The Paulson Confession

May 06, 2010 3:37 PM ET2 Comments
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Contributor Since 2009

Rich Hartmann, also known as “Rich H” or “Miss America” in the economics blogshere, has worked in Wall Street's banking district for 15 years, and has managed various operation groups. In addition to banking, he also has a weekly column on Nouriel Roubini’s RGEmonitor ( Outside of (and prior to) the world of finance in which he lives, Rich is a former pro/amateur baseball player who has been on a public crusade to hold MLB accountable for the steroid era.
The Paulson Confession
Dear John Paulson,
Many of us (the public) have asked questions in the past few days about Paulson an Co’s participation as an investor in mortgage securities from 2005 through early 2007, and specifically about Paulson & Co’s investments in CDO’s and CDS’s related to the SEC’s charges against Goldman Sachs. We would like to thank you for writing a confession letter clearing up many of our questions. It is not often that people offer up an unsolicited admission of a fraudulent crime. I suspect you were seeking absolution… ???   …or like a sociopath, are you just sitting there amongst the crowd, watching the investigators gather evidence, while reveling in you megalomaniacal pride of knowing you even left clues behind   …and they still can’t catch you???
Either way, you have once again outdone yourself, in being able to foresee that both our political and judicial system is so inept that they were not able to do this on their own. So you have helped build a case for the prosecution team in what should be and eventual trial against yourself. (Sorta like you “helped” build some CDO’s.) As a savvy investor, I’m betting you also just made bets against yourself too, to profit off of your own downfall??? …but then again, what downfall would there be as we all know how well connected you and your clients are!
Let’s review… In your own words, in a letter to your clients, (which you even signed) you clearly stated that your knowledge, (based on public information which we see so clearly in hindsight) put you in a position to “pursue an investment strategy that involved the purchase of CDS protection on RMBS with underlying subprime mortgage collateral.” This is because your “concerns centered on the very foundation of the subprime mortgage security and related derivatives” to which you believe the shady practices “set the stage for significant delinquencies and foreclosures, thus eroding the value of these securities.” You also clearly state that: “Paulson was often a lone voice of concern on these issues at industry conferences and meeting during this period”.
(Myself and a handful of others were ringing this same bell during this time, but I don’t seem to remember such concrete public evidence which P&C mentions, but rather just writing on the wall.)
Had Paulson & Co chosen to just bet against these products they would’ve just been a smart vulture capital chasing gains. Financial Schadenfreude.   …but here’s where it became a crime. Knowing that ACA, and the market in general was on the wrong side of these bets was just being accurate. (you already said you were the only one ringing this bell) But knowing that the market was wrong and participating in any way in their structuring is criminal. 
For those of you failing to connect the dots on why this is outright fraud, let me help with an analogy.
 Paulson was standing in front of a pile of pills that were a miracle drug that would provide someone a normal life span. Heck, this pill would almost guarantee that you live to at least 80 years old! It was damn near a guarantee! AAA rated medicine.   …but through Paulson & Co’s sophisticated knowledge, they knew that there were a bunch of pills in that pile laced with cyanide. Now the bottler/manufacturer wanted to sell some products (GS) for the company (our MBS community of borrowers and lenders). They asked Paulson (a “sophisticated doctor”), to pick out some pills to put in the bottle. Paulson selected 123 pills all laced with cyanide. The bottler then sent those pills over to its crappy doctor (ACA), to analyze the pills and see which ones should go into the bottle. (Paulson & Co has already established that they were the only ones ringing the bell on this garbage, so they already know how inept the doctor (ACA) here is. They further establish their knowledge of how inept ACA is when they state that ACA bought 62 of these pills at the same or lower ratings!!!)   After crappy review, the doctor tells the bottler he can only use 55 of these poison pills, while adding 35 of their own.
Those same pills were now bottled by Goldman, and shipped out to wealthy sophisticated doctors at a price that would be worthy of the guarantee the miracle pills came with. These doctors either used these pills or prescribed them to the public (Institutional, Mutual/Pensions funds, etc…) Those doctors, believed that they were using and distributing was not only a safe product, but that the product was made with the best interest of society as a whole. These buying doctors and patients were buying what they believed was a truly safe product. Sure… risks always exist… but those fears were put to rest by a ratings agency that was paid to also guarantee that same level of safety, even though those same ratings agencies were incestuously being paid to give both the bottler (GS) and advisor (Paulson) favorable ratings. (Folks, were not talking Uggs here… Were talking collusion and fraud with fixed income assets!!!)
What happened next… is people started dying.
Now here’s the obvious crime folks… Not only did Paulson & Co know they were passing along poison, but they then took out insurance policies against the value of the miracle pill, and further took out insurance on all the people who used it. As the value crashed and people died (firms went bankrupt) Paulson & Co raked it in. Sure, Goldman was negligent for not letting the “sophisticated” doctors know that Paulson & Co, who helped create this abomination was betting against it and betting against you… …and for that reason Goldman is being rightly sued. (I’m pretty sure we’ll find out GS was also making the same bet) To ACA, and all of the “sophisticated” doctors, your negligence is a sign of the times. I’d say you should all be taken to the woodshed for your own stupidity, then fired, blackballed, and sued 3 times over… but your control over society through financial terrorism has left us with no other option then to leave you employed and give you government/taxpayer bailed out bonuses. (and a pat on the back for keeping the charade going. Your next check is in the mail.)
People… Fraud is FRAUD! 
If someone takes a gun and kills someone with it… It’s MURDER!
If someone takes a knife and kills someone with it… It’s MURDER!
If someone takes a shamwow, wets it and freezes it, and then bludgeons someone to death with it…   IT’S MURDER!!! Just because it was done in a new “creative” way doesn’t mean that the crime is not the same. It’s MURDER!
You don’t need a smoking gun or standing law in place to know this!!! To try and pinpoint the crimes/frauds that have been committed on Wall St based on historic laws just doesn’t make sense. The law can never keep up with financial innovation! …but that doesn’t mean that it wasn’t still the same fraudulent crime we all know it was! If our politicians and/or justice system can get out of Wall St’s pocket just long enough to realize that a message needs to be sent, maybe they will realize that in the interest of preserving all we hold dear as an evolving society, we should find a means to justice here. If these financial pirates want to PROFIT through non-transparent, opaque means…   Then we should PROSECUTE them through the SAME non-transparent, opaque means! 
Had Paulson & Co decided like so many to just stand aside, or bet the markets with their knowledge… they, like so many, could claim to be victims of Genovese Syndrome or the Bystander Effect, while the gang rape of America took place. They could be proud pirates as they count their booty. Whether they claim to have little or no influence on the creation of Abacus would be the same grey area of influence that a “reputable” doctor and a brand name company would have when influencing other doctors and patients to try this new miracle pill, (that they secretly know is poison, and are betting against just to rape the American public of cash) that is supposed to be good for society. If John Paulson wants to be important/reputable, then he, unfortunately, should have to live up to standard of reputability. Paulson’s advising of 123 pieces of this CDO, knowledge of inclusion of 55 pieces, and sophisticated /reputable status make Paulson & Co guilty of a blatant fraudulent crime the second they bet against this security with that insider knowledge. The second Paulson & Co started making money for themselves and their clients on this (PLEASE STOP HIDING behind the “client’s best interest” line because your decisions, John Paulson, have nothing to do with your clients best interest since the more money they make gets you a bigger cut… SO WE ALL KNOW THIS IS ALL DONE IN YOUR OWN SELF INTEREST!!!) …that was the second they started bending lady liberty over!
…but who’s kidding who… Our financial system has all the power. No longer do the 3 branches of our system (legislative, executive, judicial) say or do anything that isn’t predetermined or directly controlled by the financial branch. So it leaves the public, people like me, saying: “well, they’ll get theirs” …but I guess we’ll just have to wait for the vigilante branch of our country to get coordinated enough to realize that something needs to be done in order to bring the real 3 branches of our country back into control.
So to Paulson, Goldman and their elitist “15% and under taxpaying clients” (and the many others whom have lived parallel lives of gang raping America) I say: ENJOY YOUR WEALTH. …and go F yourselves you egotistical, megalomaniacal whores! Your antisocial behavior and lack of a sense of moral responsibility or social conscience is THE ACTUAL DEFINITION for a SOCIOPATH!!! (Regardless of how you try to justify it) After your rape (and continued raping) and poison (and continued poisoning) of society is realized… I hope…   I hope…    
…well I’d rather not say, for fear of being put on a list that you have the power/connections to put me on.
To America… it saddens me to say: When the pursuit of human rights and civil liberties gives way to becoming an enabler of fraud, war, and profit… You reach a societal crossroad that will eventually and unjustly lead to an injustice, a loss of human rights, and an end of civil liberties. Something has to give.   So far, that’s all we do… Give! 
All the best,
Miss America – Rich Hartmann
p.s. Coming to theaters this summer, Lloyd Blankfiend in: Don’t… Say Anything
The Government: What are your plans for a career?
Lloyd: A career? I've thought about this quite a bit sirs and I would have to say considering what's waiting out there for me, I don't want to sell anything good, buy anything long or process anything real as a career. I don’t want to sell anything good that’s bought long or really processed or buy anything sold long or really processed or repair anything sold, bought or processed that is worth anything as a career. I don’t want to do that. My father's in the army. He wants me to join, but I can't work for that corporation, so what I've been doing lately is Financial Innovation, which is a new form of far as career longevity, I don’t really know. I can’t figure it all out tonight, no one can, sir, so I'm just gonna hang with politicians.
p.p.s. …and out of complete taxpaying, justice seeking, irony…   guess who insures the Goldman execs/board??? What a shame.

Disclosure: none. 401k?

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