18/02/2014 by Don Quijones
Goldman Sachs, the vampire squid of lore, is in the process of growing a new tentacle. Like so many of its blood sucking appendages, this one will soon be squirming its way into a European market, where it will no doubt wreak havoc while vacuuming up as much ill-gotten wealth as possible.
The ill-fated market this time around is Spain. A few days ago it was announced to great fanfare in Madrid that Grupo Bankia, Spain’s biggest basket-case bank, which to date has cost taxpayers well over 20 billion euros in bailout fees and customers (through the preferentes scam) a cool four billion, would be tentatively dipping its toes once again in the stock market. And the alpha wolves of Wall Street have not only been invited to the bank-uet, they will be cooking it up.
Here’s more from Reuters:
Spain’s bank rescue fund FROB said on Friday it chose Goldman Sachs to advise it on the sale of part of the government’s controlling stake in nationalized lender Bankia (BKIA.MC).
The government is taking steps to start selling part of its 68 percent holding in Bankia, but will maintain control. Economy Minister Luis de Guindos told Reuters this week that small stakes could be sold during the year before a bigger sale in the medium-term.
In short, the bank that helped the Greek government mask the true extent of its deficit with the help of a derivatives deal that legally circumvented the EU Maastricht deficit rules, setting the stage for one of the worst financial crises in the nation’s long history, is back in Europe doing what it does best: namely, working in the shadows to expand its power, influence and wealth at the expense of just about everybody else.
Goldman, we are lead to believe, was picked from a long list of potential candidates — including Morgan Stanley, Credit Suisse, Citi, UBS and BNP Paribas – to check the books and survey the terrain in preparation for the state’s disinvestment of beween five and ten percent of its holdings in Grupo Bankia.
All this it will do for the price of one measly euro.
Which begs the question: why? Why would the bank that lords it over European financial markets like no other before be interested in a simple analyst assignment that will pay less than the price of a Big Mac? Has the squid found a conscience somewhere within its deep, putrefying soul (unlikely), or is this merely the latest stunt in an image make-over geared at turning malicious, money-grubbing narcissists into huggable bankers who only want to serve humanity?
Or perhaps there’s something altogether more nefarious behind its interest in Bankia — something even more valuable than money itself? Such as, say, information? You see, not only does GS stand a good chance — conflicts of interest be damned — of later being hired as market maker for Bankia’s IPO, by which it will accrue huge sums in fees and backroom deals with its most valued customers; it will also gain a bird’s eye view of the real health, and more importantly, vulnerabilities of Spain’s fourth largest bank, of which there are no doubt many.
Information, as they say, is power, and for Goldman, power is everything! Lest we forget, GS not only made handsome returns helping the Greek and other governments hide their debt from European authorities through the creative use of derivatives instruments, it also used the information it gleaned through its “partnerships” with those governments to make “speculative” bets against their respective economies’ performance.
To wit, from Business Insider:
While Goldman Sachs was helping Greece hide its debt from the official statistics, it was also hedging its bets through buying insurance on Greek debt as well as using other derivatives trades to protect itself against a potential Greek default on its debt. So while Goldman Sachs engaged in long-term trades with Greek debt (meaning Greece would owe Goldman Sachs a great deal down the line), the firm simultaneously was betting against Greek debt in the short-term, profiting from the Greek debt crisis that it helped create.
All of which is kind of funny given point 12 of Goldman’s 14 guiding principles:
We regularly receive confidential information as part of our normal client relationships. To breach a confidence or to use confidential information improperly or carelessly would be unthinkable.
If nothing else, you have to admire the firm’s barefaced chutzpah! Once lionized as the premier “money machine” of Wall Street, Goldman has in the past few years become synonymous with greed and duplicity.
As Matt Taibbi so succintly put in his 2009 article for Rolling Stone, The Great American Bubble Machine:
The bank’s unprecedented reach and power have enabled it to turn all of America into a giant pump-and-dump scam, manipulating whole economic sectors for years at a time, moving the dice game as this or that market collapses, and all the time gorging itself on the unseen costs that are breaking families everywhere — high gas prices, rising consumer credit rates, half-eaten pension funds, mass layoffs, future taxes to pay off bailouts.
Even the bank’s own
marks clients have not been impervious to its greed. Time and again Goldman has displayed an insouciant willingness to use confidential client data against the very same people and entities that pays its bills and bonuses.
A case in point: a few years ago the firm advised some of its biggest clients to place investment bets against California bonds right after collecting hefty fees from the state for underwriting some of those bonds.
However, by far the most notorious case to date, at least in the U.S., was its Abacus investment vehicle which was used to sell mortgage-related securities to investors. What Goldman absent mindedly forgot to tell them was that the investment vehicle had been designed in consultation with hedge fund manager John Paulson, who chose securities he expected to decline in value and had shorted the portfolio. Paulson and Goldman naturally made a killing — all at the expense, of course, of many of the investment bank’s lesser clients.
That said, it is in Europe where Goldman Sachs has made by far its biggest killing to date. The bank that, oh so conveniently, had a former CEO, Hank Paulson (no relation to John), installed as U.S. Treasury Secretary just before the implosion of the U.S. economy in 2008 now has alumni carefully positioned at the very highest echelons of Europe’s financial power centres (see this graphic), including at the helm of the ECB and the Bank of England, Europe’s preeminent central banks.
Now Goldman has its sights and tentacles firmly trained on Spain, none of which bodes well for Bankia or the country’s already moribund economy. The fact that Bankia has spectacularly crashed once already in its two-and-a-half year lifetime should be enough to make any investor think twice before parting with his or her hard-earned or ill-gotten cash.
Throw in the fact that the IPO will be drawn up by an investment bank that has consistently shown an acute disregard for its clients’ needs or interests — indeed anyone’s interests but its own — and you can’t help but wonder whether Bankia will go down in history as the world’s shortest lived Too-Big-To-Fail bank.
One thing is certain: Goldman will be just fine. It will dust off its designer jacket, pick up its bloody spoils and wait, probably not for long, for the next in line of our respective governments to invite it to seize and plunder what little remains of our national wealth.