17 April 2010
[Note February 2017 — the Bloomberg TV video is no longer available]
The extraordinary saga of how Goldman Sachs defrauded its own clients by palming them off with toxic CDOs that had been designed to fail is gathering legs. The New York-based investment bank sold the ‘long’ side of the Abacus 2007-AC1 synthetic CDO to gullible European investors including IKB and ABN Amro — thereby ensuring their downfalls — with a view to enriching more valued clients who bought on the ‘short’ side, such as the hedge fund manager John Paulson.
Matt Taibbi, Rolling Stone’s contributing editor, and author of the article The Great American Bubble Machine, was quizzed about this earlier today on Bloomberg TV. Asked about the Securities & Exchange Commission’s charges against Goldman, Taibbi said he first got wind of the “designed to fail” CDO story last year but thought it was too outlandish to be true. Asked whether the debacle signals the end of the road for Goldman’s beleaguered CEO, Lloyd Blankfein, Taibbi said ‘probably not’.
He concedes Blankfein is in a tough spot and said he’s been wondering who is less popular now, the Pope or Blankfein! But Taibbi said that sacking Blankfein would be the “easy PR response” and argued that what is needed at Goldman Sachs is a “deeper examination of the way this company does business.”
Asked whether the SEC has timed the charges to ease the passage of President Barack Obama and Chris Dodd’s financial reform package through Congress, Taibbi said that that was his first thought when the story broke last Friday. Taibbi believes the charges may be a “shot across Wall Street’s bows” in order to garner popular support for regulatory and structural reform of Wall Street. He believes similar law suits against other Wall Street firms for a panoply of similar crimes and misdemeanors including front-running may follow.
One thing I can’t understand from this interview, however, is why, when Taibbi said he got “whiffs” of this story over a year ago, the two interviewers insisted on using the word “riffs” when asking him about this. I thought the first word means a bad smell, but the second is what Eric Clapton used to do.
Taibbi also had the courtesy to acknowledge that the New York Times’s Gretchen Morgenson broke this story (at least partially, in itself a major achievement given the notoriously opaque, obstructive and fiercely litigious nature of corrupt firms like Goldman) in December 2009. Her article, Banks that bundled bad debt bet against it and won, was published in the New York Times on December 23rd. Taibbi speculated that the most obvious sources for the story would be the “aggrieved clients” who lost hundreds of millions of dollars as a result of Goldman’s deceit, including IKB and ABN Amro (now owned by RBS and thus the UK taxpayer).
Taibbi said the SEC charges are a “a massive blow to Goldman Sachs”. He added: “This is going to resonate loud and clear across Wall Street and across its own client base. I can’t imagine why anyone would want to do business with this bank after they have learned about this story.” Surely an exodus of clients sick and tied of being suckered will follow?
- For more on the severity of the crisis facing Goldman Sachs and on Matt Taibbi’s Great American Bubble Machine article, click here.