Goldman Sachs, Guns, and Bloomberg's B.S.
Companies / Credit Crisis 2009 Dec 03, 2009 - 02:39 AM GMT
By: Janet_Tavakoli
Bloomberg News has done a lot of good research during this financial crisis, so I was surprised yesterday when it released Alice Schroeder's article claiming Goldman Sachs Group Inc.'s employees are buying guns to protect themselves against an uprising against the bank.
Twenty years ago I worked for Joe Argilagos on Merrill Lynch's interest rate swap desk in New York. His father was Jose Argilagos, one of the brokers in a Merrill Lynch Florida office shot dead, after an investor lost money in the crash of 1987. Our current crisis has provoked public outrage, and Bloomberg has the ability to uncover facts that may help us get monetary justice not of the violent variety.
Instead, Bloomberg gave us a badly executed theme born of gassy gossip. Schroeder's source was "a friend" repeating hearsay from yet another friend. Beyond that, it seems she just made things up without doing a lick of financial research about what really has Goldman Sachs spooked, or as it turns out, without much research at all.
Goldman's spokesman did not return Schroeder's call. The New York Police Department told her it believed some of the bankers she asked about have gun permits, but didn't name names. In other words, there is no verification. She claimed it is "almost impossible" for ordinary citizens to obtain a concealed gun permit in New York and nearby states. ZeroHedge debunked Schroeder's article. Connecticut is nearby to the New York City and metro area, and its requirements are among the more reasonable of the "may issue" states on the East Coast.
Schroeder wrote that Goldman Sachs's CEO Lloyd Blankfein installed a security gate for his home two months before Bear Stearns collapsed. She offers this mundane act as evidence of "foresight" and that "Blankfein somehow anticipated the persecution complex his fellow bankers would soon suffer." Schroeder made this up and wrote it down. She added: "Imagine what emotions must have been billowing through the halls of Goldman Sachs to provoke the firm into an apology."
Meanwhile, Vanity Fair published, "The Bank Job," by Bethany McLean, the investigative reporter who first questioned Enron's accounting. McLean offered a more plausible explanation. Goldman Sachs played games with the facts to avoid responsibility for its key role in the huge systemic risk posed by A.I.G.'s crisis. (McLean cited my research and gave me credit for it.) Blankfein apologized after the truth saw daylight: "We participated in things that were clearly wrong and have reason to regret."
Goldman insured securities with A.I.G. that were created by Goldman itself, and Goldman's deals made up a large portion of the deals for which other firms bought protection in the form of credit default swaps. These trades were the key reason that billions of dollars of public money were funneled to Goldman Sachs and other trading partners. The Vanity Fair article did not include verification revealed in a report by TARP's Special Inspector General that Goldman refused to negotiate concessions during the A.I.G. bailout, because it would have lost money.
Goldman continues to spin the facts. It recently claimed that it would make money if it bought back $13.9 billion of assets purchased from it by the Federal Reserve during one phase of the A.I.G. bailout. That is nonsense. The market value of those assets has declined dramatically and similar assets now trade for a few pennies on the dollar. Congress should call Goldman's bluff and insist it buy back these wasting assets at full price.
Schroeder's article is an injustice to Bloomberg's true reporters. It's a shame when sensationalism drowns out good journalism. There are a lot more facts yet to be uncovered, and investigative financial journalists are the kind of people that really give Goldman Sachs reason to worry.
By Janet Tavakoli
web site: www.tavakolistructuredfinance.com
Janet Tavakoli is the president of Tavakoli Structured Finance, a Chicago-based firm that provides consulting to financial institutions and institutional investors. Ms. Tavakoli has more than 20 years of experience in senior investment banking positions, trading, structuring and marketing structured financial products. She is a former adjunct associate professor of derivatives at the University of Chicago's Graduate School of Business. Author of: Credit Derivatives & Synthetic Structures (1998, 2001), Collateralized Debt Obligations & Structured Finance (2003), Structured Finance & Collateralized Debt Obligations (John Wiley & Sons, September 2008). Tavakoli's book on the causes of the global financial meltdown and how to fix it is: Dear Mr. Buffett: What an Investor Learns 1,269 Miles from Wall Street (Wiley, 2009).
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