Financial Indifference: The SEC “grows a pair.”

2010-04-16T22:44:00.001-04:00

If you haven't turned on your computer, picked up a newspaper, or turned on the Radio or Television in the past 24 hours, it's likely you've missed the recent bombshell news about the status of Financial Reform. Lo and behold, today, the SEC filed a lawsuit alleging fraud against the global investment banking and securities giant, Goldman Sachs Inc, on behalf of the US government.

Some one pinch me, please.

What happened? Goldman Sachs was supposed to be “the golden bear” of Wall Street, not the red headed step-child. Afterall, this is one of the few banking and investment firms that largely survived the financial crisis of 2008 as they watched other financial giants topple over. Goldman Sachs alumni include some of the highest profile financial experts in the country. Most of these people have gone on to positions of power and influence in other firms and even the Federal government: former Treasury Secretaries Robert Rubin, and Henry “Hank” Paulson(not to be confused with John A. Paulson), former New Jersey Governor John Corzine, to name but a few.

You know what they say. If it looks too good to be true, it usually is.

In a nutshell, the suit against Goldman Sachs alleges and accuses the company and one of it's Vice-Presidents, Fabrice Tourre, of failing to disclose that one of its clients helped create - and then bet against through a hedge fund - sub-prime mortgage securities that Goldman sold to investors.

Still indifferent? It gets worse. Let's connect the dots.

You are looking for a sound investment in all the financial turbulence of 2007 and 2008. Naturally you turn to the conservative investment group at Goldman Sachs. You have a pretty substantial portfolio and you, like everyone around you, are looking for anything with a positive yield. Goldman shows you an outstanding investment portfolio in mortgage backed securities. You think, hm-mm, this is Goldman Sachs after all, sounds like a good investment, and Goldman is singing its praises.

Here's what you couldn't have known.

Goldman, was working with John Paulson, and his billion dollar hedge fund to design these sub-prime mortgage backed securities. What you didn't know, is that Paulson actually structured the investment portfolio, not the “independent third party” that Goldman claimed prepared it. What you also didn't know is that Paulson & Co. had taken out bets against these securities yielding a return because they had been designed specifically to FAIL, as they included the worst of the worst sub-prime mortgages that Goldman currently had. Not only have they placed actual sound securities at the top of the portfolio to enhance its strengths, but they of course have done their best to hide the bad mortgages that they are professing as sound investments, and even managed to obtain a triple A rating for the entire package.

And what's worse? Allegedly, Goldman knew exactly what was going on the entire time.

Still with me?

Goldman Sachs then collects a second profit, because they had already purchased 'insurance' against these incoming losses from, wait for it...AIG! Remember those guys? You should – you, assuming you pay any taxes, bailed them out in 2008 to the tune of 173.3 billion dollars. Remember now?

So, to summarize things:

Goldman Sachs contacts John Paulson & Company, a prominent hedge fund, and has him tailor an investment portfolio including sub-prime mortgage backed securities.
Paulson creates a portfolio with only the worst of these toxic assets, which isn't actually doing anything wrong.
Goldman then approaches investors and explicitly tells them that Paulson & Co. hedge fund has invested in these securities, but forgets to mention the fact that they have hedged their bets on the portfolio to fail and lose money!
Goldman profits from the sale of toxic securities from their initial investors through mostly fees, while failing to disclose their fixing of the game, to their investors.
They laugh it up all the way to the bank as they then claim these losses against the insurance they purchased on those very same investments, all the while making Paulson & Co. over 1 billion dollars in the deal, and costing taxpayers 173.3 billion in the bailout because AIG can't cover all the losses Goldman PURPOSEFULLY helped to create.
Allegedly...

This is what the SEC maintains in their suit at least. Honestly, does this giant Ponzi scheme against indifferent taxpayers and investors really surprise anyone? I'm sure we've only scratched the surface of this debacle, but you can bet on more aftershocks coming in the very near future. That's it for now, but I'll be commenting more on this as new information comes out.

An Introduction: Taking a course at the University of Indifference.

2010-04-16T13:59:00.001-04:00

What does it really mean to be indifferent? Can a person be concerned, yet simultaneously indifferent? Is it possible, especially if one subscribes to the more Orwellian context of the idea, to be indifferent to everything? Is it that far a stretch of your imagination to envision people, being deeply concerned and troubled by everything around them, yet so indifferent to it that they can turn that concern off as casually as a light-switch? Do you see a simultaneous rancor and resignation? Take a closer look. It's as pervasive and utterly unremarkable as any other thing we take for granted on a daily basis. We are all, casually indifferent.

We are indifferent to each other. A man sees another person commit a crime, yet says nothing. Tomorrow he'll speak to his co-workers during his lunch break about "The decline of society". A woman watching the morning news on her TV set sees a report about children dieing in rocket attacks, and for a moment she is horrified. But the horror is fleeting as the reality of her daily ritual sets in, and she ensures that her children are readying themselves for school. We can't allow ourselves any breaks. There are more pressing matters that need doing, our lives that need living, and a dreary monotony that needs perpetuating.

Webster’s Dictionary defines indifferent as: “Having no particular interest or concern; apathetic.”

Is that what we are? Do we have no concerns or interests, and are we generally apathetic to everything that goes on around us? No, I think we are all very much interested in everything, especially if it affects us directly. Let’s try another take on the definition of the word as: “Characterized by a lack of partiality; unbiased”. Are we at all unbiased or do we lack personal opinions about the matters we hold of importance? No, I think that all of us have opinions on most everything. Let’s try our final definition from Dictionary.com, which defines Indifferent as: “Not active or involved; neutral.” Well now, I think we may have stumbled onto our applicable meaning.

That is exactly what we are, you and I. We are indifferent. We are not active, nor are we involved, and thus we are indifferent to these things while at the same time we are all quite convincingly concerned. This is what the University of Indifference has taught us; this is our reality - we can do nothing to affect the world around us.

We have no real means to do so. We have been led to believe, incorrectly, that to affect the world around us we need but do our duty to perpetuate the probability that those that can address these problems do, and we can go about our daily lives like a dutiful and patriotic citizenry should.

We have bread to win, food to provide, roofs to keep over our heads, and frankly these notions of politics, government, and change gets in the way of our ritualistic and largely monotonous lives. We are the average remainder of an average cliché which is the sum of an above-average problem.

Bill Hicks said it best, and I'm paraphrasing slightly: "Go back to bed America, your government is in control. Go back to bed America, You are free - free to do as we tell you."

This University of Indifference has been created, perfected, and managed by us all. We all eventually graduate, and many of us hold advanced degrees in general apathetic studies. There are however, a handful of us that are beginning to balk at the curriculum. Some of us - a vast but silent majority of us - are chomping at the bit. We are chafing in an area that it isn't polite to speak about, and some of us are begining to get a bit irritated, to put it mildly.

Is this irritation anything more than an annoyance though? Can this irritation become a fiery boil that will not be satiated with a simple and cursory scratch? Our parents told us at an early age to not scratch things, because it would only make it itch worse. What would our parents say to us now? Is simply scratching the problem going to make it go away?

Pull up a chair, and start hitting the books, because we've been given exactly what we haven't asked for. The doors to the hallowed halls of The University of Indifference are always open, and we're always accepting new applications.

Indifference is Underrated

Financial Indifference: The SEC “grows a pair.”

An Introduction: Taking a course at the University of Indifference.