Goldman Sachs-You too Brute!

Now, when the things started to slowly settled down at the Wall Street and regulators found time to back in their usual business; a new storm meanwhile again breakdown those slight cheering-this time, fraud originated from iconic investment bank Goldman Sachs through creation of huge investment designed to fail. The fraud struck inside the Goldman Sachs marks an unusual tracts as the firm marketed mortgage-backed securities as they sought to make profits by betting that such securities would plummet in value –surprisingly, regulatory norms in U.S.A never legally prohibited such act until the fraud broke out, now Securities and Exchange Commission {SEC}has making some statuary advances and now labeling charge on Goldman Sachs for creating and marketing securities that were deliberately designed to fail.
So top notch client could make money off that failure-unfortunately such case is not alone confined with Goldman Sachs, impropriety is still rampant among the top-notch professionals in financial sector and within a year, they forget about the alarm of bailouts…Lloyd Blankfein, CEO of Goldman Sachs is still dwelling with the complacency of $3.46 billion dollars profit which his bank has made in the last quarter of previous financial year and hardly paying any heed to the civil suit which SEC has filled on 16th April.

This clearly marks the falling ethical standard in financial sector-this case has strengthened the belief that any expectations for voluntary compliance of ethical practices are void, so regulatory norms that govern these sorts of transactions needed an immediate tectonic shift. Rectification must start from a statuary mandate to all derivative trade on exchange and in standard contracts, not in customized, built to suit arrangements like the ones Goldman created in this new episode.
Hedging as an instrument met with misdemeanor through such occurrence, usually banks that have lent money to low-credit borrowers use swaps as a hedge that ensure them from further defaults-till this stage nothing seems wrong but it’s only one side of history. The grave problem is that Credit Default Swaps {CDS} route is open to anyone even to those who haven’t possess any sort of credibility-this led to reckless speculation to bet on entities, in which even they don’t have any entitlement that in loose terms present cases like letting your neighbor take out an insurance policy on your life.

These unhygienic practices by the smart guys from Wall Street who placed on top order after scoring high grades in Ivy League business schools hardly resemble any constructiveness in their professional involvement. Crux of problem lies in the pushing of the unaware entities into these risky schemes-such like ABASCUS2007-AC1; most of them were foreign banks and pension funds, they lost about a billion dollars.
Top order of management at Goldman Sachs were pressed through greed’s to convey right message to customers that investments offered by the bank were supported by very risky mortgages in an already over-priced U.S Housing market-major factor of these shading was Johan Paulson{a billionaire investor}who influenced the bank’s selection of these instrument since he knows they were bad risks but going to beneficial from personnel shake-he alone made billions of dollars by indulging in betting that loan in transaction would fail. It’s quite astonishing to see again the insurer of Goldman Sachs, AIG to indulge in such bad deal within a year after its massive bailout with $180 billion, hard earned money of taxpayers.

The entire case is a brazen example of predatory use of mass investors in favour of few mighty by adopting the means of misinterpretation and deceiving through the myopic route of Collateralized Debt Obligations {CDO}. This is an explicit crime from high ranked officials who are unlikely to face any stern action even after all disclosure-rather they may be awarded with multi million dollars as bonus with the bailouts money. It’s hard to expect from these greedy professionals to display their skills for social betterment…running Ferrari and making millions dollars would remain their pastime for job regardless of this disastrous fraud. As the last resorts, the regulators have to perform their final duty…what one can expect more from them than some more initiatives in financial sector reform especially in the derivatives trading. Greed must be controlled and choreographed to adapt with the limitation of real life…
Atul Kumar Thakur
April 24th 2010, Saturday, New Delhi
atul_mdb@rediffmail.com