Orbital Matters

Saturn Smith
Editor’s Pick
APRIL 20, 2010 12:53PM

The Goldman Sachs Front Porch Campaign

Rate: 12 Flag

What do you do when you win the Super Bowl of financial profiteering? Let's ask Goldman Sachs. The Wall Street investment firm just announced earnings of $3.3 billion in the first quarter of 2010, beating analyst predictions and scoring a 91 percent improvement over last quarter's paltry $1.81 billion. Do you take that money and go to Disney World? Do you buy Disney World? No -- if you're Goldman Sachs, reigning master of Wall Street, you use some of that money to hire former White House Counsel Greg Craig to defend you in your upcoming court battle with the SEC. The Daily Beast:

Over the weekend, Goldman held meetings to figure out a PR strategy for dealing with the SEC’s case, which involves collateralized debt obligations sold before the housing bubble burst. Craig—who left the White House after trouble closing the Guantanamo detention facility by deadline—will likely be a key component in the firm’s counterattack, which will attempt to paint the SEC’s case as politically motivated, coming just as President Obama is pushing hard for financial regulatory reform. Goldman employees are staying off TV, instead feeding info and spin to the press as well as their many alumni working in high-level government positions. The goal is to avoid looking “arrogant.”

Emphasis added, and good luck with that, Goldman Sachs!

The firm's strategy, as reported by Politico and further revealed in their statements on the SEC charges, seems to be something akin to the William McKinley Front Porch Campaign of 1896. While McKinley sat placidly on his front porch, welcoming throngs of supporters for speeches and lemonade, his strategist, Mark Hanna, was busy raising tons of money ($4 million in 1896!) from wealthy elites and organizing free trips for those supporters to see McKinley.All the while, William Jennings Bryan was barnstorming the country, talking about the silver standard, and generally looking somewhat less than presidentially placid about the whole thing. McKinley won.

Likewise, today, Goldman Sachs is apparently going to try and keep its people off TV (though Politico somewhat snarkily reports they're very interested to see The New York Times's wunderkind Andrew Ross Sorkin when he shows up on CNBC) and at their desks, working diligently to prove they've been the victims of politically created charges. They do not want this battle, do you understand? But they will fight it, if they must, because it is the right thing to do, and the will of the people, that they succeed! Patriotism, Protection, and Prosperity!

They may just win. The NYT has a piece up today about the difficulties the SEC faces in convincing a jury not that Goldman Sachs sold a bad product, but that it didn't tell customers how the bad product was put together. Essentially, the portfolio that they were selling was obviously a risky deal, so they're not being sued for that; they're being sued because they didn't disclose to investors that the risky deal was set up under the direction of someone who profited from its failure. 

The Times says "It is the rough equivalent of asserting that an antiques dealer lied about the provenance, but not the quality, of an old table." Not an easy case to make to a jury. When you wrap that argument in the cloak of the former White House counsel and Goldman's mega-star reputation, you have more than an uphill battle ahead for the often over-matched SEC. You have a rock wall built by billionaires, and only an old pair of soccer cleats to help you climb.

Makes me want to go to Disney World.

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Yet so many on the right are against financial reform while bellyaching about poor people taking handouts.

Yes, it is class warfare, folks, and it's about time.
I think at this point it may be more the center that's worth worrying about than the right or left, Cap'n. It's a bizarre fight.
The SEC has already "won" their case, regardless of how it turns out.

They got great publicity just when they needed it the most.

The product itself was inherently idiotic, yet legal. The more people learn about the facts, the worse it is for the financial industry, regardless of the legality of the transactions in question.

Arrogance isn't a crime.

Before people get too excited about turning this into a criminal matter, remember that the government guaranteed $20 billion or so in Goldman bonds. A criminal indictment would be the end of GS.

Plus, the US has to sell trillions in debt around the world.

No one saved these guys because they were loved, they were saved because they are essential.

Should synthetic CDO's be illegal? Yes, but they haven't sold one since they started to go bad and won't sell another one until everyone in the business now is dead.

What really needs to be regulated is the next bout of financial innovation, but who knows exactly what form it will take.
It has also proven to be very difficult to find juries that "stick" with the complexities of these cases and merely confusing them has become a strategy. Who can call all those soft spoken well dressed multi-millionaire's "Looters in Loafers" the way Paul Krugman did yesterday in his column in the TIMES?

Krugman, basically is attempting to cut the ties between G/S and the rest of the community given their current monopolistic position. Not a bad idea. If nothing else, and they prove to be as intransigent as it now appears, breaking them up becomes a possibility. If the Repugs can be kept on the run it wouldn't hurt either, as would a strengthening of Obama's position with moderates. More and more, I think they hold the key to the future.
As hard as it might be to believe, suckers were lined up to buy the "investment grade" tranches of this shit.

Synthetic CDO's require someone to be on the other side of the deal. The hard part putting them together was finding someone to take the short side (Paulson's).

And don't forget that the taxpayers get $1 billion+ of the just announced earnings.
But there's more waiting in the wings. What about S & P, Moodys, and Fitch putting AAA ratings on worthless junk? How did they make decisions to do that? There must be paper/electronic trails all over the place on that one.

This is the opening gun of an ongoing battle. It is very interesting to see how the Obama administration is playing this, slowly and methodically squeezing toothpaste out of the tube one dab at a time.

One only wonders at the timing of new suits or indictments as election season draws closer. Similarly, it will be interesting to see how the AFL-CIO picks and chooses allies in its fight against Wall St.

On the whole, it looks like an interesting year in the autopsy of September, 2008.
Whats more important to me than punishment is exposure. The fact that people get clued into how criminal these assholes are. For one thing shortselling should be illegal. It gives incentives to intentionally crash markets. Stock, currencys. Soros got charged with this in France. But it's done all over. As long as the super rich get richer shortselling, there will be intentional crashes any time they force credit to dry up. Or they pick and chose who goes under and who doesn't through their political cronies.


When the Fed, Treasury, and administrations are stacked with ex employees they can do whatever they please.
Disney World is always a good idea. Well, almost always.
I can see the shrugs, arms out, palms up: What? We're a market maker.

You have a rock wall built by billionaires, and only an old pair of soccer cleats to help you climb. Bingo.
OldNewLefty, I would love to see -- but doubt we ever will -- some kind of great national discussion and/or charges over the performance of the ratings companies. Talk about conflicts of interest.
If memory serves me correctly, Goldman Sachs lost 90 billion dollars on the Paulson CDO's.
Gas is going up , groceries are going up peoples houses are being foreclosed on left and right and because small business loans are nonexistent there are fewer jobs available now than there was 2 months ago . Going after Goldman Sachs is a step in the right direction but it is strictly ornamental ( The arbitrary nature of who was to be bailed out, and who would be allowed to fail, i.e., whose worthless assets would be guaranteed by the Federal government—and whose not—was too much for the anguished CEO of Lehman Brothers, Richard Fuld, who responded when told that Lehman would not be bailed out, "So I'm the schmuck?" *). Goldman Sachs is just this years designated “schmucks”.
* “ The Evils of Monetarism: It's `Globalization,' Stupid! “ by Harley Schlanger : Executive Intelligence Review
The Tea Party types call men like Richard Fuld, Robert Rubin, Joe Cassano and the rest "Wealth Creators" who have mastered the "free market". The Lloyd Blankfein's of the world tell us that "we worked very hard for this money". It all ties into the myth that all wealth is a sign of good works, a reward from God for ones high moral character. And of course the flip side of this is the belief that those without great wealth must not work hard or are somehow involved in immoral activity. In the USA, we are slowly reverting back to the roots of our English ancestors and their feudal system - only the newspeak term for it is being called a "service economy"....
Goldman’s Greg Smith: One Last Hustle?