Sunday, April 18, 2010

Don't Mention it

The classic con game 3 card monte employs one of the most effective social engineering tactics ever devised; the shill. When you think about what a shill does it's really simple and highly effective; s/he instills confidence (and thus the "con" in "con game") in the sucker. This is an advanced level of mis-direction as opposed to lying through pr.

Now with the SEC trotting out its dog and pony "let's get Goldman" script, the stage is set for yet another round of pr. My prediction? In the endgame, Goldman will settle but get back to business, "business" defined in Goldman terms as "raping and pillaging."

The crux of the case is the counter bets that Goldman took out against the financial packages poisoned by the sub-primes - basically, shorting them, but not in the traditional stock market kindergarten way, but in "sophisticated" schemes called CDSs, or credit default swaps. Goldman's argument is that they were simply protecting their clients' interests, while the SEC is crying "foul!" in the form of fraud by not having disclosed the counter bets to buyers. Whatever you think of this, once again, uncle scam is employing dirty tricks, this time in the form of our old friend mis-direction. Here's the set up...

While everyone from the NY Times to the WSJ to the market (as of this, Goldman's down, of course, but that'll change) is reporting on the basis of this case, what of John Paulson?He's the hedge fund manager who got Goldman - and others - to sell him shorts based upon on the sub-prime loan packages that he cherry-picked! And in case you don't know, his fund made a killing; six billion or so.

The SEC has said Paulson is not being indicted because he didn't defraud investors, and therefore they are going after Goldman. But here's my question; Say you steal a truck loaded up with large flat panel LED TVs on delivery. You sell me two at 500 bucks a piece.

Now let's say the cops bust you, and you were dumb enough to keep a log of all your customers. They find it and trace me down. They come to my crib, have a search warrant and compare the serial numbers on a master list from the delivery company to my TV; there's a match. Do I get to keep my TV, even though I did nothing wrong?

Now, six billion is small in the EM08 landscape. But whose money was invested? One of the big problems facing us is the dis-entangling (in real estate speak, this is called "chain of title") of the sub-prime loan packages, tracing their steps backwards to find out just where they originated. Many have been so over-leveraged that the originating party/ies have simply disappeared under a convoluted paper blizzard. It makes the tax code look cute.

In a similar way, and if this investigation were to be conducted with thoroughness let alone justice, we'd put the faces of real people on that six billion that Goldman and Paulson sold down the river. They'll never be made whole much less more than whole to the extent the banks took our bailout money and lent it back to us by buying T bills.

But the SEC (and DoJ) has already given Paulson a pass. It's a dangerous message; cheat and win. But here's the rub; if the SEC is going after Goldman, then Paulson -- the architect of the deal -- shouldn't be able to keep his TV.