Clemency for Wall Street Criminals, Prison for the Powerless

by William Norman Grigg
by William Norman Grigg
LewRockwell.com

"Who the hell are these people?"

"I don't know. I used to say they were the same ones we've always had to deal with. Same ones my granddaddy had to deal with. Back then they was russlin' cattle. Now they're running dope. I ain't sure we've seen these people before. Their kind. I don't know what to do about 'em even. If you killed 'em all they'd have to build an annex on to hell."

Sheriff Bell ponders the bloody handiwork of a high-echelon criminal syndicate in Cormac McCarthy's novel No Country for Old Men.

Johnny Gaskins of Raleigh, North Carolina faces a 30-year prison term – an effective life sentence – for the supposed crime of depositing $450,000 in his own bank account. The corporate leaders of Wachovia Bank, a criminal syndicate once headquartered in the same state, won't face prosecution despite admissions that they laundered hundreds of billions of dollars on behalf of Mexican narcotics cartels.

Wachovia was deemed "too big to fail," and thus too important to prosecute. In our system, mercy is reserved exclusively for the powerful and corrupt, and Johnny Gaskins – a criminal defense attorney – was neither.

Gaskins had earned his money legitimately. As a dutiful tax victim, he reported his income to the criminal predators running the IRS. His purported offense was to make numerous deposits in amounts just under the $10,000 threshold at which banks are required to report to the IRS under the Bank Secrecy Act of 1970.

Displaying the proprietary blend of depraved creativity and utter dishonesty that typify their caste, federal prosecutors insisted that these innocuous acts constituted the alleged crime of "money structuring."

Dr. William Anderson, an economics professor at Maryland's Frostburg State University, notes that "money structuring" was defined as "an `ancillary crime' to give prosecutors leverage in cases where people had amassed huge amounts of cash via drug sales or other illegal activities and were trying to avoid detection as well as avoid paying taxes on their money."

In Gaskins's case, there was no predicate offense. The money was honestly earned and duly reported. Yet according to Pecksniffian federal prosecutor Randall Galyon, "The point of the law is to make sure we don't have people trying to fool the bank. The fact that he was trying is against the law."

Gaskins was trying to "fool" the bank about innocent conduct. His violations of technical statutes constituted an offense of a severity comparable to ripping the tag from a mattress.

Yet the sacred majesty of the law requires that Gaskins suffer exemplary, conspicuous punishment.

As Dr. Anderson observes, there was an unambiguous element of payback behind this vindictive prosecution: "Gaskins had success representing people accused of crimes, and the police and prosecutors paid him back with what can only be a trumped-up charge. Remember, Gaskins was convicted of depositing money in a bank. He did not evade taxes, he did not gain his cash through illegal means, he just put the money in the bank."

For reasons unstated yet deafening in their obviousness, the same corps of federal prosecutors who went after Gaskins hammer and tongs last year displayed little of the same zeal in pursuing Wachovia Bank on charges that involve both deliberate fraud and financial collaboration with Mexican narco-criminal syndicates.

Wachovia's corporate headquarters are in Charlotte, North Carolina – just a three-hour drive from Raleigh. Perhaps the heroes who brought Johnny Gaskins to book were simply too exhausted from that Herculean task to grapple with Wachovia, which was absorbed by Wells Fargo in a federally engineered takeover. The details are predictably opaque, but Wells Fargo – which initially resisted string-laden TARP subsidies – was given $25 billion by the Feds after it bought out Wachovia, which was collapsing under the accumulated weight of its rotten debts.

Although it proudly called itself "the nation's fourth-largest bank," Wachovia was actually a federally chartered criminal enterprise.

Granted, this can accurately be said of the entire fractional-reserve banking system. Wachovia distinguished itself by becoming a full-service institution to swindlers and criminals of many kinds.

In February 2008 it was revealed that Wachovia's corporate leadership "solicited business from companies it knew had been accused of telemarketing crimes," reported the New York Times. "Internal Wachovia e-mail messages, for example, show that high-ranking employees ... frequently warned colleagues about telemarketing frauds routed through its accounts."

Wachovia had been given specific warnings from investigators and from other banks regarding the scams, yet "it continued to provide banking services to multiple companies that helped steal as much as $400 million from unsuspecting victims."

A federal lawsuit against Wachovia accused the bank of accepting "fraudulent, unsigned checks that withdrew funds from the accounts of victims, often elderly," continues the Times. "Wachovia forwarded those checks to other banks that were unaware of the frauds, which in turn sent money to the swindlers."

One Wachovia executive warned in 2005 that one account being used by swindlers had received 4,500 complaints in the space of two months. "There is more," she wrote, "but nothing more that I want to put in a note."

Despite that warning and others, Wachovia continued to process the fraudulent transactions "partly because the bank charged fraud artists a large fee every time a victim spotted a bogus transaction and demanded their money back," the Times points out. "One company alone paid Wachovia about $1.5 million over 11 months...."

"We are making a ton of money from them," admitted Wachovia executive Linda Pera in 2005, referring to a company later accused of stealing $142 million through fraud.

Rather than doing what it could to stop the swindle, Wachovia profited from it as long as it could. The bank's role in that scam – as well as mortgage fraud, embezzlement, and other crimes – was known by federal regulators and prosecutors no later than February 2008. Nobody at Wachovia faced criminal prosecution. Instead, the bank was permitted to buy its way out of trouble through a $144 million settlement – and taxpayers were forced to make good on that amount and much more a few months later in the federally subsidized merger with Wells Fargo.

Last March, federal prosecutors offered an even more generous deal to the Wachovia cabal in the form of a "deferred prosecution agreement" regarding charges of laundering an estimated $300 billion for Mexican narcotics syndicates. In lieu of prosecution, Wachovia agreed to the criminal forfeiture of $110 million and a $50,000,000 fine; it also promised to "demonstrate its future good conduct and compliance in all material aspects with the Bank Secrecy Act...."

The Bank Secrecy Act, recall, is the same law Johnny Gaskins "violated" by making small bank deposits of his own honestly-earned, fully reported money. Gaskins wasn't offered a deal in which he would "forfeit" an amount equivalent to pennies on the dollar and be spared additional punishment in exchange for the promise of future "good conduct."

According to the stipulations in the federal "Factual Statement" Wachovia endorsed last March, a Miami branch maintained "correspondent bank accounts" for Mexican currency exchange houses (casas de cambio, or CDCs).

"On numerous occasions, monies were deposited into a CDC by a drug trafficking organization," recounts the "Factual Statement." "Using false identities, the CDC then wired that money through its Wachovia correspondent bank accounts for the purchase of airplanes for drug trafficking organizations."

Among the offenses to which Wachovia stipulated are "Structured Wire Transactions" intended to launder drug proceeds. Once again, Gaskins was convicted of "money structuring" despite the fact that there was no underlying criminal act. Wachovia, on the other hand, was deliberately washing drug proceeds and facilitating the purchase of aircraft that were used to smuggle at least 22 tons of cocaine.

In 2006, Martin Woods, a Wachovia compliance officer in London, became suspicious when his branch started to receive a large quantity of traveler's checks issued by Mexican CDCs. The checks – written for large denominations – were sequentially numbered and improperly endorsed.

Recognizing this as evidence of money laundering, Woods reported his findings to Britain's Serious Organised Crime Agency. A year later, Mexican investigators traced those checks to a CDC used by the Sinaloa Cartel.

Martin's reward for breaking the case, observed the March 9, 2009 issue of Barron's, was to be bullied and demoted by his superiors at Wachovia, who also threw out his reports of similar suspicious activities in Eastern Europe. As was the case with the telemarketing fraud, the dirty dealings Martin had uncovered were much too profitable to stop – and in this case, they were being overseen by people who make Anton Chigurh look like Mr. Rogers.

In September 2007, a U.S.-registered Gulfstream II jet carrying 3.3 tons of cocaine crashed in the Yucatan Peninsula. The plane was one of several purchased through a Mexican CDC with "correspondent accounts" held by Wachovia. This particular private jet – tail number N987SA – was also an important link between the CIA-abetted international narcotics trade and the CIA's global torture network.

Until a few weeks before the crash, the plane's registered owner was a Florida-based pilot (and alleged CIA asset) named Greg Smith, who was reportedly involved in a series of federal operations targeting Columbian drug networks from 1997–2000.

Only those so ingenuous as to make Candide look worldly would be surprised to learn that the same individual, and the same aircraft, were involved in smuggling drugs into the United States, or that the CIA found even more repellent uses for the same vehicle.

Mr. "Smith" was the Gulfstream's owner of record between 2003 and 2005, when the plane was used by the CIA for at least three trips between the east coast of the U.S. and the prison camp at Guantanamo Bay.

The same plane was part of the CIA's fleet of "torture taxis" used to ferry detainees to foreign dungeons, reported The Independent of London last January.

"In 2004, another torture taxi crashed in a field in Nicaragua with a ton of cocaine aboard," the Independent recalls. "It had been identified by Britain and the European Parliament's temporary committee on the alleged use of European countries by the CIA for the transport and illegal detention of prisoners as a frequent visitor in 2004 and 2005 to British, Cypriot, Czech, German, Greek, Hungarian, Spanish and other European cities with its cargo of captives for secret imprisonment and torture in Iraq, Jordan and Azerbaijan."

The gentle treatment given to Wachovia testifies of its value as a pass-through to fund criminal syndicates used by the CIA to conduct the business of perpetual war – whether it's designated the "war on drugs" or the "war on terror."

To cite Bastiat's invaluable formula yet again, both of those "wars" are exercises in creating the poison and the antidote in the same laboratory.

The "war on drugs" – which is an exercise in corrupt, murderous foolishness greater, by several orders of magnitude, than Prohibition – will not end as long as it is profitable to the criminal elite in Washington, their allies in the banking industry, and their largely interchangeable and thoroughly disposable minions in the underworld.

As Hugh O'Shaughnessy of The Independent puts it, decriminalization of drug use would impoverish "the traffickers, large and small, and those who have been making good money building and running the new prisons that help to bankrupt governments – in the US in particular, where drug offenders – principally small retailers and seldom the rich and important wholesalers – have helped to push the prison population to 1,600,000."

That population will soon include Johnnie Gaskins, a principled but powerless man who committed no crime. The majesty of the law requires nothing less. None of the criminals in Wachovia's corporate leadership will be joining him behind bars, of course, since clemency is a gift the Regime bestows exclusively on its valued accomplices in official crime.

June 28, 2010

William Norman Grigg [send him mail] publishes the Pro Libertate blog and hosts the Pro Libertate radio program.

Appetite for Commodities

By The Mogambo Guru

07/02/10 Tampa, Florida – I am always worried that I am not ready for something, like “Do I have enough ammo to hold off a horde of desperate people storming the Excellent Mogambo Bunker (EMB)?” which I soon realized was a stupid question since there is no “correct” answer; it all depends on when the crowd of angry, starving people, destroyed by the Federal Reserve creating so much money and the government borrowing it and spending it, decides, “We better not rush the bunker and try to get all his gold and silver because The Fabulous Mogambo (TFM) will shoot us and kill us, and then shoot at the people who come to take our bullet-riddled bodies away, and then kill them, too!”

I assume that kind of anticipatory thinking by mobs and crowds is caliber-related and/or firepower related, and I knew that I was, after quick reflection, “good to go.”

But one of the things for which I was not ready was to read that Julian D. W. Phillips, of the Gold/Silver Forecaster, saying that “The debate is on-going as to whether we are entering a period where demand for commodities will fall in price or not. The reports are there that the Chinese government will slow the Chinese economy down to the point where their hunger for resources will slow and commodity prices fall.”

I am stunned that there is any debate at all about the coming prices of commodities, which is that they will be up! And I am sure that Mr. Phillips knows that, and he is just being argumentative since it seems that everybody likes to push my buttons about something.

Oh, I know there are non-believers out there, like those who delight in saying, “The Mogambo is an idiot, and commodities could conceivably fall in price, especially if something happens, although I cannot imagine what it could be, that would increase supply more than the coming increases in demand.”

So let me tell you, with a Deep, Deep Sincerity (DDS) born of seeing what happened every other time in history when some dirtbag government has tried this stupid crap of deficit-spending a flood of fiat currency, which is that no government, ever, including China, has ever been able to control “hunger” for anything, including a “hunger for resources,” as the American government’s efforts to “control” hunger for drugs, “control” hunger for alcohol, “control” the borders, “control” growth of government programs, or “control” actual hunger for fatty, fattening, chemical-laden, artery-clogging foods that are so, so yummy, especially anything fried, salty or sweet in gluttonous portions, so richly attests.

And now with China’s allowing the yuan to strengthen, the Chinese “hunger” for imported resources will be even more affordable, and thus China will achieve economic-development on the relative cheap through cheap imports, and thus, again, making the idea of some “debate” about the future prices of commodities into a kind of litmus test of intellectual competence.

I mean, how much of a genius does it take to understand, and how much of an idiot does it take to dispute, that commodities will increase in price when, as Mr. Phillips says, “China is developing basic infrastructure for 1.4 billion people, which is twice the size of the States and Europe put together. The hunger for resources that this can produce far outweighs the impact of a gentle policy of restraint to calm growth from 11% to 8%”?

Mr. Phillips goes on to add that “China is keenly aware that it will need resources for decades and has a policy of buying foreign resource producing assets to feed that hunger for the long haul. So we would be surprised [if] the upward trend in commodities would be slackened by cooling economic policies.”

And this brings up another question, which is “Will the Chinese buy up all the gold and use it to create a stable, gold-standard currency which would preclude the ruinous inflation in prices that causes misery and suffering and, eventually, societal collapse, the kind of which China is well aware, or will they act as corruptly and as stupidly as us Americans and Europeans and opt for a ridiculous fiat currency created at the whim of a banker?”

That all is, of course, academic, pertaining to countries, while the practical Lesson Of The Ages (LOTA) that pertains to you and me, personally, is that if you are not buying gold, silver and oil to protect yourself against the idiocy of the Federal Reserve creating mountains of money in trying to bail out the halfwitted Congress and presidential administration that are left holding the gigantic bag of ridiculous Utopian entitlements that have been built up for more than half a century, then I say I pity you to your face, but secretly I laugh at you behind your back because, man, oh man, this investing stuff is easy!

The Mogambo Guru
for The Daily Reckoning

Tutti i dati che dimostrano l’esistenza del signoraggio

FINANZA/ Tutti i dati che dimostrano l’esistenza del signoraggio

Giovanni Passali

venerdì 2 luglio 2010

Un lettore mi ha inviato un commento all’articolo “FINANZA/ Quanto ci costa il signoraggio delle banche centrali?”. Ecco il testo di quel commento: “Salve, in rete gira questo dossier sulle frottole del signoraggio: http://digilander.libero.it/togiga/signoraggio.pdf e un gruppo facebook che debunkera le sciocchezze dei complottisti: http://www.facebook.com/pages/Signoraggio-informazione-corretta/279217954594 la teoria del signoraggio è una bufala di stampo neonazista”.

Conosco il documento proposto, redatto da un tal Gianluca: si tratta di una collezione di luoghi comuni proposti senza prove e infarciti da una serie quasi infinita di sciocchezze, affermazioni confuse e imprecise, citazioni parziali. Tanto da rendere impossibile una risposta su ogni punto. Comunque, ritengo il testo un interessante esercizio, utile per mostrare come alcuni luoghi comuni sulle questioni economiche, quando vengano confrontati con la realtà, ne escano letteralmente a pezzi.

Continua qui

Banche: confermata sentenza per direttori e funzionari

Oggi il Gruppo De Masi ha ottenuto un importante risultato in Corte d’Appello. Inserito il 02 luglio 2010 alle 16:07:00 da LR_Cultura. IT - news

Dopo oltre un anno e mezzo di dibattimento, il dispositivo della sentenza emessa questa mattina statuisce la conferma della sentenza di primo grado per i direttori locali e funzionari, mentre per i tre presidenti Marchiorello, Geronzi ed Abete (rispettivamente Presidenti di Banca Antonveneta, Banca di Roma e BNL) riformula parzialmente la sentenza stabilendo l’assoluzione “perché il fatto non costituisce reato”.

Il Tribunale di Palmi, con la sentenza del 08.11.07, per la prima volta in Italia accertava la presenza, sui conti delle mie aziende, del reato di usura bancaria, ma assolveva gli imputati con la formula “per non aver commesso il fatto”: pur riconoscendo il reato riteneva la non riconducibilità dei fatti agli imputati individuati dalla Procura.

La sentenza di Reggio Calabria con la formula indicata si spinge quindi ben oltre e, a parte riconfermare la presenza del reato di usura (elemento oggettivo), individua la riconducibilità del reato in capo ai tre Presidenti, assolvendoli solo in quanto non è stata fornita la prova del dolo nella commissione del reato stesso.

Riservandoci ulteriori analisi con il deposito delle motivazioni e valutando l’eventuale ricorso per quanto di ragione, questa sentenza, con la quale per la prima volta in Italia un Tribunale attribuisce la riconducibilità del reato di usura in capo a tre Presidenti di banca, pur escludendo il dolo, apre le porte alle conseguenti richieste di risarcimento danni per colpa, sia nei confronti delle banche, che direttamente in capo ai tre Presidenti.

Si tratta insomma di una sentenza che farà giurisprudenza e che non fa altro che dare ulteriore, ennesima ed autorevole conferma alle nostre ragioni.

Visto che è stata confermata quindi l’esistenza del reato e la riconducibilità dello stesso, mi auguro che ora gli enti preposti al controllo del sistema bancario, tra cui Banca d’Italia, intervengano per quanto di loro competenza.

Ringrazio tutti per il risultato raggiunto, la mia famiglia, i miei dipendenti, le OO.SS., i miei legali, Avv. Saccomanno, Avv. Mazzone, e tutti quanti ci sono stati vicini in questi anni confidando nella giustizia che prima o dopo sarebbe arrivata.

======================
E' possibile scaricare il dispositivo della Sentenza (solo utenti registrati [file pdf]) http://www.liberoreporter.it/NUKE/downloads.asp?id=50

Les Leopold

Author, "The Looting of America"

Posted: July 2, 2010

Wall Street's Answer to Unemployment

Take a hard, cold look at June's tragic unemployment numbers. The Bureau of Labor Statistics rate is 9.5 percent, roughly where it's been for more than a year. The BLS jobless rate (U6) is 16.5 percent -- nearly 30 million people are without jobs or forced into part-time work. More than 6.7 million workers have been unemployed for more than 27 weeks. The administration can spin these numbers like a top, but Americans know in their bones that no one in Washington has a real plan to get our people back to work.

But Wall Street has a plan and a new logic that is quietly infiltrating the media and policy circles. It's called "structural reform." Although it is likely to involve some additional pain and suffering, it's being sold as the new the magic bullet for our ailing economy. The story goes like this:

1. Banks and consumers took on too much debt during the housing boom (largely because of misguided government policies that enabled people who really couldn't afford homes to buy them).
2. When the bubble burst, the government had to bail out the financial system to avoid a devastating collapse. This essentially moved debt from the books of private banks (and consumers) to the government (mostly the Treasury, the Fed, Fannie and Freddie).
3. But there's a real limit to how much debt the government can absorb. Look how markets and voters around the world have reacted to rising deficits. (Think Greece, Germany, the Tea Party...)
4. This signals that the Keynesian moment is over. The government just can't keep spending its way out of this mess by shouldering bank debt or passing huge stimulus programs.
5. That leaves only one last viable option: Structural Reforms!

Structural reform is Wall Street speak for reducing what is often called the "social wage" for working people in every way possible: increasing the retirement age and cutting Social Security benefits, government employment and benefits, funds for public education, defined benefit pensions, and health care expenditures....and of course, extended unemployment benefits as well. (The Senate's refusal, yet again, to extend unemployment for 1.3 million laid-off workers comes straight from the "structural reform" playbook.)

Allegedly, the net result of these "reforms" is to reduce public debt while making the labor market more "supple" so that employment and wages can rise and fall quickly in response to shifting supply and demand. This "freer" labor market reduces the employer's cost of hiring workers, which is supposed to trigger a major jump in private sector employment.

And if all that cutting doesn't cause a jump in hiring, then cut more. Like Ireland. It hasn't worked yet--but surely someday soon....

Political cannibalism is the new normal. Unfortunately "structural reform" brings out the worst in us, with brothers and sisters turning on each other all across the land ("Don't cut us--cut them!"). And then there are those who've given up the fight altogether and now think austerity is a good thing, as Steven Greenhouse documents in his chilling piece in Monday's New York Times ("Labor's New Critics: Allies in Public Office"). Former labor leaders and labor friends, from LA's Mayor Villaraigosa to New York's Governor Paterson are going to war with unions ...and proud of it. These former allies believe that unions just have to face reality: revenues are down, so we've got to cut public workers' wages, benefits and jobs. Let's all join in the downward spiral, brothers and sisters!

In truth, "structural reforms" don't even touch the heart of the crisis--tragically, they'll only make it worse. The real heart of the problem is too much wealth in the hands of the few and too much power and wealth controlled by Wall Street. (Please see The Looting of America.) And unfortunately the new financial reform bill does little to limit this power and wealth. Our too-big-to-fail banks are still with us--and cockier than ever.

Very few commentators or policy officials have the nerve to call for restoring taxes on the super-rich to the levels they paid from the 1930s through the 1970s. (Back then, their tax rate was up to 91%. Now they pay as little as 15% because they can claim their booty as "capital gains.")

The 10 leading hedge fund managers each "earn" an average of $900,000 an hour (not a typo). Public officials and pundits should be calling such wildly excessive incomes a disgrace to democracy--especially given that without taxpayer bailouts the financial elites would have earned nothing at all. Instead we are told to admire the robbery as if it were a sign of entrepreneurial genius.

The fiscal crisis is not an act of God. Nope, it was caused by a reckless Wall Street gambling spree gone bad, and years of lost revenue from super-rich people who should have been paying taxes . Our already depleted public coffers are now running on empty because of bank bailouts and the cost of helping people who lost jobs in the Wall Street-induced collapse.

We do indeed need structural reforms, but not the kind that Wall Street is talking about. First, we need to reattach the truly wealthy to planet Earth. Right now the uber-rich live in their own cosmos where they just can't imagine what it's like for working people who struggle to make ends meet--or for jobless people who can't make ends meet at all. The super-rich truly believe that their debts are sacred and must be repaid at all costs, even if we have to bail out every major bank and lay off millions of workers to do it. Wall Street comes first. The investor comes first...always. Equality of sacrifice in hard times? Don't be a chump!

We need a structural reform that would make Wall Street pay reparations for the damage it has caused, kind of like the $20 billion compensation fund BP was forced to create, only bigger, much bigger. We allowed the financial wizards to waltz off with $150 billion in bonuses derived from taxpayer bailouts. Instead, we should have used a windfall profits tax to redirect that money into a fund help states and localities preserve and create jobs.

But we can't get from here to there unless we dramatically expand our sense of what is possible. We just can't be satisfied with a porous financial reform bill that doesn't even include a tiny tax on the big banks and hedge funds that have just milked us dry. And we can't keep pretending that the private sector is ever again going to provide sufficient, sustainable jobs for all who need them. We've got to face up to the obvious: Wall Street is at war with the rest of us. And the stakes include the most fundamental aspects of the economy and our democracy. It's about how we create and distribute wealth, how we create and distribute costs, and who should decide.

Is there a way out? Maybe. But first we have to realize that minor policy fixes won't get us there. Let's stop fooling ourselves with this tinkering around the edges, passing watered down reforms and praying that the private sector will miraculously create millions of new jobs (and green ones!) - all on its own.

We'll need something close to a mass upheaval if we're going to get our political leaders to pay attention to us instead of the all-powerful market gods. That financial markets now have an instant veto over any and all economic policies is an insult to democracy. Whenever the politicians hear the distant rumble of unhappy bond markets they rush to the floor to vote for the latest austerity measure.

And unfortunately, this isn't just an American affliction. A financial Catch 22 has engulfed the leadership of Europe, Japan and the US: If they fail to cut deficits, the markets will react badly. And if they do cut deficits and drive their economies further into the ground, the markets also will react badly. Escaping from this structural reform trap won't come easy.

Americans are growing more cynical by the day as we watch our elected leaders groveling before the gods of Wall Street. So far much of the anger has been channeled by the right, which tries to persuade working people that the no-government, no-taxes approach is actually good for them. But that's going to change. Sooner or later more and more of us will realize that the brave new world of "structural reforms" favored by Wall Street and the right really means that we'll be working longer, harder and for less -- if we're lucky enough to work at all. No one knows when that moment will arrive. But it will. And with it may come a new American progressive movement with the staying power to put our people to work.

Les Leopold is the author of The Looting of America: How Wall Street's Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It Chelsea Green Publishing, June 2009.

Financial Crisis Commission : 'Nobody Here Believes Goldman Sachs'

Shahien Nasiripour

shahien@huffingtonpost.com | HuffPost Reporting

Financial Crisis Commission Turns Up Heat On Goldman Sachs: 'Nobody Here Believes You'

First Posted: 07- 1-10

The panel created to investigate the roots of the financial crisis escalated the government's assault on Goldman Sachs on Thursday, criticizing the Wall Street firm for failing to turn over basic documents and accusing it nearly lying under oath.

For a second consecutive day, the bipartisan Financial Crisis Inquiry Commission reiterated its request for additional data from Goldman, namely figures regarding the firm's derivatives activities. And for a second consecutive day, Goldman's top executives demurred.

"We generally do not have a derivatives business," David Viniar, Goldman's chief financial officer, told the panel Thursday under oath.

Goldman Sachs holds more than $49 trillion in notional derivatives contracts, making it the third-largest derivatives dealer among U.S. banks, according to first quarter figures from national bank regulator the Office of the Comptroller of the Currency. The commission has found that Goldman is a party to more than 1 million different derivatives contracts, Commissioner Brooksley Born disclosed Thursday.

"We don't separate out derivatives and cash businesses," Viniar clarified under questioning. The derivatives units are "integrated" into the firm's cash businesses, making it difficult for the firm to isolate its derivatives data, he said.

In January, the panel asked Goldman chairman and chief executive Lloyd C. Blankfein for a breakdown of the firm's revenues and profits from its derivatives activities. He said the firm would comply. The commission reiterated that request Wednesday and Thursday.

Viniar said the firm doesn't "keep" records outlining its revenues from its derivatives dealing.

"I am very skeptical that you can't measure these revenues and profits," Born told Viniar. "I urge you to provide us with this information. It's been about six months we've been asking for it... and it makes one wonder also why Goldman has the incentive or impetus not to reveal this information.

"You're suggesting you don't give it to your regulators. You don't put it in your financial reports... so you don't give it to the market... [or to your counterparties]," Born continued. "And you're refusing to give it to us. I hope very much that we will see this very shortly."

Viniar took exception to that last comment.

"Commissioner, again, we're not refusing anything," Goldman's chief financial officer said. "We don't have a separate derivatives business."

Viniar then said that Goldman isn't alone in not breaking out its derivatives-specific revenues and profits.

Born quickly shot back.

"They don't," Born, the nation's former top derivatives regulator, conceded. "But some other firms have provided us with that data when we've asked for it, and Goldman Sachs hasn't."

Phil Angelides, the panel's chairman, could barely contain his incredulousness.

"Are you telling me you have no system at your company that tracks revenues or assets of contracts, and liabilities and payments under contracts?" Angelides asked. "You have no management reports, no financial reports that track these contracts?"

"I've never seen one," Viniar responded. Pressed further, Viniar added that the firm doesn't track these things because it's "not meaningful."

Viniar again was asked to provide the data.

Later on, Byron Georgiou, another commissioner, reiterated the panel's request for information pertaining to Goldman's contracts with AIG. Goldman "aggressively" demanded increasing amounts of collateral from the insurer beginning in 2007 to cover what it perceived as the deteriorating value of those contracts' underlying securities, Angelides said.

Goldman may have marked those securities at a lower value than what it marked comparable securities for its own clients. In other words, it may have undervalued securities from AIG in order to get more cash while overvaluing them when dealing with other counterparties in order to hold on to its own cash.

The panel has asked for that data. Goldman has not handed it over.

"When you tell us that you don't know how much you make in your derivatives business, nobody here really believes it," Georgiou said. "It's crazy. It doesn't make any sense. Goldman Sachs is, if not the most sophisticated investment bank, certainly one of the most sophisticated investment banks in the world -- and nobody here believes you don't know how much money you're making on various aspects of your business. It doesn't make any sense."

Georgiou then asked for a specific breakdown of what Goldman paid AIG to insure specific securities, and what Goldman charged its own clients for the same protection. That insurance came in the form of credit default swaps, which are derivative contracts that act like insurance against default. Georgiou wants to know the premium, if any, Goldman received. It's not the first time the panel has asked for this information.

Viniar said he'd provide the data.

American Views on the Greater Depression

American Views on the Greater Depression:

"The United States has many needs: we need to upgrade our infrastructure, educate our children, provide medical care for the ill and injured, provide for our older citizens, etc., we have a large well-trained work force to provide for the needs of the country, we have the physical resources and the means of delivering in the real-world economy, we don not have enough small pieces of green paper with the pictures of dead men on them to make the economy work. Clearly, the real problem is a printing problem. To avoid the larger depression the government must simply print its own debt-free money and spend it directly into the economy."

"What we should be doing, and what a number of economists have proposed already, is to simply restructure all this debt right now so we can move on. It's going to be defaulted upon anyway, we might as well write it down now instead of going through a long painfull process that will take years and years like the last great depression."

"We should find a legal way, if at all possible, to claw back the profits banks and other lenders have made from this. If they walk away free and clear then where is the incentive to keep people from doing this again?"

"What sparked the recovery at the end of the "Great Depression" was people going back to work. The GD occurred because there was a reported 25%+ unemployment untill WWII when thousands of men were drafted. Any recovery that may have occurred after 1939 was delayed until 1946 when they returned from Europe & Japan. From 1929 until into 1946 there were no goods produced and no goods to buy whether you had money or not. Food,gasoline and other items were rationed. I know, I was there."