Apparently, Goldman knew that Madoff was a fraud almost a decade ago. As this article in the Telegraph points out, there was a company-wide ban against doing anything with his firm after they did diligence on him:
"More than a decade ago bankers from Goldman Sachs' asset management division
were despatched to Bernard Madoff Investment Securities to discover how the
legendary fund manager maintained such consistently good returns.
The American banking giant prided itself on managing funds in-house but if it
could get a better deal for its clients at Madoff, Goldman would gracefully
admit it and allocate some funds.
One former Goldman partner said: "I remember the guys came back baffled.
Madoff refused to let them do any due diligence on the funds and when they
asked about the firm's investment strategy they couldn't understand it.
Goldman not only black-listed Madoff in the asset management division but
banned the brokering side from trading with the firm too."
So, Goldman figured it out, and protected themselves and their clients. Good for them. Of course, the only hitch in this gitty up is that Goldman's head, Hank Paulson, went on to become Treasury Secretary....but never mentioned that one of the larger players on the street was likely a fraud.
Now, if you know or suspect that someone is engaged in felonious activity, aren't you supposed to report it, or you're running the risk of acting as an accessory to the crime? I'm not an attorney, but I do seem to remember something like that being true.
Even if that isn't the way the law is written, don't you think that it might be, well, unusual, from an ethical perspective, to be named to the top financial position in the nation, but not find the time to mention to the DOJ or SEC or anyone else that your firm had long ago decided that Madoff was engaged in illegal activity?
What does this say about Mr. Paulson?
I've been a critic of our Treasury Secretary for some time, given that he appears to be doing nothing more but using scare tactics to landgrab the national jewels for his buds on Wall Street. But this adds some valuable info, some backstory, as 'twere, to the outline we have of the man's moral character.
Couple it with the fact that none of the banks are lending any of the money they've been allocated for bailouts and sweetheart loans, and you get a more complete picture of Paulson the privateer.
Look, if the problem with the economic system was really that the credit markets were "frozen" Treasury could have taken that $750 billion and created seven or eight banks, funding them each with a hundred billion and change, and then had them start lending. That's not what they did, now is it? Or they could have mandated that anyone accessing the funds had to use them for lending - made it the law. Didn't do that either, did they?
No, instead, Wall Street got free money with no strings, and the taxpayer pays the bill, for the next generation or two.
To me, this looks like the looting of the Treasury by the exiting administration, who engineered one of the largest swindles in history using "sky is falling" rhetoric.
As always, the press has just ignored reality, and credulously parroted whatever the party line is. This time, it's that we have a credit market problem as banks don't want to lend, which was started by a sub-prime default fest. Hogwash, as we now know - the problem is that the paper that banks all over the globe bought and levered up on as though it was bullion, is actually largely counterfeit and worthless junk engineered by the same Wall Street swindlers who are now looting the Treasury. All those banks are bankrupt now, which is why their governments have had to nationalize them.
The problem isn't the credit markets. It isn't that banks aren't lending. It's that Wall Street has created a massive derivatives and counterfeiting nightmare that is impossible to fix, and which will ultimately lead to a decade-long depression as it unwinds, the debt defaults, and the dollar loses 90% of its purchasing power. I know, I know, that's so far-fetched. As was the notion that the SEC was co-opted by the bad guys, and was actively assisting them in market manipulation. As was the idea that most of the NY financial press was writing hatchet jobs for hedge funds to further their market manipulation and insider trading profits. Yup, there's lots and lots of far fetched zaniness that is seeming awfully prescient these days.
The fact is that you cannot have a stagnant or shrinking GDP and increase the money supply by many trillions, and not have devaluation. The math doesn't work any other way. You can lie, and bluster, and bully your trading partners into supporting your currency for a while, but the combo of shrinking GDP and massive increase in number of dollars has to result in massive inflation - only question is when. I think we will see deflation for the next year or so, and then the commencement of the next leg of the dollar's drop into oblivion.
Think Britain in the 60's, and you will get the idea. The rich will stay rich, the poor will remain poor, however the formerly fat middle class will watch their wealth evaporate as the currency goes into the toilet. We will become like the British middle class - a nation of people wearing sweaters indoors in the winter as we can't afford to heat our homes, where our children have nothing to look forward to but a bleak future of unending debt payments they can't afford, and where the social contract between us and our government has been broken - the deal is supposed to be that we exchange the fruits of our labor for protection. As it is, we work about 7 months out of the year to pay the government to protect us, and instead it's failed us. It instead has condoned the theft of our retirements, the destruction of our freedoms, and our gradual enslavement to special interests.
We've effectively destroyed the engine of innovation and wealth creation that was the market system - a system that used to fund start-up companies, which in turn innovated tomorrow's products and technologies, which created jobs and prosperity. That market is now an entropy engine, where the players prosper by destroying the companies, leaving their technologies stillborn on the trading room floor. So we are facing a future of pseudo-socialism, where out tax dollars are redistributed to industries that aren't productive or competitive via bailouts, and our future is one of make-work projects so the unwashed can have their government subsidy exchanged for their labor, disguising the welfare, at least for a time. And just wait until the real Ponzi scheme comes undone - Social Security.
In the meantime, I am vaguely curious to watch how the whole naked short selling thing works its way through the system. It's obvious now that none of the rules mean anything, and that even during the supposed complete ban on short selling, that there was massive and continuous shorting. If you haven't checked it out, see this article at the Deepcapture site for an analysis of what complete bullsh#t the press' treatment of the short selling ban is. Seems that all those articles bemoaning the fact that the ban didn't do any good, and in fact might have hurt, FAILED TO NOTE THAT SHORTING WENT THROUGH THE ROOF DURING THE BAN.
Huh.
Sort of another rhino in the room that the press conveniently ignored. We have an entire wildlife sanctuary full of elephants and rhinos they missed by now.
It isn't even fun to point out all the hypocrisy anymore. The level of corruption is far, far greater than anything any of us conceived of a few short years ago, and now that we are seeing the curtain pulled back, it's clear that we are well over the precipice and accelerating towards the ground, even as our protectors strip the last of the fat from the carcass.
Wish I could offer up some more positive or optimistic news, but it's looking grim, my friends.
As always, Digg it if you dig it.