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Goldman Sachs urged bets against California bonds it helped sell

11 November, 2008
The Wall Street titan’s activities could have harmed taxpayers, officials say.
By Sharona Coutts, Marc Lifsher and Michael A. Hiltzik
November 11, 2008
Goldman, Sachs & Co. urged some of its big clients to place investment bets against California bonds this year despite having collected millions of dollars in fees to help the state sell some of those same bonds.The giant investment firm did not inform the office of California Treasurer Bill Lockyer that it was proposing a way for investment clients to profit from California’s deepening financial misery. In Sacramento, officials said they were concerned that Goldman’s strategy could raise the interest rate the state would have to pay to borrow money, thus harming taxpayers.

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It could exaggerate people’s worries about our credit,” said Paul Rosenstiel, head of the public finance division of the treasurer’s office.Such worries would tend to drive down the price of California bonds. That, in turn, would drive up the interest rate the state and its municipalities pay to borrow money. An increase of a single percentage point on a $1-billion bond issue would cost taxpayers an additional $10 million a year in interest.

That’s especially troublesome at a time of severe budget turmoil and tight credit. Gov. Arnold Schwarzenegger has warned that the state could run out of cash as early as February.

Some experts said the investment bank’s actions, while not illegal, might be inappropriate. “That’s not a good way to do business,” said Geoffrey M. Heal, professor of public policy and business responsibility at Columbia University. “They’ve got a conflict of interest and they’re acting against the interest of their customers. . . . You act in the interests of your clients. You don’t screw them, to put it bluntly.”
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Wait, I must be dreaming.  Didn’t we just help bail these people out with more of our taxpayer money?  Didn’t they just reinvent them as a corporation so they could stay in business and “screw” us again?
Who do we hold responsible for this outrage?

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