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Sunday, April 18, 2010

Really? Goldman Sachs, doing God's work? Ah, NOT!

January 18, 2010 I blogged about Goldman Sach's CEO Llyod Blankenfein audacity of saying that his 2009 - $43,000,000  compensation was because he was "just a banker doing God's work". I stated he was just an arrogant blow hard and henceforth undeserving of a $43,000,000 payday after being bailed out by Federal government less than tweleve months before his payday.

On Friday, April 16th the SEC filed a complaint against Goldman Sachs for securities fraud in relation to an investment the firm touted and recommended to their clients.  Here is the story in a nutshell.  A client, John Paulson, no relation to Hank Paulson (former Secty of Treasury and CEO of Goldman Sachs) asked Goldman Sachs to help him SELL some pools of mortgages (this means he is betting on the mortgage pools dropping in value). Mr. Paulson being the smart guy that he is, already knew which specific pools of mortgages he wanted to bet on going down.  So Goldman Sachs had to fine a buyer for the same specific mortgage pools Mr. Paulson wanted to sell.  Goldman Sachs packaged the mortgages in an investment fund and sold it to their best clients.  In the disclosure, Goldman Sachs disclosed to the clients that the specific mortgage pools were selected by an "unbiased neutral 3rd party", well Mr. Paulson was not unbiased nor neutral.  If Goldman Sachs had actually told their best clients that Mr. Paulson had selected the securities for them to buy, because he was betting they would go down, the buyers would never have gone alone with the investment.  See Mr. Paulson is one of most successful hedge fund managers on the planet. Mr. Paulson is as well known as Warren Buffet on Wall Street.   Be assured that Mr. Paulson did not do anything wrong as he was not involved in misleading the Goldman Sachs clients.

Why would Goldman Sachs do this? Goldman Sachs star 31year old banker charged Mr. Paulson $15 Million fee and charged the Goldman Sachs clients another $15 Million for putting the deal together.  I think they call this strategy, tit for tat.  Fast forward about 12-18 months after Goldman Sachs recommended the pool of mortgages to their best clients, Mr. Paulson's bet on the mortgaes paid off to the tune of just over $1 Billion.  The Golman Sachs clients? They lost about $1 Billion, Goldman Sachs giveth and Goldman Sachs taketh away.

Be assured Goldman Sachs loses this round with the SEC and Goldman Sachs will assuredly reimburse the clients the lost monies of $1 Billion and pay penalties of 3 times or an additional $3 Billion for a total of $4 Billion.  So to the CEO of Goldman Sachs, you arrogant blow hard you and your people are not doing God's work, Santan's work  yes, God's work NO!

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