Keith Richards, Cockroaches, and the Firm of Goldman Sachs

In today's New York Times, we see the headline:

Goldman to Raise Capital, With $5 Billion From Buffett

And in the accompanying story written by Ben White, we can read the following:

The billionaire Warren E. Buffett will invest $5 billion in the investment bank Goldman Sachs, as part of the bank's efforts to raise $7.5 billion in fresh capital, a Goldman spokesman, Lucas Van Praag, said Tuesday. In return, Berkshire Hathaway, the conglomerate run by Mr. Buffett, will receive perpetual preferred shares in Goldman, Mr. Praag said. The preferred stock will pay a 10 percent dividend.

So here's how a real bailout works: Goldman Sachs needs money, Warren Buffet gives them money. In return, Warren Buffet gets stock that pays a ten percent dividend.

Now, for comparison, here's the shell game version. Keep your eye on the pea.

(1) Goldman Sachs gives Hank Paulson seven hundred million dollars (that's seven zero zero comma zero zero zero comma zero zero zero) in salary and bonuses.

(2) Goldman Sachs lends Hank Paulson to the Treasury (now that he can afford to be a public servant).

(3) As the Secretary of the Treasury, Paulson insists that we give Goldman Sachs a lot of money, in exchange for a lot of crap. (If not, we all die.)

(4) Except it's not Hank Paulson's money, it's ours.

(5) If the crap turns out to be crap, we're stuck with it. (And by the way: if it's not crap, why are they so desperate to unload it?)

(6) In four months, Paulson returns to Goldman Sachs.

(7) Paulson receives salary and bonuses from the money we just gave to Paulson to give to Goldman Sachs to give to Paulson.

(8) It's our money. Or was. But we don't get preferred shares. We don't get a ten percent dividend. We don't even get a free copy of The Warren Buffet Way: Second Edition (Paperback). We get crap.

In essence: when Goldman Sachs needs money, and the guy lending the money is rich, they give him something for it. When Goldman Sachs needs money, and the guy lending the money is us, they don't.

Why should they, unless they have to? And the way it stands now, they don't have to.

It's been said that when the dust clears from WWIII, the only things left standing will be Keith Richards, cockroaches, and the investment bank of Goldman Sachs. Having lived long enough to see the Stones, my old New York kitchen, and the events of the past week, I wish I could disagree.

Update - Warren Buffet today tells CNBC he wholeheartedly supports the bailout plan. So: our money goes (for free) to prop up a company he just invested $5,000,000,000 in. Why in God's good earth wouldn't he support it?

Update (2) - And then there's this, from Bloomberg.com (h/t mogamboguru):

Paulson Debt Plan May Benefit Mostly Goldman, Morgan (Update2)

By Jody Shenn

Sept. 22 (Bloomberg) -- Goldman Sachs Group Inc. and Morgan Stanley may be among the biggest beneficiaries of the $700 billion U.S. plan to buy assets from financial companies while many banks see limited aid, according to Bank of America Corp.

``Its benefits, in its current form, will be largely limited to investment banks and other banks that have aggressively written down the value of their holdings and have already recognized the attendant capital impairment,'' Jeffrey Rosenberg, Bank of America's head of credit strategy research, wrote in a report dated yesterday, without identifying particular banks.

The guy from BofA is too polite to "identify... particular banks." But Bloomberg.com isn't; and you don't have to be, either!

Comments

[veracity]

Ok, can we say that it is CRIMINAL NEGLIGENCE on the part of the DC Democrats, to hand BILLIONS of US taxpayer dollars over to GOLDMAN SACHS, and other US investment bankers - without pointing out; clearly, forcefully, and repeatedly to the American public, that Bush's Treasury Secretary Hank Paulson owns (at its peak value) $400-million+ in Goldman Sachs stock; that he was the G-S chief executive officer immediately before he became Treasury Secretary; and that his first loyalties lay NOT to American home-buyers kicked out of their homes by the mortgage crisis; but to his friends and cronies at Goldman and other banks and investment firms on Wall St?

And that Democrat Senator Chris Dodd, the Dem. point-man on the $700-BILLION taxpayer BAILOUT plan, has received at least $200,000 from Goldman Sachs over the past years, and is now in position to reaward G-S's largesse with, literally, billions of taxpayer dollars.

The DC Dems are sure-n-hell are in the middle of the process of SNATCHING DEFEAT from the jaws of victory, in 2008 as they did in 2004 and 2000 before that.

[Rule Of Law]

Here's how it was in Lincoln's time--

"The boot print of the Rothschild formula is unmistakable across the graves of American soldiers on both sides (of the Civil War)."
- G. Edward Griffin

Google Griffin, then Google War and Rothschild. There is not a war since the 1500's and the invention of banking that was not fought for them.

[Sseb]

The only reason McSame's rushing back to DC (via CBS News' NY studio) is to make sure his supporters get their piece of the bailout largesse. It was starting to look like Paulson was not going to get his way, so the Maverick saddles up.

[JoDeeVa]

Thanks, Howard..for that money trail to follow. I knew Paulson was an ex-Goldman Sachs hack, but to have it spelled out so cleanly really emphasizes just who he is advocating on behalf of..and, it would NOT seem to be the taxpayers.

Correct me if I'm wrong, but didn't previous bail-outs devalue stockholders' holdings, so they lost their investment $$, while this bail-out eliminates troubled assets and will most likely result in rising value of stocks, benefitting his former 'partners'-in-crime..er, uh..colleagues? WTF?
Talk about conflict of interest... outrageous! Too much consolidation and I don't mean with the institutions, but with consolidation of power. Goldman Sachs' partners are not entitled to taxpayers' free money for a bail-out, while refusing to give up any equity in return. Such arrogant mismanagement and power should not be rewarded, period! And, isn't Warren Buffet getting some return on his investment? Why not the taxpayers?

As in feudal Japan, those partners, including Paulsen (and Congress, if it empowers him with such corrupting power) should be honor-bound to submit to the ancient Samurai bushido practice of seppuku, more commonly known as hari-kiri..as expiation of their crimes and disgrace to their country for this betrayal of the trust given them.
Either that or break out the "roach-motels" for the real cockroaches still standing...

[libladyohio]

This just sounds so fishy, and fortunately the people are finding that out and ringing phones off the hook in congress.

Why do common folks have to subsidize the wealthy? Just so they can ramp up the transfer of cash from the middle and lower classes to the wealthiest 1-2%.

I couldn't be more skeptical of this.

[Rule Of Law]

People without homes will not quarrel with their leaders.

J.P. Morgan--

Look around you.....Do you see what has come to pass? Jobs gone, home ownership gone, wages lowest in decades, education--what education? Stolen elections, stolen money and the dismemberment of our Constitution--the only thing that stood between us and Slavery to the Oligarchs, the ultra-wealthy, the Neo-Monarchists, the enemies of Freedom and to justice.

What would Morgan do? Are you serious Mr. Rodman? He would roll over this country like a giant bulldozer and laugh in the telling of it to his Robber Baron buddies over cognac and cigars that night!

[Rule Of Law]

mistakenly addressed to Rodman, intended for Greenway...

[WandaBooneshaft]

And another thing ...

Most American households are about to crumble right NOW and for REAL. Every month is a gamble as to how the bills will be met, paid, devoured by the mortgage/rent, FOOD, GAS, credit card debt, medicine etc.

How many have lost their jobs due to Wall Street's blunders and the gov't turning a blind eye. You want failure? Just look at the middle class trying to live through this. You might learn something.

No wonder we AMERICANS don't have a lick of sympathy for these idiots who gambled with OUR 401K dollars, pensions, life savings, etc., and LOST.

Bail them out? Hell, no. Bail US out, you curs.

[janeInCA]

yeah, why don't they use $700 billion to re-structure across the country, bail the poverty out, once and for all, let them those CEOs and relevants mob the floors.

[WandaBooneshaft]

So where's the fire, anyway? They say it's all about to fail, crumble, all is almost lost. Where are the warning signs?

SHOW ME THE DAMAGE! The markets aren't hurting, trading hasn't stopped.

This is a MAN-MADE KATRINA devised to bankrupt the NEXT administration so they won't be able to afford ANYTHING.

I'm so pissed.

[NicoleAnon]

I have a question about the GS stocks Paulson owns and nobody has been able to answer it yet. I know that Paulson sold $500 million in GS stocks when he took the job in the Treasury department so there wouldn't be a conflict-of-interest now that he is deciding the fates of investment banks.

But some people say he put those stocks in a "blind trust" which means he gets them back when he leaves his government job. I think it's crucial to know the answer to that because GS was days away from going under last week and if the person in charge of economic policy in this country would have lost almost all his money we need to know about that.

Does anyone know the answer or how we can find out? I would call the Treasury department but I doubt they will tell me anything.

[Bettysdad]

It's also important to know what everyone in his Rolodex owns.

His friends and family will benefit tremendously from this.

Plus, considering who his friends from his days on Wall Street are, it's guaranteed he knew this was coming.

[Bettysdad]

If bailing out US banks is so important, why aren't the nations and their banks so dependent on the our economy rushing to solve the problem?

Where are China, Japan, Southeast Asia and the OPEC nations?

And why are we bailing out foreign banks? Why aren't they being bailed out by their own governments?

[doctorkeys]

It is time to call for Democrats and Republicans to begin calling for Henry Paulson's resignation. His proposal to take dictatorial power over $700,000,000,000 (that's $700,000 million) of taxpayers money to distribute to his pals at investment banks has destroyed his credibility. This is over $500,000 for each property that is currently in foreclosure!

Take a look at this link and ask yourself if this man can be unbiased. Is it any surprise that he does not want to limit compensation packages for executives of the companies he wants reward with $700,000,000,000?

http://www.forbes.com/lists/2006/12/VY36.html

[NicoleAnon]

I'm not willing to say that Paulson is an immoral, corrupt person yet because nobody has any proof of that - mostly it's just speculation and making assumptions about him because of where he worked. Unless I get proof that he put his GS stocks in a "blind trust" which is clearly a conflict-of-interest, I think it's possible that the accusations are unfair.

But I've been reading interviews with him in Fortune and Newsweek and I'm a little surprised that during the worst financial crisis in recent history, when the entire world is watching him and waiting for his decisions and Americans are worried and angry, he has time to meet with reporters from magazines. And he seems like he is very cavalier about taxpayers paying billions to bail out banks. The reporter for Fortune said that he was lying back in his chair with his feet on the desk, looking relaxed when the reporter interviewed him.

It's great that Paulson doesn't seem stressed out but maybe he could at least pretend that he understands how serious this is for all the Americans who are going to pay for bailing out his buddies - all the people who actually work for a living, instead of what he did at GS which is taking reckless risks so you can earn billions until you eventually get caught and then the taxpayer rescues you. I just don't really respect him at all.

[zizyphus]

Everyone thinks Buffet is so divine because he has money. He has been connected to the Franklin Cover-up.

[ouroborous]

Let them fail. Let them all fail.

I'm so tired of this artificial urgency. Our economy has been cratering for a while due to the greed and mismanagement of the people in power. What better statement than to let them all fail, and actually (god forbid) *lose money* like the rest of us will (regardless of what we do, "normal" people like you and I are going to lose a lot of money, so why not the fat cats, too?)

[Rule Of Law]

The War of 1812 was England's answer to Madison allowing the central bank of his day to expire. When Madison had a "change of heart" and became a supporter of the idea, the war suddenly ended. No coincidence.

Andrew Jackson opposed the national bank and abolished it because:

* it is unconstitutional;
* it concentrated an excessive amount of the nation's financial strength into a single institution;
* it exposed the government to control by "foreign interests";
* it exercised too much control over members of Congress;
* it favors Northeastern states over Southern and Western states.

Andrew Jackson knew that a Central bank improved the fortunes of an "elite circle" of commercial and industrial bankers at the expense of hard working Americans. He was proven right, when during his administration, the U.S. Government was, for the first, and so far the only time, debt free. He endured multiple assassination attempts.

The bloodiest parts of our National History, including the Civil War, can be traced to the manipulations by bankers to create profit from what Naomi Klein calls Disaster Capitalism. As long as we have a FED and banking/finance runs the country, we will have war--both against other nations, and against the working and middle classes here at home.

[veracity]

Some terrific points you bring out, RoL, ... BUT!

#1. Jackson was as ferocious a slave-trading, Injun killing maniac as America has ever produced. He dabbled as a slave-trader early in his career, and betrayed his Cherokee (and Creek?) Indian allies when, with their assitance having defeated the Red Sticks & Florida tribes, he turned on his allies and had them cleansed out of Georgia and the Carolinas.

#2. You say that under Jackson "the US government was for the first & so far only time debt free." But that glosses over the PANIC (depression) which started in the tail end of Jackson's second term, and carried through to his successor's, Martin van Buren's, term.

#3. "The bloodiest part of our history" started when the EXPANSION OF SLAVERY issue could NOT be decided, leading to "Bleeding Kansas" and next the Civil War.

#3a. You write that the profits & powers of the financial elites in the Northeast came at expense of South (& west). BUT author Michael Lind posits that the Southern elites now RULE the American government & economy - see "Made in Texas: George W. Bush and the SOUTHERN TAKEOVER of American Politics". Certainly, GOLDMAN SACHS former CEO Paulson is now _SOUTHERNERS_ Bush & Cheney's SecTreasury - he (Paulson) answers to them.

Bush, Cheney, Rove, and the Southern-dominated GOP (oil!) have learned how to CO-OPT the Northeastern financial robber barons, simply by giving them huge tax cuts, and now outright gifts, huge chunks of the American national treasury.

[Rule Of Law]

"I have two great enemies," Lincoln once said, "the southern army in front of me and the financial institutions in the rear. Of the two, the one in the rear is the greatest enemy." (quoted from This Difficult Individual, Ezra Pound, by Eustace Mullins)

I've provided a few quotes today to show that this conspiracy by finance has been an ongoing one since the formation of the Country. The American Revolution was begun when a few Colonies began printing their own money and earned the undying enmity of the Bank of England who preferred to keep a monopoly on finance in America. We could agitate for all sorts of freedoms and still be on England's good side, but once we challenged the great bank, we were immediately pitched into war.

[SlithyTove]

Beautifully put, in words of no more than three syllables and eight simple paragraphs. A must-read for Congress. I'd like to see Paulson's response, stripped of doublespeak, and in eight pithy paragraphs.

[whatsgoingon]

Those four at the hearing yesterday, you can tell ther're dealing from the bottom of the deck. Is Congress comming out with a new reality show called Bend over America Cause you're gonna get it ! What will congress do with these Zombie mortgage's ? We bailout the companies after a year or so they buy back the Zombie mortgage's from the govt [because they don't know what to do with them] pennies on the dollar. They'll pick and choose which one's, of course only where the realestate market starts to pick up and leave the rest to rest until its time.