Ok, I get it. People are angry at Goldman Sachs. Not just annoyed, but really really angry. Here are some of the things people hate about Goldman:
- They got 100 cents on the dollar on their $13bb CDS contracts with AIG when AIG got bailed out. In other words, they behaved as they were supposed to do, within the interests of their shareholders (which includes most of Main Street through 401k plans) and their tens of thousands of employees.
- They paid themselves huge bonuses with the money that was earmarked for the AIG bailout that then was used to pay AIG's largest creditor, Goldman Sachs. All of this while ex-Goldman employees were among the government officials making decisions.
- They survived with their business model largely intact and their stock price now significantly higher than it was last year. Shame!
On this site there has various posts dishing out the hate, including this one and this one.
In another article one person in the comments even suggested that all the Goldman money was "being sent to Israel" and when I suggested in a reply that the facts don't back that up another commenter wrote, "its true" without putting in any specifics. Many people are only happy when they are hating something mysterious, ugly, and an easy target.
Let's look at the groups or people that perhaps deserve your anger more.
A) Former Clinton HUD secretary Andrew Cuomo who set an unrealistic goal of 70% of the US owning homes (up from 60%, which was far more realistic). More on this in a Village Voice article from 2008. Of course, should we blame Cuomo or Cuomo's boss Bill Clinton?
B) Barney Frank, who passed laws forcing Fannie Mae to start reducing its lending standards into the subprime arena. He also repeatedly voted against the idea of appointing any overseers to regulate Fannie Mae and Freddie Mac despite the fact that they guaranteed over half the mortgages in the US. More on this here.
C) Fannie Mae and Freddie Mac that used the implicit moral backing of the US government to get cheap financing while practicing every fraud in the book.
D) AIG which manages to still survive as a public company despite being on the hook for over $200bb to the American taxpayer. AIG's special products division should've been separated out from the company, declared bankruptcy and then negotiated with all of its creditors. Not sure why Geithner, Paulson, and even Bush and later Obama didn't force this issue.
E) FASB for putting mark-to-market in place right when the housing bubble was starting to crack. Banks (and AIG) forced to mark their CDS contracts to the illiquid (and probably hedge fund manipulated) ABX index immediately lost billions in value on their balance sheet and were forced into near insolvency.
F) The SEC for revoking the uptick rule at the peak of the market in 2007. Is it so bad for a shortseller to have to wait for an uptick before he can sell (with stock he doesn't own) a stock? We'll never know the extent to which "bear raids" caused the downfall of many banks in the summer and fall of 2008 but they certainly had an effect in increasing the panic Main Street felt In many short sales, no hard locate of shares are required. Removing the uptick rule allowed people to simply crush stocks in the middle of a panic and then cover days or even weeks (or in some cases months) later without ever having to locate the shares they sold.
The list goes on but, better yet, why be angry at all?
We had a crisis. Now the market is coming back (stocks are up and even housing prices are up 4 months in a row). Anger doesn't solve any problems at all and Main Street still equals Wall Street with most 401ks still heavily invested in the stock market. Anger is not going to bring the economy back. Nor will it help your wallet very much. And dwelling on it (particularly when its grossly misplaced) probably won't increase your joy of life. Instead, how about we focus on making some money? Let's buy some stocks and enjoy the holiday season.
Here are three stocks I'm thankful I've had the opportunity to buy in recent weeks thanks to artificially low prices. And here's an insurance company, I think could be the next Berkshire and here is some analysis of super-investor John Paulson's latest picks. At the end of the day people should be focused on their own wallets and not anyone else's.
Follow James Altucher on Twitter: www.twitter.com/jaltucher
Before Pompeii was wiped out by a volcanic eruption in 79 A.D., there were warning signs galore. But they were ignored. There is currently plenty of alarming smoke pouring out of our economic Vesuvius. It too is being ignored. READ MORE States Forced to Cut Services to the Bone: The Opportunity Cost of the Bank Bailout Reading about the huge budget cuts almost every state in the country is being forced to make leaves us pondering the opportunity cost of the bank bailout -- what else we could have done with the trillions we spent. The devastation is in the details... READ MORE TiVo Alert: I will be part of Sunday's roundtable panel on This Week with George Stephanopoulos, along with Paul Krugman, George Will, Donna Brazile, and David Brooks. The show airs at different times around the country, so check your local listings.
When capitalism succeeds, shareholders get dividends and the inidividuals who make short-term decisions with reckless long-term consequences get obscenely huge bonuses. When capitialism fails, shareholders lose their investments, taxpayers bailout the risk taking companies, and the people who make recklessly bad decisions still get obscenely huge bonuses. And Bill Clinton, the public policy architect with fingerpints all over the financial fiasco gets mega millions. Great system.
This is not meant to imply that Goldman's success is mainly due to favors from Washington. Still, I believe we would see greater progress in financial reform if former Wall Street executives and Wal;l Street lobbies exited Washington. Goldman would also likely find itself less criticized -- whether the criticisms are valid or not -- if as prominent government post ceased to be the brass ring that follows a prosperous Goldman
Same ole same ole...........
I don't hate the Yankees. They enjoy a competetive advantage because of their strategic position in their marketplace. This I have no problem with. They still have to win games on the field.
Goldman, however, is what the Yankees would be if they were allowed to hire the umpires. They would win every game 250-0. They'd go 162-0 and sweep the playoffs to win the World Series year after year.
Why be angy when Goldman and your kind define Free Markets as free from risk? Why be angry then when I all have to do is assume actual risk with MY money in the stock market?
Nice try with the "Let them eat cake' argument.
We need actual economists running the Treasury, i.e. the likes of Krugman, Warren, et al, not former Wall Street gamblers. Bernanke has the creds, but drank too much of the Greenspan Kool-Aid.
When GS and their ilk work to create jobs rather than simply print money, then we can start the fan club.
It is commonly said that Goldman Sachs got a 13-billion dollar bailout of taxpayer dollars. They're evil doers, so we can end the discussion right there, right?
Except, it's a false accusation.
After the Federal Reserve loaned AIG 85 billion, GS got three payments from AIG:
2.5 billion
5.6 billion
4.8 billion
---------------
12.9 billion
=========
At that point, Goldman Sachs gave back 4.8 billion in highly liquid agency securities (guaranteed by the United States government) to AIG, which was then owned in part by the taxpayers of the United States.
So that means the alleged taxpayer bailout of 13 billion immediately shrank to 8.1 billion.
Not done. The 5.6 billion was a payment for an asset. So Goldman Sachs transferred 5.6 billion in devalued CDOs to the Federal Reserve. This reduced their balance sheet by 5.6 billion.
Balance sheet before 12.9 billion payment:
X dollars
--------------
12.9 - AIG cash
--------------
X+12.9 billion dollars
(4.8) - securities returned to AIG
(5.6) - CDO ownership transferred to ML III
----------
X + 2.5 - BS after 12.9 billion payment completed
======================================
If this transaction were to be reverse, GS would make money as the agency securities have appreciated, and the implication is the GS portion of ML III has appreciated.
Also, one unusually profound point"
"--> Many people are only happy when they are hating
One theory of the SIGTARP report, as hideous as it is, is that Goldman Sachs would have been damaged had an AIG bankruptcy occurred, thus affirming the strategic correctness of Paulson-Bernanke- Geithner decision to bail out AIG because its externalities would have caused a chain-reaction death spiral in the financial sector, which would have expanded into a death spiral in all business and government sectors.
GS is a company, not a charity. Companies are around to make money for their employees and shareholders. GS has done a remarkable job of that. There are plenty of things that went wrong with the bailout and how it was structured, but GS is not to blame for that. We need financial reform in the US, but we also need to stop the vitriol and un-constructive GS bashing that is all the rage on this site. Thanks James - lets stop the conspiracy theories, and make some productive changes!
Grateful4TheDead: That's just not true. "Some have cited, although incorrectly as others have noted,[86] that Goldman Sachs received preferential treatment from the government by being the only Wall Street firm to have participated in the crucial September meetings at the New York Fed, which decided AIG's fate. Much of this has stemmed from an inaccurate but often quoted New York Times article. The article was later corrected to state that Lloyd Blankfein, CEO of Goldman Sachs, was "one of the Wall Street chief executives at the meeting" (emphasis added)." See - http://www.nytimes.com/2008/09/28/business/28melt.html?_r=1 (correction is at the bottom).
money they earned but by how honest they are. Goldman & Sacks bribed
our Politicians to make financial manipulation legal. They made billions
we lost our pensions jobs and homes.
But list of people with whom to be angry is wildly off.
There is nothing wrong with setting a goal for minority home ownership. What was wrong was to marshall your buddies in the private sector to build 5.5 million houses for minority families in 7 years, and to ask your buddies in the mortgage origination industries to come up with applications that skated all and any lending standards. You won't find Clinton's name on this lunacy; you'll find the Bush, Rove, and Alphonso Jackson. And you can find a lot of books about how minority home ownership would eventually induce minorities into voting Republican.
Because it wasn't possible to do.
Thank you.
Similarly, what I know about finance, the economy, etc. wouldn't quite fill the head of a pin. But I've listened to report after report of massive greed mixed with a socially destructive level of irresponsibility, most of it on the part of Wall Street. So, what do I believe? A common finding in a preponderance of similar reports from a diversity of news sources, or a piece which reads for all the world like an apologist's essay?