Monthly Archives: April 2010

John Gapper

What will Warren Buffett say about Goldman Sachs? 

By Brooke Masters, chief regulation correspondent

UPDATE: It turns out that the Deparment of Justice asked for the file. The SEC didn’t make the referral. The DoJ request came after 62 members of Congress wrote to Eric Holder, attorney-general asking the DoJ to investigate Goldman.

The reports in the Wall Street Journal and the Washington Post that criminal prosecutors are now looking at the mortgage deal at the heart of the US Securities and Exchange Commission case against Goldman Sachs raise a key question: Why now?

The SEC is said formally to have referred the case to the US Attorney for the Southern District of New York. Such a step would not be unusual, but the timing would be.

Ordinarily, the SEC sends its evidence to prosecutors before filing its civil charges, not afterwards. That way, if the Justice Department does want to bring a criminal case, the two actions can be filed simultaneously. There are lots of good procedural reasons for doing it this way, so the two cases do not interfere with one another.

So, why act now? 

John Gapper

Steve Jobs has been in the news lately, partly involuntarily due to the mislaying of his next generation iPhone, and partly of his own volition.

His latest piece of communication came this morning with his long post explaining his opposition to Flash, the Adobe video product that he has banned from iPads.

The intriguing aspect of his missive is his insistence that Apple is more open than Adobe in its approach to mobile web standards. This is ironic, since Apple has faced criticism that it operates a closed platform with the iPhone, iPad and iTunes. 

John Gapper

My FT column this week is on ratings agencies:

Goldman Sachs executives suffered a marathon grilling in front of the Senate investigations subcommittee on Tuesday. But just as important a hearing of the body – arguably more important – occurred last week. 

John Gapper

It was a marathon day in the Senate subcommittee for Goldman Sachs’ executives, and it was a pretty long one for anyone watching.

A lot of the proceedings were taken up with senators and Goldman executives speaking at cross-purposes, and with the Quixotic determination of Carl Levin, the subcommittee’s chairman, to show that Goldman was hugely short of subprime mortgage securities. 

Times are given in US EST.

By Alan Rappeport

8:42pm – And nearly 11 hours after the hearings began, that’s a wrap.

8:35pm – The audience appears to be thinning in the meeting room. Mr Levin is giving his closing statement, giving one last run down of how the entire financial crisis ensued, for the record. Mr Blankfein’s face is locked in a squint and he is clutching his water glass. “I happen to be one that believes in a free market, but if it’s going to be free…it’s got to be free of deception. It needs a cop on the beat of Wall Street.” 

Refresh this page for the latest updates. Times are given in US EST

By Alan Rappeport

3:13pm – The committee has excused the witnesses after an exhaustive array of questioning. The Goldman witnesses appeared to hold their own, often frustrating the Senators who probed aggressively. There will be a 10 minute recess before David Viniar, CFO, and Craig Broderick, chief risk officer, take the stage. We’ll return for the third panel featuring Lloyd Blankfein.

3:03pm – Mr Levin is returning to the bigger question of conflicts of interest. “For heavens sake, clients should know that when you are selling securities, that you are betting against those securities. I think it is intolerable and it needs to be addressed,” he said. 

John Gapper

As I noted in my earlier post, I don’t think the fact that Goldman Sachs was short of the residential mortgage securities market in 2007 (to the degree that it was) was, as the Senate investigations subcommittee seems to think, a scandal.

Politicians and regulators tend to be biased against short sellers, believing that going short is somehow wrong or unpatriotic. But the fact that Goldman protected itself better than other banks such as Lehman Brothers from the downturn was neither illegal nor wrong in itself. 

John Gapper

What happens if you cut the pay of senior executives? The general response of large companies is that these employees will leave for a competitor. But is that true?

Kenneth Feinberg, the US government’s “pay czar” who sets senior executive compensation at the remaining companies receiving assistance under its Tarp programme, thinks not. 

John Gapper

The oddity of the competing releases this weekend of internal Goldman Sachs emails is that the prosecution case is less embarrassing for Goldman than the bank’s defence.

The initial release came from the Senate subcommittee on investigations, which on Tuesday is due to quiz Lloyd Blankfein, Goldman’s chief executive, and Fabrice Tourre, a structured credit salesman accused of fraud for his role in the Abacus 2007 deal. 

John Gapper

Was it Goldman’s fault that IKB, the German bank, lost $150m on the controversial Abacus deal, or should IKB take all the blame itself?

My column in today’s FT argues that Goldman had an ethical, even if not a legal, responsibility to warn IKB that it thought the subprime mortgage market was in trouble when it executed the CDO in early 2007. The SEC has accused Goldman of securities fraud. 

John Gapper

My FT column this week is on Wall Street:

There are various ways to describe the synthetic collateralised debt obligation that Goldman Sachs constructed for John Paulson, the hedge fund manager who bet on the collapse of the mortgage bubble. 

John Gapper

Should the US be offering more incentives to its own global companies to build manufacturing plants at home rather than abroad? Intel thinks so.

Stacy Smith, Intel’s chief financial officer, dropped into the FT office in New York on Tuesday and, among other things, argued that the US is not taking high tech job creation seriously enough. 

John Gapper

Before the Abacus synthetic CDO that led to Goldman Sachs being accused of securities fraud came the CDO deals associated with Magnetar, the Illinois-based hedge fund.

Now Magnetar has come out fighting against accusations from ProPublica, the online news group, that it helped to stoke the US housing bubble in order to short its CDOs with astronomy titles such as Libra and Norma. 

John Gapper

One side effect of the SEC fraud case against Goldman Sachs is that it draws attention to one of the most flawed initial public offerings of recent years.

ACA Capital, which was the “portfolio selection agent” for the controversial Abacus deal and invested in the deal, as well as insuring the most senior tranches, went public in November 2006 just as the US mortgage market was about to crater.