Goldman Sachs - POWER & PERILS
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Goldman Sachs - POWER & PERILS

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Goldman Sachs - POWER & PERILS Goldman Sachs - POWER & PERILS Presentation Transcript

  • POWER & PERILS
  • Company Background
    Founded in 1869 by Marcus Goldman and Samuel Sachs
    Headquarter in Manhattan, New york
    Services provided- asset management, commercial banking, investment banking, mutual funds, prime brokerage.
    Offices worldwide – America, Europe, Asia Pacific, middle East.
    Primary dealer in US Treasury Security market.
    Currently headed by Lloyd Blankfein, CEO.
  • Sub Prime Crisis – A Human Story
    NINJA Loans
    CDO
    CDS
    Higher Interest Rate because of Higher risk
    U.S. subprime mortgage crisis - a rise in subprime mortgage delinquencies and foreclosures
  • The Tremors of the crisis
    Bondholders-pension funds, who bought sub-prime mortgage bonds.
    Were worth between 20% and 40% of their original value for most asset classes, even those considered safe by the ratings agencies.
    A dramatic effect on house prices, causing the first national decline in house prices since the 1930s.
  • The Tremors of the crisis
    Economists expected the US economy to slow in the last three months of 2007 to an annual rate of 1% to 1.5%, compared with growth of 3.9%.
    Reduction of credit availability by banks due to the drying up of the wholesale bond markets and effect of the crisis on their own balance sheets
  • Who all were holding the bag?
    Held collectively by:
    • Depositors
    • Investors
    • SPV
    • Banks
    • Government
    • Banks worldwide – Domino Effect
  • What did Goldman do?
    • Securitizing High Risk Mortgages
    • Magnifying Risk
    • Shorting the Mortgage Market
    • Conflict Of Interests
    • Abacus Transaction
    • Credit Default Swaps
  • “Short” the Mortgage Market
    • Goldman’s net short investments worth $13.9 billion
    • Record gains in 2007 of over $3.7 billion
    • Net revenues for Goldman’s Mortgage Department of $1.2 billion.
  • Lloyd Blankfein (CEO and Chairman)
    “We didn't have a massive short against the housing market, and we certainly did not bet against our clients. Rather, we believe that we managed our risk as our shareholders and our regulators would expect," Blankfein said in his opening statement.
    The Power Player
  • The Power Player
    Senate
    In a companies Email – November 2007
    “Of course we didn't dodge the mortgage mess, We lost money, then made more than we lost because of shorts,” referring to trading bets that pay off when a bond drops in value.
  • Magnifying Risk & Abacus
    Selling high risk, poor quality mortgage products to investors around the world
    Transfer risk associated with its high risk assets – making on spread
    Assisting favoured clients to make profit at the direct expense of the clients that invested in the Goldman CDOs
  • Abacus Transaction
    Paulson & Company ( Hedge Fund)
    Wanted GS to make a CDO – full of mortgage assets that were predicted to loose value
    GS stated assets were selected by ACA – fudged investors
    Paulson made $1 billion & gave $15 million to Goldman Sachs
  • The “Fabulous Fab”
    The lawsuit accuses Goldman Sachs and a Goldman VP Fabrice Tourre of "making materially misleading statements and omissions.“
    David Viniar (CFO) did not disclose investigation of the ABACUS by FED in 2009
    He denied the allegations "I wish to repeat -- I did not mislead Deuche Bank or ABM Amro”
  • The “Fabulous Fab”
    Senate
    Emails between Tourre and his girlfriend suggesting that he was fully aware that the complex financial packages he helped create would collapse
    GS paid a $550m fine for sale of Abacus
  • The Lever -Age
    • Short positions were so large and risky that the Mortgage Department repeatedly breached its risk limits.
    • Goldman’s senior management repeatedly gave new and higher temporary risk limits to accommodate its trading.
    • In 2007, GS value risk index revealed 54% risk from Mortgage Department.
  • The Power Player
    Senate v/s Craig Broderick, Chief Risk Officer
    The level of risk in Goldman Sachs's mortgage portfolio during the housing bust was "a matter of expert judgment" and the result of complex data-crunching
  • Goldman Sachs Reputation in Play
    The bank crossed paths with U.S. taxpayers
    Posted $3.44 billion in 2nd quarter profits 2009 in an environment where Morgan Stanley just reported a $1.26 billion loss.
    Stalwart voices of Wall Street -have criticized the firm’s undue influence on government and its ruthless pursuit of risky profits
  • The “FED UP” Power players
  • The “ Goldman Plant” in FED
    Hank Paulson , Treasury Secretary 2006
    • Let Lehman Brothers fail
    • Bail out Bear Sterns
    • Bailing out AIG
    • Government buying illiquid assets
    • TARP money to bail the wall street instead of Main Street
  • Hearing of Hank Paulson
    VIDEO
    Click on the Image to see this video
  • Golden Man of Goldman Sachs
    Timothy Geithner , CEO New York Fed
    Allocation of $800 billion TARP funds
    • Involved in JP Morgan Chase acquisition of Bear
    Stearns ( 29 Million dollar Govt Aid)
    • Involved with Henry Paulson in March ‘08 that saved AIG from failing.
    • Freidman Case
    • Not grant Lehman Brothers the right to become a bank-holding company
  • Other Catalyst
    Alan Greenspan’s malfeasance – Financial Deregulation
    Ben S. Bernanke – chair of FED
    Credit rating agencies
    Cogs in the wheel of financial destruction
  • Fall of the Giants
    Bear Stearns- sold to JP Morgan Chase in for $236.2 million or $2 per share.
    Effective nationalization of mortgage giants Fannie Mae and Freddie Mac
    Merrill Lynch sold out to Bank of America
    Fed arranges to lend $180 bn to AIG, American International Group, U.S.A’s biggest national insurer
    Lehman Brothers, the 158 year old U.S.A’s 4th largest Investment Bank files for bankruptcy
  • US Government – Oligarchy?
    FANNIE AND FREDDIE FED TAKEOVER
    LEHMAN BROS. NOT BAILED OUT-FAILED
    MERRILL LYNCH-
    JOHN THAIN
    HENRY PAULSON
    BIGGEST PAYOUT 12.9Bn DOLLAR
    TIMOTHY GIETHNER
    AIG $180Bn
    BUBBLE WEB
    NEEL KASHKARI
    CHANGE TO BANK HOLDING CO.
    TARP, FDIC MONEY, FED DISCOUNT WINDOW
    1 year waiver
    TIMOTHY GEITHNER
    STEPHEN FRIEDMAN
    CONFLICT OF INTEREST
  • AIG Bail Out – Why?
    Goldman Sachs had purchased $20 billion of CDS and other instruments from AIG.
    GS Had made offsetting transactions in AIG Stock.
    If AIG was not bailed out GS would Have lost the money.
    GS got 100 cents per dollar whereas taxpayers only got 2 cents per dollar
  • Stock Price – 5 Year
  • Economic vandals
    Underwrote 7-8% of the Sub prime Mortgage
    Shorting against – They new it was toxic
    Enormous profits – Access to cheap money, used incorrectly
    Internet Bubble – underwrote 1/5 IPO’s
    Global Warming – 10% Ownership in Chicago Climate Exchange
    Investment in Carbon Trading Companies
  • The Government Sachs?
    “The incestuous marriage between the Fed, government and Goldman continues to give birth to demented offspring that move from Washington to Wall Street and back again like a piston in a perpetual motion screw-the-taxpayer machine”
  • Mr. Robber of Robber Barons
    Lloyd Blankfein  
    "I know I could slit my wrists and people would cheer,"
    “We help companies to grow by helping them to raise capital. We have a social purpose”
    $68m in 2007 alone, a record for any Wall Street CEO, to add to the more than $500m of Goldman stock he owns
  • 6 months Stock Charts
  • Reason for the drop
    Fears of recession
    An ocean of unresolved litigation
    Worsening euro zone mess
    Hiring of a top criminal lawyer
    New FHCA Case
    22 Aug 11 Share Price Dips 4.7% ( 104.25) Lowest since April 2009.
  • Legal Battles against Financial Crisis
    Civil Case of SEC in 2010 for misleading investors and then Congress
    Charged $1Billion for defrauding investors
    Fined $550 Million for Abacus
  •  Goldman Sachs Really The Evil 'Death Star' Of Capitalism
    • In April 2011, A Senate panel issued a scathing report that describes Goldman Sachs as a "case study" of the recklessness and greed on Wall Street that set off the 2008 financial crisis.
    • The report that involved 2 years of investigation also blames the lending practices of big commercial banks for plunging the U.S. economy into a painful recession.
    • The subcommittee singled out Goldman and Deutsche Bank as examples of Wall Street firms that reaped huge profits by marketing securities backed by subprime mortgages as safe investments to clients, even as the banks bet against these very same securities.
  • High Cost of Doing God’s Work
    The government has charged 17 banks including Goldman Sachs for selling bad mortgage securities to GSE on 1st September.
    In court filings the Federal Housing Finance Agency alleged that US$190 billionilliquid securities were sold to Fannie Mae and Freddie Mac, had to be bailed out by the government.
    Another part to the story is that the repayment of 10 million dollars of TARP were just 6 days after they sold illiquid assets to FHFA
  • High Cost of Doing God’s Work
    FHCA Accused Goldman of 2 fraud charges
    Common law fraud
    Aided and abetted Fraud
    Funded Mortgage Originators by encouraging property originators to inflate property values. Paid them big bucks for this
    Employees signed “ Self Registration Documents” to register securities for multiple issuance with SEC
    No of properties were stated as Owner Occupied but actually they were for investments. Increased the chances for delinquencies
  • High Cost of Doing God’s Work
    The loan to value ratios were said to be 80% or less for these securities – more attractive to the investors.
    In reality it was just the appraised value given to the home that made the loan sound so cheap
    More over rating agencies were paid to give it the AAA status.
    Goldman – paid mortgage lenders to securities sub prime loans, incentivized their employees to sell more.
    Daniel Sparks told Congress he didn't expect a group of financial products to fail. Internal documents suggest he knew otherwise
  • Goldman v/s People
    Hiring of Reid Weingarten, one of America's top criminal defence lawyers
    Some major criminal case on its way
    Lloyd Blankfein not accepting that they shorted
  • To sum up
    Goldman managed the dubious honour of coming out of the financial crisis with the best financial returns and the worst public image. 
    Since the credit crisis subsided, Goldman has gone back to making money but has huge PR Problems now.
    The company was once the gold standard of investment banks, with an unimpeachable reputation.
    Goldman's primary interest always was in lining its own pockets and not those of its clients.
     The former US treasury secretaries Hank Paulson and Robert Rubin were both Goldman bankers. But seems like this is not going to happen again for a very long time. 
  • Thank you
    AakritiKhosla
    Goresh Sharma
    Nalini Jain
    RatiVerma