Friday, as news of the allegations of fraud at Goldman Sachs spread, I got a call from someone who works in the insurance business.
"Check out the former head of ACA" he said referring to the now-defunct and formerly down-graded bond insurer who asked the-not-so-omniscient hedge fund manager John Paulson to choose which securities to put into the CDO, Abacus, that Goldman Sachs subsequently sold to two big clients, the German bank IKB and the Royal Bank of Scotland -- without disclosing that Paulson would be shorting his own hand-picked stocks on the other side of the trade.
Now the SEC's complaint states that ACA had no idea that Paulson was shorting the stocks he'd been asked to select, yet my deepthroat was not so convinced.
"ACA had a horrible reputation," he told me, which led me to ask the obvious question so why would Goldman want ACA's stamp as selection manager on the CDO they were marketing? Fabrice Tourre, the 31-year-old named as the architect of Abacus, is quoted as insisting that Goldman wanted ACA's brand name and "credibility" on the CDO.
My source told me to check out who the head of ACA was married to. "I think you'll find it's a senior woman at Goldman Sachs," he said.
Well, yep, it is.
Alan S. Rosenman took over ACA Capital as president and CEO in 2004 - because -- wait for it -- his predecessor Michael Satz had "personal income tax issues" -- (how murky is this story going to get you must be asking?)
According to a Business Week article dated April 3 by David Henry and Matthew Goldstein, Rosenman "immediately began to push ACA into CDO insurance, an area his predecessor, Satz, had only begun to explore."
Rosenman's wife, or at least partner -- they are listed as sharing a house together for which they paid $6.1 million in 2005 in New York -- is Frances "Fran" R. Bermanzohn, who is managing director and deputy general counsel at ... Goldman Sachs.
Hmmmn.
I called Mr. Rosenman who gave me the illuminating statement: "I am not offering any comment at this time."
I asked him, did he ever disclose their relationship to buyers of Abacus? Did she? And Could ACA really therefore not have known about Paulson's activities?
"No comment."
One thing that is certainly puzzling is that if ACA did know, then why on earth would it have issued protection on the so-called "superior senior tranche" which turned out to be of course anything but 'super senior," thanks to Paulson betting against it -- and ACA went bust in December last year?
But, just as much as the SEC is claiming Goldman should have disclosed that John Paulson had hand-picked stocks he was choosing to short (which means, by the way, in case anyone has missed this point, that Mr. "supposed-good-guy " Paulson just made one billion dollars off the back of the German tax payer who had to bail out the German bank IKB on the back of its collapse) so too this relationship should have been disclosed. That it is not mentioned in the SEC's complaint strikes me as being very odd.
I was still waiting for Goldman Sachs to respond as this article went to press.
When I named my recent book on Lehman Brothers, The Devil's Casino, I knew that Wall Street was rigged and that everyone on it was playing with loaded dice. Lehmanites told me they were no different from anyone else on the Street and just as Goldman is saying there is no fraud here with the rigged CDO (and they may be right -- legally) so Lehmanites believe there was no fraud connected with Repo 105.
The conundrum is that weak accounting rules enabled both Goldman and Lehman and no doubt every other gambler out there to get away with what they did legally. (I, for one, do not believe will the SEC will win their suit against Goldman because the law protects Goldman). That their actions were arguably immoral? Well, that's a question no one on Wall Street wants to ask of themselves.
Watch closely what happens Tuesday when former Lehman CEO Dick Fuld goes before Harry Reid's committee to explain Repo 105. He will insist he did not break the law, just as Goldman will insist the same - and the problem is that technically they may be right.
The bigger question is: how do we stop immoral acts that are technically legal? We need to change the law -- and fast, but carefully. Things that are hidden need to be brought to light, and contorted complex accounting rules about disclosure needs to become far simpler.
And people who are married and whose respective firms are doing business together need to disclose it to any third parties.
Follow Vicky Ward on Twitter: www.twitter.com/VickyPJWard
As long as a confused humanity continues to catapult between the failure of reasoned order and the failure of a values-as-money heirarchy, chaos will continue until there is massive systems failure.
this time is not so far off as most would deny. after all, denial is the only defense against impending meltdown, and, with ignorance in one hand and propaganda in the other, the ruse will continue until there are no cows left to give milk.
isn't it obvious that the entire basis for accounting what is truly valuable and necessary, as juxtaposed to the addictions of narcissism and sociopathy, must be literally thrown out?
not modified, not better regulated, not overhauled. thrown out.
i recommend an accounting system founded on ecological necessity, using biodiversity as the template for P and L statements.
after all, if an animal or a plant is just 'too big to fail' it just dies, and is quickly rendered compost. this is the best method for balancing the books:
The problem is so many laws have been written by self-serving individuals, and passed by people who refuse to read or understand them, we have contradictory laws that nobody can understand.
So everything is a settlement or deal. We have polluted our own legal systems with crappy laws and brought it to a standstill.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1570219
And with these corporate behemoths now enabled to spend their treasure troves to "buy" elections,
where are we again?
Still F*d.
Bill Clinton recently stated that these behemoths were positioning themselves to skew the financial system in their favor even BEFORE Glass Steagall [was IMPLEMENTED]...way back.
We are a consumer-based economy.
Taxing consumerism (especially all the millions of speculative transactions in securities), rather than working salaries, would bring this whole system into parity...overnight.
Fight for that! Then you'll have something.
They also know that with a VAT, you will no longer have the added insult of companies like GE, who "had $10.3 billion in pre-tax income last year but ended up paying nothing in federal income tax. Instead, it recorded a tax benefit (return) of $1.1 billion.
Meanwhile, ExxonMobil had a record-breaking $45.2 billion in profits last year, but paid no taxes to the federal government. Of the $15 billion it owed in taxes, all of it was legally channeled to corporate tax shelters in nations overseas."
With a VAT (generally coupled with a FICA-like tax), every time goods are transferred/sold a tax is paid. Period. No creative accounting allowed, if done right.
"They" say this harms the poor. Not true! No sales tax means that the price you see is the price you pay, and prices will essentially stay the same. (From experience).
Everyone should remember, and repeat to anyone who will listen, that "Statistics show that the top 1 percent of U.S. society has more wealth than the bottom 95 percent combined, while the annual incomes of the top 20 percent equal the total of the bottom 80 percent".
Any system that promotes such radical and destabilizing inequality needs fixing
COMPANY/ISSUER TICKER: ACA
COMPANY WEBSITE: http://www.aca.com
Not even their "about us" portion of their website explains what the ACA stands for.
Greed is a powerful force. The only check on overt greed is the power of potential prosecution. Rules and enforcement worked for decades, how many times do we have to go down the same path?
Nothing will open up eyes on Wall Street like a few cheats being shackled and loaded into a paddy wagon.
And Fabrice Tourre will be running his own hedge fund within 3 years!