The Masters of the Universe Strike Again

I eagerly await the apologists angry that I use the word “criminality” and “Goldman” in the same sentence:

– Goldman Sachs Group Inc. managed $15 billion of bond sales for Greece after arranging a currency swap that allowed the government to hide the extent of its deficit.

No mention was made of the swap in sales documents for the securities in at least six of the 10 sales the bank arranged for Greece since the transaction, according to a review of the prospectuses by Bloomberg. The New York-based firm helped Greece raise $1 billion of off-balance-sheet funding in 2002 through the swap, which European Union regulators said they knew nothing about until recent days.

Failing to disclose the swap may have allowed Goldman, a co-lead manager on many of the sales, other underwriters and Greece to get a better price for the securities, said Bill Blain, co-head of fixed income at Matrix Corporate Capital LLP, a London-based broker and fund manager.

“The price of bonds should reflect the reality of Greece’s finances,” Blain said. “If a bank was selling them to investors on the basis of publicly available information, and they were aware that information was incorrect, then investors have been fooled.”

Maybe Europe will have the nerve to do what we don’t here in the states.

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101 replies
  1. 1
    geg6 says:

    Based on the “inquiry” into Tony Blair’s war crimes taking place right now in Britain (an inquiry which has no power to sanction Blair or anyone else in any way), I’d have to say I doubt it.

  2. 2
    r€nato says:

    Make no mistake about it, their politicians are even more corrupt than ours. Hopefully Goldman did not have the foresight to buy off European politicians, infiltrate ex-executives into their government or otherwise worm its way into their good graces.

  3. 3
    Morbo says:

    Hey, at least we got Martha Stewart.

  4. 4
    John Quixote says:

    Greatest. Criminals. Ever.

  5. 5
    gopher2b says:

    The bankers own Europe (especially England) just as much as they do the U.S. Senate. Just buy bank stocks, it will make you feel better.

  6. 6
    The Dangerman says:

    How about we just allow Goldman Sachs (Of Shit) rewrite the GAAP to whatever the fuck they want?

  7. 7
    ajr22 says:

    Careful Cole, Loyd might stick stamper on you.

  8. 8
    rootless_e says:

    This is actually a whole bunch of bullshit.

    http://blogs.reuters.com/felix.....ans-fault/

    Sovereign bond investors are not little children, trustingly handing over their nickels to some big bad NY banker.

  9. 9
    Brian J says:

    The impression that I’ve gotten is that it’s more a failure of Greek’s government than anything else. While I am sure Goldman Sachs wasn’t exactly modest in trying to gin up these deals, why aren’t we looking at the political problems that allowed Greece to kick the fiscal can down the road? These types of deals, from what I can tell, aren’t all bad. If they are used responsibly, they can give companies and countries some breathing room. But if they aren’t used responsibly, they simply avoid dealing with the underlying issue, which in this case was irresponsible fiscal management by Greece.

  10. 10
    ellaesther says:

    then investors have been fooled

    This sounds so… harmless, compared to what it actually means. I’m confident that Blain didn’t mean for it to sound harmless, but man. I think I would have gone with something a little more harsh that “fooled.”

    “Criminally misled” comes to mind.

  11. 11
    rootless_e says:

    The summary is pretty simple: the world financial system is run by scumballs. In this case, a rightwing sleazeball government in Greece made a duplicitous deal with GS to put their deficits “off book” – as is the standard for RW governments – using rules specifically crafted to allow this kind of BS by the EU banking “regulators”. Then a bunch of greedy assholes purchased Greek bonds, knowing full well that the Greek government was dishonest, that the Greeks had defaulted on 200 bond issues, and that they would get higher interest rates for the risk. Now, as usual, the prospect of actually loosing money on risky investments is causing bondholders to shriek that they were deceived and that someone must bail them out.

    The theory that GS is to blame for this clusterfuck of greed, self-dealing, ponzi-accounting, and whining, is not supported by the evidence.

  12. 12
    Ash Can says:

    “Apologists” have no business being angry. Goldman Sachs is singlehandedly sabotaging the entire investment banking industry with its bullshit. As a 15-year veteran of the industry myself — at a firm that, unlike Goldman, took pains to rein in its cowboys and play by the rules — I’d like to be first in line for the blanket party.

  13. 13
    Xenos says:

    Goldman has stayed involved in the marketing of these securities, recently attempting to get the Chinese to buy a lot of them in order to hold off the crisis. Even the Chinese were not falling for that one.

    The WSJ is reporting that Greek officials reported to the EU in 2008 that there were no currency transactions being used to hide the deficit. Also, like every professional journalistic report I can find, there is no mention that the center-right government for the last ten years has conducted all of these frauds, which came to light as soon as a socialist government took over and started opening the books and dealing with the public honestly. No mention of this at all, ever.

  14. 14
    Brachiator says:

    The use of such derivatives was legal under EU rules “at the time”, Mr Papaconstantinou has said.

    Finance Minister George Papaconstantinou speaking to the Greek parliament.

  15. 15
    Xenos says:

    Goldman has stayed involved in the marketing of these securities, recently attempting to get the Chinese to buy a lot of them in order to hold off the crisis. Even the Chinese were not falling for that one.

    The WSJ is reporting that Greek officials reported to the EU in 2008 that there were no currency transactions being used to hide the deficit. Also, like every professional journalistic report I can find, there is no mention that the center-right government for the last ten years has conducted all of these frauds, which came to light as soon as the Pan-Hellenic Sockulist Party took over and started opening the books and dealing with the public honestly. No mention of this at all, ever.

  16. 16
    scarshapedstar says:

    Whoa whoa whoa, we’re entering into Great Gay Satan (aka Matt Taibbi) territory now.

  17. 17
    gopher2b says:

    @rootless_e:

    The theory that GS is to blame for this clusterfuck of greed, self-dealing, ponzi-accounting, and whining, is not supported by the evidence.

    Ever hear of “conspiracy to defraud.”

    No doubt, however, that the bondholders are a bunch of greedy, corrupt babies who want to be bailed out of their own mess.

  18. 18
    Bullsmith says:

    It was interesting to see that the NYT in it’s very first article about this made sure the headline said it was all perfectly legal. They have no way of knowing that of course, but the whole point of Wall Street these days seems to be to legalize crime.

    If “criminals” is too crude, how about “lying scumbag fraud artists who specialize in raping the life savings of widows and orphans?” But hey, baseball players get paid too.

  19. 19
    Brian J says:

    @Xenos:

    Whoa, you realize what you are implying here, don’t you? Do you really mean to allege that a right-wing government in Greece didn’t act responsibly? Do you also mean to imply that our right-wing government didn’t act responsibly over the past decade?

  20. 20
    gopher2b says:

    @rootless_e:

    First, I agree with you about the bondholders. But, there is a pattern emerging where debtors sell shitty paper, banks help cover it up, bondholders buy with a wink and a nod, everything goes down the tubes and all of them ask for a bailout (on which the banks will collect a hefty consulting fee).

    Though I did make $12k and counting off the whole mess.

  21. 21
    rootless_e says:

    @gopher2b: How can anyone claim “conspiracy to defraud” of a legal transaction with a sovereign state, details of which were reported in the press? The reason bondholders got high interest rates was because of – you know – risk of default. If it had been believed that Greece was on the up and up, then its bonds would have been issued with low return.

  22. 22
    Cat says:

    @rootless_e:

    The link to the 2003 article is much more interesting.

    This is another hidden in plain sight time bomb every just ignored when times were good.

  23. 23
    rootless_e says:

    @gopher2b: Well,yeah. It’s almost as if the whole system was corrupt. I wouldn’t care if GS management was sent off to hard labor at Angola prison, but I am not willing to fall for a transparent attempt by bondholders and sleazeball EU “regulators” to blame this all on some Americans.

  24. 24
    Xenos says:

    @rootless_e:

    The theory that GS is to blame for this clusterfuck of greed, self-dealing, ponzi-accounting, and whining, is not supported by the evidence.

    True, the rules set up by the EU allow for some looseness in the joints, as it were. Like a lot of systems even though you can be cyinical about how people will actually behave, it breaks down if parties take that looseness as an excuse to act with a complete lack of good faith.

    There is a conspiracy of malicious and fraudulent behaviour here, not so much at the political level but in the market for sovereign debt instruments. GS has been an indispensible party for that conspiracy to succeed – without their complicity, it could not have been done. Their role is analogous to Arthur Andersen’s in the Enron scandal. The solution is the same.

    (Waiting for Burns… )

  25. 25
    Xenos says:

    @gopher2b:

    No doubt, however, that the bondholders are a bunch of greedy, corrupt babies who want to be bailed out of their own mess.

    You can’t cheat an honest man, but that should not make cheating permissible.

  26. 26
    Joe Buck says:

    geg6 takes shots at the inquiry into Tony Blair’s conduct of the war, but since we are in the country that insists on looking forward, not backward, who are we to talk?

    At the least, the inquiry has helped to assure that Blair’s political career is over. His backers were talking about pushing him for high EU office, and that’s over.

  27. 27
    rootless_e says:

    @Cat: Yup. And now the bondholders are shocked, shocked, I say and the EU regulators are appalled!

    One thing people keep forgetting is how much of AIG’s exposure was on “regulatory arbitrage” to EU banks.

  28. 28
    Amok92 says:

    @Ash can

    Bullshit, IB is essentially a criminal enterprise now, GS is just the most successful of the bunch.

  29. 29
    rootless_e says:

    It is now widely known that since 1996, Italy’s Treasury has regularly used swaps transactions to optically reduce its publicly reported debt and deficit ratios. Such trades remain controversial, and were the subject of fierce debate in late 2001, when Italian academic Gustavo Piga published a paper accusing eurozone countries of ‘window dressing’ their public accounts using derivatives (Risk January 2002, page 17).

  30. 30
    gopher2b says:

    @rootless_e:

    If countries like Greece buy swaps in order to hide their true fiscal status, then that’s the country’s fault, not the banks’. No self-respecting bank would decline such a transaction because they felt it was unfair to Eurostat.

    This is the key quote from that story. I disagree with the author completely. If a bank knows they are being used for an illegal purpose, and allows itself to be used, it’s just as liable (and/or guilty) as the debtor. It’s the ostrich defense and its a non-starter.

  31. 31
    Xenos says:

    @Brian J: This is where I start to agree with Krugman – integrating Greece into the EU was a mistake. If the Sockulists had been in charge they probably would have started cooking the books too, as the alternatives (failure of the Olympic games, for one) would have been unacceptable.

  32. 32
    someguy says:

    Basically, we need to seize Goldman’s assets and redistribute them. Until this happens you aren’t going to have any of the bankers’ attention.

  33. 33
    Martin says:

    @rootless_e:

    The theory that GS is to blame for this clusterfuck of greed, self-dealing, ponzi-accounting, and whining, is not supported by the evidence.

    Are you saying that they didn’t know what was going to happen, or that what they did wasn’t illegal? Those are entirely different things.

    Look, we have this free market/regulated market debate every day here in the US. If the free market guys want to be taken even slightly seriously then they need to hold the banks accountable when they do these things. That’s the whole fucking point – that somehow they know better.

  34. 34
    Nick says:

    Being Greek (Nick is short of Nicholas Kakliamanis), I have some insight into this.

    Goldman was basically asked by Greece’s previous (right wing) government to help the country hide the extent of it’s deficit for fears of not only electoral fallout domestically, but how it would hurt Greece within the EU and their (vain) attempts at blocking Turkish accession.

    Goldman, never turning down business being a company and all, gladly helped, but warned that they wouldn’t be able to hide it forever.

    Greece was recently replaced with a Socialist government, who is gladly pinning the blame on Goldman to keep the masses from turning on them, as they never really said a peep about the deficit during their minority…not that they should as Papandreou is doing everything he can to help the country rebound, but he has on eye on the political situation in the United States (he was born in Minnesota) and sees how quickly the Americans turned on the Democrats and wants to remain on offense, which is smart of him. Anyone who can read Greek should check out the Greek newspapers (if you can read Greek and live in Astoria, Queens, Tarpon Springs, Florida, Campbell, Ohio or Allenwood, New Jersey), some of the headlines against Goldman and capitalism in general are intense.

    Basically, my point is, this is more Kostas Karamanlis’ fault than Goldman…Goldman was just doing what it does.

  35. 35
    rootless_e says:

    @gopher2b: It was not illegal. Look at the Risk magazine story: it was being reported that EU rules allowed member states to disguise finances with derivatives.

  36. 36
    gopher2b says:

    Can I just say too that this just illustrates the central problem to this entire mess. The people who run things (Geitner [and Paulson before him], Bernanke, Goldman Sachs, Blackstone, and now unfortunately Obama) cannot imagine a world where there is no Goldman Sachs. The syllogism is (1) the world economy cannot function without Goldman Sachs, (2) Goldman Sachs doesn’t do illegal or unnecessary things, (3) everything Goldman Sachs does must be legal and necessary. I don’t see this paradigm changing anytime soon so we will continue to have these messes anytime there is serious volatility.

    I doubt it was worth the Great Depression that would have followed, but I really wish sometimes they would have let them all fail back in fall ’08 and all the bankers would be living in Central Park right now.

  37. 37
    rootless_e says:

    @Martin: I’m saying I have zero sympathy for the bondholders or the EU regulators. A just solution to this would be cancellation of the debt and a warning to people not to buy bonds from irresponsible right wing governments.

    To me, the whole sovereign bonds market is a scam.

  38. 38
    Nick says:

    @Xenos: The Socialists were in charge for part of the problem period, from about 2001 until 2004. The Socialists were governing the country in the run up to the Athens Olympics.

    And I’m not one who speaks ill of socialists, considering I consider myself a member of PASOK and my grandfather served in the Vouli ton Ellinon as a member of Andreas Papandreou’s government.

  39. 39
    Brachiator says:

    @Xenos:

    Goldman has stayed involved in the marketing of these securities, recently attempting to get the Chinese to buy a lot of them in order to hold off the crisis. Even the Chinese were not falling for that one.

    Wait, there’s more

    The Wall Street giant is claimed to have reaped as much as £192m in fees by entering a complex currency transaction in 2001 that helped Athens borrow cash without putting it on the books as a loan.

    Always follow the money.

    Meanwhile, both in the UK and the US banks are defying citizens and governments who provided bailout money by frolicking in vast pools of bonus money:

    Barclays bankers to pocket £4.4bn as average bonus payouts double to £191,000 and 1,000 top traders walk away with over £1m

    Barclays has defied calls for restraint on bonuses by handing its investment bankers pay and perks of £4.4billion – double last year’s figure. The 23,000 fat cats will pocket average packages of £191,000 for 2009 – up from £99,000 the year before.

    Don’t you just love how the banks are quaking in fear over US and UK attempts to get them to reduce excessive executive pay and to provide transparency over their various high-risk financial deals?

  40. 40
    Nick says:

    @gopher2b:

    eople who run things (Geitner [and Paulson before him], Bernanke, Goldman Sachs, Blackstone, and now unfortunately Obama) cannot imagine a world where there is no Goldman Sachs. The syllogism is (1) the world economy cannot function without Goldman Sachs

    You know why that is? Because the world cannot function without Goldman Sachs and you basically admitted that lol.

  41. 41
    Alan says:

    There are more important things to do than blaming Goldman Sachs for all the financial ills in the world.

  42. 42
    Ash Can says:

    @Amok92: Now you’re just being silly.

  43. 43
    Zifnab says:

    Maybe Europe will have the nerve to do what we don’t here in the states.

    BOMB IRAN!

  44. 44
    rootless_e says:

    @gopher2b: This is what gets me: the EU is attempting to find a way to blame someone, anyone, for what it is trying to do which is to rescue irresponsible bond investors (including the biggest and most powerful banks in Europe) on the backs of Greek workers. So we’re treated to this ridiculous spectacle of EU regulators winking at GS and Barclays and Deutsches Bank and indignantly insisting that they are incensed that gambling has been going on in the casino.

  45. 45
    Michael says:

    Last summer, I read Street Fighters by Kate Kelley, detailing the last 72 hours of Bear Stearns.

    http://www.amazon.com/Street-F.....1591842735

    What struck me about it was the casino floor atmosphere of the speed of these transactions and the ludicrous expectation that multi-billion dollar decisions could be made in timespans lasting for mere hours under the pretense that all the facts were being meticulously analyzed.

    The reality of it is that these are some lazy fuckers who gamble the fortunes of other people according to whims and gut feelings. There is no real analyis – it is all about who you know and who you blow, along with the illusion of trust.

  46. 46
    gopher2b says:

    @rootless_e:

    Without reading the actual law, I’m skeptical its legal to use derivatives with the intent to hide the financial state of the debtor. I imagine the law says you can use derivatives and somewhere else it explains how the accounting should look. I strongly doubt you are allowed to manipulate the guidelines with the INTENT to defraud.

    If it is otherwise, so be it.

  47. 47
    gopher2b says:

    @Nick:

    Wow you’re dumb.

  48. 48
    cat48 says:

    @Xenos:

    The Chinese might not have fallen for it but some economists believe that the Chinese are inflating a huge real estate bubble. I see Chinese bankers executed in the future when it busts. They will not be treated like the US banksters.

  49. 49
    Xenos says:

    @Nick: Nick – If the Karamanlis government had refused to use the derivatives, resulting in a default a few years ago and the sort of austerity measures now being considered, how would the public have reacted?

    I probably tend to indulge my anti-capitalist and anti-neocon obsessions too readily on this issue. My wife blames the Greeks, every last one of them, for preferring comfortable fictions over painful reality. And she is about as hardcore a Papandreou-bot as you will ever find.

  50. 50
    Nick says:

    @gopher2b:

    Wow you’re dumb.

    Very insightful, thanks. care to elaborate?

  51. 51
    Zifnab says:

    @Nick:

    Basically, my point is, this is more Kostas Karamanlis’ fault than Goldman…Goldman was just doing what it does.

    Oh please. That’s like suggesting the crack dealer’s hands are clean when his clients start shooting up convenience stores for spare cash.

    Goldman set up a series of bunk deals designed to raid the Greek Treasury in exchange for the government’s right wing politicos to cook the books and “balance” the budget. It’s money laundering plan and simple. Suggesting that Goldman is somehow innocent just because it was the laundry mat and not the guy doing the laundry is criminally naive.

  52. 52
    rootless_e says:

    @gopher2b: Well, the details of the transaction were published in 2003. That article references a public “fierce debate in late 2001” about Piga’s paper. If it was illegal, then the EU regulators really suck.

  53. 53
    gopher2b says:

    @Nick:

    Not really worth my time but you can start by looking up syllogism.

  54. 54
    Nick says:

    @Xenos:

    how would the public have reacted.

    His government would have almost certainly fallen and Socialists would have taken power, which is what happened anyway, and it would’ve sent shockwaves through Europe that might have prevented the whole financial crisis, so I’m not forgiving Karamanlis or Goldman in that regard, but what Goldman did wasn’t criminal, just unethical…a corporation did something unethical to make a profit? Colour me surprised.

  55. 55
    rootless_e says:

    @Xenos: Hey, as an American i cannot imagine what it’s like when a right wing government creates artificial prosperity for the middle and upper class by maxing out the credit card and putting expenditures “off books”. Boy that’s unthinkable. And even more unthinkable that voters would fall for this kind of crap. If that ever happened in the USA, it would be dismaying.

  56. 56

    […] J'attends avec impatience les apologistes en colère que je utiliser le mot «criminalité» et «Goldman» dans la même phrase: – Goldman Sachs Group Inc géré 15 milliards de dollars de ventes d'obligations pour la Grèce après avoir organisé un swap de devises qui ont permis au gouvernement de masquer l'ampleur de son déficit. Aucune mention n'a été faite du swap dans les documents de vente [. . . ] URL article original: http://www.balloon-juice.com/2.....ike-again/ […]

  57. 57
    jpe says:

    Without reading the actual law, I’m skeptical its legal to use derivatives with the intent to hide the financial state of the debtor.

    That was exactly what it said: liabilities that come from derivatives weren’t to be considered liabilities that affect the overall debt number.

  58. 58
    rootless_e says:

    @gopher2b: oh come on. your argument is silly and using $4 words doesn’t help.The sillyness is due to mistaking systematic corruption for individual criminality. In a world debt system where Zambians starve so that bond speculators can get their blood money, what GS did for Greece is nothing.

  59. 59
    Xenos says:

    @rootless_e: In Greek usage the term Xenos (‘stranger’) is used to refer to the American guy who gets married to the nice Greek girl leading to decades of awkwardness and inappropriate entanglements. My background is not Greek, but Anglo-preppy, with a father who quit Morgan Stanley in the 60s in order to get out of what was already a pretty dishonest business. I was raised on many dinner table conversations about banks, the devil, supper time, and the need for long spoons.

  60. 60
    Bullsmith says:

    @ rootless-e

    So now Goldman’s not a bad actor because people are starving in Zambia? is there any length you won’t go to to avoid admitting that what Goldman does is defraud people? Sure it’s legal, they provide all the staff to regulate themselves. Yes the Greeks are responsible, but again Goldman is providing a fraudulent and destructive service that is, perhaps, perfectly legal. So fucking what, it’s still clearly criminal. Torturing people has been made legal. Gassing Gypsies was legal in a certain place we all know about.

    Perhaps rather than looking at all the reasons Goldman should be left alone to destroy more lives in more countries, we should admit it’s part of the problem. In fact it is emblematic of the problem. The value they claim to create, it turns out, is very often actually just a lie hiding the value they actually destroyed.

  61. 61
    Brian J says:

    @Nick:

    I think you’re more right than wrong. Even if you claim that Goldman was doing something wrong, either in the ethical sense or the legal sense, which is not clear, it does take two to tango. From what I understand, derivatives aren’t all bad. They can be used responsibly, just as they can be used irresponsibly. The fact that the Greek government used them to mask fiscal mismanagement isn’t really Goldman’s fault. Was it likely that Goldman knew Greece wasn’t going to change anything? Perhaps, but that doesn’t necessarily mean they perpetrated a fraud. It’s different from, say, predatory lending, because the Greek government seems to have known what it was doing.

  62. 62
    rootless_e says:

    @Bullsmith: I’m not defending GS, I’m deriding the naivete of people who fasten on to GS as the devil, as if Deutsches Bank was any better. The situation is simple: The RW Greek government used a well known loophole to cook the books with the help of GS and now the bondholders are looking for someone to blame for the risk that they knowingly accepted.

  63. 63
    Comrade Dread says:

    I don’t suppose someone could just fucking ban derivatives? They seem to be at the heart of most of this bullshit.

  64. 64
    scav says:

    Short break for those needing a good defuse via a vicarious rant. If nothing else, the phrase Wanker Banker is a grand one. Click Here

  65. 65
    gopher2b says:

    @rootless_e:

    Except the government let Lehman and Bear Sterns fail and saved Goldman. Why the distinction?

    As to your point above, you can have both systematic corruption and individual criminality. They are not mutually exclusive.

  66. 66
    Just Some Fuckhead says:

    Look, John. The Ravens have gone from alleged killers to actual killers.

  67. 67
    rootless_e says:

    @gopher2b: Why? Why did they save Citibank and Wells Fargo and let WaMu collapse? Part of the reason is political power and part is that GS bet on the right side of the mortgage meltdown and Lehman did not. GS was better managed than Lehman and deserved to live more than Lehman.

  68. 68
    rootless_e says:

    Here’s a killer paragraph in the 2003 article

    There is no doubt that Goldman Sachs’ deal with Greece was a completely legitimate transaction under Eurostat rules. Moreover, both Goldman Sachs and Greece’s public debt division are following a path well trodden by other European sovereigns and derivatives dealers. However, like many accounting-driven derivatives transactions, such deals are bound to create discomfort among those who like accounts to reflect economic reality. For example, the Greece-Goldman deal may be of interest to credit rating agency Standard & Poor’s, which upgraded Greece’s long-term debt from A to A+ in June 2003.

    By gosh, it’s our old friends the ratings agencies again! Horrible how GS pulled the wool over their eyes!

  69. 69
    gnomedad says:

    Maybe Europe will have the nerve to do what we don’t here in the states.

    Beheadings?

  70. 70
    Erik Vanderhoff says:

    Law & Order: SVU had an episode where the guest star, Andrew Navin (Sayyid on Lost) played a detective who was like a forensic accountant investigating financial crimes. He had a great riff about how his perps were just as big of sociopaths as SVU’s, only his perps ruined more lives and never got punished.

  71. 71
    Michael says:

    I don’t suppose someone could just fucking ban derivatives? They seem to be at the heart of most of this bullshit.

    There used to be a legal doctrine where certain contracts could not be enforced in a court as they were void due to excessive risk being in violation of sound public policy. There were some very

    Only one ‘o them librul activist judges would make a ruling like that, though, and obviously, we’ve moved beyond that to a more enlightened judicial environment of strict construction and deferential restraint.

    Here is a nice example of that older body of law:

    http://chestofbooks.com/busine.....olicy.html

    We now come to the third class of illegal contracts, namely, contracts which violate the rules of public policy. The rule of law, applicable to this class of cases, is, that all agreements which contravene the public policy are void, whether they be in violation of law or of morals, or tend to interfere with those artificial rules which are supposed by the law to be beneficial to the interests of society, or obstruct the prospective objects flowing indirectly from some positive legal injunction or prohibition.1

  72. 72
    Comrade Dread says:

    Beheadings?

    It’s been a while, but I bet the peasants can remember very quickly how to hang, draw, and quarter someone.

  73. 73
    darryl says:

    Sovereign bond investors are not little children, trustingly handing over their nickels to some big bad NY banker.

    That’s kind of like the housing securities bust. One the one hand, the guy making all the NINJA loans and packaging them into CDOs is a crook. On the other hand, the state pension manager buying CDOs of 1,000 NINJA loans is an idiot.

  74. 74
    Comrade Dread says:

    @michael

    Heh. It’s funny how they used to expect people to abide by basic morality in business.

  75. 75
    4tehlulz says:

    OH SHIT THE FRENCH ARE HERE

  76. 76
    Punchy says:

    And she is about as hardcore a Papandreou-bot as you will ever find.

    I have no idea what this means. By the way, if I like Bot flies, does that make me a Bot-bot?

  77. 77
    rootless_e says:

    @Comrade Dread: when was that?

  78. 78
    Violet says:

    @Erik Vanderhoff:

    Law & Order: SVU had an episode where the guest star, Andrew Navin (Sayyid on Lost) played a detective who was like a forensic accountant investigating financial crimes. He had a great riff about how his perps were just as big of sociopaths as SVU’s, only his perps ruined more lives and never got punished.

    This is so true. I remember when Enron went under. An employee who lost everything, including his health coverage, was profiled by local media. He had cancer and as a result of losing his insurance (I don’t think you can COBRA if the company no longer exists) he lost his health care too. He’d already lost the majority of his savings and retirement in the crash. Essentially Enron’s crash was his death sentence.

    I always thought that Ken Lay, et al were essentially murderers. Their weapon of choice wasn’t a gun but they sure hurt a lot more people than if they’d pulled the trigger on one bullet.

  79. 79
    gopher2b says:

    @rootless_e:

    GS was better managed than Lehman and deserved to live more than Lehman.

    If by better managed, you mean: It was able to place its former CEO as the Secretary of the Treasury, than yeah, it was better managed. Oh, and also, Wells Fargo and Citibank are banks, not investment banks. So there’s that little distinction.

  80. 80
    rootless_e says:

    @gopher2b: GS also hedged its bets

    http://www.mcclatchydc.com/227/story/77791.html

    Obviously it helped having Paulson there, but Lehman ate its own bullshit and GS did not. Lehman did not have any functioning risk management at all. GS did. If GS had been a deeply fucked financially as Lehman, even Paulson could not have saved them.

  81. 81
    jpe says:

    There used to be a legal doctrine where certain contracts could not be enforced in a court as they were void due to excessive risk being in violation of sound public policy

    I don’t think any contract was ever voided on the grounds of excessive financial risk. Public policy voids things like racist contracts, not swap agreements.

  82. 82
    gopher2b says:

    @rootless_e:

    Do you think if AIG went under, GS would have survived? I honestly don’t know and never looked at the numbers but it would have been close. (I have to be careful about what I say even if its anonymous but I doubt someone with a lot of cash infuses GS with capital unless he/she knows AIG’s commitments were going to be honored by the government.)

  83. 83
    rootless_e says:

    @gopher2b: I’m not sure. If you look at the IGs report GS collapsing was the least of the possible consequences. GS claims they had AIG hedged – although they could be lying, but surely some European big banks would have sunk.

    an interesting side note on this Greek deal: GS, being cautious, immediately bought insurance for the deal from a German bank.

    Goldman Sachs is known for its conservative approach to credit risk, and chose to hedge its exposure to Greece by immediately placing the risk with a well-known investor in sovereign credit: Frankfurt-based Deutsche Pfandbriefe Bank (Depfa). According to sources, Depfa entered into a credit default swap with Goldman Sachs, selling $1 billion of protection on Greece for up to 20 years. Depfa declined to comment.

    I’d be shocked if this swap was not a consideration for German “regulators” who are now complaining hypocritically about the irresponsible Greeks and criminal Americans. god knows, the careful and sober Germans in Depfa would never engage in reckless casino stuff. (ahem)

    http://www.irishtimes.com/news.....71708.html

  84. 84
    Keith G says:

    Maybe Europe will have the nerve to do what we don’t here in the states.

    Strike the Goldman HQ with a drone launched Hellfire?

  85. 85
    rootless_e says:

    my comments are in moderation. But look up the DEPFA bailout. The whole story gets more and more funny the more you look at it. A bunch of thieves yelling at each other about who took the money.

  86. 86
    Nick says:

    @Punchy:

    I have no idea what this means. By the way, if I like Bot flies, does that make me a Bot-bot?

    Papandreou is the Prime Minister of Greece, so like Obama-bot, Papandreou-bot…eh…nevermind I killed it.

    I think you’re only a Bot-Bot if you like plants…cause Botany, get it?

    I’ll leave now.

  87. 87
    Mnemosyne says:

    @Erik Vanderhoff:

    You mean Naveen Andrews?

  88. 88
    catclub says:

    Saying GS is to blame for the Greek government doing something stupid is similar to blaming the Iraq invasion of Kuwait on April Glaspie ( remember her?) because she did not SUFFICIENTLY FORCEFULLY, tell Saddam that invading Kuwait was a bad thing he should not do.

    There are levels of guilt for the enabler, whether it is the local crack dealer selling to 12 year olds, to GS to April Glaspie
    vis a vis the Kuwait invasion.

    My first thought is that GS is like April Glaspie on this continuum, but given the zealousness with which GS likely goes after business, I am leaning more towards the crack dealer side.

  89. 89
    Brachiator says:

    @gopher2b:

    Do you think if AIG went under, GS would have survived? I honestly don’t know and never looked at the numbers but it would have been close. (I have to be careful about what I say even if its anonymous but I doubt someone with a lot of cash infuses GS with capital unless he/she knows AIG’s commitments were going to be honored by the government.)

    In retrospect, we should have let them all fail. They used the bailouts not to re-establish capital markets but to protect their own financial positions and their own bonuses. On top of this, they are still using the risky practices which caused the financial meltdown the first time around.

    Saying GS is to blame for the Greek government doing something stupid is similar to blaming the Iraq invasion of Kuwait on April Glaspie

    Ah, no. But interesting comparison.

  90. 90
    rootless_e says:

    I wonder if it is widely known in Greece that the German government now probably owns the Depfa CDS obligation to GS for the deal with Greece. So in trying to force Greeks to pay up, Germany is protecting its own hidden financial exposure.

  91. 91
    rootless_e says:

    @Brachiator: It’s remarkable how few people have looked at Barofsky’s table of AIG exposure. It’s not at all clear to me even now that pulling the plug on AIG would have been a risk worth taking. Should the US government have allowed Eastern European national banks to collapse?

  92. 92
    Brachiator says:

    @rootless_e:

    It’s remarkable how few people have looked at Barofsky’s table of AIG exposure. It’s not at all clear to me even now that pulling the plug on AIG would have been a risk worth taking.

    Odd. Looking at US and British banks, it seems abundantly clear that they have pulled back on lending, but have continued risky practices, made deals that benefited officers and shareholders, and paid bountiful bonuses. Meanwhile, the underlying business landscape in the US is still weak, smaller banks have failed – requiring FDIC rescue, and the US government is more on the hook as the ultimate backstop for spiraling public and private debt.

    Commercial lending is still pitifully weak, and more problems in real estate and credit card debt are looming on the horizon. Meanwhile some of the banks which cried hardest for the bailouts are booking profits and paying back the US (no interest) and resisting any efforts to get their co-operation.

    So the banks exploited governments to their benefit, as is to be expected. Had we let them fail, other individuals and institutions would have come forward to fill the breach, or the governments would have been able to wrest more concessions in return for assistance.

    Should the US government have allowed Eastern European national banks to collapse?

    Interesting non-sequitur.

  93. 93
    Waynski says:

    @John Cole — Here’s a link to an article in this week’s NY Observer about Goldman’s chief apologist. Big surprise. He’s not very good at it:

    http://www.observer.com/2010/w.....-pr-prince

  94. 94
    Remember November says:

    I smell money laundering- break out the RICO act boys, looks like GS is back on the menu!

  95. 95
    rootless_e says:

    @Brachiator: not a non sequitor at all. AIG cds were sold to french and brit and german banks that are rumored to have sent them along with crap further east. if AIG had pulled the plug on SG, would that have collapsed bank of hungary? Beats me.

    Of course, if the Obama administration had been in power at the time, the government would have forced joint action on EU, but Paulson/Bush?!!

  96. 96
    Brachiator says:

    @rootless_e:

    not a non sequitor at all. AIG cds were sold to french and brit and german banks that are rumored to have sent them along with crap further east. if AIG had pulled the plug on SG, would that have collapsed bank of hungary? Beats me.

    You might just as well have asked about the financial meltdowns in Iceland, Ireland and Spain.

    Of course, if the Obama administration had been in power at the time, the government would have forced joint action on EU, but Paulson/Bush?!!

    The financial mess was a global problem. The US and the UK had a similar approach, which in part may have been a matter of necessity with respect to GS since their branch in the City of London was behind much of the riskier practices. But either way, both Bush and Obama and their treasury secretaries got played by the banks.

  97. 97
    burnspbesq says:

    @Xenos:

    (Waiting for Burns… )

    Nice to know I’m needed around here.

    If a desire to see some evidence of actual crimes before labeling someone or something criminal makes me an apologist, then I will glady plead guilty to being an apologist and eagerly await whatever is coming to me. I’m kinda funny that way – two law degrees and 29 years in practice has a tendency to instill certain habits of mind when thinking about legal issues.

  98. 98
    burnspbesq says:

    @rootless_e:

    By gosh, it’s our old friends the ratings agencies again! Horrible how GS pulled the wool over their eyes!

    Well, whaddaya know.

    I am nostalgic for the time when our genial host believed that the rating agencies were The Most Evilest Bastards on Earth.

  99. 99
    Xenos says:

    You are right that this is not, at its core, a matter of criminal law. And that is perhaps why it is such problem. The legislative and regulatory systems can become captured by powerful parties, and then the legal system is perverted and made a mockery.

    Politics, morality, and ethics create the context in which legal issues are defined. To forget this is to fall victim to a brittle formalism which leads to terribly successful legal careers that are essentially meaningless and a terrible waste.

    Either that or the Jesuits brainwashed me too well.

  100. 100
    burnspbesq says:

    @Xenos:

    You were doing great until you got to “brittle formalism.” To which I would reply that it is an essential element of the rule of law that actors, whether natural or legal persons, be able to judge with some degree of certainty whether conduct is permitted or proscribed before they engage in it. If there is not reasonable warning that conduct is proscribed, then you can’t punish someone for engaging in that conduct.

    Pushing the envelope, playing in gray areas, exploiting differences in legal systems in different countries … those may all be activities that we would like to discourage to some greater or lesser degree, but if we are really serious in our devotion to the rule of law, we have to accept that the loophole-closers are always going to be one step behind the loophole-exploiters.

    And when there a huge pots of money to be made exploiting loopholes, well … that’s the price that we inevitably pay for having a government of laws, not men.

    And BTW, there are worse ways to go through life than brainwashed by the J-boys.

  101. 101
    IFRS says:

    There are a good many supporters on either side regarding IFRS convergence. However, the ramifications are cause for concern, especially whenever the S.E.C. speaks and thousands of companies are impacted.

    I do actually enjoy frequenting your blog and appreciate the insights, although I must admit that some things we don’t agree on.

    Do you consider US GAAP to IFRS convergence something you plan on discussing in greater detail via a comparison?

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