[THS] Webster G. Tarpley: Seize and Liquidate Goldman Sachs

[The Harder Stuff in news and commentary]

http://tarpley.net/2010/04/27/seize-and-liquidate-goldman-sachs/

Seize and Liquidate Goldman Sachs
Webster G. Tarpley
TARPLEY.net
April 27, 2010

Today's Senate hearings, carried on CNBC, Bloomberg, and C-SPAN, represent the
first major exposure of the American people to the scandalous frauds of the
derivatives casino, including synthetic collateralized debt obligations (synthetic CDOs
or CDO²). These are things most people have heard very little about. They begin to
open up the shocking reality behind such shopworn euphemisms like "toxic assets,"
"exotic instruments," and "troubled assets." Reactionaries in general and Republicans
in particular have done everything possible to hide the role of derivatives, which must
be considered the main cause of the financial panic of September 2008 which
brought down Lehman Brothers, Merrill Lynch, and AIG, after felling Bear Stearns in
March of the same year. The reactionary legend, repeated yesterday on the Senate
floor by financier minion GOP Sen. Gregg of New Hampshire, is that the crisis was
caused by poor people taking out subprime mortgages and then defaulting, bringing
down the entire Anglo-American banking system and triggering the bailouts. Either
that, or too much government spending was too blame.

A mass of kited derivatives blew up in September 2008

This Big Lie has come from such propaganda sources as the Limbaugh Institute of
Retarded Reactionary Ranting. But the $1.5 trillion in subprime mortgages were
dwarfed by the $15 trillion US residential real estate market, to say nothing of the
$1.5 thousand trillion world derivatives bubble. But, starting with Bush-Goldman
Sachs Treasury Secretary Henry Paulson, the talk has been of a "housing correction,"
not a derivatives panic. It must be pointed out that derivatives are nothing but
wagers, bets placed from a distance on securities which themselves are often not
mortgages, but rather other derivatives. The bettor buying a synthetic CDO or CDO²
does not own the underlying mortgages or mortgage-backed securities, any more
than someone who bets on a racehorse owns part of the horse. Blankfein and others
tried to portray derivatives as a service to hedgers and end-users, but it's clear that
the vast majority of derivatives involve neither hedgers nor users, but only bettors on
both side of the transaction. It is in any case this mass of kited derivatives which blew
up in 2008, bringing on the present world economic depression.

Goldman Sachs executives are babbling cretins

The mystique of Goldman Sachs is based in large part on their reputation as the
smartest financiers on Wall Street. After today's hearings, this mystique has
permanently dissipated. The Goldman executives babbled. They sounded dumb.
They stalled and stammered and went into contortions to avoid giving straight
answers to simple questions. They were mendacious and evasive when they did
speak. Financial powers around the world will note carefully the refusal of three out
of four Goldman executives on one panel to state that they had a duty to defend the
interests of their clients. Who will want to do business with such a gang? Goldman
Sachs got $10 billion of taxpayer money in low-interest loans under the Bush-Paulson
TARP. Part of that money went to pay for obscene bonuses for Goldman executives
like the ones on display today. The argument for bonuses is that they must be paid to
retain the highly talented personnel, virtual geniuses, who are indispensable for Wall
Street speculative success. But these are no geniuses, they are imbeciles. No more
bonuses should be paid by banks saved through public money.

Don't buy any used cars from Lloyd Blankfein

Sleaziest of all was Goldman's risk-monger in chief, Lloyd Blankfein, who pretended
not to know that derivatives are often kept hidden off balance sheet. The morally
insane Blankfein testified that his role was to provide the firm's clients with "the risk
they wanted." Other GS witnesses represented the firm's role as "distributing risk."
But it turned out that they were manufacturing risk through the very existence and
activities of Goldman Sachs, which had the result of pyramiding the total risk of the
US financial system into intergalactic space. It is time to regulate much of that
unbearable risk out of existence with appropriate regulatory legislation. In the
meantime, no sane person would buy a used car from Blankfein. Nor should they
believe his assurance that the "recession" has ended.

But when at the end of the day Blankfein finally suggested to Sen. Tester that
synthetic CDOs might be outlawed, we should accept his proposal immediately.

Today's hearings reveal the Goldman Sachs gunslingers and whiz kids as ignorant
gangsters and con artists, notable only for their ability to practice massive fraud with
impudence. These sleazy mediocrities do not deserve bonuses paid for by taxpayers.
Rather, it is time to shut them down and put them in the dock.

If Goldman Sachs had cared about is clients, it would have urgently warned them to
unload their subprime risk by late 2006 or thereabouts. Instead, Goldman was busily
increasing its clients' risk by selling them more toxic CDOs out of its own inventory
warehouse.

Goldman Sachs: bookies who stack the deck and fix the games

As the philandering Sen. Ensign pointed out, comparing Wall Street to Las Vegas is a
slander on the croupiers of Las Vegas, where everyone knows or should know that
the game is rigged so that the house always wins. To use the comparison introduced
by Sen. McCaskill, Goldman Sachs was operating as the gambling house, or the
bookie. At the same time, Goldman was betting for their own account. But much
worse was the fact that Goldman was stacking the decks, loading the dice, fixing the
games on which the bets were placed, and bribing the umpires.

As Ensign put it in a rare moment of lucidity, the subprime mortgage was bad. But
the collapse of subprime would not have had anything like its actual destructive effect
on the US economy if it had not been compounded by the mass of synthetic
derivatives that were piled on top of subprime.

No national or social purpose served by Goldman Sachs and toxic derivatives bets

The broader issue raised by today's hearing is: what human purpose is served by the
existence of Goldman Sachs, which concocts toxic synthetic CDOs for the purpose of
allowing speculators, who are often lied to and duped, to bet for or against them.
Goldman Sachs can only be described as a speculative parasite which promotes the
activities of other speculative parasites, such as the John Paulson hedge fund at the
expense of the public and of its other clients. It was a crime to inject $10 billion of
Treasury money into Goldman Sachs. It was another crime for the Fed to lend
Goldman untold billions (just how many billions Bernanke still refuses to disclose) to
keep them afloat and enable more predatory profits. These crimes must stop, and
the public money must be clawed back. Most important, it is time to shut down the
derivatives rackets.

Goldman got $12.5 billion from taxpayers for AIG credit default swaps

Useful questions from GOP Sen. Coburn pointed to another kind of derivative: the
infamous credit default swap (CDS). These CDS are what brought down AIG, whose
London hedge fund had issues $3 trillion in derivatives. When the government bailed
out AIG, part of that $180 billion of taxpayer money was used for payouts to the CDS
counterparties of AIG, biggest among them Goldman, which got $12.5 billion from
the US taxpayer. That was 100 cents on the dollar on a mass of toxic CDS. Coburn
wanted to know why Goldman got all their money back, while GM bondholders took a
bath as GM went bankrupt. That was, of course, a matter of Goldman's political clout
through GS alum Henry Paulson and Obama Car Czar Steve "The Rat" Rattner,
backed up by the historic preponderance of finance capital over industrial capital in
this country since Andrew Carnegie sold out to JP Morgan over a century ago.

Derivatives and zombie banks: the toll

Thanks to Goldman Sachs, the other Wall Street zombie banks, and their derivatives,
the financial panic of 2008 has turned into a world economic depression of
unimaginable proportions. The unemployed and underemployed in the US alone are
surely in excess of 20 million. Five to six million home foreclosures are already done or
in the pipeline, throwing tens of millions of Americans out of their homes. World trade
has been seriously impacted. The budgets of California, New York, Illinois, and many
other states are in crisis, with massive layoffs of teachers and other state employees.
An entire generation is being destroyed. Now, Greek bonds are trading at junk levels
under the attack of speculative predators including Soros, Greenlight Capital, SAC,
and the protagonists of today's hearings ­ Paulson and Co and Goldman Sachs itself.
The attack on Greece and the euro represents the leading edge of the second wave
of the depression, which is now arriving in much the same way that the second wave
of the 1930s depression was unleashed by the Vienna Kreditanstalt bankruptcy in
May of 1931, about 79 years ago and just a year and a half into that depression.

The goal of the Republicans is to portray themselves as stern judges of Wall Street,
even as they line up in a unanimous phalanx to protect the finance jackals from any
meaningful regulation whatsoever — as seen in yesterday's vote to block cloture on
derivatives re-regulation and reform. The goal of the Democrats is to expose the
sociopathic evil of Goldman Sachs and the rest of Wall Street while preening
themselves as defenders of the public interest, without however banning credit
default swaps, banning synthetic CDOs, and imposing a Wall Street sales tax on all
remaining derivatives and asset transactions.

To this degree, today's hearings are being conducted in bad faith by both major
parties. However, the dynamic of the resulting spectacle has the result of educating
and mobilizing public opinion against the predatory practices which are the essence
of Wall Street, even a year and a half after the banking panic of September 2008 and
the monster bailout of zombie banks which soon followed. What is required is a new
edition of the anti-banker sentiment set off by the Senate Banking Committee
hearings conducted from January 1933 to May 1934 by committee counsel Ferdinand
Pecora, which unmasked the corruption of Wall Street. Persons of good will need to
get active now to push this process as far as possible while these social dynamics are
working. It is time to hit the zombie banks, the hedge funds, and their derivatives as
hard as possible, before the second wave of the depression hits. The program
necessary to fight the depression and break the strangle-hold of Wall Street on the
US economy and political system is given on my web site.

Mitch McConnell on the bailout: "Harry, I think we need to do this, we should try to
do this, and we can do this."
During a break the senators filed out, and the GOP reactionary lockstep once again
blocked cloture for a final debate on the Wall Street reform bill, weak as it is. Many
activists of the Tea Party naively believe that they have been fighting for a year and a
half that they have been fighting to take back the Republican Party. If that is what
they believe, today's second cloture vote proves that they have gotten nowhere in
their efforts. Despite their charades, the GOP are the bodyguards of the Wall Street
predators. Tea baggers who think they can break the Wall Street grip on the
Republicans are pathetic dupes, and they need to wake up, pronto.

When Paulson went to the leaders of Congress to demand a $700 billion bailout for
Goldman and his Wall Street cronies, GOP Senate majority leader Mitch McConnell
was "deeply frightened" by the apocalyptic briefing delivered by Paulson and
Bernanke. When Democratic Majority Leader Harry Reid started talking about how
difficult it would be to get so much money in a hurry, McConnell urged an immediate
bailout, saying: "Harry, I think we need to do this, we should try to do this, and we
can do this." (Andrew Ross Sorkin, Too Big to Fail [New York: Viking, 2009], p. 442)
The GOP was the original party of the bailout, and they have not repented, as best
seen through the continuance of McConnell, one of the key midwives of the bailout,
as Republican Senate Majority Leader. This is the same McConnell who went to Wall
Street recently to meet with zombie bankers and hedge fund hyenas, pledging to
block derivatives reforms in exchange for big bucks contributed to the GOP's
campaign coffers. Tea baggers who think the GOP has changed or is moving to their
side are sadly deluded.

Today, the market fetishism of the crackpot Austrian school has taken a severe blow.
Now that Blankfein`s public image has been soiled by Goldman's scurrilous and
scatological emails, the time is ripe for the radical reform of derivatives and the
zombie banks. This is a matter of national survival.

Now that Goldman Sachs is masquerading as a bank holding company, it is subject
to FDIC rules. If Goldman's derivative hoard is marked to market, it is bankrupt. The
FDIC should therefore seize Goldman and liquidate it under chapter 7 of the US
Code. Sheila Bair should not wait for Friday.