The SEC, Goldman Sachs, and John Paulson’s Money Trail
The public relations fallout from Friday’s announcement of civil fraud charges filed by the Securities and Exchange Commission has so far focused primarily on Goldman Sachs, not John Paulson or his hedge fund Paulson & Co. Fair enough: the SEC charges were against Goldman Sachs, not against Mr. Paulson or Paulson & Co., whose actions figure in the SEC’s complaint but who have not been charged with any wrongdoing by the SEC.
But suppose, as some predict, the next phase of the anti-Goldman backlash is going to feature Congress or the press parading before the cameras real people who lost their homes when they defaulted on the mortgages that were at issue in the bet that Mr. Paulson asked Goldman to structure for him in the trade that is the focus of the SEC charges.
As this FutureOfCapitalism.com reader wrote: “a CDS only pays when there is a default event. … So, Paulson et al had a HUGE incentive to make sure the underlying mortgages actually defaulted. No grace periods, no working out the terms, no excuses for late checks, etc. Paulson needed default in the technical and legal sense; not delinquent or non-performing, but default as defined in the actual mortgage. Think about that: if a local bank still held the mortgage it would do anything to prevent default; Paulson needed to trigger default and fast before the U.S. government created any type of plan that would allow homeowners to stay in their homes as terms were re-set.”
Not exactly the sort of behavior that you’d think Democratic Washington politicians, for whom foreclosure prevention has been a big public cause, would have wanted to be associated with, right?
So it’s intriguing to check Mr. Paulson’s Washington money trail.
Goldman Sachs’s trail of money and influence in Washington has been widely noted; Timothy Carney reported in the Washington Examiner that “Goldman was Obama’s No. 1 corporate source of funds in 2008.” Former Goldman Sachs officials such as Bush Chief of Staff Joshua Bolten, Democratic Senator then Governor Jon Corzine, and Treasury Secretaries Henry Paulson and Robert Rubin are well known.
But Mr. Paulson’s political proclivities are more obscure.
Very good piece Mr. Stoll and yes, why no scrutiny of Mr. Paulson? One might note also that Paulson was an equal opportunity giver and distributed his largesse to Republicans as well. The corruption runs deep in both parties.
In addition I would add that I seriously doubt that Obama and the Democrats are going to really do anything to seriously reign in the derivatives trade nor do anything to harm Goldman-Sachs. After all the organization’s PAC, its individual members or employees or owners, and those individuals’ immediate families gave close to a million dollars to his campaign as reported by Opensecrets.org. I submit that this is all window dressing and an effort by the Democrats to ensure the timely flow of campaign contributions by Goldman-Sachs and others.
And the Republicans? Maybe they are just upset that the majority of Goldman-Sachs’ political contributions have been going to Democrats.
As an observer of America from far away, you nailed it when you said “the real scandal in Washington isn’t what’s illegal, it’s what’s legal.” Notice how funds are disbursed to both parties. If they were convinced McCain was going to win, he would have got a bigger slices than the Dems. This is not political speech, these are investments. Obamacare has been getting all the headlines, and it may destroy the American economy down the road, but the financial system has created a degree of turmoil not witnessed for half a century and one has yet to hear an American politician of either party prepared to take realistic positive action.
The Republicans are making a mistake in thinking they “own” the Tea Party movement, a major misconception. People are angry, very angry. To have a future, the GOP needs to stop being seen as the party of Big Business and Big Banks, and show some leadership. Right now a bipartisan approach is the only way to go, as the “oppose everything the Democrats do” approach will only poison the publics perception of the party for an entire generation. Get out in front and lead. Break up banks, too big to fail is too big. Re-introduce Glass-Steagall, you can insure the public deposits but don’t insure banking investments. Make all trades public, NO LOOPHOLES. Without moral hazard the free market becomes crony capitalism, welcome to the Third World. None of this is conceptually complicated unless you have corrupted elective representatives. Now is the time to lead or get out of the way.
“The Republicans are making a mistake in thinking they “own” the Tea Party movement, a major misconception.”
=========================================
I keep saying this yet many who don’t really follow the Tea Party and don’t understand what motivates us think the Republican Party have the Tea Party in it’s hip pocket.
It doesn’t.
We do not wish to back third party candidates – knowing it will cut into vote counts for Republicans more than it will Democrats. And we have seen how ‘moderate’ some of those Democrats are when push comes to shove. Current strategy is to give RINOs the boot in the primaries (John McCain and Lindsey Graham type) and back conservatives wherever possible.
Reinstate Glass-Steagall, yes. But notice that no one in Congress wants to even talk about it. And, I agree 100% with your comments on the Republican Party and the Tea Parties. But I don’t see the Republican leadership taking a different tack and I guess why should they when they can remain a minority party and line their pockets and I say that as a registered Republican.
Very informative, Wouldn’t it be great if we had a government by the people and for the people, instead of one that is for sale to the highest bid. Goldman-Sachs will get a slap on the wrist an all will be forgiven.
The problem is that Goldman-Sachs did nothing wrong.
They are being offered up as a scapegoat so that those who did commit the crimes can continue with their scams.
OMG your ignorance is absolutely mindblowing. I spewed coffee on my keyboard reading that. You need to start getting a clue and reading financial news OUTSIDE of the MSM. Might I recommend ZeroHedge and/or Naked Capitalism for starters.
Many conservatives seem to think that the problems with our country start and end with the government. Here’s a news flash, the financial elite (e.g., Goldman Sachs, JP Morgan and all the other Too Big To Fail banks) have our government by the NADS. This is the 800 gazillion pound gorilla in the room that most folks (especially conservatives) either ignore or don’t see. Read up on history while you’re at it, starting with how the Federal Reserve was created. Btw, I’m conservative and quite frankly, I read more insightful informed financial news from left-leaning sites than from conservative sites. Read what William Black, Matt Taibbi, Simon Johnson have to say about how utterly rotten to the core our financial system is. And the government is a HUGE problem too because BOTH parties are enablers to all of this, and have been for decades. Can’t you see how your concerns as American taxpaying citizens mean next to NOTHING to most of these politicians, apart from what little they need to do to get re-elected? They answer to those with the money and the power first and foremost.
Oh joy, another all bankers are evil type.
Sigh. You’re just like the lefties. No debating the issues, rather let’s provide emotionally reactive commentary on the messenger.
How can I debate, when the essence of your commentary is nothing more than a rant about how evil bankers are. No facts, no data, just rant.
As to being emotional, I refer you back to your rant.
On second thought, perhaps you have close ties to, or are yourself a member of the famed evil Vampire Squid?
Actually, if the mortgages had defaulted and been cleared off the books in a hurry, I think we’d be better off, but IIRC, the Administration has done whatever it could to prolong the agony.
“…but the financial system has created a degree of turmoil”
It is the government that created this turmoil. The principle of unintended consequences is alive and well in Washington, DC. Politicians and bureaucrats have created laws and regulations that resulted in perverse incentives. Investors merely play the game by rules set by those in power. Sometimes they were even coerced into behaving in an ultimately irresponsible manner. Mortgage lenders, for instance, were forced to provide home loans to minorities possessing poor credit. This started the ball rolling downwards. The fear of being unfairly charged with racism also played a major role in the disaster.
The real question is this: what prompted this sudden attack on the “new” Wall Street (against the Hedge Funds – meaning Soros – and Goldman Sachs)? Yes, it’s the popular “BHO fighting Wall Street” thing for the morons; but not really so, only superficially so. The “new” Wall Street is his financial support, as he financially supported them. As I have already said, he bailed out Wall Street because they were too big to fail, and he expects them to bail him out come 2012, because he’s too big to fail for them. So, what’s really behind this “attack Wall Street” strategy?
A very likely take on this might be that BHO is finally going left, way left, where he came from and his call was from the very beginning, the radical left as he feels he’s running out of time.
Andrew McCarthy’s take
In Search of a Villain
In SEC v. Goldman Sachs, the government makes Wall Street the fall guy.
The sad thing is that even here, on a supposedly conservative site, a large number of people buy into the lie that big companies and big banks are inherently evil.
Companies that are too big to fail, companies that privatize profit but socialize risk ARE evil. The very essence of conservatism is responsibility for your own actions. Being saved from your own stupidity and ineptitude with public money from bought-and-paid-for politicians is a total negation of conservative principles. To work its magic, the free market needs creative destruction of inept and inefficient companies. Conservative Americans don’t hate the rich, all hope to be rich themselves one day through enterprise and hard work. They DO hate it when fortunes are made through graft and corruption at the public expense.
Every single one of the issues that you mention are the result of govt corruption, not private. They are the result of generations of do-gooders who thought that they could use govt to protect themselves from the “evils” of big business.
Direct your anger at the true cause of the problems you claim to rail about. Intrusive, abusive govt.
None of those problems would exist if govt weren’t involved.
Easy, friend. What you say is absolutely, totally, 100% true. But when you arrest a robber, you also arrest the fence for knowingly receiving stolen goods. When you prosecute a corruption case, you don’t just prosecute the person taking the bribe, you also prosecute the person offering the bribe. It takes two parties to have a corrupt relationship. The Dems SEC prosecution scapegoating GS is just political theatre, by cynical paid-for politicians. It diverts attention from everybody else. I would be most surprised if there are any long-term repercussions for the company. As the article states, follow the money trail. Where it comes from and where it leads.
I’m not particularly angry, not even particularly surprised. But it would be a pity if Americans miss the chance to make a course correction and clean up some of the mess, both in Washington and Wall street.
Apparently the SEC’s decision to charge Goldman was a 3-2 partisan vote. Making a formal accusation of something as serious as fraud on a 3-2 vote–and invoking a novel and controversial interpretation of securities law to do so–seems…irregular.
Henry Blodgett, who knows a thing or two about peddling tainted securities, comments here and here.
I wonder if the SEC, with egg on its face from years of overlooking the blatant Madoff fraud, is trying to restore its clout by finding fraud where none may exist.
If Reform is impossible…:)
Repeal _all_ Campaign Contribution laws,
and let the bribes be competitive.
The only campaign finance law that is needed is full and immediate disclosure combined with a limitation so that only US citizens and legal immigrants can donate.
“US citizens legal immigrants” only? Wish they used that rule for the occupant of the WH as well.
Don’t make a fool of yourself. Barry has provided all of the proof that he is legally required to provide as to his citizenship.
I don’t know whether Paulson had to work at making mortgages default. It was probably enough that he could get ACA to issue a CDS on the crap in the pool and then just wait for the things to crater. But the possibility is real, all because the Commodities Futures Modernization Act of 2000 preempted state insurance, gambling, and bucket shop laws. Paulson’s CDS was, from his perspective (regardless of its legal status), an insurance contract without an insurable interest, so it created for him the same incentives to mischief that such contracts create. Such CDS contracts should be illegal. Not transparent or not traded on an exchange. Illegal.
Frankly, I have more trust in the 60 Minutes segment “Inside the Collapse”, and “Check the numbers” by McKitrick & McCullough, explaining the petrifying fear of people not measuring up to the spirit and letter of “The Civil Rights Act”, rather than the song & dance from the SEC and the usual suspects.
Goldman Suks, making billions off the suffering of others. Like most banks and new york financial houses that went unregulated for years. Slammed our economy into reverse after bilking millions off hard working people that have now lost everything, including their homes and their savings. Once found guilty, their board of directors and managers need to be imprisoned for theft against humanity, and their company broken up and split into individual sections run by their remaining employees guided by a locally controlled trusteeship. Nobody should be above the law.
Hmm, the most heavily regulated industry in the United States is, according to you, unregulated.
Why don’t you learn something before spouting the DNC line of the day.
Poor Citizen is absolutely correct.
“Hmm, the most heavily regulated industry in the United States is, according to you, unregulated.”
That would be Yes. How could this be so, despite there being regulatory agencies and the rule of law in place, you might ask? By the following:
1. Big Finance has successfully lobbied and pressured government to eliminate and/or neuter existing laws to their favor, and continue to do so. E.g., elimination of the Glass Steagall Act, the successful lobbying of finance to see that there is NO regulation of derivatives (such as CDS), and using TARP (and many other means) to bail themselves out while transferring all their financial losses and risks to the taxpayer. Derivatives played a major role in collapsing the housing bubble, and they continue to play a major role in blowing up the budgets of cities, counties (Jefferson County, Alabama is famous for this), pension funds and even messing up the budgets of sovereign nations (e.g., Greece for starters).
2. Those who are suppose to be regulators within our regulatory agencies, are mostly people from the finance realm. Consider Timothy Geithner, Henry Paulson for starters. There is a revolving door between government (regulatory agencies, Treasury, congressional staff members, lobbyists) and the finance world. The government has rewarded bad, fraudulent criminal behavior, so now these banks operate more or less unfettered. We can only hope litigation, especially litigation with teeth from outside of our “regulatory” agencies, proves successful to some degree.
3. Ignoring existing regulations. Our government has purchased trillions of toxic crap from these Too Large To Fail banks; the taxpayer now owns these (and their corresponding risk). Where is this allowed via our existing regulations? Where is accounting fraud condoned in our regulations? If what Enron committed was criminal and against the law and regulations, then how is doing the same thing still legal now?
Why don’t you actually try to learn something about banking law, and not just from paranoid, everything big is evil sites.
Poor Citizen is absolutely correct.
“Hmm, the most heavily regulated industry in the United States is, according to you, unregulated.”
That would be Yes. How could this be so, despite there being regulatory agencies and the rule of law in place, you might ask? By the following:
1. Big Finance has successfully lobbied and pressured government to eliminate and/or neuter existing laws to their favor, and continue to do so. E.g., elimination of the Glass Steagall Act, the successful lobbying of finance to see that there is NO regulation of derivatives (such as CDS), and using TARP (and many other means) to bail themselves out while transferring all their financial losses and risks to the taxpayer. Derivatives played a major role in collapsing the housing bubble, and they continue to play a major role in blowing up the budgets of cities, counties (Jefferson County, Alabama is famous for this), pension funds and even messing up the budgets of sovereign nations (e.g., Greece for starters).
2. Those who are suppose to be regulators within our regulatory agencies, are mostly people from the finance realm. Consider Timothy Geithner, Henry Paulson for starters. There is a revolving door between government (regulatory agencies, Treasury, congressional staff members, lobbyists) and the finance world. The government has rewarded bad, fraudulent criminal behavior, so now these banks operate more or less unfettered. We can only hope litigation, especially litigation with teeth from outside of our “regulatory” agencies, proves successful to some degree.
3. Ignoring existing regulations. Our government has purchased trillions of toxic crap from these Too Large To Fail banks; the taxpayer now owns these (and their corresponding risk). Where is this allowed via our existing regulations? Where is accounting fraud condoned in our regulations? If what Enron committed was criminal and against the law and regulations, then how is doing the same thing still legal now?
If the regulatory system is not working very well, if at all, then the net result is that Wall Street is effectively unregulated.
why has no one mentioned the goldman sachs .. paulson company connenction….who is now the only director of paulson and company…who was hired by john paulson….none other than alan greenspan….the dots are all connected with the real players…who have the power and inside information to make this all happen…
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