THE DREGULATOR VOL. VI # 25: PAINTING THE TAPE FOR PROFIT AND PROFIT

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Friday, December 7, 2007

posted by Cintra Wilson at 11:17 AM
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Wondering what to buy the Machiavellian investment banker in your life who has everything?

The top floor of Bergdorf Goodman carries an 18K gold replica of a human skull, for $3495.

Perfect for Hank Paulson, the Secretary of the Treasury, who was Chairman and CEO of Goldman Sachs before his appointment in 2006.

Goldman Sachs has been very naughty this year, and will get tons of gold coal in their stockings. They did what all the smart money people are doing these days: betting on things to fail, and then helping them fail by taking a "short position" and playing both sides of the investment fence. It's a neat technique. It creates a win-win for Goldman Sachs, and a lose-lose for suckers.

Actor/Economist Ben Stein recently reprimanded Goldman Sachs in the New York Times, for cashing in on the subprime mortgage crisis. Goldman Sachs knew very well how rotten those exploding time-bomb interest-rate mortgages were, so they figured out how to benefit from this misfortune.

Sayeth Stein:

"...As Goldman was peddling C.M.O.'s... it was also shorting the junk on a titanic scale through index sales -- showing, at least to me, how horrible a product it believed it was selling...."

CMO's are "collateralized mortgage obligations." In non-Harvard MBA speak, CMO's are pools of sickly sub-prime mortgages, created to be "special purpose entities" completely separate from the institutions - like Goldman Sachs - that made them. Bonds are then issued by these special, separate, nothing-to-do-with-Goldman-Sachs-really -CMO entities to you, the lucky investor.

"To my old eyes," continues Mr. Stein, "the recent unhappiness about mortgages and Goldman's connection with them are not examples of sterling conduct. It is bad enough to have been selling this stuff. It is far worse when the sellers were, in effect, simultaneously shorting the stuff they were selling, or making similar bets....
...if a top economist at Goldman Sachs was saying housing was in trouble, why did Goldman continue to underwrite junk mortgage issues into the market?"

Gee, that's a tough one. Um....altruism? Humanitarianism? The Greater Public Good? A Fair and Balanced perspective?

Um...I'll take "More Hummers" for $4 million, Ben.

But that's not the only way Goldman Sachs has been clever, lately.

The Dregulator's anonymous Deep Throat-style financial tipster Lieutenant Dan maintains that investment banks have been bidding up oil prices in order to make a profit from you, the consumer.

"In the brokerage industry it is called 'painting the tape'... Not only unethical, it is highly illegal to do this with any commodity, let alone a vital resource like oil."

"Painting the Tape," defined by InvestorWords.com:

"The illegal practice in which traders buy and sell a specific security among themselves, creating the illusion of high trading volume and significant investor interest, which can attract unsuspecting investors who might then buy the stock and enable the traders to profit."

Which leads us to "Oil Price Gouging: From Enron With Love," by David R. Usher :

"Savvy investment firms and avaricious lawyers analyzed the Enron case - realizing they could turn a huge buck on oil futures - so long as they tacitly let oil companies constrain the oil supply without manipulating the supply directly themselves....

Remember what Enron did to California and millions of investors? It took advantage of deregulation in California, manipulating electricity prices by raiding the futures market, overscheduling power lines, and creating fears about shortages."

Wow, is it me, or does your tape feel painted all of a sudden?

In 2006, a couple of months after Paulson became Secretary of the Treasury, and just before the November elections, Goldman Sachs made gasoline prices fall by selling off $6 billion in gasoline futures contracts.

Peter Stojan wrote:

"This type of aggressive selling will result in selling by others who will receive margin calls they can't meet. And by trend followers, who will suddenly dump gasoline and other commodities ...
...Goldman doesn't lose money... the actual money put up comes from institutions, hedge funds and other unlucky saps that trusted Goldman to manage the commodity index as a hedge against inflation - not to bail out of $6 billion in contracts over a few weeks. The result: Unlucky saps - Major losses. Goldman - Zero losses and their man running the Treasury. Which side of this trade would you want to be on?"

Hell. Goldman Sachs is one of the world's the biggest traders of energy derivatives. Maybe they're the ones buying that 18K gold-dipped "Hand of Buddha" I saw at Bergdorf for $1500.

Holy Days, Fiends.

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