Goldman Sachs' "doing God's work" apparently includes FRAUD

(updated Sunday, April 18 with details on synthetic CDO due to questions from a reader)

Last year, in a statement that made me momentarily question my understanding of the English language while simultaneously wonder whether I had inhaled too many potent diesel fumes over the years, Goldman Sachs' CEO Lloyd Blankfein declared, in a detailed interview, to a reporter from the The Times (London) that he and Goldman were not only part of a "virtuous cycle" that serves a "social purpose, " but, in fact, that together with his holy $1 Trillion firm, he was actually "doing God's work" (pg 4 of article). Yes, you read that correctly.

It was, apparently, through "doing God's work" virtuously and with social purpose that Mr Blankfein and Goldman felt absolutely justified in taking $12.9 Billion from the American taxpayers during the AIG counterparty pay-out festival; through "doing God's work" that the former investment bank was miraculously converted to a bank-holding company by the FR in late 2008 so it could take $10 Billion more in taxpayer dough through TARP; and through "doing God's work" that it issued $1.1 Billion of taxpayer-backed debt through the FDIC program. That's $24,000,000,000 from the taxpayers--wow, "doing God's work" sure does pay, but who'd ever think it had $$$ in front of it!

And, who'd ever think that for Goldman, "doing God's work" includes screwing its own clients to the tune of $1 Billion and committing FRAUD? Indeed, that the market-shakingly big news that hit the fan yesterday (Friday, April 16). The long-speculated but heretofore unconfirmed SEC investigation into Goldman Sachs' sales of toxic CDO's to clients in 2007 has finally culminated in not only confirmation, but action: The SEC has officially alleged Goldman Sachs engaged in FRAUD.

Repeat: the SEC has filed a civil lawsuit against Goldman Sachs on behalf of investors who were, according to the SEC, defrauded of over $1 Billion by Goldman through what was really a complex double-crossing fraud operation. We've known about this for some time, thanks in huge part to the awesome McClatchy News multi-piece expose published last November, "How Goldman Secretly Bet on the US Housing Crash." And, of course, those $1 Billion worth of investors--including pension funds, labor unions, insurance companies, etc--have long suspected that they were defrauded by these banksters. But that's not important--what's important is whether or not the SEC agrees, and on Friday they demonstrated that indeed they do.

Actually, its hard for the SEC not to agree: the evidence is overwhelming. Please read the McClatchy piece from last year and then these current Bloomberg articles (first, second, third) the raw details, because my quick explanation is actually only a matchbook-cover overview. The SEC complaint is 22 pages long (pdf), but I'll try to boil it down a bit.

Basically, it's like this:

1.) GOOD TIMES: It's sometime between 2002 and 2006, and the housing bubble is booming: Goldman and everyone else begins purchasing securitized mortgages bundles--mortgage backed securities, or MBS--from underwriters who can't sell them fast enough. Goldman keeps the "assets" on their balance sheet, because in the good ole' days here in 2002 through 2006, these securities are performing very well and increasing in value. Everything is great, dude. Goldman sells some of the MBS to others at a profit, and keeps some for itself. This is so super--everyone has a house, and house prices can't possibly fall. Uh, oh--what do you mean you can't make your house payment? What do you mean no one will buy that 600sq-ft shack for the $400,000 you paid for it? Oh, great, here we go. Enter the crisis.

2.) CRISIS: By mid-2006, some of the underlying mortgages of the various MBS begin to default, and by 2007, vastly overinflated home prices being to really reverse. A crisis is coming or here: suddenly, Goldman's dandy MBS are not only failing to pay the coupon, but are seriously losing value. Goldman tries Plan A: the firm decides to sell some while it can, but the over-saturated market is full of others doing the exact same thing. Plan A fails. Goldman moves to plan B. Enter ABACUS.

3.) ABACUS: Goldman starts issuing collateralized debt obligations (CDO's) by selecting bundles of MBS (collateral), securitizing them, and then selling them as securities (or debt) to clients (obligations). There are two types of CDO's that Goldman issues: "plain vanilla" CDO's and synthetic CDO's. Its an important distinction: plain vanilla CDO's are created when Goldman takes a portfolio of cash-flow producing assets (like MBS), bundles them up, and slices them into different risk-based tranches that each pay investors a different coupon. The higher the tranche, the lower the risk, and thus the lower the coupon payment. Conversely, the lower the tranche--that is, the more exposed to subprime loans--the riskier the bond, and thus the higher coupon. Goldman sells billions in plain vanilla CDO's, and seeing both the need to hedge itself further as well as the potential to profit from falls in the market as the bubble deflates faster, Goldman starts issuing synthetic CDO's by the name ABACUS. Unlike regular CDO's, synthetic CDO's do not require anyone to own a portfolio of asset-backed securities, but are instead "linked" to the performance of ABS through what is basically a contract bet (more details on this soon). On top of the billions of regular CDO's its already sold, Goldman issues at least $7.8 Billion of these synthetic-CDO's under the name "ABACUS," but according to Bloomberg, the dollar-risk shuffled over to investors is actually "multiples higher" than $7.8 Billion. Like regular CDO's, the synthetic-CDO "investments" entitle the purchaser clients to payments from Goldman, but Goldman itself is able to vastly reduced its own exposure by getting some of the debt off its its balance sheet. Goldman, however, is still in the position to lose money, and so the firm needs to hedge. Enter the other side of ABACUS--CDS.

4.) CDS: Synthetic CDO's aren't based on the cash-flow from some underlying mortgages bundled into a security and divided into tranches like a regular CDO is--instead, they basically consist (and pay-out) of one each side betting against the other on the performance of an "associated" group of debt. Both the cash flow and the betting on the synthetic CDO is accomplished through credit default swaps, or CDS. In a synthetic CDO contract, the seller (Goldman) is effectively shorting the associated assets by purchasing a credit default swap from the buyer (investors, clients), meaning that Goldman has to make regular payments to the buyer of the CDO (who is now the seller of a CDS). This creates the cash flow that makes a synthetic CDO look like a regular CDO, as the investors are recieving payments for the CDS "policy" that are much like the coupon payments they'd be recieving in a regular CDO. However, in the synthetic CDO, if the associated/linked assets go bad, the buyer of the CDO (investors) who is also the seller of the CDS now has to pay the buyer of the CDS (Goldman) who is also the seller of the CDO--and they have to pay the entire face value of the debt, even if Goldman doesn't own it, which in all cases of ABACUS, they didn't. The CDS coverage on the synthetic CDO's therefore make it more profitable for Goldman that the synthetic CDO's its selling to its clients fail than it does for them to succeed. If they fail, the clients are on the hook for debt to pay Goldman. While this is bad, and probably unethical, and insanity that anyone would make this agreement with Goldman, its not actually fraud yet. At least at this point, Goldman itself was selecting the underlying assets from its own portfolio, and so was at least partially co-investing, even though it was still covering itself with the CDS "insurance" and pushing the risk to investors in a fashion "multiples higher" than to itself. Where it starts to move towards fraud is when, for the last ABACUS synthetic CDO set, Goldman turns to some third parties to pick the collateral and create the portfolios, which it then will sells with not only zero liability of its own, but that it takes a bet out on to fail. The fraud part has to do with the third parties and the Goldman executives who know it. Enter Fabrice Tourre.

4.) FABRICE TOURRE: While Goldman had already sold billions in CDO's and ABACUS synthetic CDO's that consisted of portfolios it had itself chosen, in 2007, the firm decides to issue synthetic CDO's selected by a third-party group, ACA Management. The debt, sold as "ABACUS-2007 AC1," is under the principle supervision of Goldman executive Fabrice Tourre. Tourre delivers a portfolio of picks made by the $30-million-dollar hedge fund, Paulson & Co, to ACA to consider for selection, and tells ACA that Paulson & Co plan to invest $200 million in the portfolio. ACA itself will eventually take the majority position on the CDO--fronting some $951 million--and so the group obviously has an interest to select collateral that will not fall in value. Goldman, meanwhile, is marketing the debt to clients, stating ACA's dual role as both majority holder and collateral selector as proof that the CDO will have a rock-solid base, and "leverag(ing) ACA's credibility and franchise" to sell the contracts (SEC complaint, pg 8). When ACA receives the Paulson picks from Goldman exec Tourre along with his assurance that the hedge fund will invest $200 Million, ACA is assuming that Paulson's interest must be in-line with their own, and so ACA accepts the Paulson picks. They assemble the ABACUS-2007 AC1 synthetic CDO, and Goldman starts selling with no exposure. By this time, Goldman is outright shorting the MBS market, and so the firm itself takes out more CDS on the ABACUS-2007 AC1 synthetic CDO's, even though they have no exposure: they aren't hedging by this time, they are betting. ACA, meanwhile, is still believing Tourre's statement to them that Paulson & Co plans to invest that $200 Million. The money never comes.

5.) PAULSON & CO: Not only is Mr Tourre's statement to ACA that Paulson & Co plans to invest $200 million in the portfolio totally untrue, it is actually the outright opposite of what the investment outlook of Paulson actually is. In truth, Paulson & Co has long since identified the housing market as an incredible bubble, and is shorting everywhere it can. Paulson & Co sees the new ABACUS synthetic CDO's, and, knowing it is very likely to fail--at least in part due to the fact that Paulson picked the underlying securities to which it was associated with the intent of those securities failing--the hedge fund piles up on CDS against the ABACUS 2007-AC1. What ACA, and all of the investors to whom Goldman was pitching and selling the ABACUS 2007-AC1, do not know is that Paulson & Co actually paid Goldman $15 Million to get ACA to somehow include the hedge fund's toxic picks into the ABACUS portfolio, and Mr Tourre with his made up stories, got the job done. Now, that, ladies and gentlemen, is fraud.

The rest--the implosion of the CDO and the pay-out of the CDS to Goldman and Paulson are now history, and the story is best summarized in the SEC complaint by this statement (pdf pg 3):

"The deal closed on April 26, 2007. Paulson paid GS&Co approximately $15 million for structuring and marketing ABACUS 2007-AC1. By October 24, 2007, 83% of the RMBS in the ABACUS 2007-AC1 portfolio had been downgraded and 17% were on negative watch. By January 29, 2008, 99% of the portfolio had been downgraded. As a result, investors in the ABACUS 2007-AC1 CDO lost over $1 billion. Paulson's opposite CDS positions yielded a profit of approximately $1 billion for Paulson."

"Our clients always come first."
And so, that is were we stand this weekend. The flesh of the SEC suit is that Goldman not only allowed Paulson & Co to hand-pick mortgages to create the most toxic CDO's possible for Goldman to sell, but that Paulson & Co paid Goldman $15 million for the privilege to do this--and Goldman didn't bother to disclose these facts to the clients, nor did it bother to mention it was itself betting against the very CDO's Paulson's picks yielded. Additionally, the investors who bought the synthetic CDO's have claimed to the SEC that Goldman also did not disclose that the values of the underlying mortgages themselves were based "on inflated appraisals and were bought from firms with poor lending practices, " despite the fact that Goldman knew this, as well.
On Goldman Sachs' site is a list of "Business Principles." The top one, in bold, states "Our clients' interests always come first." Obviously, Paulson & Co is very happy--a billion bucks worth of happy--that this core Goldman Sachs "business principle" is, apparently, only half-true.

Perhaps the words of one my favorite analysts, the hard-core researcher Christopher Whalen of Institutional Risk Analytics, summarize it best. Whalen stated yesterday that “this litigation exposes the cynical, savage culture of Wall Street that allows a dealer to commit fraud on one customer to benefit another.” Yep, that's why we call 'em banksters, Mr Whalen. You can't trust them as far as you throw them soaking wet--and honestly, I don't have much sympathy for those that do. In my opinion, when you're dealing with a group of folks whose entire livelihood rests on the "legalized" counterfeiting of the American currency, you ought to expect fraud. And the beneficiary of the fraud in this case was both Goldman and its privileged client, Paulson & Co.

The idea that Goldman would accept a list of picks for an MBS-associated synthetic CDO from a hedge fund that was actively and passionately shorting the entire subprime MBS market is bad enough, but to get paid $15 Million by that same hedge fund to "oh, please, please please" use their toxic picks--bloody hell, man, that is just so bad. Top it off with Goldman's own bets against the "investments" that it was selling, and you've got a real whopper there. In his Rolling Stone piece, "The Great American Bubble Machine," Matt Taibbi colorfully declared Goldman Sachs "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money." With my very visual mind, I laugh every time I read that great description, but like the "Business Principles," its only half true--and you'd know it if your "humanity" was with Paulson & Co. In that case you'd be thinking, "Oh, vampire squid are so cute!"

Paulson & Co.
Please note, the SEC has not charged Paulson & Co with any crimes, and likely will not, because as a private investment group, the hedge fund is under no legal obligation whatsoever to disclose anything, nonetheless to investors purchasing debt from another company. In response to the SEC complaint, Paulson & Co said the following in a released statement:

". . . we were not involved in the marketing of any ABACUS products to any third parties.
"ACA as collateral manager had sole authority over the selection of all collateral in the CDO, securities of which were subsequently rated AAA by both S&P and Moody's."

"Paulson did not sponsor or initiate Goldman's ABACUS program. . ."

Compare that to the following, from the SEC complaint itself (pg 2):

"GS&Co marketing materials for ABACUS 2007-AC1 -- including the term sheet, flip book and offering memorandum for the CDO - all represented that the reference portfolio of RMBS underlying the CDO was selected by ACA Management LLC ("ACA"), a third-party with experience analyzing credit risk in RMBS. Undisclosed in the marketing materials and unbeknownst to investors, a large hedge fund, Paulson & Co. Inc. ("Paulson"), with economic interests directly adverse to investors in the ABACUS 2007-AC1 CDO, played a significant role in the portfolio selection process. After participating in the selection of the reference portfolio, Paulson effectively shorted the RMBS portfolio it helped select by entering into credit default swaps ("CDS") with GS&Co to buy protection on specific layers of the ABACUS 2007-AC1 capital structure. Given its financial short interest, Paulson had an economic incentive to choose RMBS that it expected to experience credit events in the near future. GS&Co did not disclose Paulson's adverse economic interests or its role in the portfolio selection process in the term sheet, flip book, offering memorandum or other marketing materials provided to investors."

"In sum, GS&Co arranged a transaction at Paulson's request in which Paulson heavily influenced the selection of the portfolio to suit its economic interests, but failed to disclose to investors, as part of the description of the portfolio selection process contained in the marketing materials used to promote the transaction, Paulson's role in the portfolio selection process or its adverse economic interests."

Those are strong statements from the SEC that Paulson did "play a significate role in the portfolio selection process" for its own "economic interests," and Goldman, of course, didn't bother to mention that. ACA Management, meanwhile, has long since drowned in the wake of the crisis, and is now under the ownership of its former counterparties. As for Goldman Sachs: the firm will likely declare a $4,000,000,000 first quarter profit when it reports next week.

Hey--its all about "doing God's work," son.

More posts on this to come!

Citigroup: Livin' in a Bankster's Paradise

This week's revelations on the financial chicanery that should have decimated the monstrous zombie bank commonly known as Citigroup are little surprise to anyone with a healthy skepticism of fiatists, but it is at least encouraging to see that the Financial Crisis Inquiry Committee is bringing to the forefront, for everyone to see, the dirty laundry of Citi's irresponsible, multi-billion dollar balance sheet "omissions." As you can would expect, it stinks.

An article today from Bloomberg reveals the FCIC's latest disclosures regarding the major role of liquidity puts that crippled Citi in what I would call "Level-1 Jenga tower fashion." The liquidity puts Citi offered were basically guarantees on the debt-backed securities it sold that allowed the buyers to re-sell the securities back to Citi at face value if the markets froze and the buyers were not able to sell the debt themselves. The liquidity puts were obligations to buy back the debt if the securities did not perform: in other words, from Citi's perspective, they were collateralized debt obligations, or CDO's, and from the investor's perspective, they were debt-backed securities. Thus, Citi sold the securitized debt from its balance sheet in the bundled securities to investors, and promised to buy it back at face value if the investors wanted to sell and for some reason the market wouldn't pay full price. This is very important: what that simple statement should tell you is that Citi never thought they'd need to actually pay-out on the liquidity puts.

Think of this way: if you bought debt from Citi and you wanted to sell it, and could get a higher price on the market that you paid for it (ie: profit), then you'd surely sell the debt on the market, right? Of course: you would be crazy to sell the debt back to Citi at only face value when you could get more on the market. The only reason you wouldn't be getting a better offer on the market would be because the debt was not performing. Citi, on the other hand, is happily assuming that they'll never have to buy your debt back because they have declared that there will always be another buyer in the market because the "value" of the debt you purchased from them--with their buy-back guarantee--will only ever go up, up, up!

Do you get this? This is so patently arrogant that it is insane! Have you ever heard of a gold dealer who would sell you and your 5,000 closest friends $1150 gold today and guarantee that he'll buy it back from you tomorrow for $1150 if the price drops to $750 overnight? No--you haven't, because that guy would be outta business in no time! (But if you happen to know one, please give me his number.) Furthermore, can you imagine the capital that dealer would have to keep on hand to back up a promise like that--what would be the point of being a dealer? Sure, Walmart has its "Satisfaction Guarantee" that has allowed me to actually witness people returning birthday cakes with missing pieces at the customer service counter (and no, I'm not exaggerating), but Walmart's "guarantee" actually means Walmart is just going to send whatever you return to them back to the product maker and Walmart will demand a refund from the maker. Do you think Walmart would have such a generous return policy if it was actually costing them? No, because they, and the gold dealer, aren't totally insane. Citi on the other hand...

Indeed, in Citi's world--a world called Bankster's Paradise--it is apparently quite possible to create up risky assets, sprinkle them with fairy dust, chant a magic phrase, sell them with a money-back guarantee, and be totally confident that such assets will never, ever, ever lose value. And for would-be investors, any little apprehensions about purchasing something from Citi that was otherwise and fundamentally risky (because all investments are risky), despite what nonsense the market and ratings agencies say, could be assuaged and neutralized by the promise of a money-back guarantee! Sounds great, right?

You might be wondering, then, what possibly was packaged in these rock-solid debt securities that Citi was selling, and guaranteeing with face-value "liquidity puts," that Citi was so absolutely positively sure would never, ever, ever decrease in value, yet that investors needed just a little bit of encouragement to purchase. Well, take a wild guess--and no, it's not birthday cakes, and we know it's not gold. Think, now: what market bubble was never, ever, ever supposed to pop--what "asset" was never, ever, ever supposed to lose value, and what was everyone just so absolutely sure was an "investment" so solid that banks could give anyone a loan to buy one...or two....or three, whether or not the debtors had a job or even a pulse?

C'mon--a wild guess! You got it: the housing market!

Yes, indeed, we are back to those glorious mortgage-backed securities, the sure-fire, rock-solid debt behind Citi's liquidity-put-backed "assets." Buyers would purchase the securities thinking their value would increase, and for years, the buyers were right. Citi benefited from not only the sales, but also the fact that they never had to cover the liquidity puts they guaranteed. It moved the debt off their balance sheet and freed up capital for--guess what?--more loans! They couldn't sell them fast enough: according to the FCIC, the debt sales were in the hundreds of BILLIONS--$400 Billion in just 2005 and 2006 alone. In Citi's world, the market obviously could only go up forever: why else guarantee them? And lazy, non-investigative investors are saying, "Citi is guaranteeing them--they must be rock-solid!"

Rock-solid, huh? Hardly: we all know now that Citi was wrong. Investors were wrong. Testimony at the FCIC today revealed that in 2007, Citi found itself looking down the barrel of a $25,000,000,000 gun held by hundreds of debt holders who all the sudden wanted their face value back. The debt was toxic: no one on the market would buy it for face value, as the underlying assets--those pesky mortgages--were turning sour at record pace. This left the debt holders with one option: Citi's promise, and a very long line at the customer returns counter. Only unlike Walmart, Citi's the one left holding the bag.

See, in Bankster's Paradise, Citi thinks you can have it both ways, and given that they were bailed out by the taxpayer under threats of collapsing the entire global financial system and destabilizing the rings of Saturn, I guess they're right. Still, even realizing the insanity of guaranteeing hundreds of billions of debt-backed securities as CDO's on your side, one might think that someone crazy enough (Citi) to do that would at least put a little dough aside--just in case. So, did Citi do this?

Hell no! Citi, according to the FCIC, capitalized the guarantees at 0.8%. In other words, Citi put aside $1 for every $125 it "guaranteed" by the liquidity puts. This meant that with $25 Billion pointed at them, Citi had a whole $200 million. All the fairy dust in the world is not going to make that work. Nope, sorry. But if you've got friends in high places with the power to steal $787 Billion with the stroke of Bush's pen, that will work!

The American people should be outraged. To this day, in regards to Citigroup alone, US taxpayers remain on the hook at for at least $25 Billion and "own" a staggering 27% of this fraud-laced multi-national zombie banking behemoth. Additionally, the FDIC-backed paper Citi was allowed to sell accounts to at least $301 Billion. Citi has "repaid" $20 Billion of the original 2008 infusion of $45 Billion: I say "repaid" because, of course, this money is only being returned to the always bankster-run US Treasury's TARP (Troubled Asset Relief Program) fund. Of course, TARP was originally started by former Goldman Sachs CEO turned Bush administration Treasury Secretary Mr Hank Paulson, and the program is now in the hands of our latest pro-bankster Treasury Secretary, Mr Timothy Geithner. Mr Geithner, with the enthusiastic support of the Obama administration, has determined that TARP will basically be a never-ending, revolving bank-bailout account. Who knows how much more Citi and other zombies will get--again, it still has $25 Billion to return and $301 Billion in paper to settle before we're anywhere near off the hook. The FCIC has a lot of laundry to go through. Is somewhere in there some good ol' fashioned fraud?

An interview aired today, April 13, on the Charlie Rose Show with Jim Chanos, the legendary short-seller who has made billions by seeing through the smoke and mirrors of fraud-laced balance sheets ranging from Baldwin United in 1982 to Enron in the last decade. In the interview, Chanos noted that the "hole in Lehman Brothers was $150 Billion, give or take," which was "twice Enron." He noted that such "holes" in balance sheets mean that "there's fraud involved." Rose asked Chanos if he thought there ought to be criminal indictments, in reference to Lehman, and Chanos replied, "I think there ought to be a lot of criminal indictments." To date, no Lehman executives have faced any criminal charges.

I mention this because at least Lehman was allowed to drown under its own crimes. Citi, on the other hand, not only has seen no criminal investigation into fraud or anything else, but was bailed out with money stolen from the American taxpayers. Last week, Citi's former CEO Charles "Chuck" Prince gave testimony to the FCIC that he simply had no knowledge of how exposed Citi was, and that he "was not aware of the decisions being made on the trading desks" to retain the very CDO's that got Citi into trouble. Interestingly, though, he continued that admission with the statement that it would be "hard" for him "to fault the traders who made the decisions to retain these positions on Citi's books" if he had know about them. Mr Prince talked quite a bit in both his opening statement and in response to questions about how much he and his bank relied on credit ratings for, apparently, their own decision-making, and pretty much hung Citi's balance sheet on them. He seems to me to be laying much of his firms fiduciary responsibility on the backs of the credit rating agencies. Of course, if Citi wasn't up to such machinations, the credit rating agencies would not be of much concern. Mr Prince did a lot of blaming against the credit rating agencies (which, don't get me wrong, deserve plenty of scrutiny), but strangely, he didn't acknowledge that it was their very inflated ratings that allowed his bank's operations to work under Basel II. They were accomplices, and like after many crimes, they turned on each other. Mr Prince resigned on November 4, 2007--the same day Citi announced $11 Billion in write-downs due to it "money-back guarantee" MBS that had now become hard-core CDO's, and stated in his testimony that he watched his personal wealth of Citi stock nose dive from over $50/share to $1. Considering that he made many, many millions while at Citi, the commissioners didn't seem too sympathetic.

The write-downs that forced Mr Prince out of office, however much he wanted to blame it on the credit rating agencies, were not something that just appeared in November 2007. As this week's FCIC's hearings demonstrate, the demons were there all along--they just weren't on the balance sheet, and the idea that Prince and Rubin simply "didn't know" about $55 Billion in CDO's is specious at best. Citi investors didn't know, because the bank hid the exposure--which is why there was such a backlash, including against Mr Prince, in November 2007 when the bank finally acknowledged that huge $11 Billion loss. Up to that point, Citi had considered their magical liquidity puts so utterly risk-free that they literally did not place the $55 Billion in liabilities on the balance sheet. Does that sound right to you? It doesn't sound right to me, either. Check this out from a November 2007 Fortune article:

"Meanwhile, you might think the existence of the (liquidity) put would make it impossible for Citi to get those CDOs entirely off its balance sheet. But in fact Citi found a complex accounting rationale for doing exactly that, and the CDOs jumped entirely to somebody else's balance sheet. All that remained in Citi's realm was this sticky little matter of the puts - which, as we shall immediately see, ultimately worked to get these CDOs right back to their creator, Citi."

Ah, yes, balance sheets are rather flexible in Bankster's Paradise, don't you know. (Some day they'll be optional!) Actually, this is where Basel II rears its ugly head, yet again. Again, the above article was written in November 2007: within three months, we saw Countrywide and Bear Stearns fall, followed by infusions for Freddie and Fannie, a collapse of Lehman, a takeover of AIG, Merrill Lynch, WaMu, Citi, GM, and on and on. The FCIC has already taken testimony from Alan Greenspan over the role of his Federal Reserve in the financial crisis, and for the past couple of weeks, it has been focusing on these critical days early in the crisis at Citi. During those days in 2007, the man seated next to CEO Chuck Prince in the boardroom at Citi was the same man seated next to him at the FCIC hearing. That man was former Citi chairman and director, Robert Rubin.

Robert Rubin's testimony matched Mr Prince's insofar as its ability to demonstrate outright incompetence at the boardroom level. Case in point: Mr Rubin, who made over $100 Million at Citi, literally claimed to have simply not known or understood the banks exposure. This is quite a statement to believe when it's coming from the former CEO of Goldman Sachs and former Clinton Treasury Secretary, who sat on the board of directors of Citigroup for over a decade. Perhaps even more unbelievable is a claim Rubin made in November 2007, as Mr Prince was resigning and Citi was posting $55 Billion CDO exposure and $11 Billion losses. What Rubin said then he repeated to the FCIC last week, and did so with all little concern for its gravity as when he stated it the first time. In November 2007, as he was raking in over $1.5 Million a month at Citi while the bank was posting $11 Billion losses, Rubin said, simply, "Myself, at that point, I had no familiarity at all with CDOs."

"No familiarity at all with CDOs?" You gotta be kidding me.

Oh, okay, Mr Rubin. So--did you give that $100 Million back?

Didn't think so.

Cuz it's a "Bankster's Paradise," son. Coolio said it for gangstas, and I say it for bankstas. Of course, you've probably already recognized this entity by its other name--"The Taxpayers' Hell." As mentioned above, taxpayers remain on the hook for $25 Billion with Citi TARP money, $301 Billion in tax-payer backed Citi paper, and "own" 27% of Citi shares. And if that's not enough to get your blood pressure up, Mr Goldman-Sachs-Citi Robert Rubin has had the ear of the Obama administration since November 2008. In fact, he was under consideration for Treasury Secretary until he withdrew himself, and Obama picked Rubin's protégé, Mr Geithner. Rubin still holds "enormous influence" in the administration--just don't ask him about CDO's, of course. Or Citi. Or balance sheets. Or ethics.

And, finally, that last fact just demonstrates yet another phenomenon in Bankster's Paradise otherwise not normally seen in the real world: in Bankster's Paradise, no one ever gets held responsible for anything--especially incompetence, failure, or even fraud. That's who the FCIC is up against.

Good luck.