the case, said the people,
who declined to be identified because the vote wasn’t public.
Republican commissioners Kathleen Casey and Troy Paredes voted
against suing, the person said.

The SEC on April 16 accused Goldman Sachs, the most
profitable company in Wall Street history, of creating and
selling collateralized debt obligations in 2007 tied to subprime
mortgages without disclosing that hedge fund Paulson & Co.
helped pick the underlying securities. Goldman Sachs also didn’t
disclose to investors that Paulson was betting against the
securities, the SEC said.

SEC spokesmen John Nester and Myron Marlin didn’t
immediately return a phone call and e-mail seeking comment.

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GS on GREECE – INITIAL IMPRESSIONS AND MARKET

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This remains the tricky part, seems:

Several key issues remain outstanding, however:

1. The budgetary and reform milestones which need to be cleared in order for Greece to receive funding have yet to be hammered out with the lenders. The statement suggests that discussions will start tomorrow and may last weeks, potentially resulting in market volatility if there are disagreements.

2. Availability and drawdown conditions have yet to be decided. Specifically, the one reached over the weekend is a political agreement and each EMU government will now need to go seek legislative approval in Parliament. Related open questions include: Where will the loans rank with respect to other existing Greek debt? Where will these loans show up in the lenders’ books (i.e., will they increase the deficit and debt)? Will they require extra funding in the capital markets?

3. Most importantly, as Erik Nielsen has commented in a note this afternoon, the issue of medium term debt sustainability remains open. It will depend on measures and reforms put in place by the Greek authorities, the response of domestic activity, and the external economic environment.

Best Regards. FUG
Francesco U. Garzarelli

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Goldman Sachs trying to broker Greek bonds to China

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I went to high school with Chris Powell where he was a good friend of mine, then lost touch.
We’ve had a few emails discussing GATA. Seems their beef is that the Fed is conspiring to keep the price of gold down, which wrongly hurts the GATA supporters.
Didn’t make a lot of sense to me, but whatever.

Regarding China and the euro-

Note China already owns some Greek bonds, highlighted below?

I was discussing this a while back when China was ‘diversifying reserves’ in that one of the problems with the buying the euro is you have to take national govt credit risk, as there is nothing equivalent to the ‘federal’ securities of the other nations of the world with non convertible currencies where the issuer of the currency is your counter party.

Also, when the likes of China stops buying, say, the $US or the yen, it’s not a credit event for the US like it is when they stop buying the euro, where the national govt’s solvency is a function of their ability to sell their securities.

So the lack of euro buying by sovereigns who were willing to take national govt credit risk puts the entire eurozone at risk of a liquidity crisis beginning with its ‘weakest link.’ Hence the Greek ‘road trips’ to China, which do make sense, in contrast to the Obama/Clinton/Geithner road trips to China which reinforce the notion that they don’t understand the monetary system.

I’ve also passed along the idea that if Greek bonds were to have default provisions that allowed them to be used to pay Greek taxes in the event of default it should lower their interest rates. Don’t know if that got anywhere- no way for me to check.

Goldman Sachs trying to broker Greek bonds to China

Athens Invites Beijing to Buy Bonds

By Kerin Hope and Jamil Anderlini

Link

Greece is wooing China to buy up to E25 billion of government bonds, a move that underlines Beijing’s growing financial power, as Athens struggles to fund soaring public debt.

Goldman Sachs, the US investment bank, has been promoting a Greek bond sale to Beijing and the State Administration of Foreign Exchange (SAFE), which manages China’s $2,400 billion foreign exchange reserves, said people familiar with the issue.

Gary Cohn, Goldman Sachs chief operating officer, has made two trips to Athens — last November and this month — to meet George Papandreou, prime minister, and senior officials.

Beijing has not agreed to such a purchase. Meanwhile, Athens has rejected a suggestion that a Chinese bank should acquire a strategic stake in National Bank of Greece, the country’s flagship commercial lender, according to officials contacted by the Financial Times.

But a more modest deal of about E5 billion-E10 billion ($7 billion-$14 billion) appeared possible after Mr Cohn’s second trip to Athens, officials said on Tuesday.

George Papaconstantinou, finance minister, told the FT he would visit China on a road show next month, but “no target is set” for a debt placement.

China’s foreign exchange reserves grew $130 billion in the last quarter of 2009 alone. But people close to Safe said China already held a “significant amount” of Greek debt and was wary of adding to that.

A senior Greek finance ministry official said Athens would welcome Chinese buyers of its bonds. The official declined to specify an amount, though a figure of E20 billion-E25 billion was raised in talks with Goldman Sachs.

A E5 billion syndicated loan issue by Greece this week attracted bids worth more than E20 billion, but Greece continues to face pressure in financial markets.

Goldman Sachs mooted the sale of equity in NBG to Bank of China, the country’s third-largest commercial lender by assets, and made a similar proposal to China Investment Corp., China’s sovereign wealth fund, according to officials.

Chinese officials said CIC was not interested and that regulators would not let BoC make such a risky investment. Goldman Sachs and CIC declined to comment. A Bank of China spokesman said: “I haven’t heard anything about it.”


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Goldman disclosure controversy

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Looks like it all comes down to whether Goldman violated the law by not disclosing what it was obligated to disclose.

There is no question the institutional structure that leads to this type of activity is flawed in that it doesn’t work for public purpose.
In fact, large elements of the financial sector do not serve public purpose.

Much of the financial sector is set up, by law to function as a casino, where each bet necessarily has a long and a short, presumably towards so further public purpose to allow public/private partnerships including banks, pension funds, and insurance companies to participate.

Unfortunately it’s never discussed at this fundamental level in the public debate, which is one of the reasons I’m running for President- to bring that debate back to public purpose- the fundamental behind government and the institutional structure:

How Goldman secretly bet on the U.S. housing crash

By Greg Gordon

WASHINGTON — In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting.

Goldman’s sales and its clandestine wagers, completed at the brink of the housing market meltdown, enabled the nation’s premier investment bank to pass most of its potential losses to others before a flood of mortgage defaults staggered the U.S. and global economies.

Only later did investors discover that what Goldman had promoted as triple-A rated investments were closer to junk.

Now, pension funds, insurance companies, labor unions and foreign financial institutions that bought those dicey mortgage securities are facing large losses, and a five-month McClatchy investigation has found that Goldman’s failure to disclose that it made secret, exotic bets on an imminent housing crash may have violated securities laws.


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Re: Goldman on the fiscal package

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(email exchange)

>   
>   On Thu, Jan 22, 2009 at 5:46 PM, Michael wrote:
>   
>   Bullet points from the GS report, what do you think of their assessment?
>   

Pretty good up to a point.

Agree the deficit probably should be larger to restore full employment.

It goes bad where highlighted below:

>   
>   The US economy urgently needs a large dose of fiscal stimulus to counter a sharp
>   retrenchment in private-sector spending. Consumers are cutting back in a way not
>   seen since World War II, and businesses are following suit. Based on current equity
>   prices, current credit spreads, and the trend in home prices, we expect the
>   private-sector balance between income and spending to rise from 1% of GDP in
>   mid-2008 to about 10% by the end of 2009, an annualized increase of 6% of GDP.
>   
>   To fill this hole in demand, the federal government should become the spender of
>   last resort, as monetary easing cannot do the job alone. We reckon that the
>   appropriate level of stimulus is $600 billion (bn) at an annual rate, or 4% of GDP,
>   

Could be. Maybe more.

>   
>   with the remaining 2% filled by a narrowing in the current account deficit.
>   

Increased domestic demand and higher crude prices could increase the trade gap, which would be highly beneficial, reduce demand, and therefore allow us to run deficits that much higher.

>   
>   Moreover, with prospects for cyclical recovery in the private sector looking dim,
>   this stimulus should stay in place through 2010 and be withdrawn only gradually
>   thereafter. The bill recently introduced in Congress, priced at $825bn over two
>   years, is a major step in the right direction but is apt to prove insufficient if our
>   estimates are correct. On the five-year view customarily used to score such
>   programs, we could justify stimulus totaling $2 trillion.
>   

Agreed!

>   
>   While stimulus will boost the federal deficit, it is important to recognize that the
>   deficit will rise sharply even if nothing is done. Our projection of the private-sector
>   balance implies a deficit of about $1 trillion in 2009, a figure that looks roughly
>   consistent with the Congressional Budget Office (CBO) baseline—$1.2 trillion for
>   fiscal 2009—when adjusted for differences in economic outlook, accounting, and
>   timing. Moreover, since the deficit must ultimately be financed either by private
>   domestic saving or net foreign inflows, the net budget cost of stimulus can be
>   reduced if the package avoids measures that mainly boost saving.
>   

There’s nothing ‘wrong’ with measures that increase savings and therefore require higher deficits. He’s afraid of deficits per se.

>   
>   Likewise, much of the prospective surge in federal debt that terrifies many market
>   participants is already baked in the recessionary cake. While stimulus will aggravate
>   this increase, the United States starts from a fairly comfortable federal debt ratio
>   of just over 40% of GDP at the end of fiscal 2008, lower than the G7 average. And
>   those who worry about a lack of demand for all this debt should not overlook US
>    households and businesses as potential customers.
>   

Lack of demand is never an issue.

>   
>   After all, it is their efforts to repair balance sheets that has caused the need for
>   stimulus; with risk aversion running high, it stands to reason that they will shoot
>   a few bucks the government’s way to help it do their spending for them.
>   
>   However, the long-term budget imbalance remains serious.
>   

Not applicable.

>   
>   Thus, any program must feature measures that not only have quick and powerful
>   effects but also expire as soon as the need for stimulus has passed. To balance
>   these competing objectives, the package should focus on infrastructure and
>   investment but also include carefully targeted tax cuts, enhancements of benefit
>   programs, and aid to state and local governments as a bridge to these projects,
>   many of which take time to develop.
>   

OK.

>   
>   Assuming that the final package is in the range now under consideration, we
>   estimate that the federal deficit will reach $1.425 trillion in FY 2009, or 10% of
>   GDP (based on CBO’s accounting for TARP and GSEs). While the scale of the
>   package driving this change has risen sharply in recent months, so has the rate
>   at which the economy is losing momentum. Accordingly, we have not changed
>   our economic outlook, though of course this remains subject to review.
>   


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Goldman actions not illegal

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Goldman urged bets against bonds it sold-paper

By Supantha Mukherjee

Goldman Sachs, which acted for the state of California in selling bonds, has urged some of its big clients to place investment bets against some of those bonds this year, the Los Angeles Times reported.

The paper said that Goldman declined to discuss the details of its trading strategy.

Goldman spokesman Michael DuVally told the paper that the firm was no longer giving the trading advice to clients. He declined to elaborate.

The newspaper said the company did not inform the office of California Treasurer Bill Lockyer that it was proposing a way for investment clients to profit from California’s economic downturn.

“It could exaggerate people’s worries about our credit,” the paper quoted Paul Rosenstiel, head of the public finance division of the treasurer’s office, as saying.

The investment bank’s actions are not illegal, the paper said.

Goldman is an important underwriter of California municipal securities and over the last five years has earned about $25 million in underwriting fees from California issues, the paper said.


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How bad off is Goldman?

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Selling a convertible preferred that cheap – a 10% coupon with a below market strike???- seems to mean things aren’t all that rosy at Goldman???:

Berkshire will buy $5 billion of perpetual preferred stock that carries a 10 percent dividend. It also will receive warrants to buy $5 billion of common stock at $115 per share, exercisable within five years.

The market seems to like it, for the moment.


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NYT: Fed to Give A.I.G. $85 bln Loan and Takeecon

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The Fed has a major strategic advantage over private sector buyers.

With the Fed making the loan, credit spreads in general should narrow.

This will add value to AIG’s short credit position which is where most of the mark to market losses are.

So the Fed’s actions to reduce systemic risk also increase the value of AIG once they take them over.

It’s good to be the Fed!

(not that it matters to the Fed itself financially one way or the other, but they probably don’t know that)

Fed Close to Deal to Give A.I.G. $85 Billion Loan


by Michael J. de la Merced and Eric Dash

In an extraordinary turn, the Federal Reserve was close to a deal Tuesday night to take a nearly 80 percent stake in the troubled giant insurance company, the American International Group, in exchange for an $85 billion loan, according to people briefed on the negotiations.

In return, the Fed will receive warrants, which give it an ownership stake. All of A.I.G.’s assets will be pledged to secure the loan, these people said.

The Fed’s action was disclosed after Treasury Secretary Henry M. Paulson and Ben S. Bernanke, president of the Federal Reserve, went to Capitol Hill on Tuesday evening to meet with House and Senate leaders. Mr. Paulson called the Senate majority leader, Harry Reid, Democrat of Nevada, about 5 p.m. and asked for a meeting in the Senate leader’s office, which began about 6:30 p.m.

The Federal Reserve and Goldman Sachs and JPMorgan Chase had been trying to arrange a $75 billion loan for A.I.G. to stave off the financial crisis caused by complex debt securities and credit default swaps . The Federal Reserve stepped in after it became clear Tuesday afternoon that the banking consortium would not be able to complete the deal.

Without the help, A.I.G. was expected to be forced to file for bankruptcy protection.

The need for the loans became necessary after the major credit ratings agencies downgraded A.I.G. late Monday, a move that likely to have forced the company to turn over billions of dollars in collateral to its derivatives trading partners worsening its financial health.

Until this week, it would have been unthinkable for the Federal Reserve to bail out an insurance company, and A.I.G.’s request for help from the Fed of just a few days ago was rebuffed.

But with the prospect of a giant bankruptcy looming – one with unpredictable consequences for the world financial system – the Fed abandoned precedent and agreed to let the money flow.


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Re: Is $700 billion a big number

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(an email and an article)

On Dec 23, 2007 5:37 PM, Russell Huntley wrote:
>
>
>
> For a very bearish take on the credit crisis, see: Crisis may make 1929 look
> a ‘walk in the park’. The article includes a $700 billion loss estimate from
> the head of credit at Barclays capital:
>
> Goldman Sachs caused shock last month when it predicted that total crunch
> losses would reach $500bn,

Yes, could be. Rearranging of financial assets.

leading to a $2 trillion contraction in lending
> as bank multiples kick into reverse.

I don’t see this as a consequence. Bank lending will go in reverse only if there are no profitable loans to be made.

With floating exchange rates, bank capital in endogenous and will respond to returns on equity.

This already seems humdrum.
>
> “Our counterparties are telling us that losses may reach $700bn,” says Rob
> McAdie, head of credit at Barclays Capital. Where will it end? The big banks
> face a further $200bn of defaults in commercial property. On it goes.

Been less than 100 billion so far. Maybe they are talking cumulatively over the next five years?

>
> UPDATE: My main interest in this article was the quote from Barclays
> Capital. There has been a growing agreement that the mortgage credit crisis
> would result in losses of perhaps $400B to $500B; this is the first estimate
> I’ve seen significantly above that number.
>
> I noted last week that a $1+ trillion mortgage loss number is possible if it
> becomes socially acceptable for the middle class to walk away from their
> upside down mortgages.

Historically, people just don’t walk out onto the streets. They are personally liable for the payments regardless of current equity positions, and incomes are still strong, nationally broader surveys show home prices still up a tad ear over year.

Yes, some condo flippers and speculators will walk. But demand from that source has already gone to zero – did so over a yar ago, so that doesn’t alter aggregate demand from this point.

And that doesn’t include losses in CRE, corporate
> debt and the decrease in household net worth.

Different things, but again, the key to GDP is whether demand will hold up, including exports.

And probably half of aggregate demand comes directly or indirectly from the government. Don’t see that going negative. And AMT tax just cut fifty billion for 2008 will help demand marginally.

>
> The S&L crisis was $160B, so even adjusting for inflation, the current
> crisis is much worse than the S&L crisis (see page 13 of this GAO document).

That was net government losses? Shareholders/investors lost a lot more?

And a $1 trillion per day move in the world equity values happens all the time.

Q4 GPD being revised up to the 2% range. This has happened every quarter for quite a while.

Yes, it can all fall apart, but it hasn’t happened yet. And while there are risks to demand, negative GDP is far from obvious. Those predicting recessions mainly use yield curve correlations with past cycles and things like that.

Interesting that the one thing that is ‘real’ and currently happening is ‘inflation’, which the fed doesn’t seem to care about. And it won’t stop until crude stops climbing.

♥

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