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Does Goldman Sachs Chief Lloyd Blankfein Enjoy Connections to the Intelligence Community?

Mon­ey to Burn

COMMENT: In recent years there has [appro­pri­ate­ly] been much dis­cus­sion of Gold­man Sachs. CEO Lloyd Blank­fein has an inter­est­ing pro­fes­sion­al back­ground, which might indi­cate oper­a­tional con­nec­tions to the intel­li­gence com­mu­ni­ty.

After a rise that could tru­ly be called a clas­sic Amer­i­can “up-by-the-boot­straps” ascent, Blank­fein worked for years as a tax lawyer for Dono­van Leisure, the firm start­ed by for­mer OSS chief William Dono­van.

He sub­se­quent­ly went to work in the com­modi­ties trade, spe­cial­iz­ing in gold–this at a time when some of the machi­na­tions stem­ming from the Gold­en Lily pro­gram were gain­ing steam in the ear­ly 1980’s.

As dis­cussed in–among oth­er works–Burton Her­sh’s The Old Boys: The Amer­i­can Elite and the Ori­gins of the CIA, the U.S. intel­li­gence estab­lish­ment (CIA and its World War II pre­de­ces­sor the OSS) is inex­tri­ca­bly linked with the world of Wall Street. (Note that Blank­fein’s pre­de­ces­sor Sid­ney Wein­berg worked for OSS on assign­ment in the U.S.S.R.)

Anoth­er of the firms that came under pub­lic scruti­ny in the meltdown–AIG–was run for many years by Mau­rice Green­berg, him­self an OSS vet­er­an.

“Where Blank­fein Came From” by William D. Cohan; For­tune; 4/21/2011.

EXCERPT: . . . In 1978, Blank­fein grad­u­at­ed from Har­vard Law School and took a job as an asso­ciate at Dono­van, Leisure, a small “old- line” law firm found­ed in 1929, by William J. “Wild Bill” Dono­van, who lat­er formed the Office of Strate­gic Ser­vices dur­ing World War II and was known as the father of the CIA. (He was the fel­low who autho­rized Sid­ney Wein­berg’s espi­onage work in the Sovi­et Union dur­ing World War II.) Dono­van, Leisure was so tra­di­tion­al that “tea ladies” served tea and cook­ies every after­noon on push­carts. Dur­ing his four- year stint at Dono­van, Leisure, he rep­re­sent­ed the film indus­try in a tax dis­pute with the IRS and spent his time shut­tling between Los Ange­les and New York. But he was not par­tic­u­lar­ly devot­ed to the law. In 1980, as part of his Har­vard reunion, Blank­fein wrote that in his “spare time,” he worked “as a tax lawyer, the only career for a real man of action.” In 2000, he described his respon­si­bil­i­ties at Dono­van, Leisure as being “to keep cer­tain large cor­po­ra­tions from pay­ing their fair share of tax­es.” . . .

. . . Soon there­after, a head­hunter called and asked him if he would be inter­est­ed in work­ing at an obscure com­modi­ties trad­ing firm, J. Aron & Com­pa­ny, which Gold­man had pur­chased in Novem­ber 1981. . . .  At the end of 1982, Blank­fein went to work on the gold bul­lion sales desk at J. Aron “to trade com­modi­ties,” he once wrote. . . .

Discussion

3 comments for “Does Goldman Sachs Chief Lloyd Blankfein Enjoy Connections to the Intelligence Community?”

  1. Well, here’s one more data point explain­ing why Gold­manSach­s’s “select group of top clients” would be inter­est­ed in remain­ing the client of a firm. Bankster cud­dle pud­dles:

    Gold­man Sachs Set­tles SEC ‘Hud­dle’ Probe For $22M

    By Dun­stan Pri­al

    Pub­lished April 12, 2012

    FOXBusi­ness

    Gold­man Sachs has agreed to pay a $22 mil­lion fine for fail­ing to make sure that the firm’s ana­lysts didn’t pass along inside infor­ma­tion to Gold­man traders dur­ing week­ly “hud­dles,” the Secu­ri­ties and Exchange Com­mis­sion said Thurs­day.

    Accord­ing to an SEC state­ment, Gold­man Sachs “lacked ade­quate poli­cies and pro­ce­dures to address the risk that dur­ing week­ly ‘hud­dles,’ the firm’s ana­lysts could share mate­r­i­al, non­pub­lic infor­ma­tion about upcom­ing research changes.”

    In oth­er words, Gold­man alleged­ly either did not enforce or had no pol­i­cy in place to ensure that ana­lysts who met with the firm’s traders didn’t tell those traders about upcom­ing rat­ings changes on stocks cov­ered by the ana­lysts.

    Stocks typ­i­cal­ly rise or fall when ana­lysts change their rat­ings on the com­pa­nies they cov­er. Hav­ing this infor­ma­tion before­hand would obvi­ous­ly be help­ful.

    “Hud­dles,” accord­ing to the SEC, were a prac­tice at Gold­man dur­ing which stock research ana­lysts met “to pro­vide their best trad­ing ideas to firm traders and lat­er passed them on to a select group of top clients.”

    ...

    But this still does­n’t explain why Gold­man’s mup­pets non-select but still respect­ed cus­tomers haven’t aban­doned ship yet(and yes, there’s the real­i­ty that they’re all mon­sters, but still...).

    Posted by Pterrafractyl | April 12, 2012, 12:39 pm
  2. Well, here’s one more data point explain­ing why Gold­manSach­s’s “select group of top clients” would be inter­est­ed in remain­ing a client of the firm. Bankster cud­dle pud­dles:

    Gold­man Sachs Set­tles SEC ‘Hud­dle’ Probe For $22M

    By Dun­stan Pri­al

    Pub­lished April 12, 2012

    FOXBusi­ness

    Gold­man Sachs has agreed to pay a $22 mil­lion fine for fail­ing to make sure that the firm’s ana­lysts didn’t pass along inside infor­ma­tion to Gold­man traders dur­ing week­ly “hud­dles,” the Secu­ri­ties and Exchange Com­mis­sion said Thurs­day.

    Accord­ing to an SEC state­ment, Gold­man Sachs “lacked ade­quate poli­cies and pro­ce­dures to address the risk that dur­ing week­ly ‘hud­dles,’ the firm’s ana­lysts could share mate­r­i­al, non­pub­lic infor­ma­tion about upcom­ing research changes.”

    In oth­er words, Gold­man alleged­ly either did not enforce or had no pol­i­cy in place to ensure that ana­lysts who met with the firm’s traders didn’t tell those traders about upcom­ing rat­ings changes on stocks cov­ered by the ana­lysts.

    Stocks typ­i­cal­ly rise or fall when ana­lysts change their rat­ings on the com­pa­nies they cov­er. Hav­ing this infor­ma­tion before­hand would obvi­ous­ly be help­ful.

    “Hud­dles,” accord­ing to the SEC, were a prac­tice at Gold­man dur­ing which stock research ana­lysts met “to pro­vide their best trad­ing ideas to firm traders and lat­er passed them on to a select group of top clients.”

    ...

    But this still does­n’t explain why Gold­man’s mup­pets non-select but still respect­ed cus­tomers haven’t aban­doned ship yet(and yes, there’s the real­i­ty that they’re all mon­sters, but still....).

    Posted by Pterrafractyl | April 12, 2012, 12:40 pm
  3. When you’re doing “God’s work”, there’s noth­ing to fear:

    Jus­tice Depart­ment will not pros­e­cute Gold­man Sachs, employ­ees for Aba­cus deal

    WASHINGTON | Thu Aug 9, 2012 7:34pm EDT

    (Reuters) — Nei­ther Gold­man Sachs Group Inc nor its employ­ees will face U.S. crim­i­nal charges relat­ed to trades they made dur­ing the finan­cial cri­sis that were high­light­ed in a 2011 U.S. Sen­ate report, the Jus­tice Depart­ment said on Thurs­day.

    The unusu­al announce­ment not to pros­e­cute crim­i­nal­ly came in an unsigned state­ment attrib­uted to the depart­ment.

    ...

    Gold­man itself set­tled with the SEC for $550 mil­lion in July 2010 with­out admit­ting wrong­do­ing.

    The state­ment from the Jus­tice Depart­ment said that offi­cials there “have deter­mined that, based on the law and evi­dence as they exist at this time, there is not a viable basis to bring a crim­i­nal pros­e­cu­tion with respect to Gold­man Sachs or its employ­ees in regard to the alle­ga­tions set forth in the report” from Lev­in’s sub­com­mit­tee.

    ...

    They “ulti­mate­ly con­clud­ed that the bur­den of proof to bring a crim­i­nal case could not be met based on the law and facts as they exist at this time,” the state­ment con­tin­ued.

    “If any addi­tion­al or new evi­dence emerges, today’s assess­ment does not pre­vent the depart­ment from review­ing such evi­dence and mak­ing a dif­fer­ent deter­mi­na­tion, if war­rant­ed,” the state­ment said.

    And yes, this is was all about THAT “Aba­cus” deal:

    Goldman’s Aba­cus lies
    By Felix Salmon
    April 16, 2010

    The SEC suit against Gold­man Sachs (full com­plaint here, and well worth read­ing) is explo­sive stuff. Essen­tial­ly the SEC seems to have nailed down the kind of behav­ior that ProP­ub­li­ca was look­ing for in its sto­ry on the Mag­ne­tar Trade — a hedge fund which was short mort­gages, in this case Paul­son, was care­ful­ly pick­ing nuclear waste to put into syn­thet­ic CDOs, unbe­knownst to the final investors in those deals.

    From the com­plaint:

    GS&Co mar­ket­ing mate­ri­als for ABACUS 2007-AC1 – includ­ing the term sheet, flip book and offer­ing mem­o­ran­dum for the CDO – all rep­re­sent­ed that the ref­er­ence port­fo­lio of RMBS under­ly­ing the CDO was select­ed by ACA Man­age­ment LLC (“ACA”), a third-par­ty with expe­ri­ence ana­lyz­ing cred­it risk in RMBS. Undis­closed in the mar­ket­ing mate­ri­als and unbe­knownst to investors, a large hedge fund, Paul­son & Co. Inc. (“Paul­son”), with eco­nom­ic inter­ests direct­ly adverse to investors in the ABACUS 2007-AC1 CDO, played a sig­nif­i­cant role in the port­fo­lio selec­tion process.

    It seems here that ACA was some­where between a use­ful idiot and an out­right vic­tim of Goldman’s Fab­rice Tourre:

    Tourre also mis­led ACA into believ­ing that Paul­son invest­ed approx­i­mate­ly $200 mil­lion in the equi­ty of ABACUS 2007-AC1 (a long posi­tion) and, accord­ing­ly, that Paulson’s inter­ests in the col­lat­er­al sec­tion process were aligned with ACA’s when in real­i­ty Paulson’s inter­ests were sharply con­flict­ing.

    Essen­tial­ly what Gold­man was doing here was using the respect­ed ACA brand name (it wouldn’t remain respect­ed for long) in order to attract big investors like Germany’s IKB: they even said in an email that “we expect to lever­age ACA’s cred­i­bil­i­ty and fran­chise to help dis­trib­ute this Trans­ac­tion.” But ACA was to a large extent a front for Paul­son, as is evi­denced in the name of the spread­sheet where it list­ed the pro­posed con­tents of the CDO:

    On Jan­u­ary 22, 2007, ACA sent an email to Tourre and oth­ers at GS&Co with the sub­ject line, “Paul­son Port­fo­lio 1–22-10.xls.” The text of the email began, “Attached please find a work­sheet with 86 sub-prime mort­gage posi­tions that we would rec­om­mend tak­ing expo­sure to syn­thet­i­cal­ly…

    On Feb­ru­ary 5, 2007, Paul­son sent an email to ACA, with a copy to Tourre, delet­ing eight RMBS rec­om­mend­ed by ACA, leav­ing the rest, and stat­ing that Tourre agreed that 92 bonds were a suf­fi­cient port­fo­lio.

    On Feb­ru­ary 5, 2007, an inter­nal ACA email asked, “Attached is the revised port­fo­lio that Paul­son would like us to com­mit to – all names are at the Baa2 lev­el. The final port­fo­lio will have between 80 and these 92 names. Are ‘we’ ok to say yes on this port­fo­lio?” The response was, “Looks good to me.”

    I think that the SEC has the right defen­dant here. Paul­son and ACA are both cul­pa­ble, but it’s Gold­man which was clear­ly cen­tral to the plan of deceiv­ing investors into believ­ing that the CDO was being man­aged by peo­ple who want­ed it to make mon­ey, when in fact it was being struc­tured by the biggest short-sell­er in the entire sub­prime mar­ket.

    ...

    But what hap­pened here was that both IKB and ACA Cap­i­tal placed their trust in ACA Man­age­ment. And Gold­man, armed with hefty CDO man­age­ment fees and sleazy lies about Paulson’s role in the trans­ac­tion, turned ACA Man­age­ment from a bona fide fund man­ag­er into a use­ful idiot who could be relied upon to buy exact­ly the sub­prime secu­ri­ties that Paul­son want­ed to short.

    With this suit, the SEC has final­ly uncov­ered the real scan­dal behind the Aba­cus deals. The NYT tried, back in Decem­ber, but it didn’t quite get to the nub of the sto­ry — although Paul­son was men­tioned in the NYT sto­ry as some­one who was gen­er­al­ly short the sub­prime mar­ket, there was no indi­ca­tion that he played any role in struc­tur­ing the deals. Nei­ther was there any men­tion of ACA.

    The scan­dal here is not that Gold­man was short the sub­prime mar­ket at the same time as mar­ket­ing the Aba­cus deal. The scan­dal is that Gold­man sold the con­tents of Aba­cus as being hand­picked by man­agers at ACA when in fact it was hand­picked by Paul­son; and that it told ACA that Paul­son had a long posi­tion in the deal when in fact he was entire­ly short.

    Gold­man Sachs has lost more than $10 bil­lion in mar­ket cap­i­tal­iza­tion today, in the wake of these rev­e­la­tions. Good. It can go long mar­kets and it can go short mar­kets. But it can’t lie to its clients. That’s well beyond the pale.

    I think this response by Simon John­son on the DOJ’s deci­sion pret­ty much cap­tures the essence of it all:“I’m shocked but not sur­prised.”. Yep.

    Also, note that pri­ma­ry vic­tim in the Aba­cus deal, Ger­many’s IKB, was­n’t exact­ly unfa­mil­iar with the art of shady deals involv­ing sub­prime mort­gage-backed secu­ri­ty:

    UPDATE 3‑German bank IKB must defend Rhine­bridge SIV law­suit

    Wed May 5, 2010 1:13pm EDT

    * Plain­tiffs say SIV cre­at­ed to avert pos­si­ble bank­rupt­cy

    * Investors lost large por­tion of $1.1 bil­lion invest­ment

    * Moody’s, S&P also lost bid to dis­miss suit

    * IKB also invest­ed in Gold­man’s Aba­cus trans­ac­tion (Adds IKB declin­ing to com­ment, para­graph 6)

    By Jonathan Stem­pel
    p
    NEW YORK, May 5 (Reuters) — A fed­er­al judge has reject­ed a request by Ger­man bank IKB Deutsche Indus­triebank AG IKBG.DE to throw out U.S. law­suits accus­ing it of fraud­u­lent­ly cre­at­ing a risky debt vehi­cle it knew was like­ly to default, result­ing in sev­er­al hun­dred mil­lion dol­lars of investor loss­es.

    The law­suits con­tend­ed that IKB spon­sored the cre­ation of a struc­tured invest­ment vehi­cle, Rhine­bridge, in June 2007 to dump invest­ment loss­es onto unsus­pect­ing investors and save itself from pos­si­ble bank­rupt­cy.

    U.S. Dis­trict Judge Shi­ra Scheindlin in Man­hat­tan late Tues­day declined to dis­miss the bank and for­mer Chief Exec­u­tive Ste­fan Ort­seifen as defen­dants.

    A week ear­li­er, she had reject­ed requests by rat­ing agen­cies Moody’s Investors Ser­vice and Stan­dard & Poor’s to dis­miss them as defen­dants.

    The law­suits were filed by Wash­ing­ton state’s King Coun­ty, which includes Seat­tle and man­ages accounts for more than 100 pub­lic agen­cies, and the Iowa Stu­dent Loan Liq­uid­i­ty Corp.

    An IKB spokesman declined to com­ment.

    The Ger­man bank is also one of the main investors in ABACUS 2007-AC1, the syn­thet­ic col­lat­er­al­ized debt oblig­a­tion that is the sub­ject of a U.S. Secu­ri­ties and Exchange Com­mis­sion fraud law­suit against Gold­man Sachs Group Inc (GS.N).

    In the Rhine­bridge case, the plain­tiffs accused the defen­dants of mis­rep­re­sent­ing the risks of Rhine­bridge, which won “triple‑A” cred­it rat­ings despite hold­ing risky, sub­prime mort­gage-backed assets.

    They called Rhine­bridge “the short­est-lived ‘triple‑A’ invest­ment fund in the his­to­ry of cor­po­rate finance.”

    Rhine­bridge was wound down in August 2008, cost­ing investors 45 per­cent of their $1.1 bil­lion invest­ment.

    ...

    And yes, it was the tox­ic con­tents of the ABACUS deal that was then repack­aged into the invest­ments offered by IKB’s Rhine­bridge fund­ing and sold to US munic­i­pal­i­ti­ties:

    Time
    How Gold­man Trashed a Town
    By Stephen Gan­del Mon­day, July 05, 2010

    Start­ing in July, Liza Kuzela of Cedar Rapids will pay $0.44 more a month to have her trash col­lect­ed. The amount is triv­ial, but the rea­son is not. Two years ago, Cedar Rapids lost $2.6 mil­lion on an invest­ment tied to a Gold­man Sachs bond deal Aba­cus that the Secu­ri­ties and Exchange Com­mis­sion claims was rigged to fail. When the bond went bust, hedge-fund man­ag­er and Gold­man client John Paul­son pock­et­ed a bil­lion dol­lars. Kuzela, her neigh­bors and oth­ers around the coun­try with no ties to Wall Street are pick­ing up the tab. The case of Cedar Rapids and Gold­man illus­trates how every­day Amer­i­cans end up pay­ing for Wall Street’s big pay­days.

    Gold­man sold its bond deal to Ger­man bank IKB. That bank then pack­aged the bond along with some oth­er risky ones into a struc­tured invest­ment vehi­cle called Rhine­bridge. SIVs sell the type of com­mer­cial paper that city and oth­er local gov­ern­ment typ­i­cal­ly buy. So when a bro­ker from Wells Far­go sug­gest­ed Cedar Rapid buy $6 mil­lion of Rhine­bridge notes with the reserve account of the town’s dump, Cedar Rapid Trea­sur­er Sue Vavroch did just that. She had nev­er heard of Rhine­bridge and had no way of know­ing she was essen­tial­ly gam­bling her town’s mon­ey on sub-prime mort­gage bonds. With­in months, the town had lost 45% of its mon­ey.

    As a result, the city has had to raise the fee it charges res­i­dents to pick up trash and recy­cling in order to help replen­ish the dump’s reserve cash fund. Gold­man denies it did any­thing wrong, and says there is no direct con­nec­tion between the bank’s deal and the ris­ing garbage rates in Cedar Rapids.

    ...

    God does indeed work in mys­te­ri­ous ways. One of those ways appears to involve play­ing rigged games of hot pota­to with daisy-chained tox­ic invest­ments. It’s the banal­i­ty of the sub­lime.

    Posted by Pterrafractyl | August 10, 2012, 1:35 pm

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