from Jake Bernstein and Jesse Eisinger
ProPublica (view source)

Over the last two years of the housing bubble, Wall Street bankers perpetrated one of the greatest episodes of self-dealing in financial history.

Faced with increasing difficulty in selling the mortgage-backed securities that had been among their most lucrative products, the banks hit on a solution that preserved their quarterly earnings and huge bonuses:

They created fake demand.

A ProPublica analysis shows for the first time the extent to which banks -- primarily Merrill Lynch, but also Citigroup, UBS and others -- bought their own products and cranked up an assembly line that otherwise should have flagged.

The products they were buying and selling were at the heart of the 2008 meltdown -- collections of mortgage bonds known as collateralized debt obligations, or CDOs.

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"... any illegal immigrant they catch in Arizona, they should let him keep doing his job because he's adding to the economy. For every one they catch, they should send one Goldman Sachs guy to Mexico." - Michael Moore on Larry King Live, Tuesday, April 27th, 2010

Read all Antemedius posts about Goldman Sachs here...

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Originally published at TomDispatch.com

It’s hard to miss these days.  The headlines tell the story -- repetitively.  Everyone, it seems, is on the take.  The Securities and Exchange Commission has charged Goldman Sachs with securities fraud for creating and selling “a mortgage investment that was secretly intended to fail” -- and then betting against its own customers. JPMorgan Chase which, in a pinch in 2008, happily took taxpayer dough, just reported $3.3 billion in profits for the first quarter of 2010, a jump of 55% over the previous quarter.  The bank set aside $9.3 billion in what’s called “compensation and benefits” for its employees in 2009.

Even when they lose, they win.  According to James Kwak of the Baseline Scenario website, on a deal in which JPMorgan swallowed $880 million in losses, its bankers still managed to walk away with up to $10 million in compensation.  As he wrote, “JPMorgan’s bankers did just fine, despite having placed a ticking time bomb on their own bank’s balance sheet.” Meanwhile, Robert Rubin, who helped create the world that led to the 2008 financial meltdown as Treasury Secretary under Bill Clinton, then took a top position at Citibank and made more than $100 million before it tanked on his watch.

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Courtesy of Firedoglake.com... watch:

Pre-emptively invade Goldman Sachs, Magnetar, and a few others before they do any more damage, Mr. Obama...

Wall Street banking behemoth Goldman Sachs, which was charged with securities fraud last Friday over its role in the subprime mortgage meltdown, has hired President Obama's former White House Counsel Greg Craig to defend the company, according to a report published late Monday by Politico.

Reporters Eamon Javers and Mike Allen, citing an unnamed source, reported that Craig was hired “in recent weeks to help navigate the halls of power in Washington.”

“Whatever the reason for his hiring, Craig will presumably be a key player in the intricate counterattack Goldman Sachs officials in Washington and Manhattan improvised during the weekend — a plan that took clearer shape Monday as Britain and Germany announced that they might conduct their own investigations of the firm,” Politico reported.

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This American Life is a weekly public radio show broadcast on more than 500 stations to about 1.7 million listeners. Produced by Chicago Public Radio, it's distributed by Public Radio International, has won all of the major broadcasting awards, and is often the most popular podcast in the country, with more than a half million downloaders each week. They've won three Emmys for a television version of This American Life on the Showtime network, and they co-produce with NPR News an economics podcast and the blog Planet Money.

On April 9, 2010 This American Life produced a one hour radio show/podcast titled "Inside Job", to tell the story in an entertaining way of how scams like what Magnetar and Goldman Sachs did happen:

A hedge fund named Magnetar comes up with an elaborate plan to make money. It sponsors the creation of complicated and ultimately toxic financial securities... while at the same time betting against the very securities it helped create. Planet Money's Alex Blumberg teams up with two investigative reporters from ProPublica, Jake Bernstein and Jesse Eisinger, to tell the story. Jake and Jesse pored through thousands of pages of documents and interviewed dozens of Wall Street Insiders. We bring you the result: a tale of intrigue and questionable behavior, which parallels quite closely the plot of a Mel Brooks musical.

Click here to listen to the podcast

This American Life also produced a short video of the recording session for their own original Broadway song "Bet Against the American Dream":


You can read the full Magnetar story here:
The Magnetar Trade: How One Hedge Fund Helped Keep the Bubble Going

OpenSecrets.org: Goldman Sachs

Goldman Sachs, one of Wall Street’s most prestigious investment banks, was also among the many banks in 2008 and 2009 to receive billions of dollars in taxpayer money to help it stay afloat. Like others in the securities industry, Goldman Sachs advises and invests in nearly every industry affected by federal legislation. The firm closely monitors issues including economic policy, trade and nearly all legislation that governs the financial sector. It has been a major proponent of privatizing Social Security as well as legislation that would essentially deregulate the investment banking/securities industry. The firm tends to give most of its money to Democrats. A number of high-ranking government officials in recent years have spent part of their careers at Goldman Sachs.



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McClatchy News' Greg Gordon talks with Paul Jay of The Real News Network with his analysis of the SEC civil fraud charges against Goldman Sachs and Goldman VP Fabrice Tourre:

Real News Network - April 17, 2010
Goldman Sachs charged with fraud
McClatchy's Greg Gordon explains SEC charges against Goldman Sachs

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The Securities and Exchange Commission today charged Goldman, Sachs & Co. and one of its vice presidents, Fabrice Tourre, for defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter.

MSNBC's Dylan Ratigan has the story broken down in the clearest terms possible, explains the Goldman deal with a colorful metaphor, and analyzes it and the SEC lawsuit in discussion with former Goldman Sachs Managing Director and author of "It Takes a Pillage: Behind the Bonuses, Bailouts, and Backroom Deals from Washington to Wall Street" Nomi Prins, and Connecticut Attorney General Richard Blumenthal...

Watch:

SEC Charges Goldman Sachs With Fraud in Structuring and Marketing of CDO Tied to Subprime Mortgages

FOR IMMEDIATE RELEASE
2010-59

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by Jesse Eisinger and Jake Bernstein, ProPublica
April 09, 2010 (view source)

In late 2005, the booming U.S. housing market seemed to be slowing. The Federal Reserve had begun raising interest rates. Subprime mortgage company shares were falling. Investors began to balk at buying complex mortgage securities. The housing bubble, which had propelled a historic growth in home prices, seemed poised to deflate. And if it had, the great financial crisis of 2008, which produced the Great Recession of 2008-09, might have come sooner and been less severe.

At just that moment, a few savvy financial engineers at a suburban Chicago hedge fund helped revive the Wall Street money machine, spawning billions of dollars of securities ultimately backed by home mortgages.

When the crash came, nearly all of these securities became worthless, a loss of an estimated $40 billion paid by investors, the investment banks who helped bring them into the world, and, eventually, American taxpayers.

Yet the hedge fund, named Magnetar for the super-magnetic field created by the last moments of a dying star, earned outsized returns in the year the financial crisis began.

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