Paulson Cuts Goldman Sachs a Sweetheart Deal

An analysis of the bailout deals Treasury Secretary Henry Paulson has been cutting with taxpayer dollars reveals he's giving the culprits who created the nation's credit crisis what amount to sweetheart deals, including what one outraged critic calls a $5-billion "gift" to Goldman Sachs, the firm Paulson headed before joining the Bush team.

The analysis, performed for the United Steelworkers (USW) by a former investment banker using the widely-accepted Black-Scholes Pricing Model, compared the deal Warren Buffett secured by investing $5 billion to bail out Goldman Sachs with the $10 billion deal Paulson cut to rescue his former firm as part of the $125 billion bailout to nine banks.

Based on the analysis, USW President Leo W. Gerard asserted in a letter to Paulson, "Per dollar invested, Mr. Buffett received at least seven and perhaps up to fourteen times more warrants than Treasury did and his warrants have more favorable terms.

"In addition," Gerard's letter added, "Mr. Buffett's preferred stock has a higher dividend rate and can only be bought away from him at a premium, while Treasury's investment of taxpayers' money pays a lower dividend and can be repurchased at par."

Thus, the analysis concludes that the $10-billion bailout Treasury cut for Goldman Sachs with taxpayers' money is only half as good as the one Goldman gave Buffett - effectively a $5 billion "gift from the taxpayers of the United States to the shareholders of Goldman Sachs" in Gerard's words.

Worse yet, the rest of the $125 billion Paulson funneled to eight other banks was based on the same subpar terms. "Applied to the deals you made at the other eight institutions," Gerard's letter charged, "you paid $125 billion for securities for which a disinterested party would have paid $62.5 billion."

Bottom line, the nation's taxpayers will be shortchanged a staggering $350 billion compared to a private investor like Buffett, if the same model is used in doling out the rest of the authorized $700 billion.

Perhaps these revelations, shocking as they are, should not be surprising, for as Kevin Phillips pointed on this site Tuesday, back in 2006 Business Week characterized Paulson as "Mr. Risk" for "placing big bets on all sorts of exotic derivatives and other securities" in his role as Goldman Sachs' CEO.

With Mr. Risk now "investing" our tax dollars, next Tuesday couldn't come soon enough - let alone January.

Comments

[Earthmover08]

I apologize for the digression and hyperbole here:

The recent political campaign demonstrated the echoed wages of worshipping SELF.

Hugh Hefner told us Lust is good, Gordon Gecko told us Greed is good, John McCain told us Pride is good, and, although correct, even John Lennon plagiarized the very first person who said "All You Need is Love". (It was Bob Dylan who accurately identified that "we all have to serve somebody".)

The Obama campaign (and presumably his administration), not to be trite, will not be like the little economic engine that could ("I think I can!"), but rather the universal force for "Yes, WE can!"

Even before the election, it is time to roll up our sleeves and take back our economy from the greedy and misguided, take back semantics from the spin doctors and talking heads, and take back respect for values that took us away from religious imperialism (Normandy in 1066) and back to Normandy in 1944 to fight anti-religious imperialism. (In many more ways than one, we are all in the same boat unless we can just walk out on the water.)

To those who continue on the path which is lined with just "good" intentions, go ahead without me!
(On the expanded cable package, is it still called The Fox Channel or is it more appropriately named The Spanish Inquisition?)

[Earthmover08]

In addition to specifying graduated tax for the term of "investment" (gambler, speculator, investor), perhaps the language of the legislation could have characterized the sequence of settlements, as in a bankruptcy. We should have learned from Enron that:

1.) The board of directors that got you into trouble should not receive extraordinary compensation of any type in dire circumstances. (The other countries are correct in asserting that our executives are overcompensated for what they do. At times, their level of behavior and competence reminds one of a rugby scrum between inbred politicians.)

2.) Investment advisers should receive base compensation plus a bonus for the amount of appreciation, not the wild transaction-based system that has worked to sell siding to owners of brick homes.

3.) The ever-voluminous Cramer advises that no one should invest more than 20% of their investment in one company or instrument. Imagine the effect on the economy if investors (or funds) were required to observe diversification rules. Instead of the buy all Yahoo one day or week and sell to buy all Ford another, we follow the prudent rules of those who gathered under a tree to start Wall Street, not those who can't get down from their financial tree. Technology, like drugs, accelerates the results of behavior that is useless or even harmful to the individual, the family, and all of the communities they belong to.

[Gidster]

Didn't Paulson work for Goldman Sachs?

Wow. Obvious conflict of interest. They just do not care! They have the "Decider" to pardon them.

[democracyman]

This is the BIGGEST BANK HEIST IN HISTORY. Instead of USING guns and Masks, the Bush Administration and a few close cronies used Offshore Commodities Trading Accounts, Facebook, Myspace, Youtube and Twitter to twitter this economy right down the DRAIN so that the BUSH FAMILY COULD PROFIT and create a DYNASTY. FULL STORY: www.america2inc.com Get the Ebook Now.