The repercussions of business dealings by Goldman Sachs – the so-called “giant vampire squid wrapped around the face of humanity” – continued to be felt across the world from Senate hearings in Washington to financial crises in Greece and difficulties for the euro.
As Goldman Sachs bosses attempted to explain to American senators how legitimate it was for them to bet against the products they urged their own clients to buy, Royal Bank of Scotland said it would have to await the outcome of the SEC case against Goldman before deciding its own course of action.
RBS chairman Philip Hampton told reporters before his bank’s own annual general meeting that it would be premature to take any action against Goldman Sachs for allegedly misrepresenting a financial instrument sold to ABN-Amro which RBS ended up holding when it acquired it in 2007.
It cost RBS £540 million to disentangle itself from the toxic debt, making the Government bailout essential.
Goldman Sachs arranged and marketed the deal and took a hefty commission. It is accused of not disclosing that it helped pick investments guaranteed to fail and bet on their failure without telling customers to whom they recommended the package.
Meanwhile, Greece was plunged into financial turmoil as credit agency Standard & Poor dismissed the country’s bonds as worthless, making the cost of borrowing on the international money markets impossibly high for the embattled eurozone member.
Goldman Sachs, for a sizeable fee, helped Greece to cook its books using measures that were perfectly legal at the time involving credit swaps against foreign currencies using fictitious exchange rates and which acted to conceal the true extent of Greece’s current and future indebtedness.
Internal Goldman Sachs emails released by authorities in the United States show the bank’s own senior managers believed the sub-prime mortgage market it had so heavily sold was about to collapse.
The 31-year-old bond trader identified as the architect of the controversial Abacus collateralised debt obligation, Fabrice Tourre, wrote in emails that not only did the bank expect the collapse of the market it helped create, it was working on ways to make money out of it.
Tourre’s bosses, including Lloyd Blankfein – who for years have been able to operate behind a wall of media silence – found themselves at the receiving end of several hostile critiques by finance writers for what were universally called “shifty” and “evasive” answers to the simplest of questions.
