This week the headline should have read: "Goldman Sacks America's Taxpayers" instead of Goldman Sachs posts a US$3.88-billion quarterly profit.
The Wall Street firm's workers are licking their lips at the thought that the firm has set aside enough money to pay out billions in bonuses this year, equivalent to US$770,000 per worker. This is pretty shocking, even by Wall Street standards, given the fact that the firm's profits derive from direct and indirect taxpayer bailouts forked out by Mr. and Mrs. Average American Taxpayer.
Goldman this week defended itself by reiterating the fact that it received US$10 billion in TARP bailout money last year to avert bankruptcy but has repaid that amount in full.
The whole truth...
That is true but that's only a fraction of the bailout.
Goldman received an estimated three times' more, or US$30 billion, in an indirect bailout which was funneled through bankrupt insurer AIG.
Washington bailed out AIG's counterparties, to whom it owed hundreds of billions, because AIG had sold to them unbacked credit default swaps (a form of insurance on bond values). Goldman was not only ahead of the queue in collecting its IOU, but is reported to have gotten 100 cents on the dollar to boot.
Goldman was made whole even though it is arguable that it was imprudent to buy these swaps which were not actuarially approved and had no capital behind them as insurance products are supposed to. Even so, Goldman and AIG's other foolish customers got backstopped for lousy business practices.
The point of all this is that Goldman Sachs cannot argue that the proceeds it received from the AIG rescue did not constitute an indirect bailout any more than can auto parts makers who are saved by Detroit's bailout.
Goldman Sachs, like other indirect beneficiaries, should pay back all tax dollars funneled through AIG out of profits.
Scandal at the root of it all
The Goldman shenanigans marks a low point in Republican cronyism and represents the biggest single Bush bungle if you don't include in the list of misdeeds the 4,000 dead and US$3-trillion unnecessary war in Iraq.
The Goldman-AIG bailouts were inked during a panicky weekend last September after the firms, plus Lehman Brothers, told former U.S. Treasury Secretary Henry Paulson they were broke.
Paulson should have never been appointed in the first place because he had conflicts of interest after pocketing hundreds of millions a handful of years before as CEO of Goldman Sachs.
But he was. So having been put there, he should have recused himself from any fiduciary dealings involving public funds aimed at replenishing the coffers of his old firm and buddies that still worked there.
Likewise, he should have recused himself from dealing with his and Goldman's arch rival, Lehman Brothers. But he didn't and handed over the keys to the investment banking kingdom to Goldman and refused to help Lehman. By so doing, he turned the crisis into a full-blown catastrophe.
Frankly, the Obama regime and Congress should put a lien on Goldman Sachs, and any other AIG counterparties, then negotiate reasonable repayment terms.
Diane blogs at Financial Post
The most absurd comments on this page are their attempts to defend the indefensible, and such deceptive efforts should come as no surprise--just consider the source, and who they are defending.
At that point, no further explanation is required.
They produce and transport and supply nothing...service no one...but themselves...
But it's clear that even assuming it was fully secured, and would have not suffered any losses in bankruptcy, they still received a preferred treatment by being made whole INSTANTLY.
If you merely take the costs of negotiations, of late(r) payment, of eliminating FURTHER counterparty risks (in second and third round effects), then it's already a mega-sized free lunch for the golden boys and girls.
And independently of party affiliations, they have certainly done an enormous disservice to the trustworthiness of the whole public-private cooperation thing that is so urgently needed to resolve this millenium-sized crisis.
It's like they just burnt their reputation at the stake.
Then at Treasury he makes sure Goldman gets its big debt from AIG. He's given 'Power of God' over the banking system via TARP, and none can legally object. So those on side stand while others fall or are taken over. Big winners are Goldman and JP Morgan/Chase ( Rockefeller ) with links to the Bush family. It and Goldman are both core banks in the ( private ) Federal Reserve, since 1913, probably part of what's now called the FOMC ? ( many Fed details are secret....and of course they can't be audited ).
Same thing was done in 1933 with FDR's Bank Holiday allowing forced mergers and eliminating banks not on side. They forced the confiscation of American gold....to later set up Bretton Woods ( thinking ahead ).
I did wonder if there was a genuine bank war going on, and this article suggests it. Lehmans was also a Fed core bank and Richard Fuld seemed to be genuinely surprised it was dumped when it could easily have been saved. It was being well run, and co-operating, and was basically dissolved on a technicality.
During this period of diminishing solvency, who could have had the ability to pay out such huge sums?
In addition, AIG's obligations should have been recognized as at least, extraordinarily, recklessly concieved.
It was in fact, an extraordinarily irregular situation -- resulting from recklessness, and misconduct and/or incompetence from the financial industry as a whole. AIG should have been put into a form of receivership, where the "debtors" should not be expected to recieve a boon from bets that were not backed up.
This created a moral hazard or a morale hazard, and it is stunning that highly trained professional insiders in these activities, who say they merit multimillion dollar salaries, could not have foreseen the implications of the end scenario of the real estate bubble.
Afterall, it is rather easy to ponder the fact that the real estate value of a middle class house could not rise indefinitely faster than the ability of a middle class family's ability to pay for it.
(** the same goes for health care & university tuition costs ....)
And thus the easy lure of house flipping & real estate speculation which recklessly rationalized the feasilibility of the low ARM & easily approved mortgage would end.
Paying out 100 cents on the dollar for baloney insurance that should not have been sold -- except to line the pockets of the malefactor agents who recieved bonuses doing so --, Treasury willingly approved & condoned, & perpetuates the morale/moral hazard that drove the market to the brink.
What is worse is that Goldman is trying to lie about it. What is even worse is that the politicians are silent.
Goldman stock should not be trading nor should AIG or JPM. None of these corporations are telling the truth, And their falsehoods are causing the markets to overreact and creating a mini bubble not to mention insider information is flowing behind closed doors in the face of SEC regulations.
The stock market is a train wreck and more people are piling in and getting suckered.
When is this going to stop. Plain and simple, Goldman and other financial institutions are getting taxpayer money funneled through AIG in the guise of legitimate business dealings. They are not legitimate, they are all fraudulent.
Where is Obama ?
1. Goldman wasn't imprudent, they were actually quite smart, they had hedged against an AIG bankruptcy (a hedge on their hedge). This hedge was also a bit of insurance which cost them money, but it showed they were doing intelligent risk management. Only problem - AIG never went bankrupt, because the government took them over, so the hedge wasn't triggered. You can blame other counterparty banks for getting a free bailout on AIG, but not Goldman.
2. Lehman was never Goldman's arch rival. Lehman was pretty far down in the pecking order from the other bulge bracket banks in virtually every type of investment banking but they got extremely aggressive in CDO's, making them a lot of money during the bubble, but giving them more exposure then anyone else. In most types of investment banking, Morgan Stanley was Goldman's closest rival with JP Morgan close as well (with the integration with Chase, JP is a lot more than just an ibank, so they were not as head-to-head as Morgan Stanley).
Lehman's failure lies squarely on the feet of Fuld's arrogance. He turned down nearly $20bn in direct investments from sovereign wealth funds in August because he thought the valuations were too low. By September he was worth zero. Also, had Paulson saved Lehman, people would have screamed about the government bailing out a failed bank like they had in February when the Fed pushed a dying Bear into JP Morgan's arms in a sweetheart deal.
Lehman and Bear Stearns were taken out. Plain and simple. AIG was used as the trojan horse for everyone else getting taxpayer money ....a hedge is a hedge, indeed.
Why not just let the free market rule then. I bet you Golman would be hedged into oblivion.
Goldman would have been fine had their been no bailout. Well, as fine as anyone given that if the whole financial market had collapsed as it would have if they let AIG, Merrill, CitiGroup and a few others fail. Goldman was in the best shape of any of the banks. And they actually had a pretty active risk management department - unlike Citi.
And no, I don't work for Goldman. I wish I did, becaue their bonuses are going to be a lot better than mine this year...
What I find so appalling is that a class of people like these exist in these United States. They think somehow--as their exact profession has ruined our economy--that they are entitled to these huge paydays just because they have found a way to game the system. How can people be so blithely evil?
Goldman was required to change its fiscal year end when when it changed its status to a bank.
A junior high school student could add a one month period to a prior quarter so you shouldn't have to worry about many investors being blind sided by what you allude to be slight of hand.
Also, balance sheets don't disappear as the result of changing a fiscal period. You should read some accounting books before you rant next time.
After you educate yourself on the basics you should ask someone to explain the simple fact that Goldman Sachs would have received more money if AIG went bankrupt through their hedge positions than they did through the swap counter party payments.
AIG still owes the government the 12.9 billion in TARP that it used to pay its debt to GS. When it pays the government back the 12.9 billion, perhaps people will stop lying about what happened.
Of course, this is where the yelping liars exclaim that AIG will never pay back the government. Fine. Say they don't. That would mean financial companies like GS are obligated to repay AIG's TARP debt for them.
Could it get simpler? No backdoor; no shenanigans; nothing done wrong whatsoever. That progressives will lie about this ordinary transaction is troubling.
I can't believe you buy into the notion that this was all "normal' business practices. How many Sunday afternoon meetings you hear off behind closed doors where deals are made to kill off institutions and engineer rescue plans ( TARP )....come on, grow up and grow a set of nuts already.
That is simply good risk management.
AIG was propped up to save firms and individuals of all types.
I just reaks of corruption from every angle.