by Andrew Milne, ToTheTick.com
Former Goldman Sachs trader Fabrice Tourre goes on trial this week, accused by the Securities and Exchange Commission of willingly misleading investors while he was vice-president of the bank.
The trial opens today in Manhattan and it is not just Tourre that will be standing in the dock, but (we hope) also the whole financial sector. But, despite that wish of many people, it is clear that the actions of one man will be judged rather than the entire financial world. Such is justice. Although, it looks as if Tourreâs lawyers are going to have their work cut out. They are using as their only line of defense the fact that Tourre was not alone and that people who were higher placed than him had bigger meddling in the affairs. On both accounts they may have a great deal of trouble actually proving that and secondly also getting that heard in the courtroom. Justice doesnât work like that and we love a good scapegoat. History has proved that time and time again. The guys at the top never get toppled. Unless they decide to go themselves on their own accord and then it has to be with millions (or rather billions, these days).
We all remember that Fabulous Fab (which he used to sign off on emails and correspondence) sent the incriminating email to his girlfriend. It said: âThe whole building is about to collapse anytime now ⊠Only potential survivor, the fabulous Fab ⊠standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities [sic] !!!â. He also stated that the collaterized-debt obligations (bundles of mortgage investments) which resulted in the collapse of the financial markets through the subprime crisis were what he called âproducts of pure intellectual masturbationâ and that they were âlike little Frankenstein turning against his own inventorâ. Maybe Tourre should have read to the end of the Mary-Shelley novel. He would have realized that Victor Frankenstein (who was the creator) of the monster had his wife killed and he was left to suffer for the rest of his life because he failed to admit his own responsibility in the creation of the monstrosity.
Goldman Sachs and Fabulous Fab: Subprimes
So, what does Tourre risk getting? Probably a fine and also a ban from the securities industry. Goldman Sachs have already had to pay a settlement worth $300 million to the US government and $250 million to investors. Although they refused to admit any wrongdoing and the payment did not cover what Tourre might end up with. They had dissimulated information and made out that Paulson & Co. had helped in the selection procedure of mortgages. The default rate on the repayment of those mortgages reached 7.05% at the time Tourre was offering investment in them. When the lawsuit was announced Goldman Sachs lost 13% in the value of their stock. Paying the fine was a way for Goldman Sachs to ensure that they would be disassociated from Tourreâs trial. He will be on his own as Goldman Sachs have abandoned him.
Frankenstein was the modern Prometheus, the Titan that was able to make beings in the image of gods and breathe life into their bodies. Prometheus was punished for taking fire from Zeus and giving it to man. He was eternally punished by being fixed to a rock with an eagle that pecked out his liver. The liver grew every night and the bird came back to peck at it again. His punishment was to suffer alone, eternally. One might well wonder whether or not this will be the sentence that will be dished out to Fabulous Fab in the trial.
His Frankenstein analogy may be premonitory after all. Unfavorably premonitory.
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