Monday, April 19, 2010

Goldman Sachs: A Fraudulent history repeats itself - The Legacy of Ashanti Gold

The only ones who should be surprised by Fraud allegations levied against Goldman Sachs are insiders who have become so arrogant as to think that they were somehow untouchable. Personally, I am wondering why it has taken so long.

Together, much of the Wall Street Bailout process was designed by Treasury Secretary Timothy Geithner, Past President of the NY Federal Reserve Bank; Stephen Friedman, an ex-Goldman Sachs officer who still serves on the Board of the NY Fed; Hank Paulson, an ex-Goldman Sachs operative who designed the hedge funds that plunged the financial markets into turmoil in the first place; and Goldman Sachs financier Robert Rubin. As the crisis unfolded, Goldman Sachs continued to market these Hedge Funds to uninformed clients, even after becoming aware that mortgage-backed securities were crumbling. And when When AIG was bailed out...the primary beneficiary was Goldman Sachs.

And I have to ask: does this surprise anyone? This is a world-wide pattern that Goldman Sachs has utilized to enrich itself at the expense of everyone else for years. And perhaps there is no better example of this than the destruction of Ghana's largest company a decade ago: Ashanti Gold.

In 1998, Ashanti Gold was the 3rd largest Gold Mining company in the world. The first "black" company on the London Stock Exchange, Ashanti had just purchased the Geita mine in Tanzania, positioning Ashanti to become even larger. But in May 1999, the Treasury of the United Kingdom decided to sell off 415 tons of its gold reserves. With all that gold flooding the world market, the price of gold began to decline. By August 1999, the price of gold had fallen to $252/ounce, the lowest it had been in 20 years.

Ashanti turned to its Financial Advisors - Goldman Sachs - for advice. Goldman Sachs recommeded that Ashanti purchase enormous hedge contracts - "bets" on the price of gold. Simplifying this somewhat, it was similar to when a homeowner 'locks in' a price for heating oil months in advance. Goldman recommeded that Ashanti enter agreements to sell gold at a 'locked-in' price, and suggested that the price of gold would continue to fall.

But Goldman was more than just Ashanti's advisors. They were also sellers of these Hedge contracts, and stood to make money simply by selling them. And they were also world-wide sellers of Gold itself.

In September 1999 (one month later), 15 European Banks with whom Goldman had professional relationships made a unanimous surprise announcement that all 15 would stop selling gold on world markets for 5 years. The announcement immediately drove up gold prices to $307/ounce, and by Octoer 6, it had risen to $362/ounce.

Ashanti was in trouble. At Goldman's advice, they had bet that gold prices would continue to drop, and had entered into contracts to sell gold at lower prices. These contracts were held by a group of 17 other world banks. Ashanti found themselves being forced to buy gold at high world prices and sell it at the low contract prices to make good on the contracts. The result? In a few weeks time, Ashanti found itself with 570 million dollars worth of losses. It had to beg the 17 banks not to force the execution of the contracts.

Who served as the negotiator for the 17 banks and Ashanti? Goldman Sachs. The same company that designed the contracts for Ashanti(making a profit in their sale.

The basic bankruptcy of Ashanti drove its stock price from an all time high of $25 per share to a paltry $4.62 per share. Thousands of investors - your blogger among them - lost their investments almost overnight as Ashanti was declared insolvent.

In the end, Ashanti was purchased by their largest African competitor, AngloGold, a British company headquartered in South Africa, who bought them for a song. The Financial Advisors to AngloGold? You guessed it: Goldman Sachs.

The destruction of Ashanti Gold by Goldman Sachs was saturated with fraud and conflicts of interest: Goldman Sachs served as Ashanti's Financial Advisors; profitted form the contracts they designed and marketed for Ashanti; was involved in the manipulation of the gold prices on which the contracts depended; represented Ashanti's creditors when the contracts went bad; and profitted as the Financial Advisors to the company that picked up the Ashanti corpse for pennies on the dollar.

The Bailout of Wall Street - little understood by many Americans, and supported grudgingly by members of both political parties who operated on only fractions of the full picture (not unlike the Iraq invasion) - has Goldman Sachs' legacy all over it.

Prosecution of Goldman Sachs and Regulation of the Financial Industry is not evidence of "Big Government," "Socialism," or more "Washington Take-over."

It is an appropriate - and overdue - safeguard against Fraud and Theft, which, the last time I looked, was not antithetical to the principles of liberals, moderates, conservatives, or libertarians.

6 comments:

Jacques de Villecourt said...

Well said Thom Simmons..
And let's not forget to mention GATA's continuous work at uncovering this massive scam.

Anonymous said...

thom, great post. here in canada we have a gs asshole (crook) running our central bank. here is a letter to him by garth turner, an ex-mp,(member of parliament). if things look good in canada it won't be for long.http://www.greaterfool.ca/2010/04/22/the-warning/

tseko aaron said...

BRAVO MY MAN,GS IN BED WITH NEROBAMA'S FINANCIAL REFORM BILL TO MILK AMERICANS ONE MORE TIME THROUGH BAILOUTS.THE ONLY SOLUTION'S TO PUT THE WHOLE SYSTEM UNDER GLOBAL GLASS-STEAGALL BANKRUPTCY REORGANISATION.

Bryce Covert said...

For more on the continuing Goldman scandal, check out what Eliot Spitzer and Bill Black have to say at New Deal 2.0 today: http://www.newdeal20.org/2010/04/26/question-from-the-goldman-scandal-10108/

Dominick O Maolain said...

Should we consider a Corporate Windfall Profits Tax in order to balance the U.S. federal budget? Please share your opinion at www.dyslexinomicon.blogspot.com

In 1965, even after Kennedy's historic tax cuts, corporate taxes made up 21.8%(1) of federal revenues, the marginal corporate income tax rate was 70%(2) and unemployment was at 4.5%(3). But as of 2007 corporations slashed their share down to 14.4% of federal revenues while shoving an additional 4% of the burden on individual tax payers. Currently the marginal corporate income tax rate is 35%, and unemployment hovers around 10%.

Check it out yourself:
(1) Federal burden sharing by sector:
www.whitehouse.gov/omb/Budget/historicals , Office of Management and Budget Table 2.2

(2) Marginal federal income tax rates: www.wikipedia.org/wiki/Income_tax_in_the_United_States for marginal tax rates,

(3) Unemployment history: www.gpoaccess.gov/eop/tables10.html , Table B-42 Civilian Unemployment Rates 1962-2009

Anonymous said...

What do you think the vampire squid will do next? When the fiat currencies crash, will the banks all trade enough gold to keep the prices low? Or will they use the crash of the fiat currency as a way to push their gold to the public and thereby create a systemic, artificial demand for gold...?

LOL we are Legion.