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How the SEC and Congress Can Bring Down Goldman Sachs and Expose the Financial Coup

April 28th, 2010 | Filed under Economy, Hot List, News, Politics & Government . Follow comments through RSS 2.0 feed. Click here to comment, or trackback.

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By David DeGraw, AmpedStatus Report

Not only did Goldman Sachs profit on betting against CDOs they designed to fail; more importantly, they insured them through AIG which led to a $182 billion taxpayer bailout.

How the SEC and Congress Can Bring Down Goldman Sachs and Expose the Financial CoupHave you heard the news? It’s everywhere! The SEC and Congress have all of a sudden sprung to life and are now “getting tough” on Goldman Sachs. Is this all the first phase of a long-awaited investigation that will reveal the causes of our current economic crisis, or is this just more show trials and psychological operations designed to manipulate public opinion and make the American people feel that our elected officials are finally standing up to their campaign funders on Wall Street?

First off, let’s address these SEC charges against Goldman Sachs. At first glance you might think, oh big deal, this is just a minor civil suit that only indicts a low-level Goldman employee. Goldman will just throw some money at it and it will most likely go away. After all, Wall Street firms have already thrown over $430 billion out to derail 1500 cases against them, so what will make this any different?

We are also left wondering, if the SEC was serious about this case, why aren’t they investigating and prosecuting John Paulson and top Goldman executives under the federal Racketeer Influenced and Corrupt Organizations Act (RICO) statutes? Even the NY Times reported that top executives were involved in the process. If you think Lloyd Blankfein wasn’t fully aware of this billion dollar deal involving John Paulson, you’re delusional. Blankfein became CEO of Goldman due to his outstanding expertise in this particular area, serving as Goldman’s head of the Fixed Income, Currency and Commodities Division (FICC) since its formation in 1997.

So unless this is just the first of many moves on the part of the SEC, this whole case amounts to a psychological operation designed to once again quell popular outrage. These indications lead me to believe that this is a classic “limited hang-out.” As Wikipedia explains it:

“A limited hangout is a form of deception, misdirection, or coverup often associated with intelligence agencies involving a release or ‘mea culpa’ type of confession of only part of a set of previously hidden sensitive information, that establishes credibility for the one releasing the information who by the very act of confession appears to be ‘coming clean’ and acting with integrity; but in actuality by withholding key facts is protecting a deeper crime and those who could be exposed if the whole truth came out. In effect, if an array of offenses or misdeeds is suspected, this confession admits to a lesser offense while covering up the greater ones.”

However, on the other hand, if you take a close look at this case, it shows you that the SEC and the recent Senate probe are on exactly the right trail to not only bring down Goldman and the major players who caused the economic crisis, but also to target the key aspects of the much bigger crime, or as I call it the financial coup that led to trillions of our tax dollars being handed over to the very people who caused the crisis.

So let’s look again at the specifics of the SEC case from this angle.

Congress and the SEC are making the case that Goldman Sachs and John Paulson put together CDOs that they knew would fail and then made huge profits shorting (betting against) them.

Although the SEC and Congress are focusing on Goldman Sachs and John Paulson shorting these CDOs they knew would fail, these CDOs are at the heart of the case I presented in my Financial Coup report. Not only did they create CDOs they knew would fail and bet against them, but they also, more importantly, insured these CDOs through AIG. This is the key point and exactly what led to US taxpayers being forced to bail AIG out at the extraordinary expense of $182 billion.

Hank Paulson’s Role

Here’s how a report on Zero Hedge put it: “They [Goldman] fabricated synthetic CDOs, such as Abacus 2007 AC-1. These toxic assets, invented out of thin air, made the meltdown worse than it otherwise would have been. How much worse? Consider the numbers: According to the New York Fed, about $1.275 trillion in subprime mortgage-backed bonds were issued between 2004 and 2006.”

Now, the quote above references some of the CDO time bombs that were created in the market that eventually blew up. Also, notice when the bulk of these CDOs were created – during Hank Paulson’s reign as CEO of Goldman. As I wrote in early February, “Paulson knew these CDOs would go bust because they were based on fraudulent activities…. So Paulson and Goldman Sachs covered their risk by insuring them through AIG, making it pivotal to save AIG….”

So after Hank Paulson and Goldman Sachs created a ticking time bomb in CDOs — Paulson personally made $700 million on these shady activities — they then insured them through AIG. Paulson then moved to the US Treasury where he was calling the shots once his time bomb went off. And once it went off, Paulson quickly made the decision that AIG was “too big to fail” and must be saved at all costs.

As bad as that sounds, this is just part of the story. Enter Edward Liddy, as I wrote:

“Another egregious unilateral move by Paulson was installing Edward Liddy, one of his former board members at Goldman Sachs, as CEO of AIG. Liddy was the Chairman of Goldman’s Audit Committee, making him the most knowledgeable person regarding Goldman’s collateralized debt obligations (CDOs)… making it pivotal to… have one of Paulson’s most trusted allies run the company. With Liddy in place, billions of taxpayer dollars were secretly funneled by the Geithner-led NY Federal Reserve through AIG to Goldman Sachs and several other Wall Street elite counterparties.”

Without the AIG bailout, Goldman Sachs would have collapsed as a result of its own scam. So Hank Paulson, not John Paulson, should be the ultimate target of this investigation.

Credit Ratings Agencies and Other Firms

Other key players in this scam/coup were the credit ratings agencies. Congress is pounding away on this front now as well. Goldman Sachs either duped the major ratings agencies or got them to play along – getting them to give fraudulent AAA ratings to the CDOs that were designed to fail, thus leading investors to believe that they were safe investments.

Now, to be clear, Goldman Sachs wasn’t the only firm to create these CDO bombs, as Pro Publica reported:

“Investment banks including JPMorgan Chase, Merrill Lynch (now part of Bank of America), Citigroup, Deutsche Bank and UBS also created CDOs that a hedge fund named Magnetar was both helping create and betting would fail. Those investment banks marketed and sold the CDOs to investors without disclosing Magnetar’s role or the hedge fund’s interests.

Here is a list of the banks that were involved in Magnetar deals, along with links to many of the prospectuses on the deals, which skip over Magnetar’s role. In all, investment banks created at least 30 CDOs with Magnetar, worth roughly $40 billion overall. Goldman’s 25 Abacus CDOs—one of which is the basis of the SEC’s lawsuit—amounted to $10.9 billion.”

The Federal Reserve’s Role

The investigations also need to target the fact that Hank Paulson and Ben Bernanke turned Goldman Sachs into a bank holding company overnight, which gave Goldman and a handful of other firms, chosen by Paulson and Bernanke, access to trillions in taxpayer backed zero interest loans. This allowed them to buy up assets and manipulate the market at a time when other firms, not blessed by the Fed, couldn’t compete. This is why we now see Goldman racking in record breaking profits. Even to this day, the Fed is fighting disclosure of information on these scandalous loans estimated to be worth a stunning $2 trillion. The Fed’s desire to conceal information regarding $2 trillion in taxpayer backed loans demonstrates a complete disregard for the American people.

And while Congress is at it, they need to hold accountable the people involved in the Maiden Lane II and III taxpayer money giveaways. In these deals, the Fed moved tens of billions of taxpayer dollars without Congressional approval prior to TARP and the bailout. This is a direct violation of the Constitution, not to mention completely illegal. The Fed cannot move a single tax dollar without Congressional approval, let alone tens of billions.

Yet another focus of the investigation needs to be the outright fraudulent accounting scams that were exposed in the Lehman Brothers bankruptcy report and have since been proven to be standard procedure among the 18 largest politically-connected firms. As Jennifer S. Taub revealed on Baseline Scenario: “…based on data from the Federal Reserve Bank of New York, eighteen banks ‘understated the debt levels used to fund securities trades by lowering them an average of 42% at the end of each of the past five quarterly periods.’ These banks include Goldman Sachs, Morgan Stanley, JP Morgan Chase, Bank of America and Citigroup.”

Once again, the Federal Reserve played a significant role in aiding and abetting these illegal accounting scams, which of course led to record breaking bonuses that are handed out based on false profits.

This is why we must aggressively pursue RICO charges, this is an organized criminal operation of the highest degree.

The bottom line is, these are the illegal activities that led to our current crisis and what amounts to trillions of dollars lost to theft and outright fraud.

There is no question that Congress and the SEC have been derelict in their duties thus far, and possibly criminally negligent, and this all could very well just be more show trials that are psychological operations to make the US public think that there is actually accountability and a rule of law. However, if Congress and the SEC can stay the course and follow this investigation through, it will lead them right into the heart of an intelligence operation designed to take down the US working class taxpayer and enrich the wealthiest people on the planet.

A bold claim, but if Congress and the SEC are actually concerned about the interests of 99% of the US population, their investigation will lead them down this path, which will eventually bring down Goldman Sachs and expose the Financial Coup.

The American public must demand that this investigation proceed along these lines. We are literally confronted with the greatest theft of wealth in history and the consequences of this are only just beginning to reap their toll.

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  1. Simon said:

    Excellent work as always David. I think you have it right with the “limited hang out” point. As much as I would love to see them follow through with all you mention here, I think we will see pigs fly before that happens. This civil suit and bullshit reform is all we are going to get.

  2. my name is william-your organization is one of the few that is telling the truth-i have stopped reading newspapers b cause
    i can no longer tolerate the lies. this country is headed towards a severe depression even tho we r already there. i am coming into some money from an accident and i have seriously considered leaving the country. even tho things are fucked up everywhere b cause of the global meltdown-pls write me back and tell me what i as an ordinary citizen can do.

  3. Laura said:

    David,

    Unless the SEC is going to give you a job, I have little faith they will follow through on investigating the crimes you lay out. People need to start hitting the streets and raise hell about these issues. Glad to see that is starting to happen, but as you have pointed out, we need millions organizing and protesting on this! otherwise, our decline will continue.

    Stop Hoping and start ACTING!

  4. Joost said:

    I was thinking similar thoughts. Creating CDOs that were designed to failed is THE primary cause of the crash. Perhaps the SEC believes they can win this case and then take it to the next level, as suggested above. Most probably wishful thoughts… They are hitting on the proper buttons. So let’s not assume that all is lost. Maybe there is hope! Laura is right though, we need to put fear into them and force action by rallying larges groups of people.

  5. Melissa said:

    Hank Paulson is the most evil man on this earth. Until he is held accountable I don’t want to hear anything about laws and the democratic process. Paulson, Bernanke and Geithner should all be in Gitmo!

  6. Nakis said:

    Nice article.
    My question is why isn’t something real being done? (mostly rhetorical).
    The facts are out (not all of course). It’s in printed media, television (not accurately on main line TV news), radio, etc…. . Congress knows we know. We know they are criminal. We know that the CEOs are criminal. So why isn’t the justice dept. tearing everyone a new canal for defecation?
    It’s like the criminal wars we started. We know who’s guilty. They’ll just never be prosecuted.
    As the article states, they are just playing the people once again. Make a show of it and wait till it blows over.
    Vote for election reform. Demand it. We need politicians not embedded with big business.

  7. Jake said:

    All roads lead to DeGraw & Amped. I get news emailed to me from a handful of trusted sources and every once in awhile they will all send the same article with the MUST READ headline. Every time I see that now, I think what has DeGraw done now? Amped has become hands down my favorite site. You guys get it right and don’t miss a trick.

    Where is the 99% movement? I can’t hear you… ;-)

    JW

  8. Audit the Fed!!! said:

    When to take it to the Fed! The Federal Reserve is the modern day mafia. Goldman, JP, Citi, Morgan, BofA, Wells are all the main mafia families acting under the Fed’s protection. A criminal racket in every sense!

  9. Karen said:

    GS, B of A, Citigroup, the Fed, JP Morgan, etc. are just proving that “The best way to rob a country is to own it.” Since the Supreme Court has lowered restrictions on corporate political donations (which they actually were able to circumvent anyway), there will be no stopping them now. I wonder how long this “limited hangout” will last. Congress spent $60 million investigating a stain on a blue dress. How much will they spend investigating the near collapse of our entire financial structure??

  10. Dave Templer said:

    RICO?!

    You understand that the SEC brings -civil- cases because they’re easy to win, right? Preponderance versus beyond reasonable, etc etc?

    Civil also means quick resolution. A RICO case would take many, many, many many many MANY years before a verdict was reached.

  11. Gerald said:

    I just read that TARP IG Neil Barofsky is going to pursue criminal charges against the NY fed (Giethner) in their AIG bailout that this report mentions.

    Maybe… just maybe… the damn is starting to break and we will finally see some justice.

    Maybe… please…

    perhaps… hopefully…

  12. Scott said:

    Hell yeah Dave!!! You just keep the hits coming. I feel the wave building, going to crash down on these thieves

  13. Lawrence Baker said:

    An “octopus wrapped around the face of humanity” as one journalist put it; the New World Banking Order has arrived. In 2009 speculative, uncontrolled derivatives were the Worlds largest market at an estimated 600 Trillion. The Worlds total economic output was an estimated 58.07 Trillion and the total World bond market was an estimated 82.2 Trillion. Yet, there is no “crime” that the bankers can be charged with as they bankrupt citizens and Nations into the New World Order?
    The appropriate criminal charge should be Treason to the American People and our Democratic Republic and Constitution. The members of the Trilateral Commission and the Bilderberg Group in government and banking who conspired to overthrow our soverenity as an independent nation, who conspired to bankrupt our Treasury with three unjust Wars and multinational corporate “rolling” bailouts, conspired to control mass media “free Press” propaganda, conspired and manipulated “financial crisis” for their own gain, conspired to “relocate” American manufacturing/industry and technology, conspired to offshore “American Income Tax”, and who have conspired to enslave American citizens with National debt (about $64,000 per citizen) and personal debt. Deserve the death sentence by firing squad for Treason.
    Obama, your New World Order is Totalitarian and we Patriots, American free citizens, will fight for our Democracy, Independence and Freedom.

  14. [...] Source [...]

  15. Charles said:

    Isn’t that fraud, akin to insuring cigars and then smoking them?

  16. tom said:

    Ed Liddy also was the prior head of Allstate Insurance..A company he took from one billion in assets to over 20 billion by defrauding those who made claims on their insurance policies…So he was well versed in screwing people and buying politicans..He is in that class of human garbage that is destroying this country…

  17. [...] How the SEC and Congress Can Bring Down Goldman Sachs and Expose the Financial Coup Not only did Goldman Sachs profit on betting against CDOs they designed to fail; more importantly, they insured them through AIG which led to a $182 billion taxpayer bailout. [...]

  18. Erin said:

    David,

    I read through your BCCI report, which was a fantastic piece of research, and I noticed you had a section on how several of the Savings & Loans companies had direct connections to the CIA. I know you always point to this crisis as being engineered to take down the US middle class, but do you think that the CIA, or some other intel org is actually running Goldman, Citi, JP and created this economic mess globally as a way of limiting development to prevent resource depletion and population growth. After close examination of all your work and supporting research/information, I think this is truly a possibility. Of course people will dismiss this as a conspiracy theory, but knowing what you know, I would love to hear your opinion on this.

  19. Max said:

    Great work David. You would have thought insuring the toxic crap through AIG would have come up in the Congressional hearing. These people just don’t get it. Financial terrorists have blew up the global economy and everyone pretends like nothing serious happened. Let’s just file civil charges against one little player. How about sending all these thugs to Abu Graib!

  20. [...] now, in a new article Degraw shows How the SEC and Congress Can Bring Down Goldman Sachs and Expose the Financial Coup.  As William K. Black and Eliot Spitzer also have pointed out, the scandalous bailout of AIG and [...]

  21. [...] How the SEC and Congress Can Bring Down Goldman Sachs and Expose the Financial Coup [...]

  22. Frank said:

    Just saw DeGraw On The Edge with Max Keiser. Great interview! Hank Paulson is Doctor Evil. No doubt about it. Thanks for doing you best to enlighten the masses!

  23. [...] full article: How the SEC and Congress Can Bring Down Goldman Sachs and Expose the Financial Coup [...]

  24. [...] How the SEC and Congress Can Bring Down Goldman Sachs and Expose the Financial Coup [...]

  25. [...] This piece was originally published on April 28, 2010 by AmpedStatus.com. [...]

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