Goldman knew the deal sucked long before it cheated the Aussies at Basis Capital out of $100 million. In fact, Goldman executives were so "worried" about holding this stuff any longer 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. In a later e-mail, they offered an even more dire assessment of such deals: "There is real market-meltdown potential."
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 would be "more than 60 percent."
The whole transaction can be summed up by the now-notorious e-mail that Montag wrote to Sparks only four days after they sold $100 million of Timberwolf crap to Basis Capital. "Boy," Montag wrote, "that timberwolf was one sh*tty deal."
Yet another Goldman scam
The SEC later sued Goldman over another scam called Abacus, in which the bank fraudulently "rented" its name to a billionaire hedge-fund viper so that he could fleece investors out of more than $1 billion. Goldman agreed to pay $550 million to settle the suit, though no criminal charges were brought against the bank or its executives. But in light of the Levin report, that SEC action now looks woefully inadequate. Yes, it was a record fine -- but it was tiny in comparison to the money Goldman has taken from the government since the crash. As Eliot Spitzer notes, Goldman's reaction was basically, "OK, we'll pay you $550 million to settle the Abacus case -- that's a small price to pay for the $12.9 billion we got for the AIG bailout." The question is, now that we've seen this report, there are a bunch of scams that seem to be at least as egregious as Abacus. But will they result in more than a slap on the wrist? Unlikely.
It may very well be a prosecutable crime for a corner-store Arab to take $2 from a customer by selling tap water as Perrier. But that does not mean it's a prosecutable crime for Goldman Sachs to take $100 million from a foreign hedge fund using essentially the same trick but on a vastly larger scale!
In the spring of 2010, about a year into his investigation, Senator Levin hauled all of the principals from these rotten Goldman deals to Washington, made them put their hands on the Bible and take oaths just like normal people, and demanded that they explain themselves. The legal definition of financial fraud may be murky and complex, but everybody knows you can't lie to Congress. The law is simple: You're guilty if you "knowingly and willfully" make a "materially false, fictitious or fraudulent statement or representation." The punishment is up to five years in federal prison.
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