On today's Morning Meeting, Dylan Ratigan took on the issue of bailouts for the few banks anointed as "too big to fail" with Mark Fisher, founder of MBF Asset Management LLC and author of a recent op-ed for Bloomberg entitled "How the U.S. Blew Trillion-Dollar Trade of Century." That article formed the jump-off for a discussion on the lack of return on investment for the taxpayers, who shoveled their wealth into the hole Wall Street dug for itself:
RATIGAN: Mark, now, you write in here, what trader in his right mind decides to dump his money into a glorfied black hole -- and you are basically talking from the perspective of the U.S. government last fall -- taking on unlimited risk in the process for miniscule returns? The argument the government would make is, "Listen, we had no choice but to dump our money into a glorified black hole, take on unlimited risk in the process for miniscule returns because we didn't have any sort of resolution. We did not have any other alternative." Do you buy the we-had-no-choice argument for this incredible delivery of money?
FISHER: I buy the argument that the government had no choice but to do what it did. And it's very easy for you and I to sit here today and say, "Why'd you do that?" But having done that, somebody should have had the presence of mind to say, okay, if we going to go ahead and bail out the banks, if we are going to go ahead and prevent the domino theory --
RATIGAN: And the cascade of collapse from top to bottom, last fall--
FISHER: We need to get our pound of flesh.
RATIGAN: We being the government and the taxpayer stepping in with taxpayer money.
FISHER: The taxpayer, yes.
RATIGAN: How does the taxpayer get their pound of flesh, because I think where you see the protest mark in Chicago or you talk to people on the street, rich people or poor people, white people and black people, we all know what has happened has been unfair.
FISHER: Well, I think it is unfair because they didn't get their pound of flesh. If when this bailout took place, if the government would have said, okay, we now own 30% of the profits of every single firm we are helping out, I don't think you would see the riots in the streets.
All of this calls to mind a blistering article penned by Mark Pittman in Bloomberg back in January:
Henry Paulson's bank bailouts, done under "great stress" during the worst financial crisis since the Great Depression, failed to win for U.S. taxpayers what Warren Buffett received for his shareholders by investing in Goldman Sachs Group Inc.
The Treasury secretary made 174 purchases of banks' preferred shares that include warrants to buy stock at a later date. While he invested $10 billion in Goldman Sachs in October, twice as much as Buffett did the month before, Paulson gained certificates worth one-fourth as much as the billionaire, according to data compiled by Bloomberg. The Goldman Sachs terms were repeated in most of the other bank bailouts.
"If Paulson was still an employee of Goldman Sachs and he'd done this deal, he would have been fired," (said Joseph Stiglitz, a Columbia University professor who won the Nobel Prize for Economics in 2001).
Buffett received 43.5 million Goldman Sachs warrants valued at $82.18 apiece on the date of the transaction, or $3.6 billion, Bloomberg analytics show. Paulson, who served as the New York-based bank's chief executive officer until 2006, injected twice as much taxpayer money into Goldman Sachs a month later and got 12.2 million warrants worth $72.33 each, or $882 million.
Paulson picked his winner, and it wasn't us.