Excuse me, I'm not a banker so this may sound dumb. But as my experience has it, a bank was a bank because they accessed their deposit base, as well as their capital to lend to creditworthy borrowers, be they individuals or institutions. That's how homes were built and bought, how businesses grew through the liquidity provided; and the myriad financial accommodations and services, banks accorded their customer base for fees and at interest rates that provided a fair measure of profit.
As a bank this was their societal responsibility, a responsibility that was a cornerstone to our economy and its prosperity. To assist the banks in their mandate the government initiated and maintained such key programs as federal insurance for customer deposits and ample liquidity to viable banking institutions at low interest rates through the Federal Reserve. This, as well as many other programs that assisted the banks in performing their core responsibility of making money available to the nation's consumers and businesses. This was the essence, at least in my understanding, of the compact between banking and society, helped along by government programs that facilitated the vital roles they were meant to play.
However, on Tuesday the Financial Times printed a letter from Lucas van Prag, Managing Director and public voice of Goldman Sachs: "Goldman doesn't assume any government guarantee," he wrote responding to the FT's editorial "Goldman on Trial". The editorial alleges that Goldman not only benefited -- perhaps was even saved by "Uncle Sam" -- but continues to " enjoy an implicit government guarantee" resulting in lower funding costs.
Mr. Van Prag's response contains the following, at least in my estimation, remarkable paragraph:
"Second, unlike a commercial bank, our profitability is not a function of net interest rate margin. In other words, we are not in the business of borrowing cheaply and lending at a higher rate."
"Unlike a commercial bank..." Really. Then why exactly is Goldman permitted to be classified as a 'Bank Holding Company' enjoying all the benefits and access to government programs that such categorization entails without fulfilling its societal responsibility of engaging in commercial banking, while still deriving benefits meant to assist commercial banking institutions?
Other 'Bank Holding Companies', be they JPMorgan Chase, Citigroup, etc. at least have commercial banking as their core business. All those other adjuncts such as proprietary trading, be it in oil or other commodities, bundled mortgages, various formats of financial engineering, etc. make up the full gamut of their activities. But a least there is some rationale to categorize them as 'Bank Holding Companies.'
Given Mr. Van Prag's curious comments, how does the categorization of 'Bank Holding Company' then apply to Goldman?
Didn't Goldman's CEO say they didn't even need the $10 Billion of TARP funds? Why did they need to become a bank holding company and get access to the Fed window? Why are they still getting access?
"On March 16, 2008, the Federal Reserve lowered the spread of the primary credit rate (generally referred to as the discount rate) over the target federal funds rate to 1/4 percentage point and extended the maximum maturity of primary credit loans to 90 days. (from overnight)" The Board announced that, effective on March 18, 2010, the typical maximum maturity for primary credit loans will be shortened to overnight." Back to normal. I hadn't known the overnight maturity had been lengthened to 90 days in '08, and went back to overnight last month. http://www.federalreserve.gov/newsevents/PRESS/monetary/20100218a.htm
I guess GS needs the dough to continue betting against sovereign nations and taxing the U.S. population through commodities speculation.
1. They receive legal protection from the Federal Reserve. The problem for Bear Stearns and Lehman was that they were investment banks, and so the Federal Reserve couldn't legally and easily funnel them bailout money.
2. Goldman Sachs can now borrow from the Federal Reserve at zero percent interest rates, turn around and use the money to engage in proprietary trading, and pay themselves huge bonuses.
http://www.iplanretirement.com/retirementblog/goldman-sachs/
The solution to the problem is to bring back Glass Stegall and force Goldman to split it's business. Betcha that won't happen, the reason is explained in PLARENUTS comment.
Let`s get the facts correct iplanetretirement.
Why did they get it. They run the US Dept. of Treasury. They run the Fed. Res.
They run your man Obama. They ran Bush.
Presidents are given a short list of nominees from those at the real top. JFK discovered the swift consequences of opposing the predators at the Fed and Treasury. Obama can only go as far as the public clamor will give him cover to go. This action may be just the beginning of a house cleaning that will stir up a lot of cheering and resolve - and cover.
Obamanots can only sneer, and scream "He1-1 No!"
Your slur on Obama is misplaced.
You undermine the man.
What are YOU or your leadtards actually doing about it?
Oh yeah, blocking all action by fillibluster.
Nice.