Quote:Goldman Calls For QE In Europe: "How Far Can The ECB Go In Using Its Balance Sheet. The Short Answer Is: A Lot Further"

Submitted by Tyler Durden on 09/11/2011

Even as the eyes of the world are currently frozen in a spot in time from ten years ago, and Wikileaks is making doubly sure of this by releasing the entire record of Metrocall pager (remember those?) intercepts starting at 9:55 am on 9/11/01, the world itself continues onward, and especially those who determine its global policy of "Prevention of Harm to The Status QuoTM" are busier than ever this weekend. Chief among these is and always has been the one financial firm which has infiltrated "sovereign" decision-making more than anyone in history: Goldman Sachs, whose alumnus, incidentally, is about to replace Jean Claude Trichet at the helm of the world's largest and most undercapitalized central bank (yes, a central bank can be undercapitalized - read on). Which is why the following note just released by Goldman's Dirk Schumacher is of particular attention.

Mere hours after Goldman economist Sven Jari Stehn said that FOMC "easing at the September meeting is very likelyaround 75% according to our model", Goldman is now taking on European monetary policy, and specifically the question of further quantitative easing, across the pond, where printing money has always been a far more touchy subject than in the US, courtesy of the German experience with hyperinflation (when gold soared, but apparently accoding to just released brainstorming by that intellectual titan Paul Krugman, for the completely wrong reasons: see gold is now a deflation hedge according to the Nobelist, and has nothing to do with debasing currencies - the NYT columnist just debunked 2000 years of logic and common sense).

As a result, the key line in the Schumacher note is the following: "How Far Can The ECB Go In Using Its Balance Sheet. The Short Answer Is: A Lot Further." To be sure, this is not surprising: after all Zero Hedge first predicted that following the latest market trouncing on Friday, in the aftermath of the ECB's admission of failure on Thursday (who can forget Ze Price Stabeeleetee), see "ECBCTRL+P: The Next Steps In The European Implosion", but we are nothing but a simple blog, which predicts what will happen but certainly does not set policy for a corrupt and failed regime. That's Goldman's job. And what is stunning is the brazenness with which it does it now. To sum up: to Goldman both the Fed and the ECB have to engage asap in yet another episode of bonus-preserving currency debasement, middle class be damned. And, we have very little doubt, they will.

Amusingly, Goldman is magnanimous enough to let us know that this policy will result in the ultimate end of the ECB either through its terminal loss of credibility as a monetary policy setting venue, or, and this is Zero Hedge's take, Germany's decision to say enough, and reinstate the Bundesbank as the ultimate mechanism of monetary decision-making... Yes, that would be DEM decision-making, not EUR.

Yet following that brief detour, Goldman proceeds to discuss the inevitable outcome of such a concerted approach, with the rhetorical question: "How to recapitalise the ECB and the national central banks (if needed)." (Yes, the ECB's endless viability is not guaranteed, someone please notify Roubini). Alas, it will be more than needed, especially after reading Goldman's conclusion, which makes the strawman of currency, Eurozone failure all too clear, should the ECB not engage down this suicidal path:

Quote:Given the capital position of the ECB and the limited possibilities for recapitalisation, one could argue that the SMP cannot be expanded much further. But, as already mentioned, the ECB's implicit exposure with respect to peripheral sovereign debt through the collateral posted by banks is already very large. To be sure, the ECB is marking its collateral to market prices and the losses would be significantly lower than the nominal figures suggest. But it is easy to see how these haircuts would be insufficient in a sovereign default involving any of the bigger countries.

Thus, the argument that the ECB should not increase the SMP further as this may risk its financial health ignores the fact that the ECB is already heavily involved. Moreover, halting the SMP could lead to a similar or even bigger threat to the ECB's financial health if this meant that a potential liquidity crisis for one of the bigger Euro-zone countries could turn into a disorderly default.

And there you have it: while the world is caught in teary-eyed ruminations over the past, the seeds of a far more painful, and certainly tearful future, were just planted by none other than the bank which always ultimately gets what it wants, no matter how disastrous the implications of its policy are for everyone but Goldman.

Jan Klimkowski Wrote:As Zero Hedge reminds us:

Goldman Sachs International Advisor Mario Monti Is Italy's New Prime Minister

Quote:Goldman Sachs director quits 'morally bankrupt' Wall Street bank

Greg Smith resigns as executive director of Goldman's European equity derivatives business after devastating attack


Juliette Garside and Jill Treanor

guardian.co.uk, Wednesday 14 March 2012 13.52 GMT


Wall Street bank Goldman Sachs has suffered a severe blow to its reputation after one of its bankers announced his resignation in the New York Times by declaring his employer "morally bankrupt".

Questions were immediately raised about the relationship between the firm and its clients whom the departing employee, Greg Smith, said were described as "muppets" by his superiors.

Smith, who was based in London, made a savage attack on the culture of Goldman, which only two years ago was damaged by another London-based banker, Fabrice Tourre, who described creating "Frankenstein" products that showed scant regard for the needs of the firm's clients.

Smith's public resignation letter made reference to the Tourre affair, as well as to the infamous description of Goldman in Rolling Stone magazine as "a great vampire squid wrapped around the face of humanity".

Smith said that none of these incidents had taught the firm any humility or integrity. He wrote: "It makes me ill how callously people [at the bank] talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as 'muppets', sometimes over internal email."

Smith reckoned the fast track to a promotion involved persuading clients to invest in stocks or other products "that we are trying to get rid of because they are not seen as having a lot of potential profit". "Today, if you make enough money for the firm (and are not currently an ax [sic] murderer) you will be promoted into a position of influence," he wrote.

Smith described himself as an executive director and head of the firm's US equity derivatives business in Europe, the Middle East and Africa. He is thought to have been the only person in that department and was a vice-president, which some City sources suggested might be a disappointment after 12 years with the firm.

Goldman wanted to get clients to trade "whatever will bring the biggest profit to Goldman" a strategy referred to as "hunting elephants".

"You don't have to be a rocket scientist to figure out that the junior analyst sitting quietly in the corner of the room hearing about 'muppets', 'ripping eyeballs out' and 'getting paid' doesn't exactly turn into a model citizen," wrote Smith, who said he had been selected to appear in a recruitment video and in 2006 had managed the summer intern programme in New York for sales and trading.

Goldman Sachs was quick to deny the accusations levelled by Smith, but may face an uphill battle in clearing its name with clients, which range from governments to major international companies and big players on the financial markets.

It was reported that publishers were trying to track down Smith to offer him a book deal.

Lord Oakeshott, the Liberal Democrat peer and his party's former Treasury spokesman in the Lords, said he would table questions to seek clarity on any relationship between the UK government and Goldman.

He said: "We know in the City that Goldman help themselves before their clients. Now here's the proof. Greg Smith says you get promoted there if you make enough money for the firm and you are not an axe murderer - and the people of Greece and the rest of the eurozone are paying the price after Goldmans cooked their books and Greece joined the euro at an unsustainably high exchange rate. Until this culture is stamped out, Goldman are not fit and proper to receive a penny of British taxpayers' money or advise our government in any way."

Goldman advised Labour on the nationalisation of Northern Rock and acts as an official market marker of UK government bonds, known as gilts. Goldman alumni can be found in US political circles: the US Treasury secretary at the time of the banking crisis was Hank Paulson, who quit as boss of Goldman to take up the role in the Bush administration.

Smith reckoned much had changed since Paulson quit, and the current bosses, chief executive Lloyd Blankfein and president Gary Cohn, were appointed. The pair had "lost hold of the firm's culture on their watch", during which time Blankfein once blurted that he was doing "God's work".

Smith yearned for the previous culture "the secret sauce that made this place great" which had been about "teamwork, integrity, a spirit of humility, and always doing right by our clients".

Blankfein and Cohn issued a joint statement from New York, where a new head of public relations, Jake Siewert, a White House press secretary during the Clinton administration, was installed only three days ago.

"In a company of our size, it is not shocking that some people could feel disgruntled. But that does not and should not represent our firm of more than 30,000 people," said the statementby the pair, who were told by Smith that he said he wanted his public resignation to be "wake up call".

Smith's own career prospects might now be in doubt despite him boasting of his full scholarship from South Africa to Stanford University, selection as a Rhodes Scholar national finalist, and bronze medal for table tennis at the Maccabiah Games in Israel.

David Way, a headhunter at Marks Sattin, reckoned these anecdotes read like a CV. But, Way noted: "like most of the City's major employers, Goldman Sachs have a strong network of alumni running companies across the world who could be bosses or clients for high-level professionals changing jobs."

"What's the next shocking' headline: Prostitution in Vegas!?'"

SECRET DEALS, FORECLOSURE SETTLEMENTS, STRESS TESTS, AND VAMPIRE SQUID WHISTLE-BLOWERS: YOU JUST CAN'T MAKE THIS STUFF UP

1. Bankers make NINJA loans, securitize them, and sell on to government GSEs
   
2. Bankers destroy all the loan documents and begin random and fraudulent foreclosures, throwing millions of innocent victims out on the street
   
3. GSEs sue bankers and force them to take back bad mortgages
   
4. Bankers sell servicing rights for the same bad mortgages back to GSEs, who overpay
   
5. GSEs resell servicing rights to companies run by former GSE officials
   
6. Bankers slapped on wrist with puny foreclosure settlement in return for government promise it will never sue them for past foreclosure fraud
   
7. Government stress test claims banks are healthy
   
8. Bankers get sweet deal, counting mortgage mods for best borrowers toward the settlement
   
9. HUD report released demonstrating massive foreclosure fraud that reached to highest levels of banks
   
10. Vampire Squid Executive Director fires off resignation letter decrying bankster culture
    
11. Banksters walk away scott-free as statute of limitations runs out for criminal behavior