behind the curtain--the full monty (part two)

8/14/2019 Behind The Curtain--The Full Monty (Part Two)

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The Asian Currency CrisisThe Asian Currency Crisis became another

hot bed of political chaos. This time, many

people were starting to notice the "club"in other governments. It appeared that the

currencies of South East Asia were being just

attacked by a school of sharks.

It was now starting to emerge that thefeeding frenzy was growing. There were bolderattempts to start screwing with the world

economy for short-term hits. Nobody would

speak outf and I was starting to get verytired of panic and crisis management. It wasbecoming more and more strange that I seemedto be running around trying to save something

that no one else seemed to care about.

The "club" left it's finger prints all

over this one. Political leaders in South EastAsia were starting to publicly complain aboutthe wave of professional trading that target-ing their countries.

The "club" was becoming a sociopathicorganization where they cared only about the

instant profit and to hell with the rest of

the world. I started to become much more con-

cerning about the rising volatility. I turnedto the computer to inquire about this problemand the projections I was getting back truly

scared the hell out of me. I was looking at

the future of western civilization being leddown a path of total insane destruction.

For you see, with the ratcheting up of

volatility is entwined the escalating forces

of political instability. These two were infact historically inter-linked. I felt often

alone, trying my best to instill some reasonto this madness. It was not easy. The phone

kept ringing with crisis after crisis, but

the boldness was also rising from the "club"and it seamed we were headed into a seriousconflict and they would not listen.

I was invited by China to fly to Beijingand arrived to meet with the Central Bank todiscuss this problem of the Asian Currency

Crisis. Thay were quite concerned about therising volatility, and the political conflictthat restrained them from speaking publicly.Thay ancouraged ma to speak out and to make

the points I had been writing about. Thay were

concerned and thair staff had worked on thetrading dasks in the West at major banks andknev my concerns were real.

Perhaps I was at first naive, but I

had not at that time placed any covertlinks between Robert Rubin and efforts to

aid the "club" as Secretary of the TreasuryI was raised to not judge people, and that

has not always served me well when you are

dealing with people who are just rotten totha core.

The Treasury was starting to try to

talk the dollar down again, the same PRECISmistake that they made going into the 1987

Crash. This was getting out of hand. On May

20th, 1997, I wrote to Rubin warning him

that this stupid policy was tha same onethat caused the 1987 Crash.! I also pointed

out that the whole system of economic stati

tics were dead wrong.

I explained that all statistics werecalculated on currency and not actual'units

of goods. So the 50% decline in the yen mad

the trade surplus in yen rise by 50% sinceit vas currency and not goods that is being

measured.

I warned Rubin that if the yen fellbelow 1 1 0 , tha Japanese would start to sell

thair holding of US government debt. Theycould not endure another currency swing as

took place between 1935 and 1987.

The response was polite, and thanked

me for my concern assuring me that they hadno intention of trying to talk the dollar

down. Tha comments stopped, and indeed tha

dollar moved up into 1993 just before tha

Russian crisis.

I was finding myself becoming some sor

of an international priest that countries

would complain to in hopes I would relay thmessage. We were becoming a clearinghouseso to speak, and the pressure was clearly

building.

I began to start openly writing about

tha organized manipulations. I was not at

that time giving names. But I would startto warn "They're Back" in an effort to tone

down what was becoming insane. Clearly, the

only lived for the moment. They cared nothi

for the long-term, nor about the political

damage I was starting to witness. This was

not good.

24



HE Nineties was when the "Club" firstbegan to be known as the "Billionare's

Club" for it was expanding to nowinclude individuals. Of.course, thosewho strive to cover-up the whole Clubwill argue just about anything that

anybody says is somehow wrong,or nuts,with no proof to the contrary.

As I have explained, the first time Iheard of Warren Buf ett becoming a traderrather than a investor, was in 1993 withthe first silver manipulation. I assumedthat his involvement in Salomon Brothershad now exposed him as a potential clientfor PhiBro who did one hell of a good jobselling him on investing iri silver. Thewhole CFTC confrontation, I also assumedwas merely trying to protect him personallyfrom the negative publicity of speculatingnow ir i silver.

As time went on, his name began topop-up more frequently. The talk of thedesks behind the scenes was that he waseven pulling in Bill Gates into some ofthese deals. I never bothered to confirmthat was true, but it is one of the reasonswhy the "club" began to be known as the"Billionare's Club" behind the curtain.

There were rumors of expanding intothe ranks of hedge funds. long-Term CapitalManagement was rot the only one said to beinvolved. I also never was able to confirmif George Soros was part of the "club" or

was the "club" mirroring his famous tradeinto the pound. He too lost about $2 bilin Russia, mirroring tham in 1998?

The platinum manipulation was verybold. Now bribes were being paid to Russianofficials to recall platinum to be inven-toried. That sent prices soaring. Of course

the "club" were all long for that one, andthen they took profit and flipped short.Russia precisely came out and said they hadfound a bit more, and prices crashed. Thetiming was outstanding. Ford Motor Companybrought lawsuits on that one.

They returned to silver iri 1997. I

put out a warning to clients that "they're

back11 and were going to take silver to $7

26

and crash it again. Once more the nameWarren Buffet was attached. These wildmanipulations, or the "Gteat AmericanBubble Machine" as Taibbi called it, wasbecoming far too aggressive and too often.

The head trader from AIG got ir i to seme from London by getting a board memberwho had been Margaret Thatcher's chief economic advisor to call me for a meeting. Iwas shocked when it turned out to be aboutsilver. I was asked to stop talking aboutthe manipulations and politely asked tokeep my mouth shut. I declined, just sayinI would rot mention names.

They did rot find that good enough. Sa analyst in Connecticut most likely on thpayroll of the "club" used his contacts toget the Wall Street Journal after me. WhenI got the call I was being accused of tryito manipulate silver. We argued, and the

journalist demanded I give him the name ofthis mysterious manipulator. I got mad anfinally told him it was Warren Buffett andhe replied everyone knew Buffett did nottrade commodities, and I said that's how mhe knew. They came out with a story blaminme and the London newspapers ran stories nclaiming I was the largest silver trader ithe world. The problem was, they made thispublic.

The CFTC called asking where the silvmanipulation was, and I told them in Londo

They called the Bank of England who summonall the silver brokers for a urgent meetinthe next day. Buffett came out and admittehe bought $1 billion worth of silver and h

denied manipulating the market. Such a postion was illegal under CFTC rules. Nothinghappened and Buffett stopped any investiga

dead in its tracks. This was the closest t

came to being exposed for the English woulhave done so, its the Americans that the Cowns. If Buffett is a full member or a pawis the real question, but $1 billion in siis manipulation in US regs.



THE BOLDNESS of the Club simply took off. They knew that theJapanese brought back their cash in March for fiscal yearend and then re-invested in April. The Club was targetingthe Japanese yen for the March roll-over in 1999. It was

getting out of hand. I found myself at great odds with the Club for my job wasto protect my clients. From their perspective, I was the threat they saw to theirentire operation. I stood-up at our annual conference in Tokyo held at the old

Imperial Hotel, and warned the entire audience that the yen was the next target.I warned that they had to lock in tlie currency v f o a n they sxLd it for the roll orelse they were going to be squeezed big time.

The Japanese understood what I wastelling them to do. They did it. The rollwas probably in the tens of billions ifnot more. My clients protected themselvesand the yen squeeze failed. I was told byseveral currency desks at the time thatthe "club" had lost at least $1 billion.

No doubt there was developing an allout war between myself and the Club. I wasstrongly against these manipulations forI saw them as increasing volatility, notaltering the cycle per se, but that wouldundermine the entire economy creating waveafter wave of building instability. I sawa giant wave of building volatility thatthese guys were too stupid to realize whatthey were doing.

That was only the half-of-it. At the

same time, the Club was lobbying hard toget rid of the 1933 Glass-Steagall Act thatprevented securities, banking, and insur-ance industries from expanding into oneanother's businesses. That was repealled~irTT999 championed by guess who - RobertRubin who was now Secretary of the UnitedStates Treasury.

Meanwhile, Henry Paulson then headof Goldman Sachs was lobbying the SEC whoregulated Investment Banks to allow themto use much higher leverage. The whole

industry was now being turned on its head.

Nevertheless, these manipulation weregetting bigger and bigger. They were nowdaring to control governments, not tocreate some one world government, but tofurther their manipulations and preventboth regulation and investigation. Theworst to come, was the boldest attemptof all to manipulate the politics within

Russia itself.

There had been much hope about Russiaopening up and joining the democratic andcapitalistic free markets. But the under-tone of Russia had always been corrupt inits political circles. Yeltsin just happento be at the right place at the right timeand standing on a tank was good enough tonow qualify him to run the country.

There was a great hope rising in SainPetersbourgh that many in the West were atthat time looking to as a possible leaderfor Russia. She was running formyac of SaiPetersburgh who was shockingly assassinateshot in the head execution style. The presin Russia was given the story that she wasa pawn of a Western Financier. My phonebegan to ring and I was asked for commentson this incident. I said I had no idea whythey were calling me. I was then told that

I was the Financier. It turned out her sonwas working in our London office, and thatmere connection was being spun into somehoinvolving me. I thought at the time it wasa desperate connection that made no sense.Later, it would seem to be somehow a schemto tie me to Russia as perhaps cover forthemselves.

The truth behind this mess, was thatat least Edmond Safra was daeply involvedin the BLACKMAIL of President Yeltsin tostep down so they could gain control of al

Russian resources to aianipulate the oiarketin oil to metals. TWO versions exist, whereeither Barisnofsy would become the new haador he would install Putin assuming he wouldbe a puppet. Either way, $7 billion disappeYeltsin mysteriously m i l e ; ff t±e election, a

Putin comes froji nowhere. Barisnofsky aftebeing an advisor to Putin, flees Russia and

the mastermind Ednond Safra is murdered inMonaco within weeks. The truth may not comeout for 50 years like the Kennedy Assassinat

27



A SSASINATICW may be a strong word, but it is spot on for the fate that Edmond Safrasuffered in Monaco on December 3rd, 1999. Within less than 10 days, the death ofSafra scared the hell out of the US Government and they moved to throw me in jailon civil contempt for an alleged missing $1.3 million out of $3 billion. My partneoverseas had an attorney there to observe. He got out of the courtroom and relayedto them that I was being railroaded, and that under no circumstances, should they

ever come to the United States. They have not been here since. Dominic Dunna, the celebratedjournalist, covered the real story of Safra1 s death that he was assassinated by the Russian^

Dominick Dunne was someone who I was in contact with. He was on my phonelist in New York. Dominick reported that "Monaco wants it all hushed up."

Dominick had covered the story in Vanity Fair taking the positionthat the Government of Monaco was entwined in a deep conspiracy to

cover-up the truth. Dominick reported that "Safra was obsessedwith security. It was widely reported that he felt menaced, and- considered himself a hunted man. Even before collaborating

with the F.B.I, in 1998 and 1999 to expose the RussianMafia's international money-laundering operation, he was

apprehensive for his safety."

Where Dominick had assumed that when

Safra turned in Bank of New York in August1999 for allegedly engaging in a $7-14 billimoney laundering deal, that Safra was being good citizen. He did me just 3 weeks later.

When there were problems in our accountI called to speak to George Wendler. He refuto speak to me and just said he was a messenfrom the board. That told me the direction wcoming from Safra. I then called and offeredto fly to Geneva to sort out this problem before turning to lawyers. I was then told

that Safra left Geneva and went to Monaco fosecurity reasons. I knew something was wrongThis was on August 27th, 1999. I went to mylawyer to file suit on Monday, August 30th.By the end of that week, the FBI was takingcomputers and records raiding the Princetonoffice before the week was out.

Dominick began to report the strangenesthat was associated with supposedly a nursesetting fire to pretend he was saving Safrafor some reward. Dominick reported he was tolby a very prominent resident in Monaco that

"there were two bullets in Edmoridfs body."He reported that Monaco had all of Ednond'sstaff sign "confidentiality oaths." Otherswere paid "$100,000 for riot speaking to journalists or outsiders." Dominick wrote thatthere was no effort to rescue him with allthe "manpower running around the premises fotwo hours." One of Safra"s security peoplehad the "key that would have unlocked the do

to the bunker... But the Monaco police seized[him] ...and put handcuffs on him."

28



Dominick reported that when he flew toParis to talk to close friends, he was bluntlytold: "Among friends, we avoid talking about

it. It might not be v i h a t it is." Dominick hadalso reported that the nurse who was set up totake the fall, Ted Maher, "wasn't supposed tobe on duty that night. ... They put him and

Vivian [who died with Safra] on at the lastminute."

Dominick said of Edmond, he knew "all thesecrets of the financial planet." He had longbe suspected of laundering money for "Noriega,as well as the Columbian drug cartels. Andboth his bank and his private jet were allegedto have been pressed into service to move moneyand personnel during the Irari-coritra scandal."

Edmond was famous for having armed body-guards with him at all times. Dominick wrote,

"One of the great mysteries of the caseis that not one of the guards was on

duty the night Safra died."

Ted Maher said several men in black suits

where breaking in. They stabbed him in the legand he started the fire to call police. Butthey did riot show up. They charged Ted insteadto cover-up what took place that night for it

went a lot deeper.

Strange,~after being thrown in civilcontempt to stop a Speedy trial I had movedfor that would have been by March 2000 just3 months away, the Government attacked allmy lawyers, stripped me of all my research,and hauled the computers to the World TradeCenter no doubt to try to break into them for,the model. They could have copied the harddrives if it was really evidence they werelooking for, but instead, they took everycomputer out of the office in whole. Thiswas riot about evidence. Something else wasgoing on. If they wanted a trial, then why

take all the lawyers away7 One employee JamesSmith came face to face with one of the USprosecutors, Brian Goad. He told him I hadmoved for a speedy trial to save the company.Mr. Goad told him/'this case would never goto triart When Jim asked him what did hemean, he said 'never mirid*

Dominick and I were in communication. I

informed him after his story that it was riot

the Russian Mafia, but the Russian Government

that involved even the IMF loans. Based onseveral reliable sources from Russia whereI had my own contacts, the story went thatBdnond had been working with the Russian

Mafia that were Jewish - Barisnofsky andGazinsky- The plot was to replace Yeltsinwith someone who could be controlled. Itwas either Barisnofsky who would replaceYeltsin, or he would bring in Putin whowas an unknown former KGB man. &$7 billionwire was steered through Bank of New Yorkand Safra immediately ran to the Feds andsaid it was money laundering.

Barisnofsky became an advisor to Putinand seems to have believed he would be apuppet. Putin's anti-capitalist feelingscame out once he had the power and it wasclear, Putin was no pupet. Within just afew weeks, Safra is fleeing Geneva for his

Monaco sanctuary and is killed Dec. 3rd of1999. Barisnofsky who is said to have madePutin, flees to London where he was givenpolitical asylum. Gazinsky, fled to Israel.

Safra setup Bank of NY and myself withinAugust 1999. My lawyers were attacked andremoved & I was thrown in on contempt.

No one can explain why Yeltsin, a free

market guy, would turn Russia back to a forKGB for no reason. Besides my sources direcin Russia, I found myself also in jail with

a Russian son of a diplomat who the US wastrying to coerce as a "material witness11 anknew precisely; who I was. He too confirmthe same story. Every source I had came bacwith the same story-line. Safra was seen asthe brains, arid he was killed. He was a manwho was never without his bodyguards. Yet twere all dismissed that night by his wife.

I was even taken en what is called a"proffer session" where the head ProsecutorRichard Owens, bluntly offered me a deal wino jail time if I just confessed to some wi

conspiracy with Safra. I refused, informinghim I did not conspire with Safra. He blunttold me "we know you didn't steal any moneyBut we can't drop the charges."

At this April 2000 meeting, this verytopic came up about Bank of New York. Theyknew now that Safra had set them up all aroon both cases. I told them I knew they werenot getting past the Minister of Interior iRussia who was blocking any access to find

•29



out where the money came from. I told themthey would riot get anywhere for the game hadchanged. Indeed, in the end, then nobody wentto jail in that case. The Government stoodup and praised the broker Lucy Edwards forher cooperation. That was it. When asked incourt who was this money laundering of $7billion for, she replied some ransom fora wealthy Russian business man. The judge

asked no other questions and the case wasburried.

Putin kicked the head of Safra's mainRussian venture out cancelling his visa. Thewhole thing of Hermitage Capital was Safrafs

central figure in this bold attempt to gaincontrol of the ultimate source for clevermanipulations of the commodity game.

As for the male nurse, Ted Maher, wellas in the United States, he was threatened

into signing a confession. "They said, 'Ifyou ever want to see her again or leave thecountry, you are going to sign this.111

The truly startling development was thejudge in the case admitted to a French news-paper Le Figaro that he'd colluded with otherhigh-ranking Monaco officials to convict themale nurse. The court-appointed lawyers werein on the frame-up there as they are alsoin the United States. Judge Jean-ChristopheHullin admitted there was a secret meetingprior to the trial with one of Maher's law-

yers present arid the Chief Prosecutor. Theyagreed before the trial began with the judgethat he was guilty and that the sentence wasto be 10 years.

Human nature is the same everywhere. Wecan never trust criminal prosecutions in anyhigh-profile case, for there are far too manypolitical considerations and careers to workout. Maher's conviction was vacated ardhe

put on a plane and sent home. So v * i o killedSafra? Nobody wants to discuss the matter.

Maher was at least suing Monaco. Hecould never do that with the Federal Gov-ernment that holds itself above the law ofall nations. Maher told the" press, f l l

gave eight years of my life for the safetyof my family."

Anyone who has been to Monaco knowshow small a place it really is. When thesmoke alarm went off at 4.53AM, it tookthe Monaco police nearly 3 hours to even

FIRE FURY:Ted Maher ad-

mits settingfire In Monacotljat killed Ed-

mond Safra'"

says iedisave hisThe Post re=

ported on

outrage

ISafra's ifc ivitfj£thaiWHA.

30

T Y C O O N ' S

K I L L E R ; M YF R A M E - U P

respond. Just what was all that about?Do countries do each other favors whenit is critical and really necessary? AllI can say, they wanted me to confess tobeing involved in a conspiracy with Safrain return for no jail. I told them to takethat and shove it where the Sun doesn'tshine, and they responded with more than7 years of false imprisonment ensuring thecourts would rubber stamp whatever they wan

You believe in your country and then you are

woken up by the fact that you have beanbetrayed by your own country and courts jus

no longer protect the people.



TECH STOCK BUBBLESidney Weinberg who rose from being the

janitor to the head of Goldman Sachs, had infact steered the firm back to its core andcontinued to drive the firm into the fieldof underwriting public offerings. That fieldof business came to a head with the famousTECH STOCK BOBBLE going into 2000.

Before the merger with J.Aron & Co thatblended the commodity world of ethics withthat of finance, Goldman Sachs did not marketitself as being the most aggressive nor as theplace whose employees were the smartest andbrightest bulb in the box. They were ratherconservative and hestitated before gettingback into the speculative bubble that nearlywiped them out in the Great Depression. Itwas truly the belending of commodities withWall Street that altered the ethics and theway business was to be done with a focus onproprietary trading.

The old rule in underwriting that camepost-Great Depression, was that a company hadto have been in business for at least 5 yearsand it had to show profitability for 3 consec-utive years. This gave way and what unfoldedwas the conversion of the N&SD&Q market intothe venture capital market.

Whether Goldman Sachs can be fairly nowblamed for the Dot. COM Bubble, I would have to

reply no! The fact that they got into the leadof this pack is a reflection of the completecollapse in the old ethics and the evolutionof the proprietary issues that were to drivethe firm we know today.

One of the last stocks to have been puton the IPO market in 1929 was Mausoleum Inc.that anyone who has flown in or out of JFKAirport will pass grave yards along the BeltParkway. When you can take a funeral businessand turn that into a IPO, it demonstrates thatthe real problem in 1929 was in fact too much

money chasing too few stocks. There was indeeda shortage of stocks available to buy.

The Investment Trust collapse of thosedays took place for the same reason the bubbleburst in 1966 and in the 2000 DOT.COM events.Whenever sOxiiething is listed, it will be bidup and sold down far beyond its actual worth.The Investment Trusts were a listed hedge fund

so instead of being valued at its assets, it

was bid-up by speculators on anticipated pr

its. The same problem took place in 1966. Ipersonally purchased Fidelity Trend that hapeaked at about $54 and fell to about $7. Iwas listed and trading well above and thenbelow its actual asset holdings. Since 1966funds were no longer listed for this very r

son. Mutual and Hedge funds have a value this based upon net asset values, not the valof speculation by the marketplace.

The TECH STOCK bubble was thus nothingdifferent. The same thing took place with trailroad stocks. During the 1907 Crash, somstocks that sold for $400 had fallen to jusa few bucks. Goldman Sachs1 experience withthis bubble nearly wiped them out in the GrDepression.

Had Goldman Sahs truly had the best anthe brightest, they would have understood tthey were leading people down a path that wdisaster. That means there was either greedor stupidity to blame for this debacle.

There is no question that Robert Rubinin fact knew that the standards in underwrihad been changed and he knew well that whatwas supporting was the same type of bubblenearly destroyed Goldoian Sachs before. It wGoldman who took Yahoo! public in 1996. In1997, it took 24 companies public without p

its under their belt in many. In 1999, it ntook 47 companies public and in the first 4months of 2000 going into the high, it hadtaken 18 companies public with 14 not showi

a profit.

While I personally see nothing wrong wthis type of business, I do believe it shoube regulated differently insofar as the pubshould have separate disclosure. The Drefusfund became famous because it had done justthis - it bought an IPO of a company that hinvented something by the name "Poloroid" a

the initial shares went up so far, they werlike buying a stock a $1 and watching it gto $10,000, after several splits. The publiSHOULD have an opportunity to get in on a nindustry and make a fortune. It just shouldbe disclosed that it is high risk/reward annot something you should put all you moneyinto. It is no different than legalized casinos that use to be outlawed until the gove

ment figured out it could get in on the act

3 1



Yet Goldman Sachs has everRobert Rubin adopted thetructure that today hasmad-as-hell, there has

a fundamental collapse incs of the firm as a whole.

e problem as I see it is theof banking, broker-dealer,

(underwriting),tary trading. This is

petri dish cultivating a hugeof interest that is far

healthy for the industry andeconomy no less the image of

e United States. This feeds theatred that Karl Marx had

and warns that thisuld even fuel violent unrest

the housing market gets worse.

Where Goldman Sachs crossed the line is

in its practice of always trying to rig thegame. In this aspect, it was called in theindustry "laddering" whereby if you were aclient of Goldman, then you got to buy in atthe cheap IPO price. However, you had to agreeto the buy additional shares at the market.In effect, they were securing volume and thatthe stock would rise by locking in future bidsthat they then possessed insider knowledge of

in the market place.

Goldman Sachs got its hands caught inthe cookie-jar on this one.They were in fact

manipulating stock prices, yet were never atany time criminally charged. In 2005, theyagreed to pay $40 million to settle these

laddering allegations.

Then there was the rigging of marketsthat they did known as "spinning" yet couldhave easily been dubbed also "insider bribingof directors." This scheme saw the initialoffering price of an IPO priced cheap, asmany have argued, and a portion of the stockis now paid to the CEO of the new company inreturn for future offerings. They did this in

eBay, whose Chairman later joined the boardat Goldman Sachs, Yahoo!, Tyco, and Enron.In 2002, this practice at least led to theHouse Financial Services Coiumittee investiga-tion of some 21 companies. Goldman denouncedthe report as "an egregious distortion of thefacts" but then paid $1 10 million to settlethe same case allegations that had been filedby Eliot Spitzer when ha was Attorney General

for the State of New York.

i • • i 13 months

i i I I (55.9 jweekp)

jltecbnical Aiialysjis by

JMariin A. Aimstiiong

The talk about taking down Eliot Spitze

was this too had been orchestrated by the

"club" for payback, and to send a signalthat nobody screws with the "club" as it werEliot Spitzer had been known to many on WallStreet to be fond of the hookers. His publicimage of cleaning up New York City was onlya show. He was after the big bucks to makea name for himself. That included GoldmanSachs and AIG. Spitzer had long known aboutthe rumors about Wall Street, but what he dinot take into account, was how much Wall Str

controlled the federal boys and courts. Sohis fall from grace was prompted by the crowhe had targeted, but underestimated how trul

ruthless the "club" had become.

Eliot Spitzer's political career w a s ^

destroyed. Ask yourself, when has the Fed'sever cared about a politician's sex life?They don't! This was the retribution for hiassault on Wall Street ("club") and therewere loud cheers when he went down in flame

as the Governor of the State of New York.The "club" flexed its muscle and the Feds di

their bidding.

Robert Rubin had went to Washington wiClinton and became US Treasury Secretary, tmost powerful position in the economy. Itwas Jon Corzine who now ran Goldman Sachsbetween 1994 and 1999. He left to become thGovernor of New Jersey. Between 1999 and 20

the bonus structure put in place by Rubinpaid out $28.5 billion in compensation andbenefits to its employees (about $350,000 p

person).

32



There is a serious problem. Either we -Goldnan Sachs at their word that they are

t smarter than everyone else and have thefor them, or they are just

as shit. If they are truly the smartestfirms in the world, then they should

known what they were creating and that

entire Housing Bubble, the fall of BearLehman Brothers, and the worst of

omic declines since the Great Depressionall within their intended objective. If

ey claim ignorance and that they did not inway deliberately create the Perfect Storm

economic history, then they cannot be thesmartest of all firms, nor do they have

best people. You can't have it both ways.

I would have bought the ignorance viewit had not been for some very strange > /

surrounding my own case. It was verythe court appointed a reosivar& put

im in charge to run a o r e i g n / c o r p o r a t i o n tatst possible legally (the only court havingthe internal management of

corporation is the one where the corporationchartered/ which was overseas). It was inALftN COHEN, who is the head of Goldman1 GLOBAL (XMPLIANCE, who had actuallyup for the government and then pled the

effectively guilty in 30 days toSEC complaint, he blocked the hiring ofcounsel, and entered a secret agreementthe government allowing him to withhold

that Alan Cohen turned over ftLL researchGoldman Sach, things start to become more

First of all, for at least 10 years, Iwas gathering evidence on the "Club" keepingtrack of what they were up to ever since thg

began using commodity tactics in financialsThe Asian Crisis exposed the group behaviorforeign governments. I thus gathered all thevidence for years even documenting eventsa ledger book in my desk and taped telephoncalls to back-up sources. I did not publishnames, only saying "They're Back!" When mybegan, there were anonymous phone threats aa bullet put in my mailbox (see below) thatturned over to the lawyers. Cohen seized thoffice and employees who were there stated tjust took things and gave no receipts.

The head of Goldman Sachs' Gtobal Compliance no less acting as the now manager of /

Princeton Economics International, Ltd, madan effort to seize all the research both onthe markets (our model) ,as well as on the

investigation. The Judiciary is so corruptthey let Goldman Sachs run the company thatwas investigating them by proxy. How canthis not have been a conflict of interest?Alan Cohen threatened to throw all lawyersin jail unless they turned over all tapesI gave them for safekeeping. On February 7,2000, I stood up in open court and triedto protect the lawyers and the investigativmaterial. I failed. Judge Richard Owen woulnot allow it and seized everything. This, Ibelieve is a critical point to understandthe events that followed, for I believe tha

the object was to also seize our research,use it for the "Club" and prevent publicati

ARMSTRONG: Your Honor, may I address the court for a second? T gave the tapes toMr. l i n g e r because I received death threats and I had also received a bullet

that someone left in my mailbox which I also turned over to Mr. Unger. I gavehim those tapes that had nothing to do with this case for safe keeping.

(9Q-Civ-%67; 2/7/00; p?2, Lines 3-8)

ARMSTRONG: The other tapes, your Honor, were made as a journalist, so to speak. Idid a number of pieces and monitored a significant effort by a number of invest-

ment banks and fund managers who attempt to organize together in manipulatingmarkets. I wrote extensively about several cases on that, and I made tapes toback up myself in support of that.

These are tapes that are, again, I do not see where they are particularlyrelevant to this particular case, your Honor. They have significant implicationsfor a number of well known players and investment banks on the street that prob-

ably do reveal criminal behavior, but that does not necessarily involves thiscase. They were things that I wrote about. It is well documented that I was exposing

the silver manipulations that were ---went by a number of firms including Republic

Bank. The CFTC even contacted me personally for information in that investigationand as well as that led to the Bank of England getting involved into the investiga-tion.

34 (QQ-Civ-9667; 2/7/00; p4-5) .



The Housing Bubble appears <to be muchdeliberately orchestrated, although I

doitt that there was for one secondcontemplation about what they were trulyg. Because the "club" is short-sighteddoes not take long-term investment views

anything, it'sail about instant gratifica-The only long-term model on real estate

that of Princeton. But I am sure they hadat the spike into 2007, not the

year decline afterwards.

The origins appear to begin actually inClinton Administration. There developed

political view that they wanted to increaseownership and that would be a socialist

prosperity. What they did not at allwas that real estate ha& already

a highly leveraged market post-World Warthat the capital concentration within

United States that led to its acquisition

76% of the official world gold reserves byfor the Bretton Woods global summit on

ating a new monetary system, was tl}& realrce of that leverage. In other words, theer amount of capital concentrated withinUnited States allowed for 30 year mort-fmarket to develop. Had there been a short

of money within the United States, therket would be like that of Canada

Europe - far more short-term.

The lack of sophisticated models withingovernment has allowed the "Club" to mislead

them at will. When Congressman Snow askedthe former head of the SEC Mr. Cox shouldn'tthe government have models, he quickly saidno. This allowed the leverage to be 50:1.

Clinton's team was composed of RobertAlan Greenspan, Larry Summers, and

head of the SEC,Arthur Levitt. All wereboard and Rubin was leading the team. You

keep in mind'that it was the SEC and thethat controlled the legal leverage in

Investment Banks, not the Federal Reserve.

2000, they passed the Commodity FuturesAct.This opened the door forbanks to trade default/swaps freely.

The long-term benefits of the Reagancuts was finally starting to kick-in.

nation moved into the first budget surplus1969. Reagan's policies had been in fact

Volker's absurd raising of interestto 17% at the Fed.That had the effect

raising the deficits for a decade by the

THE HOUSING BUBBLE

Real Estate78 Year Cycle Wave(52 Years of Escalating Trends)

(26 Years of Contraction)

Copyright

Martin A. Armstrong 2

1955.55

the sheer fact that raising interest rateshad the desired effect to stop consumer spen

ing, but NOT government. How do you raise thrates of interest without effecting the big

gest borrower in the market? Simple answer -you can't! Volker's interest rate policy setin motion a trend of wildly expanding debt.Between 1986 and 2006, the rise in the nationdebt is attributed to over 90% interest.

In 1994, there was the "Republican Revolution" where they won both houses for thefirst time in more than 40 years. The fightibegan over how to spend the surplus. Littlewent to paying down the National Debt. Thepolicies of Rubin met with approval of theRepublicans and the "club" was given a greenlight to go nuts in the housing market.

The strangest events began to unfoldillustrating that Goldman Sachs had begun anew strategy - conquer^from within. All of asudden, it did not matter what the politicalparty was be it Republican or Democrat, somehow staff from Goldman Sachs was infiltratingovernment in all departments. The tjasics ofthis strategy was said to have been the brai

child of Robert Rubin as was the housing. In2000, AlG went to the New York State InsuranDepartment to inquire if the default swapsshould be exempt from regulation. Neil Levinran that department for NY State, and he wasa former VP of Goldman Sachs. He gave the alcritical blessing to &IG exempting the swapsfrom regulation. What does a ex-Goldman Sachemployee have to offer to run insurance regulation? That was not his expertise! The wholhousing bubble was set to inflate.

35



Gretchen Morgenson of the New York Timesthe Credit Default Swaps to J.P. Morganit to AIG. The staff at J.P.Morgan

not comfortable with the product becausere was no historical model that would inreveal what is known as a correlation

In other wordsf if the mortgages goo default, those losses then ripple into

other sector of the debt markets.

This is HOW a CONTACTQN is truly borntook place with Long-Term Capital Manage-

Everyone had big bucks in Russia. Theycounting on the International Monetary("IMF") to be there to guarantee those

supporting funding. However, thereNO developed market to buy or sell into.

was just getting starteda futures contract.

Once the Russian debt went belly-up, the

of a market forced the raising of anyinto other holdings. Thus, we saw the

go crazy from stocks, bonds,way into currencies like the Japanese

Why? They were also funding these debtin yen to maximize their profit.

y were not satisfied making 10-20 timesir money using dollar loans, so they wentinto yen to reduce borrowing costs down

from 7%.

The CONTAGION is thus created by the

to get out of one market, and theto raise money forces liquidation of anyher position held. Thus the mortgage debt

was identicalSAME mistake they made with Russia. Now

risk just as theycted the IMF to back the Russian debt. Itthase dream-like presumptions that will

NOT HAVE THE BEST &BRIGHTEST for they would never get into

attractions that blow up the whole

The mortgage crisis turned into a localinsofar as the debt in that area

portfolio of fixed income andat would cause fund raising to spread toother areas of debt. There was no such

ganized market for the mortgages. The CDSnow failed, and this led to the

tire system melting down. This is the samepid mistake ALWAYS illustrating they are

Goldman Sachs by 2006 had underwrittenat least $76 billion worth of this stuff.They began trading against their own clientsin the mortgage market. Matt Taibbi reportedin the Rolling Stone that David Viniar whowas the Chief Financial Officer at GoldmanSachs "boasted" in 2007:

"As a result, we took significantmarkdowns on our long inventorypositions. ... However, our riskbias in that market was to be shortand that net short position was

profitable."

While Goldman Sachs tried to portray thimage of again being the brightest bulb onWall Street, the facts do not add up. What*they were doing was outright securities frauthat was criminally prosecuted against Milkeand was grounds to extinguish Drexel Burnham

But then again, they were a Philadelphia fircompeting with New York, Clearly, if there wreally Equal Justice For All, then the SEC &US Attorney should have criminally prosecuteGoldman Sachs. But as every journalist I havever spoken to has stated bluntly, the USgovernment will never pposecute one of the bNY houses, there will be no investigation anno prosecution that will EVER show the truthWhat is the purpose of having so many peoplin low paying political posts? Surely, theywill never work for government for the pay

or benefits. So what is it?

The Wall Street Journal published inits Saturday/Sunday Money & Investing on Dec12-13, 2009, "Goldman Fueled AIG Gambles."The Journal reported that Goldman "played abigger role than has been publicly disclosedin fueling the mortgage bets" at AIG. Whatreally took place as always, the bailout ofAIG was in effect making good on their sideof Credit Default Swaps. Goldman and otherbanks would turn to AIG to insure the debtthey just got involved with. So, it was not

AIG that was truly being bailed out, but thecounter-parties. In other words, you went toa casino and bet everything of red at theroulette wheel. You can' t pay when you lose,so you turn to the government to pay' yourdebt. Who benefits? The casino, not you!

Goldman Sachs was one of 16 banks thatthe US government paid off who AIG owed.

The Journal reported that "Goldman was a key

36



in many of them, even the ones involvingbanks." Id./B1. They went on to report

Sachs "bought protection from AIGabout $33 billion of the $80 billion of U.S.

s that AIG insured.... That isas much as Societe Generale and

l Lynch, the banks with the biggest ex-re to AIG after Goldman..." Ibid.

It has come to light that Goldman Sachsactually insuring the housing market and

ing to AIG on a wholesale basis thuson a premium for itself. This appears

done on at least $14 billion in

It is surfacing that Goldman Sachs wasoffers to help AIG reduce its risk, but

pricing was very high. The Journal had alsoin February 2008 at a meeting in

discussed the options being offeredAIG, but that Goldman was "unwilling or un-sources for their deter-

of market prices." Id./B4.

Goldman Sachs was clearly exposed to AIGthere was no other source to lay-off risk

the CDS market. They created their ownin which they believed that the

s would not collapse and that mortgagessecured by the US government. They

could make a fortune with no risk. The

d, that implicitly Fannie and Freddiethe mortgage market riot unlike the

suppose to be behind Russia.

The claims of Goldman Sachs would notsuffered a serious loss had AIG gone justp, lack any credibility whatsoever. The

audit of the AIG Collapse shows that theof Goldman Sachs were unfounded. It is

clear that Goldman was the largest benef-iaries of the AIG bailout. The Federal Re-

no doubt prodddd by Henry Paulson

rmer CEO of Goldman Sachs and successor tot Rubin as Secretary of the Treasury. In

amazing deal, the Fed agreed to pay $62 bilinsurance contracts owed to 16 banks they

IN FULL with no discount. That includedSachs.

The report pointed out that Goldman hadinsurance repackaging it to other banks.

if AIG failed, Goldman still had

to pay other banks while being unable to nowcollect from AIG. Again, the report rightlycasts doubt on Goldman's claims it had somecollateral. That would not have been liquidin such a crisis.

Goldman Sachs was clearly dead in thewater. Without the bailout, they would have

been history. Their extensive network bfalumni in strategic places around the globepaid-off. They were able to get all the fundsthey needed when they were not even a banklending to the public, and effectively hadall their bad trading decisions underwrittenby the US government.

They amazingly made the same mistake asthey did in Russia. They put all the apples*in one basket and assumed the government isthere. They are dumber than shit when it comedown to getting into these wild and crazy bischemes, but perhaps where they are truly theBRIGHEST BULB in the box, is how they havepolitically insulated their entire operationwith political appointments.

The strategy to gain political influenceand win powerful friends was deliberate. Ibelieve Goldman Sachs became a fairly largecampaign contributor. It is surprising howlittle money it takes to buy influence inWashington. I spent about a quarter-millionon an advertising strategy concerning tax

reform buying only the back page of BillKrystal's magazine. I can't tell you howmany people in Washington started to poundon my door. It doesn't take tens of millionsas many people nay think. Influence is verycheap to buy at the end of the day.

Goldman Sachs began to take that ideaup after 1986. This led to Robert Rubin infact becoming Secretary of the Treasury. Butthere is still a serious distinction in thethree categories Banld-ng-stccte-connmodities.

Both Robert Rubin and Henry Paulson were true

administrators, not traders. They were goodat building Goldman Sachs and at politics,which is why they became Secretary of the !

Treasury. Their political clout and rolessaved Goldman Sachs when it was just purelyan Investment Bank and had it fallen, therewould have been NO economic depression. Theyhave become a proprietary trader. They arenot a source of serious lending within the

economy creating jobs. They are not a commeribank.

behind the curtain--the full monty (part two)

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