Showing posts with label Goldman Sachs. Show all posts
Showing posts with label Goldman Sachs. Show all posts

Thursday, March 11, 2021

An Impact Analysis of Goldman's "One Million Black Women" Initiative

Goldman Sachs announced the launch of One Million Black Women, a $10 billion investing initiative focused on narrowing opportunity gaps for one million Black women. In reviewing the program, we focus on potential program effectiveness. We also review possible social impact. 

Goldman Sachs, a banking organization headquartered in New York, has a reputation for political savvy. Many economic policymakers in the Trump, Obama, Bush and Clinton Administrations, from Treasury Secretary to National Economic Committee chairs have been former Goldman employees. (While the Biden Administrations seems to have limited the number of ex-Goldman employees on staff, they are still present - SEC nominee Gary Gensler, for example.) The bank is also known for rushing to change from investment to commercial banking registration days before the financial crisis of 2008 took root.

One Million Black Women

The firm has pledged to invest $10 billion in Black women led companies and initiatives over the next ten years. 

Advisory Board

Goldman created an "Advisory Board" of Black women and men to provide opinions on managing the program.

Source of Funds

Goldman probably sources funds for the program from internal and external sources. 

Evaluation

Given the sourcing and the timing, we rate this program as having limited actual impact (D) and utility (D). 

As with Community Reinvestment Act (CRA) commitments, Goldman's pledge is subject to change depending on business and economic conditions, is not legally binding, and can be modified or cancelled at any point.

The role and power of the Advisory Board is unclear: our experience suggests this power is likely limited. Further, the Advisory Board is comprised of individuals (with a few exceptions) having limited track records for positive impact on the Black community beyond the symbolic. (A better set of advisors  might have been the three Black women who created Black Lives Matter.) We understand Goldman's reluctance to deal with actual innovators, however, having experience with prior efforts Black groups have made to work with the firm, specifically Goldman's Urban Investment Group. 

External funding sources are likely one of the many government and Federal Reserve liquidity programs. This means Goldman can fund this effort at very low interest rates, which it will then make available to Black women at elevated levels.  

In conjunction with the announcement, Goldman released an economic study titled "Blackwomenomics." (See our website: https://blackwomenomics.com/).

Ethical Concerns

On April 11, 2016, the Department of Justice announced that Goldman Sachs “agreed to Pay More than $5 Billion in Connection with Its Sale of Residential Mortgage Backed Securities.” 

More recently, on October 22, 2020, the firm "agreed to pay nearly $3bn (£2.3bn) to end a probe of its role in the 1MDB corruption scandal. The bank's Malaysian subsidiary also admitted in US court that it had paid more than $1bn in bribes to win work raising money for the Malaysian state-owned wealth fund."

As noted, several former economic policymakers have been Goldman alums. Thus, the firm must bear some responsibility for the failure of economic policy in those years to address both racial discrimination and inequality

These factors reduce the likely impact of the effort. 

Contact: Asahi Pompey, President of the Goldman Sachs Foundation and Global Head of Corporate Engagement. Asahi.Pompey@gs.com. 200 West Street | New York | NY 10282

Our 2017 Investment Advice for Black Women

The announced $10 billion dollar "investment" equals, for each of one million Black women, $10,000.

To maximize social and financial impact, we suggest the firm give each woman $10,000 in Bitcoin today, as we suggested in 2017 to several groups of Black women. (A $10,000 investment made then would now be worth $600,000.) This is a far more honest, ethical and potentially impactful strategy.   

Link to buy $100 of Bitcoin for $90: https://www.coinbase.com/join/cunnin_0?src=android-link


Rating Justification

As we stated in our 2019 talk before the Congressional Black Caucus (below), the fate of Black economic development rests in the hands of Black women. We have calculated the impact coefficient of this demographic to be significant. Thus, any efforts to address this group will have an elevated impact on the Black community overall. Putting a significant effort in this area into the hands of an organization that is ethically and ethnically suspect, with a proven track record of damaging Black economic interests, is inappropriate. 

We have determined that the projected impact coefficient from Goldman is low, given the firm's prior performance in the Black community and in the marketplace overall. Accepting such an effort on face value, without critical review, is foolish. See our comments below on the gap in entrepreneurial activity and the role of Black women for more information on our rating.

Thursday, September 14, 2017

The SEC, ICOs and roaches

In a statement straight out of the Ministry of Public Enlightenment, a member of the U.S. Securities and Exchange Commission's (SEC) division of enforcement "compared those seeking to leverage the blockchain use case improperly to cockroaches."

To be specific, SEC Enforcement Division co-director Steven Peikin said "roaches kind of crawl out of the woodwork and try to scam money off of investors."

Of course, he should know.

According to the Anne Frank Guide, this type of language was a key feature of nazi propaganda: "Jews are described everywhere as a threat to Germany and the German way of life that had to be dealt with quickly and harshly. They were even compared to rats and cockroaches."

The issue is this: it is impossible for Mr. Peikin to know which ICOs are scams unless he can look into the hearts of ICO issuers to determine their true motivation. He knows this. We know this. He must, then, actually be referring to all ICOs. This is the same type of  discriminatory attitude used to categorize all Black men as "thugs."

This is also a prejudicial statement from a person in a position to not only influence, but to actually carry out enforcement actions against ICO issuers. My hope is that legal counsel for those so accused would point to this single statement as justification for dismissing, or at least questioning, any charges brought by the SEC.

One wonders why the SEC did not use the same language to describe the traders at Goldman Sachs, fined more that $5 Billion in connection with its sale of residential mortgage backed securities, or Wells Fargo when they set up a special sales office to steer risky subprime loans to residents in Prince George's County, Baltimore city and other predominantly black communities, or Standard and Poor's when issuing fraudulent credit ratings on residential mortgage-backed securities and collateralized debt obligations. (Talk about insects....)

We know why Mr. Peikin and the SEC Enforcement Division made no such statements. After all, employees at these large financial institutions are friends, fellow church and synagogue members, colleagues and, most importantly, potential employers.

This is exactly why ICOs are so necessary and why they are popular. 

Saturday, August 19, 2017

THIS is the statue that should replace Gen. Lee's

Maggie L. Walker founded St. Luke Penny Savings Bank in 1903, a time when Jim Crow laws and institutionalized prejudice conspired to prevent blacks from borrowing money or from even having bank accounts. This was done, of course, to keep blacks in a position of economic servitude, a situation blacks still suffer from to this day.
Born a year before emancipation, Ms. Walker, the daughter of a former slave, is the first American women to have successfully opened a bank. (Having attempted in 2008 to raise $50 million to create a black-owned bank holding company to make capital investments in and own parts of new and existing black-owned U.S. banks, I can tell you that this is no easy task.) She did so in the South. In Richmond, Va., the capital of the confederacy. during a time when even white women were not allowed to vote. In the South. (Oh, and she also led a boycott of Richmond’s segregated trolley car system, 50 years before the Montgomery Bus Boycott.) I'd say she's worthy of statues all over the country.
Of course, the issue of black economic empowerment via the use of black banks is still a problem. There are those, like One United Bank, in Boston, who will claim the mantle Ms. Walker left. They are, however, spectacularly unworthy: the FDIC "accused the management of OneUnited Bank, one of the largest black-owned banks in the country, of running an unsound lending operation and ordered a top-to-bottom review of executive perks that included a 2008 Porsche and a housing allowance for a beach-front home in California." One United also foreclosed on the oldest black AME Zion church in Boston, despite offers of assistance from the City's mayor. Ms. Walker, I'm sure, would not be amused. (BTW, Liberty Bank and Trust in New Orleans is a much better run black owned bank.)
The lack of ethics cited above is a key part of the black bank legacy problem and why our economic forecasts, starting in 2011, predicted an 87% decline in the number of black banks, measured from the height of the black bank era, reached around 1994 when there were 55 black-owned banks in America.
To deal effectively with this problem, we suggest the federal government use a portion of the fines levied on Goldman Sachs, Wells Fargo and other banks to create a sizable ($100 million) capital fund to create and invest in black banks. 
This would be the best tribute to Ms. Walker.

Sunday, August 13, 2017

Why we need a Global ICO Census and Database

The Securities and Exchange Commission’s (SEC) recent report defines tokens sold through ICO offerings as “securities.” This is neither appropriate nor in the public interest. This definition will restrict the ability of startups to raise much needed capital without having to go to commercial banks, investment banks and venture capitalists, institutions who long ago abdicated their role in providing capital to deserving startups and small businesses. (Commercial banks, investment banks and venture capitalists focus on providing capital to a narrow group of non-minority and non female firms. As Uber and others (Google?) have shown, many of the women who dared work for these commercial bank, investment bank and venture capitalist supported firms found themselves harassed..and we know what happened when they sought funding.)

In a press release, the SEC concluded that anyone using "..distributed ledger or blockchain enabled means for capital raising (needs) to take appropriate steps to insure compliance with US federal securities laws.” This determination is inappropriately broad, and is sure to be overturned in Court, since the SEC does not have direct authority over currencies.

As we note in our report (https://www.prlog.org/12655138-creative- investment-issues- initial-coin- offering-ico-report.html) ICOs have features that resemble crowdfunding, venture capital and IPOs. They are simply a new tool for doing what Title III of the JOBS Act should have done - sourcing capital to innovative startups in an efficient way. Title III allows all companies with less than $1 billion in sales to raise up to $1 million dollars in equity or debt. This section of the JOBS Act was designed, as I note in my book, to create eBay-like sites that allow you to post your idea for a commercial venture online and then allows investors to purchase equity shares or stakes in it. Title III has, since 2016, in aggregate generated slightly over $50 million in committed capital. The law was signed in 2012. So far in 2017, ICO issuers have raised over $1 billion.

The SEC may have legitimate questions about the classification of ICOs, but their action simply confirms that regulators are protecting entrenched social and financial interests (not the public) from a new financial technology (blockchain) with almost unlimited potential.

In attempting to bring ICOs under federal securities laws, the SEC states that "participating in unregistered offerings may subject participants to..criminal enforcement proceedings." Of course, this is only true if you are not Goldman Sachs, Wells Fargo or Standard and Poor's, institutions guilty of significant securities law violations before, during and after the financial crisis who have yet to be subject to criminal enforcement proceedings..

A key factor the SEC cites in its argument in favor of ICO regulation rests on “full and fair disclosure,” but Wells Fargo created two million fake accounts without disclosing this. If the SEC were actually concerned about the public interest, Wells would have faced charges immediately for violating disclosure regulations. Given this, one can legitimately question the public's ability, based on past performance, to trust the SEC to act in the public interest. As outlined this in our Transaction Cost Theory of the Financial Crisis, released in 2010, people are looking for financial instruments, institutions and regulators they can trust. The popularity of digital currency, decentralized structures and new ways of raising capital is, quite simply, the result of this lack of trust.

The nature of blockchain is such that this technology — not regulators — will win in the long term. It would be better for the SEC to recognize this and to simply call for ICOs to list on a globally centralized, publicly accessible database, maintained by the SEC, at no cost to ICO issuers, and with no penalties (other than fines for deliberately fraudulent registrations.)

At this point in the development of this marketplace, having a comprehensive database of all ICOs is more valuable and appropriate than subjecting these new firms to full and complete SEC registration. The agency can revisit this in, say, a year or two to determine if more comprehensive regulation is required, but for the next six to twelve months, this should be the regulatory position of the SEC with respect to the new ICO marketplace.

Sunday, May 7, 2017

Sale of the US Election

As we noted on June 11, 2016, "our initial 2016 Election Fully Adjusted Return Forecast indicates that Donald J. Trump will win the election for the Presidency of the United States" (see: "Why Trump Will Win" https://www.linkedin.com/pulse/why-trump-win-william-michael-cunningham-am-mba )
Having given on November 9, 2016 one explanation for Trump's win (https://www.linkedin.com/pulse/how-trump-won-william-michael-cunningham-am-mba), we continue to get interesting comments from persons claiming to have additional insight. I found one comment particularly interesting and thought I would share it.
“I enjoyed your analysis, but I think it leaves out a few factors.
Goldman Sachs acted as a broker for the sale of the US election. It’s why their people fill so many key positions. By applying the same type of computer programs used in high frequency trading, Goldman was able to manipulate actual vote totals. Given their knowledge of this type of trading, they identified a number of highly skilled Russian computer programmers. They presented them with an impossibility and a challenge: stealing the US presidential election by manipulating vote totals is widely considered impossible. So, how can I do exactly that?
These programmer like nothing better than a challenge presented as an impossibility (and I should know). Money is not an issue (they were, after all, bankrolled by Goldman, who put together an offering for the sale of the US election, basically, and got financing for this specific project from the wealthiest people on the planet – Theil, Mercer, Ellison, Trump, etc.).
Goldman simply brokered the deal. They brought the players together and gave them a way to get this done.
Others provided the labor and resources needed. Firms like Palantir and Cambridge Analytica, (owned by the very right wing Robert Mercer and whose motto is ‘we use data to change audience behavior’) provided data and analytics used to implement the manipulation and vote change effort. Theil and others have shown a willingness to use their platforms in service to these types of efforts. Ellison bought the firm at the center of the DDOS attack, (see: https://www.linkedin.com/pulse/how-trump-won-william-michael-cunningham-am-mba) where planted server side software allowed you to manipulate vote totals.
You described many of the key steps correctly. The DDOS attack and the use of Russian top level domains was critical to that phase of the project. One you have entry to the computer servers used to compile US votes, you need to be very smart about which votes you change. This is where firms like Cambridge Analytica come in. In addition to actually changing votes, you need to have a plausible public rationale for the outcome. This, as you noted, is where Fox News played a role.
One of the things that is interesting is that this vote manipulation software and process is still in place, ready for 2017 and 2018. Results in recent elections (Georgia (US), France) may prove this.”
Again, I don’t know if I believe all of this, but it is an interesting theory.

Thursday, April 14, 2016

The Real Superpredators

The Real Superpredators

SachsRecently, the Department of Justice announced that Goldman Sachs “agreed to Pay More than $5 Billion in Connection with Its Sale of Residential Mortgage Backed Securities.” Close scrutiny reveals that Goldman will actually pay, for a number of reasons, $0.

Goldman’s Track Record:

We note that:

On April 28, 2003, Goldman Sachs was found to have aided and abetted efforts to defraud investors.

On September 4, 2003, Goldman Sachs admitted that it had misused material, nonpublic information that the US Treasury would suspend issuance of the 30-year bond.

On April 28, 2003, Goldman Sachs was found to have "issued research reports that were not based on principles of fair dealing and good faith .. contained exaggerated or unwarranted claims.. and/or contained opinions for which there were no reasonable bases ". .

On January 25, 2005, "the Securities and Exchange Commission announced settled civil injunctive actions against Goldman, Sachs & Co. relating to the firms' allocations of stock to institutional customers in initial public offerings (IPOs) underwritten by the firms during 1999 and 2000 ".

On July 15, 2010, “the SEC announced that Goldman paid $550 million to settle SEC charges that Goldman misled investors in a subprime mortgage product just as the U.S. housing market was starting to collapse.”

Our Track Record:
On July 3, 1993, we wrote to US Securities and Exchange Commissioner (SEC) Mary Schapiro to notify the Commission about the "Nigerian letter scam."

We designed the first mortgage security backed by home mortgage loans to low and moderate income persons and originated by minority-owned institutions. (See: Security Backed Exclusively by Minority Loans, The American Banker Newspaper. Friday, December 2, 1994.)
We opposed the elimination of Glass-Steagall, a law that separated commercial from investment banks. The removal of this law contributed to the financial crisis, as we warned it would on September 23, 1998.

On June 15, 2000,we testified before the Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises (GSE’s) of the U.S. House of Representatives and suggested that GSEs Fannie Mae and Freddie Mac be subject to a Social Audit. Had the GSE’s been subject to this audit, certain flaws in their operation, including ethical shortcomings, would have been revealed earlier, in a better market in which to make corrections.

In 2001, we participated in the first wide scale home mortgage loan modification project. The Minneapolis-based effort helped 50 families victimized by predatory lending practices.

On December 22, 2003, we warned US regulators that statistical models he created using the proprietary Fully Adjusted Return® Methodology signaled the probability of system-wide economic and market failure.

In 2005, we served as an expert witness in a case that sought to hold Credit Suisse First Boston, Fairbanks/SPS, Moody’s and Standard and Poor’s, US National Bank Association, and other parties legally responsible for supporting and facilitating fraudulent subprime lending market activities. Had this single case been successful, we believe the credit crisis would have been less severe.

On December 22, 2005, we issued a strongly worded warning that system-wide economic and market failure was a growing possibility in a meeting at the SEC with Ms. Elaine M. Hartmann of the Division of Market Regulation.

On February 6, 2006, we again warned regulators that statistical models created using the proprietary Fully Adjusted Return® Methodology confirmed that system-wide economic and market failure was a growing possibility. We stated that: Without meaningful reform there is a small, but significant and growing, risk that our (market) system will simply cease functioning.”

On December 9, 2013, we filed a "Friend of the Court" brief in the United States District Court, Central District of California in an action that the U.S. Department of Justice brought against McGraw-Hill Companies, Inc., and Standard & Poor’s Financial Services LLC.

Why This Deal Matters

This deal has ramifications well beyond the parties to the case. It protects the monetary interest of a narrow set of mainly white persons, short-circuits the justice process, fails to protect the interests of both DOJ and the general public, does little to protect victims of other financial crimes, and damages the country's long-term economic prospects.

Without an admission of guilt, transaction costs — in the broad economic sense of the costs of participating in a market — will increase in financial markets.

This deal continues a pattern of ineffective financial institution regulation and enforcement that is contrary to the public interest. It furthers the legal double standard that Black Lives Matters protesters highlighted when they castigated former President Bill Clinton for Hillary Clinton’s 1996 comments that some black youth were "superpredators."

The financial crisis shows the real superpredators were firms with names like Goldman Sachs, Bear Stearns, Lehman Brothers and Wells Fargo. The fact that many of these superpredators also damaged and destroyed themselves (as superpredators have a tendency to do) is beside the point. Responsible enforcement would have prevented them from also damaging the global economy.

Given their record, Goldman’s license to do business should have been suspended (at the very least.) Clearly, they have compromised both New York Attorney General Eric Schneiderman and the DOJ.

This deserves federal judicial review.

http://www.tnj.com/news/business/real-superpredators

Monday, April 20, 2015

What Poor People Want

Fiscal Forum: “The Political Economy of High Debt” IMF, April
19, 2015. L to R: David Wessel, Maria Luís Albuquerque,
Christine Lagarde, Helen Clark, Joaquim Levy.
I was at the IMF yesterday with a bunch of rich white people (@Lagarde @HelenClarkUNDP  ) when the subject of poor people came up.

Of course, as they do with Black people, rich white people claim to know everything there is to know about the poor. I think their main fear is that poor people will want the same deal that Goldman Sachs got, or the deal JP Morgan got, or the deal the "London Whale" or the LIBOR manipulators got. This fear is borne of a certain selfishness and greed.

It is, also, completely wrong, so I took the time to tell them what I think.

Here is what we want:

1. Water. Not privatized water systems. Access to clean water.
2. Food. Not GMO degraded, just clean food.
3. Shelter. Not subprime loans, but shelter.
4. Peace. Not the opportunity to be shot in the back by a racist cop, or a racist Israeli soldier or a Muslim extremist.

If you think about it, these are the same things that rich white people want.

Friday, July 5, 2013

'Minority' Bank Designation Has Become Meaningless

We note with interest the designation of Urban Partnership Bank as a Minority Depository Institution. According to Crain’s Chicago Business, “The $1 billion-asset bank based on Chicago's South Side
(formerly South Shore Bank) is officially a minority lender despite an ownership dominated by Wall Street giants like Goldman Sachs Group Inc. and J.P. Morgan Chase & Co.”

A Minority Depository Institution, as defined by Section 308 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), used to be a bank in which 51% or more of the common stock was owned by one or more members of the following groups: Black American, Asian American, Hispanic American, or Native American.

The threshold now for MDI designation is a bank that meets one or more of the following standards:
  • 1.       51% or more of the common stock was owned by one or more members of the following groups: Black American, Asian American, Hispanic American, or Native American.
  • 2.       51% or more of the members of the Board of Directors are one or more members of the following groups: Black American, Asian American, Hispanic American, or Native American and the community the banks serves is primarily minority.
The FDIC expanded the MDI definitions because is says it found the old definition “ambiguous.” Now a bank that does not meet the ownership test can be designated an MDI if 51% or more of the directors on the board are members of those minority groups and the community the banks serves is primarily minority. This is how Urban Partnership Bank was able to obtain recognition as an MDI.

This means that any institution, no matter how discriminatory, can obtain this designation. The MDI designation is valuable because banking regulators use deposits in minority banks made by non-minority banks as evidence that the non-minority bank is not breaking the law by discriminating against racial minorities and that it (the non-minority bank) is meeting community credit needs.

The MDI designation originally helped Black-owned banks, whose historical significance was clear: they were created at a time when discrimination against Black people was legal in the US. They served as the only financial service providers to the community. Black banks do not now have the same level of significance to the Black or minority community today. They are too small to serve the community in any meaningful way. For example, they cannot serve as a line of defense against predatory lending. The result: banks like Wells Fargo are free to target wealthy black communities for predatory loans, in a nakedly discriminatory (and ultimately successful) campaign to strip wealth out of the Black community.

According to a June 12, 2012 article in the Washington Post, one Wells Fargo loan officer, “in sworn court testimony..described watching loan officers comb through heavily African American areas such as Baltimore and Prince George’s County, forging relationships with churches and community groups to sell their members (predatory) mortgages.” This same loan officer “processed loans for (Black) homeowners with sterling credit ratings with higher interest rates than they needed to pay.”

Of course, some will claim that the actions of a few bigoted individuals cannot mark an entire institution as racist. We disagree, and refer to the clear double standard concerning these matters, evidenced by the treatment of ACORN, after a few individuals at that non profit made mistakes.

What’s specifically relevant in this case is that Goldman Sachs, one of the owners of this newly designated “minority bank,” has a history of discriminatory behavior. The firm's bigoted attitude toward Blacks and women is described, in great detail, by author by William D. Cohan in Money and Power: How Goldman Sachs Came to Rule the World, a book released in 2011.

Cohan recounts the case of James. E. Cofield, Jr, an African American Stanford MBA who sued Goldman for discrimination in 1972. On December 6, 1987, a female employee filed another in a series of discrimination lawsuits claiming Goldman had "a hostile working environment in which women were demeaned." In March, 2010, yet another female employee filed a discrimination lawsuit. In September, 2010, three female former employees filed a class action lawsuit stating that Goldman "systematically discriminates against women in pay and promotion." 

This discriminatory behaviour appears to be ongoing. On Sunday, June 2, 2013, an article on Salon.com described a “series of racist and sexist ‘tips’ to succeeding at” Goldman Sachs. (http://www.salon.com/2013/06/02/wall_street_insiders_advice_for_interns_sleep_with_your_female_colleagues_then_brag_about_it/)

Goldman also has a history of manipulating financial data in order to support unethical business activities designed to maximize short term profit. In 2003, Goldman Sachs admitted that it had violated anti-fraud laws. In 2010, according to the New York Times, Goldman paid “$550 million to settle federal claims that it misled investors.” (http://www.nytimes.com/2010/07/16/business/16goldman.html?_r=0)

As part of that settlement, the firm “agreed to a judicial order barring it from committing intentional fraud in the future.”  As an investor in an institution that has received designation as a minority depository institution without actually being one, some may suggest that Goldman has violated that order.

At any case, Urban Partnership Bank’s designation eliminates an honest and ethical explanation of the “Minority Depository Institution” designation. As an analyst who has been producing statistical reports on women and minority banks for 30 years, this change also affects my ability to derive meaningful insights from bank performance data pre definition change and after the MDI designation change. It makes any long term statistical analysis meaningless, as I noted in the Minority BankMonitor, our annual review of the social and financial performance of minority banks.

More importantly, this change removes any real social meaning from the MDI status designation.
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Monday, April 16, 2012

Goldman..to Disclose NYC Workers’ Race, Gender Data

From the New York Times,"At the behest of New York City’s public pension funds, two of the biggest financial companies with headquarters in the city, Goldman Sachs and MetLife, have agreed to publicly disclose information about the racial and gender breakdowns of their staffs."

Also see: http://www.nytimes.com/2012/04/16/nyregion/goldman-sachs-and-metlife-to-disclose-staff-diversity-data.html

Also see: http://www.americanbanker.com/bankthink/goldman-has-some-gall-seeking-profit-in-housing-1048229-1.html

Monday, April 9, 2012

Goldman and the Housing Market

I recently wrote an opinion piece for the American Banker Newspaper website. The article is on Goldman's new housing fund.

It was Goldman's mark to market on the Bear Housing Fund that triggered the liquidity part of the housing crisis. They then went into the Fed to become a bank. Subsequently, they got $2 trillion in funding. Now, they are playing the upside, this after denying any meaningful role in the financial crisis (God's work) and after multiple severe securities market violations. My point is that, given this track record, they are lucky to be around, much less raising money for a mega housing fund.

One would be justified in being concerned that their actions with respect to the new Fund, despite what they might say, will not help the market and country work it's way out of the housing crisis, just when we are beginning to recover.

It's like letting someone with the flu in your house just after you got over pneumonia. Not a good idea.

The point is to also start a discussion on these broader issues.

Wednesday, March 14, 2012

Socially Responsible Goldman Sachs - NOT

An article in today's New York Times written by a soon to be former employee of Goldman Sachs starts with the admission that.."after almost 12 years at the firm..the trajectory of (the firm) is as toxic and destructive as I have ever seen it."

The author goes on to state what many have long known, that "the interests of the client continue to be sidelined in the way the firm operates and thinks about making money."

This is news?

The writer blames Goldman's "current chief executive officer, Lloyd C. Blankfein, and the president, Gary D. Cohn" for a "decline in the firm’s moral fiber.."

What moral fiber is he referring to? The fiber evident in multiple lawsuits and "S.E.C. investigations, Fabulous Fab, Abacus, God’s work, Carl Levin, Vampire Squids?" Read Money and Power: How Goldman Sachs Came to Rule the World if you really want to know.

The author then goes on to brag that "Over the course of my career I have had the privilege of advising two of the largest hedge funds on the planet, five of the largest asset managers in the United States, and three of the most prominent sovereign wealth funds in the Middle East and Asia."

Those clients should contact a lawyer right away and immediately review every transactions conducted with Goldman, since the article confirms that clients pay, unfairly, fraudulently, for the privilege of transacting business with the firm.

He is astounded that Goldman's senior management does not understand "a basic truth: If clients don’t trust you they will eventually stop doing business with you." One can only hope.

To show that he is still concerned about the firm, the author expresses his "hope this can be a wake-up call to the board of directors."

My hope is that this will be a wake up call to State and Federal Judges, regulators and clients.

Finally.

Wednesday, June 29, 2011

Carver Federal Raises $55 million

In a stunning development, Carver Federal today revealed they have raised $55 million in new equity capital. This amount exceeds, by almost three times, "regulatory capital requirements set by the Office of Thrift Supervision (OTS)."

According to the bank, investors include:

The Goldman Sachs Group, Inc., $15 million.
Morgan Stanley, $15 million.
Citigroup Inc., $10 million.
The Prudential Insurance Company of America, $10 million.
American Express Company, $2 million.
First Republic Bank, $2 million.
National Community Investment Fund, $1 million.

Prudential and American Express (full disclosure: former clients) have a 20 year track record of making these types of investments. National Community Investment Fund is a Creative Investment clone, and a bad one at that (we started seven years before they did.)

Which brings us to Goldman, who today "notified the New York State Department of Labor that the investment bank (might) lay off 230 employees." We'll see if they actually lay off people, but the investment in Carver is bound to cause some negative feedback, at least among those 230 people.

Goldman, you'll recall, has a history of investing in black-owned financial institutions: In May, 2009, Goldman Sachs Group Inc. invested $1 billion in a money-market fund managed by (African-American) Williams Capital.

Of course, Goldman has been fined $619.3 million by the SEC for various infractions.

That's 47 times the $15 million invested in Carver.

Wednesday, May 5, 2010

Punishing Goldman Sachs

According to news reports, most prominently a report by Charles Gasparino, Goldman Sachs is looking to settle SEC charges that the firm willfully mislead and defrauded investors in selling an investment product based on subprime mortgages. This is, of course, the smart thing for them to do, if they can. I am not sure that the SEC will let them off the hook lightly. Even a billion dollar fine would be of little consequence to the firm. What to do? Here is what I said in 2005:

"One thing I would note about the (Global Research Analyst) settlement itself is our belief that the penalties should have been income based. I know that's a settled point, but our suggestion would have been that the settling firms be stripped of all income for a 12-month period as a way of ensuring that they would not engage in these egregious actions again. What you do is let the firms run themselves for a 12-month period, you take a look back at how much money they made, and you take all of that money out of the firm as the penalty for the actions they engaged in.

We believe that these firms are critical to the future of democratic capitalism and that fraud is very, very damaging and that it risks -- basically what happens is, as you get these types of egregious actions and fraud, you risk wrecking the system in its entirety, and that's a risk that we don't believe should be borne by the public. It's a risk that we don't think is appropriate."

From testimony by William Michael Cunningham at the Global Research Analyst Settlement Fairness Hearing. April 11, 2005. Before Judge William H. Pauley. In the U.S. District Court for the District of New York.

Thursday, April 29, 2010

OK, maybe they landed a glove or two....

According to the Washington Post, "The Securities and Exchange Commission has referred its investigation of Goldman Sachs to the Justice Department for possible criminal prosecution, less than two weeks after filing a civil securities fraud case against the firm, according to a source familiar with the matter.

The Wall Street Journal and Bloomberg News reported Thursday night that the U.S. Attorney's Office in Manhattan had followed up on the request and opened a criminal probe. The office declined to comment.

It is very rare for the government to indict a firm, and the mere threat of criminal prosecution can destroy a company. A criminal investigation destroyed the infamous Wall Street firm Drexel Burnham Lambert in the 1980s even though the firm settled with authorities."

Tuesday, April 27, 2010

Never laid a glove on them

I attended part of Senator Carl Levin's Permanent Subcommittee on Investigations hearing concerning Goldman Sachs. Bottom line: they never laid a glove on them. As one report noted, "By day’s end, the investment bank’s market value had risen by $549 million." My comments follow.

1. When questioned about most matters, Goldman's CEO simply misdirected the questioner to an irrelevant portion of the inquiry. Specifically asked a direct question about the firm's short position (a position that benefits from a fall in prices, in this case, housing prices) in the mortgage market, the CEO referred to Goldman's 140 year history (this was a misdirection), and characterized the firm's position as a hedge (this was false). A key factor relates to relative position size. A $1 million dollar long position offset by a $1 million dollar short position is a hedge. A $1 million dollar long position offset by a $10 million dollar short position is a directional bet on the market, not a hedge.

2. In addition, Goldman's CEO purposely confused the market making role Goldman plays with their role as an underwriter. As a market maker, a size matched ($1 million long for $1 million short) hedge on a position is appropriate. This insures liquidity and an ability of the firm to respond to customer requests. As an underwriter, a bank is using it's reputation to sell product to clients. Underwriting carries with it a higher level of fiduciary duty. This is where misstatements about the construction of a security are critical. (Think of it this way. If you manufacture and sell cars, you have an implicit obligation to sell safe cars. I will not buy a car from you if I know that you, or a partner firm involved in the design and manufacture of the vehicle, have taken out a life insurance policy on me, the car buyer, and designed the car to maximize the chances that you, or a partner firm, will be able to collect on the insurance policy by reducing the reliability of the car's braking system. This is what the SEC says Goldman did.)

3. A question was asked about Goldman's use of the discount window at the Fed. The answer given by Goldman was not accurate. An accurate answer would have cited the total dollar amount of benefits the firm received from all Emergency Federal Reserve Liquidity Programs. These include the Term Auction Facility (TAF), the Primary Dealer Credit Facility (PDCF), the Term Securities Lending Facility (TSLF), the Term Securities Lending Facility Options Program (TOP), the Commercial Paper Funding Facility (CPFF), the Asset-Backed Commercial Paper (ABCP) Money Market Mutual Fund Liquidity Facility (AMLF), the Money Market Investor Funding Facility (MMIFF), as well as the currency swap arrangements with foreign central banks.

Friday, April 16, 2010

SEC accuses Goldman Sachs of civil fraud

According to the Washington Post, "The Securities and Exchange Commission filed charges Friday against Goldman Sachs, one of the most successful but vilified banks on Wall Street, for misleading and defrauding investors in selling a financial product based on subprime mortgages.

In filing the civil suit against Goldman Sachs, the agency is targeting one of the banks that largely escaped the wreckage of the financial crisis and, with the help of various forms of government aid, emerged stronger."

We believe this may be the first in a series of actions targeting Goldman. An examination of Goldman's transactions with AIG will probably reveal similar questionable practices. As we noted on July 9, 2009, the US lost 53% supporting Goldman.

As we noted on March 5, 2009, Goldman was one of several firms accused of systematically cheating customers.

And, finally, as noted on July 19, 2007,

"From an ethical standpoint, (Goldman) has repeatedly engaged in behavior that would cause a prudent person to question its objectivity and fairness. We note that a smaller firm engaging in similar conduct would have been severely sanctioned by the market. Goldman has escaped meaningful sanction, however. We have found these behaviors often the prelude to the development of a set of fraudulent business practices."

Our focus on evaluating of both financial and ethical practices at major firms, once again, seems prescient.

Friday, March 19, 2010

Hearing on the link between Fed Policy and Bank Supervision (Frank Hung, Intern)

We attended the hearing held by House Financial Services Committee on Wednesday March 17, 2010. Among the speakers:

The Honorable Ben S. Bernanke, Chairman, Board of Governors of the Federal Reserve

The Honorable Paul Volcker, Chairman of the President’s Economic Recovery Advisory Board, Former Chairman of the Federal Reserve

Their testimony focused on interest rates and government guarantees, such as those granted Fannie Mae and Freddie Mac. One Congressman asked if holding rates too low for too long causes inflation? Bernanke indicated he is watching economic trends closely will move rates up or down in order to avoid future economic problems. He stated that arbitrage opportunities still happened and that, based on current reports and research, demand is still lower than the full employment level. He noted that low interest rates can stimulate consumer expenditures and alleviate the unemployment problem.

He also stated that the Fed cooperates with other regulatory agencies in supervising the banking system since some of the banking organizations are large and complex. Bernanke indicated that the Fed will do its best to address systemic safety issues for the whole financial system by rigidly supervising high leverage or low credit companies.

The hearing also covered problems with Fannie Mae and Freddie Mac. Bernanke said, while the Fed understands the problem and has already started to address it, results will not be seen anytime soon. Time will tell what they did and how is it works.

In conclusion, there was not much useful or new information. We note there was no discussion concerning the supervision and regulation of a company like Goldman Sachs.

Thursday, November 5, 2009

Wall Street banks get swine flu vaccine....

According to The Hill, "Now we learn that while many kids, hospitals and pregnant women cannot get enough of the swine flu vaccine, the major banks and Wall Street firms were given a private allocation. At best, this is a ridiculous distribution strategy; at worst, these firms gave some vaccines not to high-risk people but to high-profit traders and senior managers."

And you were wondering where your $700 billion went. Pitchforks, anyone?

Wednesday, July 22, 2009

U.S. lost 53% supporting Goldman Sachs

According to MarketWatch.com, "The U.S. government made a 23% return supporting Goldman Sachs during the global financial crisis, the investment bank said Wednesday as it unwound one of the last taxpayer-funded investments it received last year." This is incorrect. If you include the $13 Billion that Goldman received through AIG (to make Goldman whole on Credit Default Swap transactions) we lost around 53%.