‘MORE and more leverage in the system. The whole building is about to collapse anytime now. . . Only potential survivor, the fabulous Fab. . . standing in the middle of all those complex, highly leveraged, exotic trades that he created without necessarily understanding all of the implications of those monstrosities.’
‘fabulous Fab’ was Fabrice Tourre, the Goldman Sachs banker. His memo emphasises the fact that not all bankers thought that the expansion of the inflationary housing market would be for ever.
Goldman Sachs understood that the market was about to crash. What Goldman Sachs allegedly went to work on was to make sure that it was not a ‘potential’ but an actual survivor.
The way that, ‘fabulous Fab’ and Goldman Sachs are alleged to have done the trick was to design, at the least, another ‘exotic’ instrument that would allow them to take their fellow bankers for a ride and defraud them of hundreds of millions of dollars.
The US’ Securities and Exchange Commission confirmed yesterday that ‘The product was new and complex but the deception and conflicts are old and simple.’
The US government is alleging that essentially this is a case of common deception in order to rob.
It added: ‘Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective, third party.’
The British bank the RBS was one of the biggest suckers that swallowed hook, line and sinker the assurances about the ‘independent objective third party’, while the portfolio was loaded up with mortgage securities that ‘were about to collapse anytime now.’
RBS was relieved of $841 million in the allegedly criminal sting operation, and was the biggest loser. It paid up, after it was part nationalised by the Brown government in 2008.
Deep in debt itself, it had to be rescued by the Brown government using taxpayers’ money, a section of which was then handed over to Goldman Sachs.
The US Securities Exchange Commission (SEC) alleges that most of the money raised by the alleged scam was simply passed on by Goldman Sachs to the Paulson Hedge Fund.
The SEC estimates that investors in the portfolio lost $1bn, while Paulson made a profit of $1bn. It alleges that the Paulson Hedge Fund selected the sub prime mortgage ‘assets’ that went into the portfolio, and were worthless after a couple of months.
Goldman Sachs insists that it has done nothing illegal, and it was all strictly banking.
It says that it expects to be exonerated in a court of law.
However, it will not be exonerated in the court of the developing socialist revolution of millions of angry workers.
It was Karl Marx who condemned capitalism as a system that enriched itself through legally robbing the working class of the surplus value that the sale of its labour power produced. He also showed how it is that swindling, as a way of life, emerges out of capitalism in crisis.
The major role of the big banks today, in a world slump, is without a doubt speculative swindling and theft on a daily and massive scale.
In Vol 3 of Capital, chapter 30, Marx states: ‘In a system of production, where the entire continuity of the reproduction process rests upon credit, a crisis must obviously occur – a tremendous rush for means of payment – when credit suddenly ceases and only cash payments have validity . . . At the same time, an enormous quantity of these bills of exchange represents plain swindle, which now reaches the light of day and collapses; furthermore, unsuccessful speculation with the capital of other people; finally, commodity-capital which has depreciated or is completely unsaleable, or returns that can never more be realised again.
‘The entire artificial system of forced expansion of the reproduction process cannot, of course, be remedied by having some bank, like the Bank of England, give to all the swindlers the deficient capital by means of its paper and having it buy up all the depreciated commodities at their old nominal values.’
Marx pointed to the essence of the current crisis many years ago. The Bank of England and the government printing paper to aid the swindlers is not the way out.
What is required is the nationalisation of banks and the major industries and putting them under workers management by means of a socialist revolution, that will prepare the way for the development of a planned socialist economy.