Happy Days are Here Again! (Here = Wall Street)
"For Goldman, A Swift Return to Lofty Profits"NYT July 13
I'm starting to wonder about the mental health of our nation when I read stuff like, "Analysts estimate that the bank will set aside enough money to pay a total of $18 billion in compensation and benefits this year to its 28,000 employees, or more than $600,000 an employee. Top producers stand to earn millions." (Update from Reuters: "That puts the average Goldman employee on pace to earn more than $900,000 this year. Chief Executive Lloyd Blankfein, senior officers and star traders will likely receive tens of millions of dollars."
Are we out of our minds? How can we sit by and let this happen?
Let's go over what I thought was reality. For the last decade or so, firms like Goldman Sachs created new fantasy finance products that eventually crashed the entire world economy. These products turned out to be a complicated series of bets, based on air. To cover their bets and their butts, many of the largest firms took out insurance policies from AIG. (They called them credit default swaps instead of insurance because insurance is regulated by law and the swaps are not.) By September 2008, just 10 months ago, AIG realized it could not pay off its bets. It was about to go under and pull down with it just about every major bank and investment house in the world, including Goldman Sachs which was owed nearly $13 billion by AIG. (See The Looting of America for more of the gruesome details.)
To prevent the world from sliding into Great Depression II, we bailed out AIG and virtually all of Wall Street. Nomi Prins, the expert author and a former Goldman Sachs managing director, estimates that the tax payer has provided Wall Street with approximately $13.1 trillion dollars in TARP funds, cheap loans and toxic asset guarantees. (Go here.)
As I see reality, Wall Street -- all of it -- is on the dole. Without our largess, every major firm would have gone into bankruptcy before Obama had taken office.
But didn't Goldman Sachs pay back its TARP money? Big deal. Prins also gives us a very clear accounting of all the money and guarantees the firm has devoured, and TARP is just the tip of the iceberg. (Don't read on unless you have your blood pressure under control.)
On October 28, 2008, Goldman Sachs took $10 billion in TARP funds which it paid back on June 17, 2009. Meanwhile, it also is the beneficiary of $29.7 billion from the FDIC "Temporary Liquidity Guarantee Program," which guarantees certain accounts and assets in order to decrease costs and encourage more investment in participating banks. On March 9, 2009, it walked off with $12.9 billion from AIG, getting 100 percent of their bets covered. AIG was (and still is) under federal government receivership, basically bankruptcy under another name. AIG was no longer legally obligated to pay off its debts -- like those to Goldman Sachs (that's what bankruptcy is all about after all). Yet the Obama administration and Congress authorized AIG to use taxpayer money to pay off those debts in full. If taxpayer money hadn't been made into Wall Street's golden egg, Goldman Sachs' golden goose would have been cooked; they would have received pennies on the dollar.
Finally, it received another $11 billion of backing from the Federal Reserve's Commercial Paper Funding Facility which guarantees short term money markets against collapse, which was starting to happen after Lehman Brothers went down.
In sum, after paying off TARP, Goldman Sachs is still in hock to us for $52.6 billion. No wonder they can pay $18 billion in compensation. Correct that: We're actually paying the $18 billion.
Which brings us back to the problem of holding on to reality. When we bail out an entire sector to the tune of trillions of dollars, eliminate many of the competitors, make money available at near-zero percent interest rates, change accounting rules to make toxic assets appear less toxic for profit and loss purposes, and guarantee everyone's remaining assets -- after we've done all that, what does it mean to book a profit? What did Goldman Sachs actually do that was useful for society, after having helped to drive our economy off a cliff? And why aren't our elected leaders doing something about it?
Maybe they just don't know what to do. So here's a list:
1. No one at any firm that receives any federal support during the crisis can earn more than the President of the United States -- $400,000 per year.
2. Until all the federal support programs are repaid in full and with interest, profits at corporations receiving support will be taxed at 91 percent (in honor of the top individual tax rate that existed during the Eisenhower Administration.)
3. Institute anti-trust proceedings against the remaining large banks, so that they no longer are too big or too interconnected to fail.
4. And just for the heck of it, nationalize Goldman Sachs, both because it poses systemic risk to our system and because doing so would definitely get Wall Street's attention.
Ronald Reagan made a living slamming fictitious welfare mothers who supposedly took our money and drove Cadillacs. Now we've got Goldman Sachs, JP Morgan, Morgan Stanley and the rest of the Street living high on the hog with our money. I'm sure we'll hear some stern language from the Administration and Congress as the politicians clamor to paint themselves in populist colors, but what we need is action.
The danger is that if our elected leaders fail to use the Constitutional powers available to them to confront a rogue financial industry that is harming the national interest, a right-wing populist movement may arise that takes advantage of Americans' legitimate anger. Historically, such movements have had a nasty tendency to turn very ugly, very fast.
Les Leopold is the author of The Looting of America: How Wall Street's Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It, Chelsea Green Publishing, June 2009.
Follow Les Leopold on Twitter: www.twitter.com/les_leopold
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Les nails it right here--
"Which brings us back to the problem of holding on to reality. When we bail out an entire sector to the tune of trillions of dollars, eliminate many of the competitors, make money available at near-zero percent interest rates, change accounting rules to make toxic assets appear less toxic for profit and loss purposes, and guarantee everyone's remaining assets -- after we've done all that, what does it mean to book a profit? What did Goldman Sachs actually do that was useful for society, after having helped to drive our economy off a cliff? And why aren't our elected leaders doing something about it?"
When I get that kind of preferential treatment from the powers that be, then I'll say I was part of the problem and profited immorally from it. But until that day--which will never come for working people in America--the blame lays on the shoulders of those who gamed the system and a system that changed the laws to accommodate them!!!
Wow I've been saying for months that bit about "when a failed company gets billions from the govt. how would it be possible for them NOT to post a profit?!"
Your take on the fiasco is smart, but no one in the media ever gets to the root cause: we have a monetary system that can only increase the money supply by creating new money as debt (fractional reserve banking). When you choose that method of money creation, the financial institutions MUST come up with new exotic irrational ways to create debt, and the public and the government MUST go deeper and deeper into debt - it is the ONLY way in this system to increase the money supply to match the real growth of the economy/pr
My wild-eyed lone voice in the wilderness take on the subject:
Financial Crisis - Why All the Experts Are Wrong http://www
"I'm starting to wonder about the mental health of our nation ..."
I knew that the mental health of this nation was pretty bad when I first heard about Creationis
:-)
GS seems to have been involved in the oil bubble, the housing bubble, the tech stock bubble, they have a vested interest in cap and trade, and now, I have to ask, are they involved in the health care/insurance bubble?
So that would make GS pretty much the same as the average American who was involved in the oil bubble, the housing bubble, they have a vested interest in cap and trade (which they perceive as better than the really useful gas tax...) and they are all involved in the health care insurance bubble by eating tons of stuff that is not good for them.
:-)
Since Goldman and the other investment banks are spawn of Satan that do no good for society, let's just shut them all down, shut the stock market, the bond market, etc, and go back to abacuses and bartering. I've always wanted to churn butter for a living.
If shutting down the robber barons of Wall Street would result in a change of occupation for you, then by all means, please start churning.
ooohhhh. that hurt. how do you justify yourself?
Yes, happy day are here again. And just like in 1929 when the song was written, it portends the blip just before the Great Depression set in.
Who needs Al-Qaeda to destroy America. Goldman Sachs and their leach-like employees are doing a fine job of it.
Thank you for a concise look at the fraud and corruption that is the U.S. financial system. I particularly appreciate the Bailout Tally you made available.
Still, one wonders... when it has all been explained to death; when the criminal intent is crystal clear; when government corruption is so blatant that it can't be mistaken for ignorance, and when elections have been reduced to a contest of liars, what can the American people do to take back control of their destiny? What steps can the citizen take to destroy the the system that is already destroying their future, and replace it with a system that focuses on the welfare of the citizenry.
At some point, there has to be a meaningful response.
Hasn't the government done enough? The people who created these TARP programs and Bailouts (Bernanke, Paulson, Geitner) were the very people who were telling use just a few months before the crisis hit that the general economy was just fine! It makes me laugh because no matter how bad the government can mess things up, people will still want to hand over more power to it in the hopes that it will eventually solve the problems. That is the consequence of this two party system we have. Each team just blames all the problems on the other team and claims that if only the other team wouldn’t exists their team could get things done.
Our problems were created by the Federal Reserve and its keeping interest rates to low for so long. We haven’t had a free market in this country for a very long time but the small market forces still left, in our "corporatism" system, are trying to correct the problems created by making the firms that got us into this mess go bankrupt. The evil Goldman Sachs, AIG, bear sterns, citigroup, fannie and freddie would be gone if the government would have stayed out of this whole mess. The liquidation of these toxic firms would have allowed whatever surviving firms to rise up and take their places. Any company that survived this crisis would have done so because it had the foresight to do things correctly and those are the firms we want to stay in business
Ok, so no exec makes more than the President. Do these execs get free travel, health care and security? If not, adjustments might have to be made for these expenses? What about teachers? Should there be a salary limit on how much they can make? Cops? Firemen?
For all those who want to whine about the "free market" at work, please stop. The free market does not exist in this country. After TARP I and II we have what could be nicely called "state capitalism" but that's just a fancy term for "fascism". If the free market really existed AIG, Merrill, GM, etc. would all be out of business because the market punishes losers and rewards winners.
I know it's easy to blame the Wall Street CEOs, but the real villians (as always) are in Washington, but when you have rooms full of lawyers instead of economists, you get the situation we're in now.
"What about teachers? Should there be a salary limit on how much they can make? Cops? Firemen?"
Sure, fair is fair - limit their pay to $400K per year too. But I'm sure that's not what you meant... Just as with the current health care debate, there will always be those that prefer others to suffer so that they can maintain an inequitable share of benefits. "Sure, some people will die for lack of care, but at least I won't ever have to wait weeks for a treatment like they do in Canada."
As for your simplistic idea that government is the problem, more accurately, corrupt government is the problem. Of course, government doesn't corrupt itself. And in that regard it matters little which came first, the chicken or the egg.
Do yourself an educational favor and take mountclemens' advice and listen to someone that's intimately familiar with the situation:
http://www
Actually the real point of my comment about teachers and firemen was: who gets to decide? and how much? 15 people on a blog may think 400K is enough, but there are probably 27 that think it's still too much.
Government is the problem, it's just that simple. When you have a centralized bank that keeps interest rates artificially low and encourages risk and then a legislative body willing to throw billions of dollars to save these risk-taking institutions, then yes, government is the problem.
I noticed how in your response you completely glossed over my point about the real "free market".
The fact that the GSA folks think they earned, or worse, deserve their bonus' is indicative of how self centered and egotistical the wall street folks are. They need to be dismantled.
What have our elected "leaders" done that is useful for society?
That, indeed, is a much better question. Most Americans will probably answer with something like
"They took the nuclear weapons from Saddam away to make us safe!"
:-)
I love this so-called 'free' market.
They make the bets, when they win they take home the winnings.
When they lose, the public steps in to cover them.
WIsh my business would get the same treatment from the public coffers.
Republicans say they want to keep our 'free' market. Democrats say the problem is 'free' markets. Our markets haven't been free since at least 1913 when the Federal Reserve (a PRIVATE bank) was given the power to print money with no oversight (they've never been audited) and debase our savings. The Fed has printed and handed out over a trillion dollars, they won't tell congress where the money went, and our 'representatives' (who don't represent us any longer) run off with their tails between their legs.
Well, you're right the market isn't really 'free'.
I'm pretty sure it shouldn't be completely 'free' of all restraints, there should be rules of conduct. Having said that, businesses that fail, should fail.
I'm okay with government stimulus when it's in the form of investments in the country (infrastructure, R&D, Green technologies and such). I'm not okay with handing sums of money to companies that have proven themselves incompetent.
I own a business, I struggle through tough times, I reap the rewards in good times. I play by the rules.
GM, Goldman and others should have been left to die as the roadkill they are.
As a retired CEO I concur with the article and most of its recommenda
The Financial Institutions like Goldman Sachs are old, massive pools of resources which are chronically ill with huge parasitic loads… managers whose compensations greatly exceed their contributions to the health of the company. Their Boards of Directors are both incompetent, largely appointed by the very parasites who suck the life out of the institutions, and structurally unable to manage parasites.
Nature limits parasitic loads in species (in our case the species of financial institutions) and prevents individuals from becoming too big to fail, when size alone provides an overwhelming competitive advantage, by building in term limits to their life spans; limits that are statistically enforced by numerous mechanisms including external competition and weakening induced by parasites! I have written more on this subject in numerous posts which include http://www
I also believe that the Administration’s failure to address these issues is partly due to Tribalism rather than overt corruption and have addressed this issue in http://www
What did GS do that was useful to society? They have helped drive the price of a barrel of oil back to the $60 range thus helping us understand that we need to drive less, conserve energy and convince us all that "Cap and Trade" is actually good for the average taxpayer, not just GS!
How much further can we all bend over? What will it take for Americans to show some outrage?
"What will it take for Americans to show some outrage?"
Well, harassing the family members of a woman who has been mostly brain dead for a decade with an unconstitutional law is a pretty good starting point. It worked the last time they tried.
:-)
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