Matt Taibbi: The People vs Goldman Sachs

[Darwin333]

No, it's you that is missing the point. You're suggesting that IKG, a $16 billion dollar bank should be excused from due diligence rules. And your used car analogy sucks, these guys aren't some elderly lady buying a Buick on Craigslist - they're more like General Motors or Ford and if they buy a car without brakes then it's their own damn fault for being absolute idiots.

Being an idiot is not a crime.

Selling someone a car that you say has brakes but you know for a fact does not, is a crime. It is called fraud.

 

[Craig234]

Being an idiot is not a crime.

Selling someone a car that you say has brakes but you know for a fact does not, is a crime. It is called fraud.

There actually is a legal difference, which makes sense, between less informed buyers, and more expert buyers, in securities laws.

The thing is, those differences do not, as much as Glenn wants them to, make fraud non-existent because the expert buyer should uncover all the lies.

A securities firm recommending a product it sells while shorting it is about as clear and classic as you get for the sort of dishonest fraudulent practices that should be banned.

This is why an important part of financial regulation was, until Wall Street got it repealed, separating the functions between those roles.

 

[thegimp03]

A securities firm recommending a product it sells while shorting it is about as clear and classic as you get for the sort of dishonest fraudulent practices that should be banned.

Quoted for truth.

Then, there's the whole issue about Lloyd and his buddies lying to Congress last year. But I won't hold my breath regarding any indictments being handed out for that. If a stupid baseball player like Barry Bonds could avoid being thrown in jail for lying to Congress, I'm pretty sure Goldman Sachs could throw a couple bucks at the right people and get off the hook without too much trouble.

 

[glenn1]

There actually is a legal difference, which makes sense, between less informed buyers, and more expert buyers, in securities laws.

The thing is, those differences do not, as much as Glenn wants them to, make fraud non-existent because the expert buyer should uncover all the lies.

A securities firm recommending a product it sells while shorting it is about as clear and classic as you get for the sort of dishonest fraudulent practices that should be banned.

This is why an important part of financial regulation was, until Wall Street got it repealed, separating the functions between those roles.

Well, people can certainly disagree about whether it rises to the legal definition of fraud. My opinion is that it does not; for the following reasons:

1. Because all the counter-parties were sophisticated investors and therefore both capable of doing their own due diligence, but simply relied on the rating agencies to make their decision on whether to buy. As we've all found all, that was a VERY big mistake as lots of stuff that got good ratings still blew up spectacularly.

2. Because the investment was a synthetic CDO and thus by definition needed to have both a long and short side investor (i.e. someone making a positive bet, and someone taking the negative bet). Therefore it's completely wrong to say that ACA, IKG, and all the other investors on the long side somehow didn't know that there was someone else taking the other side of the trade; and no, Goldman did not and should not have any obligation to specify who that was.

3. While John Paulson did help select the component securities in the CDO, the people on the other side got to vet the list and even removed some of the securities Paulson suggested. Plus the pitchbook for the deal showed exactly what was in there, so they weren't buying a pig in a poke.

4. The required disclosures for something like this are pretty well defined, and what is being alleged as fraud by omission was not something required to be disclosed.


However, with all the above said, I DO think that Goldman acted in a self-dealing and unethical fashion. Ultimately, they're only undermining their own future success with such antics, and think that their customers will learn all too well to do business with others who treat them better in the future. In a way, seeing them lose money due to a loss of business from their own actions is a more satisfying outcome than having them sign a "neither admit nor deny" settlement with the SEC for a few millions or so.

 

[Zebo]

I'm sure the Obama administration will get right on that.

Not when Goldman Sachs was his number one private campaign contributor. Plus people in charge of his economics and enforcement team is stacked top to bottom with former ATL (above the law) executives/VPs/presidents of these firms. Not when most Americans are dumb and don't even know how to create a balance sheet. Financial crimes don't feel real like getting stuck up at a liquor store so there is no political will to do anything about it. The whole system is fucked up. (revolving doors of criminals being cops, moneid candidates, clueless public)

 

[Zebo]

Being an idiot is not a crime.

Selling someone a car that you say has brakes but you know for a fact does not, is a crime. It is called fraud.

Fraud of omission to be exact. Sorta like when Citibank's Chief underwriter tells us when he testifies under oath that Citi knew "60% of loans were defective in 2006 and 80% defective in 2007." This is fraud by inducement to even make the loans BTW)
http://fcic.gov/hearings/pdfs/2010-0407-Bowen.pdf

Then unload this garbage by slapping AAA on them and blowing sunshine up peoples behind in the form of MBS to your pensions, 401k, state Pers, etc is Fraud by omission.

 

[Craig234]

Well, people can certainly disagree about whether it rises to the legal definition of fraud. My opinion is that it does not; for the following reasons:

1. Because all the counter-parties were sophisticated investors and therefore both capable of doing their own due diligence, but simply relied on the rating agencies to make their decision on whether to buy. As we've all found all, that was a VERY big mistake as lots of stuff that got good ratings still blew up spectacularly.

They didn't rely entirely on the ratings. That was one factor. Goldman misrepresented the product as well.

2. Because the investment was a synthetic CDO and thus by definition needed to have both a long and short side investor (i.e. someone making a positive bet, and someone taking the negative bet). Therefore it's completely wrong to say that ACA, IKG, and all the other investors on the long side somehow didn't know that there was someone else taking the other side of the trade; and no, Goldman did not and should not have any obligation to specify who that was.

You know, it's bad enough when someone not revealed to you takes out millions in life insurance on you. It's a lot worse if it's your doctor.

Wall Street is all about buying low and selling high, which requires suckers to buy high, and there's a problem with the same firm who legally is obligated to represent your interests is making you that sucker for their own profit. It's an old game on Wall Street, and one that has been banned for good reason - if that were enforced.

Goldman's net effect on society is a huge parasite draining wealth - not the intended role of the finance industry to help the economy grow.

Providing liquidity to business is a good role of banking.

Having a huge share of society's wealth used to manipulate the economy for the wealth holder's benefit at the expense of the public is not.

Blackmailing the government with the ability to destroy the economy is not either.

3. While John Paulson did help select the component securities in the CDO, the people on the other side got to vet the list and even removed some of the securities Paulson suggested. Plus the pitchbook for the deal showed exactly what was in there, so they weren't buying a pig in a poke.

They manipulated the market to their own benefit, which is their normal approach.

'Too big to jail' may be the better phrase.

4. The required disclosures for something like this are pretty well defined, and what is being alleged as fraud by omission was not something required to be disclosed.


However, with all the above said, I DO think that Goldman acted in a self-dealing and unethical fashion. Ultimately, they're only undermining their own future success with such antics, and think that their customers will learn all too well to do business with others who treat them better in the future. In a way, seeing them lose money due to a loss of business from their own actions is a more satisfying outcome than having them sign a "neither admit nor deny" settlement with the SEC for a few millions or so.

Ya, except they're so big - 'government Sachs' practically has the US Treasury as a field office, they created the commodities speculation main trading market - that they can do just fine even though they pull this stuff. It's like saying the government of China screwed itself by cracking down too much on its dissidents - uh, ya, if they weren't so powerful they can get away with it.

We're not dealing with your imaginary 'free market' where people 'just take their business to the nicer firm'. The nicer firm doesn't supply every Treasury Secretary.

We SHOULD get a nice free market like that - which means taking Goldman out of its role of excessive power to prevent it and making it act like a competitive company.

When the DEMOCRAT'S #1 private donor is Goldman Sachs - the guy elected to clean up the mess made by no one more than Goldman Sachs - you know there's a problem.

You are here acting like a corrupt spokesman for Goldman Sachs understating their wrongdoing, which is exactly what we don't need. We need more accountability.

You are missing the larger issue too - it's not just what's legal, much that should be illegal has been made legal by Wall Street's buying the government.

The public is little aware of their massive scams - Matt Taibbi correctly calls them a 'company of criminals'. The government is supposed to represent the people.

When the system crashed and the American people lost trillions from their manipulations, did they pay the price even financially? No, their bonuses increased.

Look back before Reagan - the financial sector was 10-15% of the profits. That's already plenty for 'providing liquidity to the economy'. Lately it's 40%. That's parasites.

Our political system is failing to have the people oversee and curtail the activities that profit a few rich at the public expense. It has many times, but rarely this badly.

 

[woolfe9999]

I will count myself profoundly disappointed if Obama's Justice Department doesn't go after these creeps. Unfortunately, I'm not holding my breath on this one.

 

[Zebo]

No offense Craig but they are parasites even at 10-15%. They create no wealth only move it, skim margins of it, allocate funding for it etc. The central bank could do the same thing.

 

[Zebo]

I will count myself profoundly disappointed if Obama's Justice Department doesn't go after these creeps. Unfortunately, I'm not holding my breath on this one.

Nothing will be done. We are totally fucked and lots of reasons for it.

1. Wealth, things we call wealth at least, is mined, manufactured or grown. You can't eat a derivative. The United States economy is moving towards predominantly a service economy like third world. The period in time in which the USA was strongest with a vibrant middle class was when its economy was a manufacturing economy. Falling middle has been buffered/hidden by massive debt just too keep peoples heads above water which won't go on forever. Meanwhile some have profited immensely and you can get that money or factories back.

2. The public educational system is failing on many levels no longer giving us the wherewithal to be productive nor understanding the problems facing us. There are many reasons why this is happening and I won't get into it but it presents huge problems going forward least of which is understanding when times were good and how we got there.

3. The political system no longer emphasizes the common good. Instead it is fragmented into obtaining free handouts that benefit the very few more than the many, and corporate and special interest groups being able to influence the outcome of elections more than the individual citizen. Haven't you noticed last 20 years even bills to supposedly help the people turns out to be a huge boondoggle for special interests. Medicare part D, Obamacare, etc.

4. Our moral system is no longer focused on fair play or treating fellow citizens like you would like to be treated. Instead it has devolved to a rat eat rat system where anything goes as long as you win and you can keep your spoils.

Bottom line is in order to reverse the growing inequality, corruption and downward spiral of the United States requires a fundamental shift in many economic, educational, political, & moral systems that seem insurmountable IMO.

 

[halik]

Read this a week back, so not sure of page, but Goldman sold crap knowing it was crap to its clients and told Congress in a bold faced lie later on that this is not what they did, despite correspondence during the event to that exact effect.

These bankers really just are not a value-add to society. Banking itself is, but "these bankers", these guys who are doing nothing but sport f***ing money in and out of various ridiculous financial instruments are hardly doing God's work.

Since the greatest recession in generations in huge part on the back of fraudulent activity there are essentially no convictions. Nobody in government or justice actually gives a sh*t.

If you call up Ameritrade and tell them you want to buy the linkedin IPO, should they not let you do that, because they believe it's overvalued? Do intermediaries have fiduciary duty towards you?

The Abacus deal, more than anything else, shows how little people understand synthetic structured vehicles. Any sort of argument of "betting against you" immediately signals you have no idea what you're talking about

<- spent 2010 pricing CDOs for an institutional porfolio

 

[halik]

2. Because the investment was a synthetic CDO and thus by definition needed to have both a long and short side investor (i.e. someone making a positive bet, and someone taking the negative bet). Therefore it's completely wrong to say that ACA, IKG, and all the other investors on the long side somehow didn't know that there was someone else taking the other side of the trade; and no, Goldman did not and should not have any obligation to specify who that was.

You know, it's bad enough when someone not revealed to you takes out millions in life insurance on you. It's a lot worse if it's your doctor.

Wall Street is all about buying low and selling high, which requires suckers to buy high, and there's a problem with the same firm who legally is obligated to represent your interests is making you that sucker for their own profit. It's an old game on Wall Street, and one that has been banned for good reason - if that were enforced.

Goldman's net effect on society is a huge parasite draining wealth - not the intended role of the finance industry to help the economy grow.

Providing liquidity to business is a good role of banking.

Way to completely sidestep the topic he's talking about go off on a tangent with a false analogy...

Cliffnotes:
1. The intermediary does not have fiduciary duty to either the long or short side by default
2. Investing in synthetic instruments means someone is always betting against you; it's inherent to the concept.
3. Both long and short side are professional money managers (Rule 501)

If anything, goldman's fault is for cranking out so many of them (they make money on fees, not on directional bets on that stuff) and overlevering the whole system.

 

[Craig234]

Way to completely sidestep the topic he's talking about go off on a tangent with a false analogy...

Hardly. You could read the OP article, which makes numerous points showing fraud.

For example (bolding a few points for you):

How did Goldman sell off its "cats and dogs"? Easy: It assembled new batches of risky mortgage bonds and dumped them on their clients, who took Goldman's word that they were buying a product the bank believed in. The names of the deals Goldman used to "clean" its books — chief among them Hudson and Timberwolf — are now notorious on Wall Street. Each of the deals appears to represent a different and innovative brand of shamelessness and deceit.

In the marketing materials for the Hudson deal, Goldman claimed that its interests were "aligned" with its clients because it bought a tiny, $6 million slice of the riskiest portion of the offering. But what it left out is that it had shorted the entire deal, to the tune of a $2 billion bet against its own clients. The bank, in fact, had specifically designed Hudson to reduce its exposure to the very types of mortgages it was selling — one of its creators, trading chief Michael Swenson, later bragged about the "extraordinary profits" he made shorting the housing market. All told, Goldman dumped $1.2 billion of its own crappy "cats and dogs" into the deal — and then told clients that the assets in Hudson had come not from its own inventory, but had been "sourced from the Street."

Hilariously, when Senate investigators asked Goldman to explain how it could claim it had bought the Hudson assets from "the Street" when in fact it had taken them from its own inventory, the bank's head of CDO trading, David Lehman, claimed it was accurate to say the assets came from "the Street" because Goldman was part of the Street. "They were like, 'We are the Street,'" laughs one investigator.

Hudson lost massive amounts of money almost immediately after the sale was completed. Goldman's biggest client, Morgan Stanley, begged it to liquidate the investment and get out while they could still salvage some value. But Goldman refused, stalling for months as its clients roasted to death in a raging conflagration of losses. At one point, John Pearce, the Morgan Stanley rep dealing with Goldman, lost his temper at the bank's refusal to sell, breaking his phone in frustration. "One day I hope I get the real reason why you are doing this to me," he told a Goldman broker.

Goldman insists it was only required to liquidate the assets "in an orderly fashion." But the bank had an incentive to drag its feet: Goldman's huge bet against the deal meant that the worse Hudson performed, the more money Goldman made. After all, the entire point of the transaction was to screw its own clients so Goldman could "clean its books." The crime was far from victimless: Morgan Stanley alone lost nearly $960 million on the Hudson deal, which admittedly doesn't do much to tug the heartstrings. Except that quickly after Goldman dumped this near-billion-dollar loss on Morgan Stanley, Morgan Stanley turned around and dumped it on taxpayers, who within a year were spending $10 billion bailing out the sucker bank through the TARP program.

It is worth pointing out here that Goldman's behavior in the Hudson scam makes a mockery of standards in the underwriting business. Courts have held that "the relationship between the underwriter and its customer implicitly involves a favorable recommendation of the issued security." The SEC, meanwhile, requires that broker-dealers like Goldman disclose "material adverse facts," which among other things includes "adverse interests." Former prosecutors and regulators I interviewed point to these areas as potential avenues for prosecution; you can judge for yourself if a $2 billion bet against clients qualifies as an "adverse interest" that should have been disclosed.

But these "adverse interests" weren't even the worst part of Hudson. Goldman also used a complex pricing method to turn the deal into an impressive triple screwing. Essentially, Goldman bought some of the mortgage assets in the Hudson deal at a discount, resold them to clients at a higher price and pocketed the difference. This is a little like getting an invoice from an interior decorator who, in addition to his fee for services, charges you $170 a roll for brand-name wallpaper he's actually buying off the back of a truck for $63.

To recap: Goldman, to get $1.2 billion in crap off its books, dumps a huge lot of deadly mortgages on its clients, lies about where that crap came from and claims it believes in the product even as it's betting $2 billion against it. When its victims try to run out of the burning house, Goldman stands in the doorway, blasts them all with gasoline before they can escape, and then has the balls to send a bill overcharging its victims for the pleasure of getting fried.

Timberwolf, the most notorious of Goldman's scams, was another car whose engine exploded right out of the lot. As with Hudson, Goldman clients who bought into the deal had no idea they were being sold the "cats and dogs" that the bank was desperately trying to get off its books. An Australian hedge fund called Basis Capital sank $100 million into the deal on June 18th, 2007, and almost immediately found itself in a full-blown death spiral. "We bought it, and Goldman made their first margin call 16 days later," says Eric Lewis, a lawyer for Basis, explaining how Goldman suddenly required his client to put up cash to cover expected losses. "They said, 'We need $5 million.' We're like, what the fuck, what's going on?" Within a month, Basis lost $37.5 million, and was forced to file for bankruptcy.

In many ways, Timberwolf was a perfect symbol of the insane faith-based mathematics and blackly corrupt marketing that defined the mortgage bubble. The deal was built on a satanic derivative structure called the CDO-squared. A normal CDO is a giant pool of loans that are chopped up and layered into different "tranches": the prime or AAA level, the BBB or "mezzanine" level, and finally the equity or "toxic waste" level. Banks had no trouble finding investors for the AAA pieces, which involve betting on the safest borrowers in the pool. And there were usually investors willing to make higher-odds bets on the crack addicts and no-documentation immigrants at the potentially lucrative bottom of the pool. But the unsexy BBB parts of the pool were hard to sell, and the banks didn't want to be stuck holding all of these risky pieces. So what did they do? They took all the extra unsold pieces, threw them in a big box, and repeated the original "tranching" process all over again. What originally were all BBB pieces were diced up and divided anew — and, presto, you suddenly had new AAA securities and new toxic-waste securities.

A CDO, to begin with, is already a highly dubious tool for magically converting risky subprime mortgages into AAA investments. A CDO-squared doubles down on that lunacy, taking the waste products of the original process and converting them into AAA investments. This is kind of like taking all the kids who were picked last to play volleyball in every gym class of every public school in the state, throwing them in a new gym, and pretending that the first 10 kids picked are varsity-level players. Then you take all the unpicked kids left over from that process, throw them in a gym with similar kids from all 50 states, and call the first 10 kids picked All-Americans.

Those "All-Americans" were the assets in the Timberwolf deal. These were the recycled nightmare dregs of the mortgage craze — to quote Beavis and Butt-Head, "the ass of the ass."

Goldman knew the deal sucked long before it dinged the Aussies in Basis Capital for $100 million. In February 2007, Goldman mortgage chief Daniel Sparks and senior executive Thomas Montag exchanged e-mails about the risk of holding all the crap in the Timberwolf deal.

MONTAG: "CDO-squared — how big and how dangerous?"
SPARKS: "Roughly $2 billion, and they are the deals to worry about."

Goldman executives were so "worried" about holding this stuff, in fact, that they quickly sent directives to all of their salespeople, offering "ginormous" credits to anyone who could manage to find a dupe to take the Timberwolf All-Americans off their hands. On Wall Street, directives issued from above are called "axes," and Goldman's upper management spent a great deal of the spring of 2007 "axing" Timberwolf. In a crucial conference call on May 20th that included Viniar, Sparks oversaw a PowerPoint presentation spelling out, in writing, that Goldman's mortgage desk was "most concerned" about Timberwolf and another CDO-squared deal. In a later e-mail, he offered an even more dire assessment of such deals: "There is real market-meltdown potential."

On May 22nd, two days after the conference call, Goldman sales rep George Maltezos urged the Australians at Basis to hurry up and buy what the bank knew was a deadly investment, suggesting that the "return on invested capital for Basis is over 60 percent." Maltezos was so stoked when he first identified the Aussies as a target in the scam that he subject-lined his e-mail "Utopia."

"I think," Maltezos wrote, "I found white elephant, flying pig and unicorn all at once."

 

[Zebo]

If you guys don't like Rolling Stone, Forbes has an excellent piece as well.

It's getting harder to defend Goldman Sachs

 

[Jhhnn]

Way to completely sidestep the topic he's talking about go off on a tangent with a false analogy...

Cliffnotes:
1. The intermediary does not have fiduciary duty to either the long or short side by default
2. Investing in synthetic instruments means someone is always betting against you; it's inherent to the concept.
3. Both long and short side are professional money managers (Rule 501)

If anything, goldman's fault is for cranking out so many of them (they make money on fees, not on directional bets on that stuff) and overlevering the whole system.

That's not entirely accurate. While Goldman and others may not have directly taken the opposite side of a deal from their clients, they are entirely free to take the opposite side of a deal based on that deal and others. They did not act exclusively as facilitators, at all. They did make directional bets, often much larger than the securities they marketed.

From a manipulator's POV, that's the beauty of synthetic derivatives. Much, much larger bets can be in play than the actual value of the underlying assets, the basis of non-synthetic derivatives.

From a systemic point of view, that's what makes the whole thing fragile, because financial outcome and actual productive venture get divorced in the process. Theoretically, a billion dollars worth of synthetic derivatives could be constructed on the basis of the cashflow from a single candy machine.

From a macro economic POV, the fact that so much money changes hands on that basis means that the general economy is starved of productive investment. Instead of investment creating goods, services and jobs which in turn generate profits, money is exchanged across the top of the structure without the need for doing any more of that than creating something to gamble on...

 

[Anarchist420]

I say just take away their central bank, end fiat currency, end Federal borrowing, and end their special legal priveleges (fractional reserve banking). Congress never should've bailed their sorry asses out in the first place.

 

[Craig234]

That's not entirely accurate. While Goldman and others may not have directly taken the opposite side of a deal from their clients, they are entirely free to take the opposite side of a deal based on that deal and others. They did not act exclusively as facilitators, at all. They did make directional bets, often much larger than the securities they marketed.

From a manipulator's POV, that's the beauty of synthetic derivatives. Much, much larger bets can be in play than the actual value of the underlying assets, the basis of non-synthetic derivatives.

From a systemic point of view, that's what makes the whole thing fragile, because financial outcome and actual productive venture get divorced in the process. Theoretically, a billion dollars worth of synthetic derivatives could be constructed on the basis of the cashflow from a single candy machine.

From a macro economic POV, the fact that so much money changes hands on that basis means that the general economy is starved of productive investment. Instead of investment creating goods, services and jobs which in turn generate profits, money is exchanged across the top of the structure without the need for doing any more of that than creating something to gamble on...

That's right.

One way to make a little money is to loan it to businesses to help them grow, and take a cut. But that's not much, and it has risk, especially in our 'down' economy.

So what do you do if you're a hedge fund, a sovereign fund, if you're Goldman Sachs, and you have a lot of money you want to grow?

(Or more accurately, you have access to a massive credit line you can leverage, while you're 'too big to fail'?)

Betting is the game - but not betting because you're so much better at getting the guess right and winning the bet, that's not easy - though it is pretty unproductive.

No, you make money by rigging the game, and profiting from others who lose.

There are any number of Goldman Sachs stories that fit that - but let's take as an example their efforts with Greece. Now, Greece stood to benefit from entry into the EU; the EU was cautious about accepting a bad economy. The first profit Goldman could get was by helping Greece lie, misrepresenting its finances to look better than they were, and get the into the EU. Profit for Goldman - at the expense of the people in the EU.

But that's not enough - then there's profiting by betting AGAINST Greece, because they have better information than others that Greece is going to have problems - because they're the only ones (with a few in Greece) who know about the lies and the likelihood of problems. More profit for Goldman - as the expense of any investors who believed the lies Goldman put out.

As Jim Hightower reported on just this one example:

How the Monsters at Goldman Sachs Caused a Greek Tragedy
Greece's crushing debt has exploded into a full-blown crisis, with the country on the precipice of the unthinkable: the default of a sovereign nation. Thanks Goldman Sachs.
March 4, 2010 |


Another Greek-based cargo ship and its crew was recently hijacked by Somalian pirates, costing the Greek owners an undisclosed amount in ransom.

Such ongoing acts of brazen piracy off the coast of Somalia have riveted the establishment media's attention. But the same news hawks have missed (or ignored) a much more brazen, longer-running and far larger robbery in Greece by Gucci-wearing thieves who are more sophisticated than common pirates -- but lack a pirate's moral depth.

I refer to -- who else? -- Wall Street financiers. Specifically, Goldman Sachs...

In 2001, Goldman's financial alchemists formulated a scheme to allow the Greek government to hide the extent of its rising debt from the public and the European Community's budget overseers. Under this diabolical deal, Goldman funneled new capital from super-wealthy investors into the government's coffers.

Fine. Not so fine, though, is that, in exchange, Greek officials secretly agreed that the investors would get 20 years' worth of the annual revenue generated by such public assets as Greece's airports. For its part, Goldman pocketed $300 million in fees paid by the country's unwitting taxpayers.

The financial giant dubbed its airport scheme "Aeolus," after the ancient Greek god of the wind -- and, sure enough, any long-term financial benefit for Greece was soon gone with the wind. By hiding the fact that the government's future revenues had been consigned to secret investors, Goldman bankers made the country's balance sheet look much rosier than it was, allowing Greek officials to keep spending like there was no tomorrow.

Last month, however, tomorrow arrived. Greece's crushing debt has exploded into a full-blown crisis, with its leaders disgraced and the country on the precipice of the unthinkable: the default of a sovereign nation.

So, who is getting punished for the finagling of Greek politicos and Goldman profiteers? The people, of course -- just like here! Greeks now face deep wage cuts, rising taxes and the elimination of public services just so their government can pay off debts the people didn't even know it had. Meanwhile, Greece's financial conflagration is endangering the stability of Europe's currency and causing financial systems worldwide (including ours) to wobble again. All of this to enrich a handful of global speculators.

Or as Robert Scheer reported:

As a result of such shenanigans back in 2001, Greece was allowed to join the European Union while running up enormous debt that went undetected. Greece's neighbors will now be forced to bail it out, much as U.S. taxpayers have done for banks as a result of the scams Goldman and other financial houses pulled off in this country. The common denominator is that the packagers of the collateralized debt securities, be they based on subprime mortgages or government airport fees, have no real interest in the integrity of the packages, for they will balance them out with credit default swaps that pay off when the assets prove toxic. And they will make their lucrative commissions coming and going, no matter what goes wrong. Even after all the trouble in Greece, Goldman President Gary D. Cohn was back in that country last November with a new derivative scam based on potential revenue from Greece's health care system.

Just as it did with mortgages in the U.S., Goldman in effect bet against the collateralized Greek debt obligations. The basic issue is the same. The thing being sold need not be understood or correctly assessed as to its value. In his recent memoir, former Goldman Chairman Hank Paulson confesses that as late as August 2006 when as the newly appointed treasury secretary he briefed George W. Bush on the impending derivatives crisis he did not even know that the packages that Goldman and others had sold were based on mortgages. "I misread the cause, and the scale, of the coming disaster," he admits, adding, "Notably absent from my presentation was any mention of problems in housing and mortgages." In recalling when an obviously perplexed President Bush asked him "How did this happen?" Paulson says in his memoir: "It was a humbling question for someone from the financial sector to be asked--after all, we were the ones responsible."

He got that right. The financial sector was and is responsible, but it still resists increased transparency and other necessary regulations over the derivatives that gamblers like Paulson themselves don't understand. As Peter Eavis writes in The Wall Street Journal: "How many more crises will it take? The Greek emergency is a reminder of how little has been done to fix large, potentially unstable parts of the financial system. ... The banking lobby is resisting efforts to overhaul the $605 trillion market for derivatives that don't trade on exchanges."

The U.S. comptroller of the currency estimates that Goldman Sachs has a derivative "credit exposure" that is a whopping 858 percent of its risk-based capital and that JPMorgan Chase is in second place at 290 percent. That statement calls into question the savvy of President Obama, who crowed just last week in defense of Goldman CEO Lloyd Blankfein and Jamie Dimon, his old Chicago buddy who heads JPMorgan Chase, "I know both those guys; they are very savvy businessmen." Tell it to the Greeks.