Wednesday, August 22, 2012

Matt Taibbi is Wrong (and is no financial genius)

Matt Taibbi recently wrote one of his tirades against Goldman Sachs but, as usual, left out the most important part. 

He said, in Rolling Stone, "I've been on deadline in the past week or so, so I haven't had a chance to weigh in on Eric Holder’s predictable decision to not pursue criminal charges against Goldman, Sachs for any of the activities in the report prepared by Senators Carl Levin and Tom Coburn two years ago. Last year I spent a lot of time and energy jabbering and gesticulating in public about what seemed to me the most obviously prosecutable offenses detailed in the report – the seemingly blatant perjury before congress of Lloyd Blankfein and other Goldman executives, and the almost comically long list of frauds committed by the company in its desperate effort to unload its crappy “cats and dogs” mortgage-backed inventory.In the notorious Hudson transaction, for instance, Goldman claimed, in writing, that it was fully "aligned" with the interests of its client, Morgan Stanley, because it owned a $6 million slice of the deal. What Goldman left out is that it had a $2 billion short position against the same deal. 


If that isn’t fraud, Mr. Holder, just what exactly is fraud?...."

Good question Mr. Taibbi yet the likely reason Eric Holder did not pursue the Goldman Sachs case was one that was little noticed in the media-and certainly not by you-apparently because you were "on deadline" and unable to keep up with actual news. Unless, of course, headlines are splashed across right wing blogs-then you respond immediately! 


The truth is always more complicated as well as boring so I do understand your popularity Matt-still I will venture on.

An almost identical case against Citigroup that was brought jointly by the SEC and the US Department of Justice.


NEW YORK, July 31 (Reuters) - A former Citigroup Inc manager was found not liable on Tuesday of civil charges of misleading investors, a blow to regulators in one of the few fraud cases brought against a Wall Street executive over the collapse of subprime mortgage investments.
Brian Stoker, who worked on the bank's mortgage investments desk, was charged by the U.S. Securities and Exchange Commission as part of a broader civil lawsuit against the bank in U.S. District Court in Manhattan.
The verdict underlined the difficultly of such cases for securities regulators, who historically have worked to reach settlements with corporations and individuals. The SEC's $285 million settlement with Citigroup itself last year is under appeal following an unusual rejection by Judge Jed Rakoff. The outspoken Rakoff also presided over the two-week-long Stoker trial.
"It does make you realize why perhaps the SEC is a little reluctant to squeeze the trigger," said James Cox, a law professor at Duke University in Durham, North Carolina, who has written about securities regulations cases....
According to the complaint filed in Federal District Court in Manhattan, the marketing materials created to sell the C.D.O. to investors “suggested that Citigroup was acting in the traditional role of an arranging bank, when in fact Citigroup had exercised significant influence over the selection of the assets and had retained a $500 million proprietary short position of the assets it had helped select, which gave Citigroup undisclosed economic interests adverse to those of the investors.” The C.D.O. lost almost all of its value within months of being sold....
In other words, they picked the assets and bet against them without explaining that, as required by law. 
The two cases are almost identical, but Citigroup doesn’t face the same highly charged outrage.
The allegations related to a synthetic collateralized debt obligationsold in 2007 to 15 investors. Citigroup, the charges claim, took a short position on the subprime mortgage-backed securities underlying the C.D.O., while influencing the selection of the assets.
The settlement — in which the financial firm agreed to pay $285 million without admitting or denying guilt — appears to be of little concern to Citigroup investors. They’re likely to be happy that the bank has put the issue to rest.
By comparison, Goldman’s settlement last year triggered banner headlines and a sharp drop in its stock. While Citigroup’s deal made the front page of The New York Times, the stock ended the day down only modestly and was up slightly in premarket trading on Wednesday.
Back to the trial of Brian Stokerwho was one of four individuals the SEC has charged with misleading buyers of pools of mortgages, called collateralized debt obligations, that contributed to the financial crisis. He was the first to go to trial.
Regulators said that Mr. Stoker, who prepared marketing materials for the deal, knew or should have known that he was deceiving investors by not disclosing that Citigroup helped pick the underlying mortgage bonds in the C.D.O. and then bet that its value would decline. 
In other words, they were not even attempting to prove fraud but negligence. The jury found him not guilty of negligence and were reportedly impressed by the defense attorney's now-famous "Where's Waldo" defense. 
Mr. Stoker’s lawyer, John W. Keker, hammered away at that point, arguing that his client “shouldn’t be blamed for the faults of banking any more than a person who works in a lawful casino should be blamed for the faults of gambling.”
Mr. Keker underscored this point by showing the jury an illustration from “Where’s Waldo?,” the children’s book in which readers are challenged to find the hidden title character. He likened his client to Waldo...The unemployed jury foreman said: We were afraid that we would send a message to Wall Street that a jury made up of regular American folks could not understand their complicated transactions and so they could get away with their outrageous conduct,” Mr. Brendler said. “We also did not want to discourage the government from investigating and prosecuting financial crimes.”
Mr. Brendler, it appears you actually were confused by a child's poster. It appears it was entirely too complicated. And you and the jurors most certainly did discourage prosecution of Goldman Sachs. If Mr. Stoker (the former director of Citigroup’s collateralized debt obligation structuring group) is not guilty, the other three cases are in jeopardy, Citigroup's huge judgement thrown out by the same judge-certainly moving ahead with Goldman Sachs for exactly the same wrongdoings seems like a waste of time and money. 
Matt Taibbi has either been fooled himself or has an agenda. As for Mr. Holder, he has the Republican House in turmoil over his actions and that's good enough for me.