An excerpt from my April 7, 2010 post called, Was the Financial Meltdown Manufactured By Banks-Too-Big-To-Fail? Yes, many of us in the investment business were talking about the probability of scams and frauds due to CDO insurance long before the SEC made its move.
How do we reign in these mammoths? Do we need to get more serious about prosecuting some of these people? An even bigger question lies unanswered: Was the housing bubble artificially created? With the advent of Credit default swaps, did these huge banks see a way to take on very risky debt at high interest rates and get paid anyway? Did they use that opportunity to create a crisis where they knew the government would have to bail them out and honor AIG’s CDO commitments?
No one has answered these questions. No one in our government has even asked them. Why not? I want to know. Was the financial meltdown MANUFACTURED by these Banks-too-big-to-fail? History is not on their side. The only evidence we have from their collective pasts is that, hell yes, we ought to be massively investigating if they manufactured this crisis for a huge payday.
In light of the SEC’s lawsuit against Goldman Sachs for defrauding investors, I think the answer to the above question is yes, and as time goes by, we are going to see more and more evidence of this. The trouble is, most of what Goldman Sachs did was legal, which begs the question, what idiot thought that allowing a giant like Goldman Sachs to create a tranche of mortgage bonds that it could sell as an "investment" while betting against it in a hedge fund and buying "insurance" on it was a good idea? Who thought that this being legal was smart?
My God! A five-year-old knows that if they want to be proven right about something, all they have to do is "make it happen". Example:
Spanky: "Hey, Alfalfa! I bet your new bike gets stolen!"
Alfalfa: "No way! You’re on! How much?"
Spanky: "Five bucks!"
Next day, Alfalfa’s bike is stolen, by Spanky.
This is EXACTLY what Goldman Sachs and John Paulson did to investors. And…
it was legal.
If you don’t think we need financial regulatory reform, I am going to suggest that you like America being run by the Mafia, because this type of scam, though it sounds sophisticated, is nothing more than a simple Mafia insurance scheme.
I recently made $5.00 per share by shorting Wellpoint after the healthcare bill passed. I only did it to hurt Wellpoint and to prove a point. But I will say this: Shorting stocks should be illegal. Allowing people to make a run on a company for no other reason than because they "bet that the company’s stock will drop" is not only immoral, but it flies in the face of everything America stands for. We didn’t build this country by betting on its failure. Likewise, you cannot and will not build a stable financial foundation by allowing the Mafia to bet on failure.
Take Hedge Funders and Shorters to Las Vegas, where that kind of asinine betting belongs. Then guys like John Paulson and Lloyd Blankfein can work with their Mafia friends on devising new gambling schemes. Take it to Las Vegas, where fucking Americans with weighted dice is legal. That’s what this was: a game of loaded-dice. The outcome was never in doubt, and Goldman Sachs knew it. At least in Vegas, they tell you they’re going to fuck you ahead of time.
As for the American press, I don’t know what the confusion is all about. It’s not like we’ve never heard of or seen the oldest game in town; a Mafia insurance scam. That’s all this was.