A little poetry...

What happens in an executive bathroom?

Shit happens. The only thing different for the executive is they will never be called to clean up their own shit. Results may vary for those down wind or down on the org chart. Irrelevant rant you say…see you tomorrow at the job you hate...cleaning up the shit of others because servitude is your fate.

Take back the streets, the communities, the hearts and minds of struggling and prosperous families…and not the White House and you take back America. A call for revolution is not a call for anarchy or physical violence, but a call for an end to the silence of the sheep at cliff’s edge. As for violence, by all means do slay apathy; do slay blind belief in the Gods of Wall Street and the mystical deities of Washington and other locations. Certainly, on Wall Street and in Washington there are people of sound heart and mind, pure motivation and clear intention of principle and real desire to transform service or professionalism into societal progress. Salute them for their efforts and acknowledge their uphill battle. It is easier to move a mountain than it is to change a corrupted heart and a co-opted mind. This is why change is hard. It has nothing to do with representative government or the lack of a parliamentary system, or the fact that people go to church and possess a centrist or moderate view. It remains a foundational issue.

 

 
It has nothing to do with a president of flesh and bone and brown skin tone. It has everything to do with definition of life as codified and practiced in policy and procedure and the strange habits of living creatures who line up for their own slaughter at the hands of those who could care less, share less, and who bear false witness concerning the attributes of trickle down and pull yourself up off of the ground after I knocked you down with the hidden hand and the wry sly smile. Look closely and you will see the tears of the clown who entertains and distracts. Stand up my people and take the country back. This is what Durbin meant when he said,

The banks “frankly own the place”
http://www.huffingtonpost.com/2009/04/29/dick-durbin-banks-frankly_n_193010.html

A veiled called to arms, but oh look at the time, hear the sounding of the alarm to march in time to the beat of fear. Don’t call in sick – get yer behind in here so that you can be underpaid and waylaid by my myopic march to greed. I will work you until you drop and when you are out of energy, I will ask you to leave, or I might ask before that. What is this we hear of manufacturing jobs gone for ever, never to come back, all while fools dip their crusty feet in the pools of million dollar retreats from reality?

 

  I'm a fan of this user Oh the banality of it all, the spectrum of defining color that emits from the fall of the hypocritical who blow once in an eternity opportunities to rise above the limitations of their fixation on self-interest. These dinosaurs of fabricated legend and lore are not the solution therefore they should not be the priority. Excuse me if I refuse to believe that the intelligent, the compassionate, the loving, the kind, the color blind patriot of this place called home is in the minority. There is no time like the present for a personal revolution. You do not even need to leave your home to have it, just decide that day by day you will become increasingly independent of that which does not love you. Such a mindset will separate friend from foe and servant from garden implement…more interested in amassig money they can never spend -- to the detriment of the nation.

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God I'm tired of this shit!

We began the year with the Clintonian and Reaganesta economic toy soldiers who, in the past had spoken of different field instructions, more cautious in fact, about the economy, but once anointed by the new commander-in-chief went forward and continued the economic policies of Little Boy Bush by instructing the Federal Reserve’s Field General, Bennie-The Beard-Bernanke, to load up the wheelbarrows of cash and dump them into the laps of the very “infestment” banksters that brought down the economy in the first place. No interest necessary Citi, or “Golden Sacks”.

The marching orders read that the “infestment” banksters were to go forward and increase their capital reserves, since they never really had enough to cover the 30-year long betting cycle of risky loans, and credit default swaps, which made them all very, very rich upper class-men. So, to follow through they went ahead and gambled taxpayer dollars at the Wall Street casino tables, as well as moved forward advancing bets in foreign currencies, commodities, and in other stock markets. In other words, much of the cash they borrowed for free went overseas, just as the jobs they took away from us by outsourcing our own manufacturing livelihoods.

Bennie the Beard was crowned Man of the Year by Time magazine, even though he wrongly spoke about the security of our economy. Bada Bing Bernanke once said that the banks were not involved with sub-prime lending. In 2007, this economic crime syndicate field marshal general said, “ Importantly, we see no serious broad spill over to banks or thrift institutions from the problems in the sub-prime market…The troubled lenders, for the most part, have not been institutions with federally insured deposits.” Wow!! Was this guy trying to do some stand-up?

It is hard to believe that since Bernanke, a PhD and expert in the Great Depression, was so successful selling so much propaganda about the economy, that he was able to be crowned Man of the Year. No doubt, he actually sold policymakers on taking a revised version of Alan Greenspan’s prior bag of crap and made it stick to the wall, such as believing that financial innovations were good for the economy and made banking safer!!! He threw up against the Wall of Crap a belief that our economy had entered a time in history that ushered in smaller and less frequent downturns, which he coined “the great moderation.”

These sweet-as-pie assessments of our grand ‘ole economy were made back in 2007 just before he went squawkin’ to Congress warning about a falling sky Chicken Little style; yet, Bennie The Beard was reading a brand of his homegrown tea leaves as the sky came raining down with Humpty Dumpty type banks, mortgage foreclosures, and failed financial innovations burning down the house so much that he needed a backhoe to get himself out from under the charred rubble. And, that backhoe was driven by Congress, which was blackmailed into accepting the Paulson-Bernanke-BushBoy economic extortion plan.

As we all know, five of ten of the nation’s largest “infestment” banking institutions were underwater with sub-prime loans that had to be bailed out by their field marshal general stationed at the Federal Reserve headquarters. These banksters were so worried that they demanded from Congress the creation of a $700 billion bankster rescue program called TARP.

The reality is that Bennie The Beard actually failed to protect America’s depositors, homeowners, and investors to the tune of $12 trillion!!! Now, if that legacy deserves Man of the Year, then what would it take to deserve the dishonor of the Worst Man of the Year?

As the year progressed, the promise to end the war in Iraq became just an exaggeration.

Today, we are still in Iraq, and have escalated the troop deployment in Afghanistan. The war profiteers continue their gleeful praises of our President. The stockholders of GE, General Dynamics, Halliburton, KBR, and the rest are so happy to see their end-of-the-year dividend/ 1099s all coming in profitably. In addition, Blackwater, ie. Xe, and now remade into The U.S. Training Center. Even though Eric Prince, its commander-in-chief, should be put on trial as a war criminal. Our government continues to use Prince’s private, mercenary military force overseas, too.

As we move threw the year, the bankstes were paying out huge bonuses funded by the taxpayers through various Fed and Treasury programs. There were no significant regulatory changes, nor the elimination of too-big-to-fail. The mega-banks were even allowed to become bigger as they gobbled up closed down smaller banks.

None of the mega-banking CEOs or top executives has been jailed for fraud, either. The Justice department has not done any serious, large scale investigations clearly defining why this economic fraud occurred, who were the ones to blame, and why are they still smiling.

We saw a token “real” economy bailout of only a couple billion dollars because the remainder of the economic stimulus package bailout went into tax-cuts. The Republicans hijacked a Democratic Congress, once again. The unemployed-under employed-no longer looking for work, and the part time wanting full time unemployment picture has reached a near Depression era aggregate figure of almost 20%. 16 million unemployed.

Foreclosures grew to 1 in 6 homeowners. Those still paying mortgages, but are now underwater is around 1 in 4.

Wages continue to erode or stay stagnant. Those who are leery of losing their jobs have cut back on their spending.

34,750 lobbyists continue to infect our government with powers that are unprecedented.

Corporate bankruptcies are looming on the horizon. Bank credit card defaults and those 30-60-90 days delinquent have been on the upswing. Professor Elizabeth Warren, PhD, and chairperson of the Congressional Oversight Bailout Committee has warned our president that we could be on the brink of losing our middle class!!!

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To big to fail=big banks. To small to matter=Main street USA

The Problem with the Revolving Door - It Brought Us Too-Big-To-Fail

Submitted by Tiffiniy Cheng on December 29, 2009 - 09:55

Bailouts and political connections go hand in hand according to a just released academic study. The study, which was conducted by the Ross School of Business at the University of Michigan researchers, shows concretely that lobbying, campaign contributions, and the finance/federal government revolving door has helped the most damaging banks despite the dangers they pose to our economy.
In the age of the bailout, blaming the revolving door between corporate lobbying and politics is so obvious that it has become almost cliche. But the reason why it is one of the greatest handicaps to our political system is critically important. The revolving door turns "survival of the fittest" on its head by masking failure, propping up underperforming companies, and hiding inefficiencies in the markets. The new study  shows the extent to which political connections influenced how TARP bailout funds were paid out.
The researchers found that there was a 31% increase in the likelihood of receiving bailout funds at financial companies whose executives had served on the board of the Federal Reserve. Banks that had connections with members of Congress who serve on key finance committees were found to be 26% more likely to receive bailout funds than banks without those kinds of connections. It is the revolving door between lobbyists and politicians that undermine a fair and accurate system for determining healthy policy.
But the research hits just the tip of the iceberg. Zach Carter at The Nation recently reported on a much deeper case of how the revolving door shapes U.S. policy. Our "too-big-to-fail economy" was developed in large part by one of the country's current top bank regulators; someone who has major conflict of interest with the banks he is supposed to regulate, Carter reports. John Dugan is now chief regulator of the largest US banks at the Office of the Comptroller of the Currency. In one of his former positions at the Treasury, he was a chief architect of the three most influential pillars of banking deregulation that have been blamed for causing the financial meltdown last year (hat tip The Big Picture). In 1991, Dugan published a 750-page book where he successfully pushed for policies allowing banks to operate in multiple states without additional regulatory oversight, to repeal the Glass-Steagall Act allowing safe commercial banks to merge with risky investment and insurance companies, and to allow corporations like General Electric and Sears to own banks.
"[Dugan's book] was unquestionably the blueprint for the major Clinton-era deregulation," says Arthur Wilmarth Jr., a longtime banking scholar at George Washington University Law School. "It was the first real recipe for too big to fail."
A few years after publishing his book, Dugan was out of government and in a new job as a lobbyist with the American Bankers Association working his political connections to help pass the financial deregulatations he described in his book. From his earlier years in government, he had enough pals in Congress and the Clinton administration to get many of his policies enacted. Now he's back playing the game from the government side as one of the country's chief regulators. Same guy, same mind, same mission; just working from the inside at the moment. Indeed, "as head of the Office of the Comptroller of the Currency, Dugan played a leading role in gutting the consumer protection system, allowing big banks to take outrageous risks on the predatory mortgages that led to millions of foreclosures," Carter reports.
The revolving door actively hurts our economy because it puts our country on a path of survival of the richest, most connected lobbyists with cover-ups of market inefficiencies and bad consumer products.  Dugan helped dangerous-for-the-consumer, highly-profitable-for-the-bank consumer products pop up throughout the 90's as subprime and adjusted rate loans.   The Ross researchers agree that "the effects of political ties on federal capital investment are strongest for companies with weaker fundamentals, lower liquidity and poorer performance — which suggests that political ties shift capital allocation towards underperforming institutions." When money determines political power, the political system itself encourages corporations to put profit and lobbying above developing consumer products people actually need.
Dugan's role in aiding the creation of too-big-to-fail banks was born out of industry.  Because Dugan has a highly influential political position, his weaving of politics and private interests which has spanned a career is problematic: "Over the course of nearly a quarter-century, Dugan has proved himself a staunch ally of the American financial elite as a Senate staffer (1985-89), a Treasury official (1989-93) and a lobbyist (1993-2005), building a career that culminated in 2005 when George W. Bush appointed him comptroller of the currency. When the financial system finally succumbed to its own excesses in September 2008, Dugan’s fingerprints were all over the economic wreckage, but almost nobody noticed." Dugan's work is exemplary of the phenomena of policy being determined by webs of influence.
To be fair, lobbying presents opportunities for busy politicians to learn about issues.  But, unfortunately the weaving of long tentacles in private and public sectors is a prerequisite to effective lobbying. Last week in DC, I met young career politicos who saw Capitol Hill jobs as a first stop on the road to high-paying lobbying jobs later on. Their political connections are golden resume nuggets. This complicated climb to the top is bearing down on policies we see today - President Obama made a campaign promise to keep out the lobbyists in his administration and failed, but the disheartening part is the bottom to top entrenchment of Citigroup executives and lobbyists and their work on financial reform policy.
At its inception, corporations were allowed to exist when they served the public's interest; the Supreme court ended that in the 1800-1900's . No longer bound by public duty, shareholders' returns have become a singular goal in the free market and politics race to the top  -  Congress seems to have understood less and less the impact these policies have on the economy at large.  The money and secret inner circle of influence in DC is unfair because it creates a snowball effect of making the powerful more powerful and policy less about policy. Thus lobbying and its powerful cousin, the revolving door serve to prop up companies that may be weak or have bad products, leading to an economy that is more likely than not to become fractured or in other words, too big to fail.

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More evidence of the disgusting behavior.

Betting against their own securities has prompted numerous investigations of Goldman Sachs and other Wall Street institutions. Prior to the financial collapse, Goldman and others figured out a way to package risky securities, such as subprime mortgages, and sell them to investors who were told they were buying sound investments. Little did the investors know that the firms selling the synthetic collateralized debt obligations (or CDOs) turned around and bet that the CDOs would fail—costing pension funds and insurance companies billions of dollars.

“The simultaneous selling of securities to customers and shorting them because they believed they were going to default is the most cynical use of credit information that I have ever seen,” Sylvain Raynes, an expert in structured finance at R & R Consulting in New York, told The New York Times. “When you buy protection against an event that you have a hand in causing, you are buying fire insurance on someone else’s house and then committing arson.”

Image via Wikipedia

 

In addition to Goldman, CDOs were sold and bet against by Deutsche Bank, Morgan Stanley and Tricadia Inc.—an investment company whose parent firm’s CDO management committee was overseen by Lee Sachs. Sachs is now a special counselor to Treasury Secretary Timothy Geithner.

 

The schemes are now being investigated by Congress, the Securities and Exchange Commission and Wall Street’s Financial Industry Regulatory Authority.

Banks Bundled Bad Debt, Bet Against It and Won (by Gretchen Morgenson and Louise Story, New York Times)

Goldman Sachs Responds to the New York Times on Synthetic Collateralized Debt Obligations (Goldman Sachs)

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Goldman Sachs take over the rights to Earth!!

        


                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     In a complicated financial maneuver, Goldman Sachs today took over the rights to Earth.

The rangling of the Earth from the Meek began in 1999 with the repeal of the Glass-Steagall Act. Starting in 2004, predatory lenders began targeting the Meek, offering unheard-of deals on home loans. The Meek - unaware their inheritance would be used as collateral - then began foreclosing on their homes at a dramatic pace. Last week, the threshold was passed, giving Goldman Sachs a plus-50% holding of the planet at the time of their deaths.

“Once again Goldman Sachs has proven to be a leader in world markets, in this case literally,” said Former Goldman Sachs CEO Henry Paulson. “The economy and the planet are in better hands with Goldman Sachs.”

For the most part, reaction from the Meek has been mostly muted.

“Meh, whatever,” said Noted Meek Tim Johnson of Tupelo, Miss. “I never expected to see that inheritance anyway.”

Goldman Sachs announced the opening of a new division called simply “The Planet.” The Planet will be publicly traded, with shares of the Earth available for $87.45 at the IPO to be held later this week.

Board of Directors and their own private circle jerk

YOU might think that board members overseeing businesses that cratered in the credit crisis would be disqualified from serving as directors at other public companies.

You would, however, be wrong.

Directors who were supposedly minding the store as disaster struck at companies like Countrywide Financial, Washington Mutual or Fannie Mae have not all been banished from other boardrooms. In many cases, directors just seem to skate away from company woes that occurred on their watch.

To some investors, this is an example of the refusal of those involved in the debacle to accept responsibility for it. Whether you are talking about top executives loading up on leverage, regulators who slept while companies took on titanic risks or mortgage lenders that made thousands of dubious loans, few in this crowd have acknowledged culpability. Taxpayers and shareholders, meanwhile, who had nothing to do with the problems, are left holding the bag.

“None of these directors have stood up and said, ‘We made a mistake here by not calling management to account,’ ” said Paul Hodgson, senior research associate at the Corporate Library, a corporate governance research firm. “They have certainly avoided the limelight as far as blame is concerned.”

Moreover, they continue to get work as directors at other companies.

Three large public companies provide excellent examples. They are Sunoco, the oil company; Paccar Inc., a truck manufacturer; and Tetra Tech Inc., a management consulting and technical services concern. Each of these companies has two directors who, until recently, were on the boards of institutions that were centrally involved in the mortgage meltdown.

Let’s begin with Sunoco. Its outside directors include two who did stints at Fannie Mae, the mortgage finance giant seized by the government in September 2008. They are Thomas P. Gerrity, a professor of management at the Wharton School of the University of Pennsylvania, and John K. Wulff, former chairman of Hercules, a specialty chemicals maker.

Mr. Gerrity has been a Sunoco director since 1990 and was a board member of Fannie Mae from 1991 to 2006. He was on the board when Fannie Mae’s balance sheet took on enormous risk and when accounting irregularities in 2004 prompted the ouster of Franklin D. Raines, Fannie’s chief executive.

At Sunoco, Mr. Gerrity serves on the audit and governance committees.

Mr. Wulff, who serves on the audit and corporate responsibility committees at Sunoco, joined Fannie Mae’s board in 2004, after the accounting problems emerged, and is no longer a director there. That was also the year he became a director at Moody’s, one of the three credit-ratings agencies that failed so colossally to assess risk in the debt securities at the heart of the crisis.

“I think it is appropriate for institutions and other shareholders to look at the backgrounds of directors and other boards they have served on, but you need to interpret the data in the context of the specific circumstances of each board,” Mr. Wulff said. “If you vilify board members purely because the companies they oversee ultimately fail, you risk discouraging anyone from getting into a situation with any risk.”

Sunoco and Mr. Gerrity did not return messages seeking comment.

At Paccar, two of its 12 directors were on the boards of big mortgage lenders that imploded. Robert T. Parry, a former president of the Federal Reserve Bank of San Francisco, was a director at Countrywide from 2004 to 2008. Mr. Parry served on four committees of Countrywide’s board: audit, ethics, credit, and operations and public policy. Countrywide, a huge subprime lender, was acquired by Bank of America in early 2008 in a fire-sale transaction.

Also a Paccar director is William G. Reed Jr., a board member at Washington Mutual since 1970. Most recently, he was chairman of WaMu’s governance committee and also served on the audit and finance committees. WaMu’s collapse last year under the weight of absurdly risky loans was the largest bank failure in history.

Although other companies often list board memberships held by their directors, Paccar’s proxy statement does not mention Mr. Parry’s service on the Countrywide board or Mr. Reed’s 38 years as a WaMu director.

Paccar’s spokesman declined to make either director available for comment. But the company said in a statement that its board “provides excellent governance and risk management oversight, which is reinforced by the experienced management team.” Paccar added that it had delivered annual returns to shareholders for the last decade that significantly exceeded those of the Standard & Poor’s 500-stock index.

Finally, two directors at Tetra Tech are both refugees from the board of IndyMac Bancorp. IndyMac, spun off from Countrywide, is another subprime lender that failed spectacularly last year.

Hugh M. Grant, a corporate consultant and an IndyMac director since 2000, was chairman of the lender’s audit committee. He also served on IndyMac’s management development and compensation committee as well as those devoted to corporate governance and legal compliance.

His colleague Patrick C. Haden, an executive at the private equity firm Riordan, Lewis & Haden, also spent eight years on the IndyMac board. He was chairman of its strategy and execution committee.

Mr. Grant, a director at Tetra Tech since 2003, is chairman of its audit committee and serves on two other committees: one devoted to compensation and the other related to nominating and corporate governance. Mr. Haden has been on Tetra Tech’s board since 1992; he is chairman of the compensation and nominating committee and serves on the audit committee. Tetra Tech has six outside directors.

Neither Mr. Haden nor Tetra Tech responded to messages seeking comment. Mr. Grant could not be reached. This is not to say that these directors are not performing their duties. Indeed, some would argue that directors who have witnessed at close range the collapse of a company may learn a great deal from that experience and bring to their boardroom activities an increased sense of responsibility. But it is hard to blame shareholders for wondering whose side directors are on, given the broad failures by many board members to recognize and rein in risk-taking at so many companies.

As fiduciaries for the owners of the companies on whose boards they serve, directors have a duty to act in shareholders’ interests. After all, they are the shareholders’ representatives, and they are charged with ensuring that their companies are operated soundly and with long-term profitability in mind. Yet it doesn’t always seem to work out that way.

Frederick E. Rowe, president of Investors for Director Accountability, a nonprofit shareholder advocacy group, said, “Here’s a conversation you’ll never hear: ‘Yes, I get paid $475,000 a year. I play golf with the C.E.O.; he’s a personal friend. I go to interesting places for board meetings, I am around interesting people, and I would never say one word that would jeopardize my position on the board.’”

The main reason for director dysfunction is that board members have little fear of being fired for incompetence or sleepwalking through meetings. Because of the way director elections are structured, board members can win their seats if they receive just one vote of support. And even if a majority of shareholders withholds support from directors at annual elections, the directors who are singled out are often allowed to stay.

Shareholders interested in ousting a director or two must mount an expensive proxy fight to do so.

There is movement afoot to change this arrangement. The Securities and Exchange Commission has proposed new rules that would give large shareholders a way to replace incompetent directors with their own nominees. Two weeks ago, the S.E.C. reopened its comment period for these rule changes.

But the proposal has too many limitations, shareholder advocates say. For example, only those who have owned a stock for one year and who hold a stake of at least 1 percent in a big company may have their director nominees included in a company’s proxy materials and submitted to a shareholder vote.

“It’s a step forward, but a pretty embarrassingly baby step,” said John Gillespie, a former investment banker who, with David Zweig, is co-author of “Money for Nothing,” a forthcoming book on board failures. “The bigger problem is the culture of boards, which doesn’t allow directors to do an effective job even if they wanted to.”

Solutions to the culture problem, he said, would include instituting term limits for directors, in order to keep fresh blood circulating on a board, and separating the roles of board chairman and chief executive.

MOST important, Mr. Gillespie said, United States shareholder groups holding 10 percent stakes in companies should have the right, as they do in Britain and other countries, to call special meetings. Then and there, they could jettison directors who are seen as not doing their jobs.

“The reality of our human nature is to pay more attention to people who can fire you than to those who can’t,” Mr. Rowe said.

Even though the stock market has performed well this year, Mr. Hodgson of the Corporate Library says he thinks that many directors will face significant opposition, albeit still toothless, from shareholders at annual elections in 2010.

“I think we are going to see some of the highest levels of either ‘no’ votes where companies have a democratic process or withhold votes,” he said. “People were at fault there, and saying that nobody could have predicted it is not an excuse. If you are on the board, you have the responsibility to find those things out and not just believe what management is telling you.”

Goldman sucks

Goldman responded to the New York Times saying many of these deals were the result of demand from investing clients seeking long exposure. In an earlier Huffington Post article, I wrote about Goldman's key role in the AIG crisis; it traded or originated $33 billion of AIG's $80 billion CDOs. AIG was long the majority of six of Goldman's Abacus deals. These value-destroying CDOs were stuffed with BBB-rated (the lowest "investment grade" rating) portions of other deals. These BBB-rated portions were overrated from the start. Many of them eventually exploded like firecrackers.
Goldman said it suffered losses due to the deterioration of the housing market and disclosed $1.7 billion in residential mortgage exposure write-downs in 2008. These losses would have been substantially higher had it not hedged. Goldman describes its activities as prudent risk management. Many Wall Street firms wound up taking losses. The question is, however, how did they manage to get through a couple of bonus cycles without taking accounting losses while showing "profits?"
The answer is that they sold a lot of "hot air" disguised as valuable securities. Goldman claims this was prudent risk management. In reality, Goldman created products that it knew or should have known were overrated and overpriced.
If Wall Street had not manufactured value-destroying securities and related credit derivatives, the money supply for bad loans would have been chocked off years earlier. Instead, Wall Street was chiefly responsible for the "financial innovation" that did massive damage to the U.S. economy.
Earlier, Goldman denied it could have known this was a problem, yet acknowledged I had warned about the grave risks at the time. If Goldman wants to stick to its story that it didn't know the gun was loaded, then it is not in the public interest to rely on Goldman's opinion about the greater risk it now poses to the global markets.
Goldman excuses its participation by saying its counterparties were sophisticated and had the resources to do their own research. This is a fair point if Goldman were defending itself in a lawsuit with a sophisticated investor trying to recover damages. It is not a valid point when discussing public funds that were used to bail out AIG, Goldman, and Goldman's "customers."
Goldman claims the portfolios were fully disclosed to its customers. Yet at the time of the AIG bailout, Goldman did not disclose the nature of its trades with AIG, and Goldman did not disclose these portfolios to the U.S. public. If it had, the public might have balked at the bailout.
The public is an unwilling majority owner in AIG, and public money was funneled directly to Goldman Sachs as a result of suspect activity. The circumstances of AIG's crisis were extraordinary and without precedent. I maintain that the public is owed reparations, and it would be fair to make all of AIG's counterparties buy back the CDOs at full price, and they can keep the discounted value themselves.
Some similar CDOs currently trade for less than a dime on the dollar in the secondary market. Goldman's trades amounted to more than $20 billion (albeit Goldman traded or originated $33 billion of AIG's $80 billion of this ilk). If Goldman wants to claim it was "only following orders" for customers, that is between Goldman and the hedge funds or other "customers" involved. Goldman can fight it out with them if it wants its money back.

Goldman's synthetic deals that are still on AIG's books can be settled at ten cents on the dollar. This is the value at which other bond insurers have settled similar deals. The excess money already paid to Goldman can used to pay down AIG's public debt.

 

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Speaking as someone who worked in the IT and risk area for credit derivatives at one of the largest financial institutions -- it was fraud on a massive scale.

Nobody really believed the risk management numbers for CDO's were anything more than so many angels dancing on the head of a pin. I'm talking about the quants/mathematicians, the traders and most of all the high level executives at the top of the fixed income food chain.

What they did believe was that bonuses were paid out on an annual basis for performance that was measured largely by sales. Not the eventual value of the trades, which ended up being worthless.

These bankers should be dressed in orange pajamas and sent down to Guantanamo. They are the real terrorists. Not the fake movie style terrorists and bank robbers that the government wants us to believe in -- who wear masks and carry guns.

No, these are the real bank robbers who work inside the institution and would need tractor trailers to carry out all the money. Real bank robbers wear suits and have the money transferred directly to their own bank accounts.

What a joke that Goldman pretends to be innocent, and claims to have "paid off their TARP money," while their biggest creditors -- including AIG -- were given huge amounts of taxpayer dollars to pay off trades they had with Goldman.

The Goldman bonuses are our tax dollars at work. Plain and simple.

I was a witness to history. I saw it happen. The mathematical models were so complex even the mathematicians made jokes about them.

Well, the joke is on all Americans.

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Too Big to Jail?

— Illustration: Bill Mayer

Time to fix Wall Street's accountability deficit.

— By Monika Bauerlein and Clara Jeffery

MAYBE WALL STREET should open a casino right there on the corner of Broad, because these guys simply cannot lose. After kneecapping the global economy, costing millions their homes and livelihoods, and saddling our grandchildren with massive debt—after all that, they're cashing in their bonuses from 2008. That's right, 2008—when amid the gnashing of teeth and rending of garments over the $700 billion TARP legislation (a mere 5 percent of a $14 trillion bailout; see "The Real Size of the Bailout"), humiliated banks rolled back executive bonuses. Or so we thought: In fact, those bonuses were simply reconfigured to have a higher proportion of company stock. Those shares weren't worth so much at the time, as the execs made a point of telling Congress, but that meant they could only go up, and by the time they did, the public (suckers!) would have forgotten the whole exercise. It worked out beautifully: The value of JPMorgan Chase's 2008 bonuses has increased 20 percent to $10.5 billion, an average of nearly $6 million for the top 200 execs. Goldman's 2008 bonuses are worth $7.8 billion.
And why are bank stocks worth more now? Because of the bailout, of course. Bankers aren't being rewarded for pulling the economy out of the doldrums. Nope, they're simply skimming from the trillions we've shoveled at them. The house always wins. Indeed, 2009 bonuses are expected to be 30 to 40 percent higher than 2008's. And don't forget AIG, which paid the same division who helped cook up collateral debt obligations and credit default swaps "retention bonuses" worth $475 million, in some execs' cases 36 times their base salaries.

As anyone who watches Dog Whisperer knows, rewarding bad behavior produces more of the same—so it's no surprise that Wall Street is back to business as usual. Derivatives are still unregulated (thanks, Congress!), exotic sliced-and-diced securities are being resliced and rediced, and the biggest offenders in peddling subprime mortgages? They are raking in millions in federal grants to—wait for it—fix subprime mortgages.
And the worst part? These fat-cat recidivists don't even have the decency to fake contrition. The New York Times' Andrew Ross Sorkin says that whenever he asked Wall Street CEOs "Do you have any remorse? Are you sorry? The answer, almost unequivocally, was no." When asked by MoJo's Stephanie Mencimer if he regretted helping to bring down the economy, former AIG CEO Hank Greenberg said flatly, "No. I think we had a very good record." Lloyd Blankfein, Goldman Sachs' CEO (his haul between 2006-2008: $157 million) went so far as to tell the Times of London, "We help companies to grow by helping them to raise capital. It's a virtuous cycle. We have a social purpose." Bankers like him are "doing God's work."
This is blasphemy worthy—along with usury—of the 7th circle of hell. And while Goldman's PR minions, visions of pitchforks dancing in their heads, coaxed Blankfein into coughing up a lame apology, the comment perfectly distilled the Kool-Aid Wall Street has forced down our throats. MoJo's Kevin Drum sums it up in his investigation of Wall Street's outsize influence in Washington: Political payola—$475 million in campaign contributions just in the 2008 cycle—is only part of it. Something more insidious is at work. "Unlike most industries, which everyone recognizes are merely lobbying in their own self-interest, the finance industry successfully convinced everyone that deregulating finance was not only safe, but self-evidently good for the entire economy, Wall Street and Main Street alike," he writes. Some call this phenomenon "intellectual capture," he adds, but "considering what's happened over the past couple of years, we might better call it Stockholm syndrome."
Sure enough, as our Washington bureau chief David Corn reports, pollsters have been surprised to find that while Americans are angry about the economy, they often blame not the bankers, but politicians—and even themselves. We spent too much, the logic goes, and now we're reaping the rewards. There's some validity to that—we all played along as if the good times would never end. But who sold us this crock? Wall Street and its troubadours, from faux regulators like Alan Greenspan to so-called financial journalists like Jim "Mad Dog" Cramer.
And actually, when it comes to restraint and humility, consumers seem to be the only ones learning their lesson. Personal savings are up for the first time in decades; spending is down. Why? Because we, the little people, actually felt the pain of the crash. New incentives, new behavior. Not so on Wall Street; not so in Washington.
It's not too late. If nothing else, last summer's tea parties showed that politicians will listen to popular outrage—when it seems to threaten their jobs. What if, as Nobel-winning economist Joe Stiglitzsuggests , we foreclosed on bankers and politicians who are morally bankrupt? What if people started showing up at town halls demanding accountability from those who gambled away their jobs and homes? There is plenty of blame to go around. Let's start putting some of it back where it belongs.

The biggest lies of 2009.

Image by Eifachfilm Vacirca via Flickr

Say goodbye to 2009, the worst economic year since the Great Depression.
Say hello to the billionaire bailout society in which the super-rich gamble, lose and get bailed out by the rest of us.
To save the system from total collapse we poured trillions of dollars into the financial sector. The result? Banks still are refusing to lend. Thirty million Americans are looking for full-time jobs and 49 million are skipping meals including one out of four children. But Wall Street again is reaping record profits and bonuses.
Not only are we richly rewarding those who wrecked our economy, but also, we have to put up with hundreds of fabrications about how the big banks got us here. Here is my biggest, fattest lies list for 2009:
1. "Government programs for low-income home buyers caused the financial crash." Wall Street defenders were quick to blame the Community Reinvestment Act, which urges banks to loan money in minority communities. In fact, almost none of the CRA loans are sub-prime and the vast majority are doing well, thank you. Blaming government programs deflects us from the real cause: Wall Street's incredibly reckless creation, marketing, selling and trading of "innovative" new securities that supposedly removed the risk from pools of risky debt. It didn't work. Wall Street, not the poor, crashed our economy.
2. "Income inequality is good for everyone." Lord Brian Griffiths, Vice-Chairman of Goldman Sachs at least had the nerve to say what so many of the super-rich really believe:

"We have to accept that inequality is a way of achieving greater opportunity and prosperity for all."

Unfortunately, the facts suggest otherwise. There is a high correlation between the mal-distribution of income and economic crashes. The last time our wealth and income distribution was as skewed as it is today was 1929, and that's not an accident. When too much money is in the hands of the few it runs out of real world investment and gravitates towards speculative investments. This inevitably creates asset bubbles and crashes. Record pay and bonuses on Wall Street and high unemployment are connected. (See The Looting of America Chapter 11).
3. "The rising number of billionaires is a sign of economic health." It's accepted media wisdom that the more billionaires the better. China with 130 billionaires now trails only the US, which has 359, according to Forbes magazine. But in our billionaire bailout society, the rising number of billionaires signals a collapsing middle class. Ponder this statistic: In 1970 the ratio of the compensation of the top 100 CEOs compared to the average production worker was 45 to 1. By 2006 it was an astounding 1,723 to one. Does that look healthy to you?

4. "Paying back TARP means banks are no longer on government welfare." Bank after bank is rushing to repay TARP funds during the worst economic year since 1937. They want to get out from under the Pay Czar (not that he's been sufficiently tough on the banks under his purview.) Banks that were insolvent only a few months ago now say they have the financial strength to refund tens of billions of dollars to the government. Where did all that money come from? Much of it comes from other government welfare programs for Wall Street (over $12 trillion worth) that aren't publicized. (See Nomi Prins's excellent accounting.) It may be the case that our banks are paying us back with our own money. Now that's financial innovation.
5. "Wall Street's freedom to innovate must be protected." Congressional leaders are tripping all over themselves to say new regulations will not discourage Wall Street innovations, something they claim is vital to our economy. Oh really? Do those "innovations" add anything useful to our country other than new casino games for the super-rich? Former Federal Reserve Chairman, Paul Volker, recently blew the whistle on this fabrication:

"I hear about these wonderful innovations in the financial markets and they sure as hell need a lot of innovation. I can tell you of two - Credit Default Swaps and CDOs - which took us right to the brink of disaster: were they wonderful innovations that we want to create more of?
.... I wish that somebody would give me some shred of neutral evidence about the relationship between financial innovation recently and the growth of the economy, just one shred of information....
The most important financial innovation that I have seen in the past 20 years is the automatic teller machine... How many other innovations can you tell me of that have been as important to the individual?" ("What Has Financial Innovation Done for You?")

6. "To retain critically needed talent, Wall Street must be free to pay top salaries and bonuses." Where would they flee if they just got paid like normal people rather than like gods? The British are putting in place a 50 percent tax on bonuses. Also, compensation is much, much lower in the European Union. But the real lie is that we need such "talent" in the first place. That kind of "talent" just crashed our economy. That kind of "talent" is widely overpaid - no way should bond traders receive 10 to 100 times what is earned by the best neurosurgeons in the world. Something is really wrong and it starts with the lie of banking "talent."
7. "Overpaid American workers are the real cause of unemployment." The New York Times writers who concocted this argument didn't think they were lying. But this is one of the most preposterous ideas put forth during 2009. ("American Wages out of Balance" New York Times November 11, 2009) Edward Hadas, Martin Huchinson and Antony Currie informed us that:

"American manufacturing workers should take average real wage cuts of as much as 20 percent to get into global balance."

They don't mention that the average non-supervisory worker has already taken an 18 percent cut in real wages between 1973 and 2007. What's worse, they claim that if workers don't take these additional cuts, these "overpaid" working stiffs will be the cause of another Great Depression. They write:

"But if American wages get stuck above global market-clearing levels, as in the 1930s, the result could well be something approaching Depression-era levels of unemployment."

Not a word is mentioned about how Wall Street's gambling caused all of this unemployment and how the continued failure of Wall Street banks to lend is stalling job growth, right now.
8. "I'm doing God's Work." Lloyd Blankfein, Chairman of Goldman Sachs said what too many Wall Street leaders truly believe: that they are so privileged and entitled that it seems as if the heavens bless their work. Why else are they earning hundreds of millions of dollars? Mr. Blankfein believes he is creating a virtuous circle by raising capital for corporations who create jobs and help our society prosper. But Goldman Sachs, JP Morgan Chase, Morgan Stanley and the rest of the apostles helped to bring the entire world economy to its knees. Does that mean God likes unemployment and widespread hunger?
9. "We're out of money." Who's we? Yes, the middle class is tapped out but the super-rich haven't even begun to pay their fair share for the mess they created. Yet the top 400 richest Americans alone are sitting on $1.27 trillion or so in wealth. Here's a dangerous thought. What if we had a very steeply progressive wealth/income tax that reduced the net worth of the super-rich to "only" about $100 million each? You wouldn't be suffering if you had $100 million kicking around. Now do the math: The 400 richest x $100 million each would equal $40 billion. That would leave about $1.23 trillion to help pay back the country for the Wall Street meltdown that we, our children and their children will be subsidizing.
10. "We are becoming a socialist economy." Somewhere between 68 and 78 percent of the US GDP is private sector activity, the highest among developed nations. And much of the government expenditures go to private contractors as well. But there's a kernel of truth in the socialist scare: What do you call a society that encourages the private accumulation of wealth without limit, and then when the super-wealthy get into serious trouble, we bail them out with taxpayer funds - largely from a declining middle-class? That's not free-enterprise. That's not socialism either. It's something new and it deserves to be called the billionaire bailout society.
Here's hoping that in 2010 we can begin to undo it.

How true this is!

Wall street thugs and their bankster buddies just keep it coming and we keep turning the other cheek. When are we going to collectively get these people knocked down, literally and figuratively! Bring me a pitchfork, I'm ready!

Image via Wikipedia

Just keeps gettin' better... And why more people care?!

By Christine Harper

Dec. 21 (Bloomberg) -- In the first six months of 2010, about 6,000 employees of Goldman Sachs Group Inc. will take a break from their spreadsheets and move across the southern tip of Manhattan to a new 43-story, steel-and-glass skyscraper.

The building was a bargain -- and not just because the final cost is expected to be $200 million less than the $2.3 billion price the company had estimated when construction began in November 2005. Goldman Sachs also benefited from the government’s determination to avoid losing jobs in lower Manhattan after the Sept. 11, 2001, terrorist attacks.
Building a new headquarters cater-cornered to where the World Trade Center once stood qualified the firm to sell $1 billion of tax-free Liberty Bonds and get about $49 million of job-grant funds, tax exemptions and energy discounts. Henry Paulson, then Goldman Sachs’s chief executive officer, threatened to abandon the project after delays in addressing his concerns about safety. To keep the plan on track, state and city officials raised the bond ceiling to $1.65 billion and added $66 million in benefits. The interest expense on the financing is about $175 million less over 30 years than if the company had issued corporate debt at the time, according to data compiled by Bloomberg.
“It was absolutely imperative that Goldman Sachs keep its world headquarters downtown,” says John Cahill, who took part in the negotiations as chief of staff to then-Governor George Pataki and now works at New York law firm Chadbourne & Parke LLP. “They had the financial resources to move anywhere.”
Unprecedented Aid
Goldman Sachs, which set a Wall Street profit record of $11.6 billion in 2007 and may have earned $11.4 billion this year, according to the average estimate of 15 analysts surveyed by Bloomberg, won new and larger concessions from taxpayers in 2008. This time it was the threat of a financial meltdown that prompted the U.S. government, with Paulson as Treasury secretary, and the Federal Reserve to supply an unprecedented amount of aid to firms deemed critical to the financial system, including Goldman Sachs.
The 140-year-old company received $10 billion in capital, guarantees on about $30 billion of debt and the ability to borrow cheaply from the Fed. The Fed’s bailout of American International Group Inc., and its decision to pay the insurer’s counterparties in full, funneled an additional $12.9 billion to Goldman Sachs.
“What was done was appropriate because the potential costs of not doing that were probably exceedingly high,” says Gary Stern, who stepped down in August as president of the Federal Reserve Bank of Minneapolis. “It certainly looked very threatening.”
‘Bad Deal’
That’s not how the Goldman Sachs rescue looks to William Black, a professor of economics and law at the University of Missouri-Kansas City and a former bank regulator. He says the government has been far too generous in allowing the firm to get federal backing without either seizing equity or curbing risks.
“It’s just an unbelievably bad deal,” Black says. “We could hire any middle-tier guy or gal at Goldman, and they would tell us within 15 seconds that the deal we have made as a nation with Goldman is underpriced by many, many orders of magnitude and that we are insane.”
During the past year, Goldman Sachs’s profits and compensation outstripped those of its rivals. The firm, now the nation’s fifth-largest bank by assets, reported a record $8.44 billion in earnings for the first nine months of 2009 after setting aside $16.7 billion to pay employees. That comes to $527,192 for each person on the payroll, almost eight times the median U.S. household income.
Public Anger
The company’s stock is up 93 percent this year, above its price before Lehman Brothers Holdings Inc. collapsed. Meanwhile, the U.S. unemployment rate hit a 26-year high of 10.2 percent in October before dropping to 10 percent in November.
The perception that Goldman Sachs has profited at the expense of taxpayers has fueled public anger -- even jabs from the television comedy show “Saturday Night Live.” Rolling Stone writer Matt Taibbi described the firm this year as “a great vampire squid wrapped around the face of humanity.” Conservative television commentator Glenn Beck devoted a 10- minute segment in July to diagramming Goldman Sachs’s connections to the government and arguing that taxpayers were being spun in “a web of lies.”
Bonus Plan
“People are just really angry; you can see it on the left and the right,” says Andy Stern, president of the 2.1 million- member Service Employees International Union, who led about 200 protesters outside Goldman Sachs’s Washington office on Nov. 16 to demand that the firm cancel its year-end bonuses and repay taxpayers instead. Some carried “Wanted” posters with pictures of Chairman and CEO Lloyd Blankfein.
The firm has made attempts to placate critics. On Nov. 17, it announced a five-year, $500 million program to provide education, capital and other forms of support to small businesses. On Dec. 10, it promised to pay the bonuses of the firm’s top 30 executives only in stock that they can’t sell for five years.
To Blankfein, the 55-year-old postal worker’s son who earned $68.5 million in 2007, the firm’s ability to generate profits and reward employees is a boon to society.
“Our shareholders are pensioners, mutual funds and individual investors, and they’re all taxpayers,” Blankfein told investors at a Nov. 10 conference hosted by Bank of America Corp. in New York. “The people of Goldman Sachs are one of the most productive workforces in the world.”
No ATMs
What Goldman Sachs’s workforce produces is different from what employees do at other financial institutions, leading some people to question why the firm is entitled to taxpayer support. It doesn’t operate branches or automated-teller machines. Only millionaires can open checking accounts. Instead, Goldman Sachs exists to serve large corporations, governments, institutions and wealthy individuals.
It makes money for them and for itself by trading assets ranging from stocks and bonds to oil futures and credit derivatives. In the first nine months of 2009, more than 90 percent of the company’s pretax earnings came from trading and principal investments, which include market bets, stakes in corporate debt and equity, and assets such as power plants.
“People who know the industry and know Goldman Sachs know that it is a giant hedge fund, but it’s wrapped in an investment banking wrapper,” says Samuel Hayes, a professor emeritus of investment banking at Harvard Business School in Boston. The public “would be horrified to think that their tax dollars were going to a hedge fund.”
Repaying TARP
Goldman Sachs repaid the $10 billion it received in October 2008 from the U.S. Treasury’s Troubled Asset Relief Program, and taxpayers got a return: $318 million in preferred dividends and $1.1 billion to cancel warrants to buy company stock the government was granted. Goldman Sachs says that’s a 23 percent annualized return for U.S. taxpayers, according to the firm’s calculation.
Other forms of support linger. By the end of September, Goldman Sachs’s $189.7 billion of long-term unsecured borrowings included $20.9 billion guaranteed by the Federal Deposit Insurance Corp. under a program started in October 2008 to unfreeze credit markets, according to the firm’s most recent quarterly filing. Most importantly, the Federal Reserve agreed on Sept. 21, 2008, to allow Goldman Sachs and smaller rival Morgan Stanley to become bank holding companies, giving them access to the Fed’s discount window and granting them a cheap source of borrowing traditionally reserved for commercial banks.
Interest Expense
“The issue that people have focused on -- TARP and the payback of TARP money -- is insignificant compared with the way they’ve been able to use federally guaranteed programs and their access to the Fed window,” says Peter Solomon, founder of New York-based investment bank Peter J. Solomon Co.
Those benefits, along with a drop in the Fed’s benchmark borrowing rate to as low as zero, have slashed Goldman Sachs’s interest costs to the lowest this decade, though its debt was higher in the first nine months of 2009 than in any comparable period except the previous two years. For those three quarters, the firm’s interest expense fell to $5.19 billion from $26.1 billion a year earlier.
“You can’t give a small group of firms this privilege, where they get free money from the Fed and a taxpayer guarantee and they can run the biggest hedge fund in the world,” Niall Ferguson, a professor of history at Harvard University and author of “The Ascent of Money: A Financial History of the World,” said at a Nov. 18 panel discussion in New York.
‘Using Your Money’
That view is shared by Solomon. “Everybody thinks they’re a bank, but they’re a hedge fund,” he says. “The difference is that this year they’re using your money to do it.”
Lucas van Praag, the partner responsible for the firm’s communications and the only Goldman Sachs executive willing to comment for this story, denies any similarity to hedge funds, the mostly private and unregulated pools of capital that managers use to buy or sell assets while participating in the profits.
“The assertion that we’re a hedge fund displays a substantial misunderstanding of our business,” says van Praag, 59, a British-born former public relations executive who joined Goldman Sachs after it went public in 1999. “We are in business primarily to facilitate transactions for our clients, and over 90 percent of our revenue and earnings come from doing that.”
Proprietary Trading
Proprietary trading, in which Goldman Sachs employees make bets with the company’s own money, has contributed only 12 percent of the firm’s revenue since 2003, van Praag says. Still, fixed-income, currency, commodity and some equity trading that takes place off exchanges blurs the line between client-driven transactions and proprietary wagers, says Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York who rates Goldman Sachs stock “outperform.”
“It’s coming onto my balance sheet, I’m owning it and then I’m selling it,” Hintz says. “The fact that I’m taking a position means I’m taking risk, and if I’m taking risk, then I’m taking a proprietary bet.”
If Goldman Sachs agrees to buy $1 billion of mortgages that a client wants to sell and then decides to keep the mortgages, it’s not easy to determine whether that trade is aimed at helping a client or is a proprietary investment decision, Hintz says.
Van Praag says that Goldman Sachs, unlike some other banks, was never in imminent danger of going out of business during the financial crisis unless the entire system was allowed to implode.
‘We Didn’t Wait’
“We had cash and funding that would have allowed us to survive for quite a long time, even assuming that counterparties had decided to stop providing financing,” van Praag says. “When markets became very difficult, we didn’t wait for the government to act. We went out and raised money in the private sector.”
Two days after winning the Fed’s approval to become a bank holding company, Goldman Sachs sold $5 billion of preferred stock to billionaire Warren Buffett’s Berkshire Hathaway Inc. and then raised another $5.75 billion by selling common stock to the public. Those deals, plus a $5.75 billion public offering in April 2009, helped raise shareholder equity to $65.4 billion from $45.6 billion in August 2008.
Goldman Sachs also cut the amount of assets it owns to $882 billion from $1.08 trillion before the Lehman collapse. The firm holds $167 billion in cash or near-cash instruments, up from about $102 billion at the end of August 2008, which it can use to pay off debts if creditors stop making loans.
‘Classic Bank Run’
Treasury Secretary Timothy Geithner said in an interview with Bloomberg Television on Dec. 4 that no bank would have survived without the government’s help.
“The entire U.S. financial system and all the major firms in the country, and even small banks across the country, were at that moment at the middle of a classic run -- a classic bank run,” he said.
Since the government stepped in, investors have been more willing to lend money to Goldman Sachs. The premium bondholders charge to own the firm’s bonds that mature in April 2018 instead of U.S. Treasuries of the same maturity has shrunk to less than 1.5 percentage points from as much as 6.8 percentage points on Nov. 20, 2008, according to data compiled by Trace, the bond- price reporting system of the Financial Industry Regulatory Authority. The spread isn’t as narrow as the 0.99 percentage point premium to Treasuries that Goldman paid on new 10-year bonds in January 2006, the data show.
‘Backstopped’
At an Oct. 15 breakfast sponsored by Fortune magazine, Blankfein said that market prices prove that investors don’t think the bank has a government guarantee.
“We’re not exactly borrowing at the government rate,” he said. “The market isn’t behaving that way.”
Sean Egan -- co-founder of Haverford, Pennsylvania-based Egan-Jones Ratings Co., which in October gave Goldman Sachs an AA rating, its third highest -- has a different view.
“We’re in the business of doing credit analysis, and we’ve come to the conclusion that essentially Goldman Sachs is backstopped,” Egan says.
William Larkin, who manages about $250 million in fixed- income investments at Cabot Money Management Inc. in Salem, Massachusetts, says he owns Goldman Sachs bonds partly because he thinks the company won’t be allowed to go out of business.
“They would be bailed out” if anything went wrong, Larkin says. “Goldman right now is in a catbird seat because it’s very important to keep them healthy.”
Fewer Competitors
Chief Financial Officer David Viniar takes issue with the idea that the firm continues to benefit from an implied guarantee by the U.S. government.
“We operate as an independent financial institution that stands on our own two feet,” Viniar, 54, told reporters on an Oct. 15 conference call. “We don’t think we have a guarantee.”
The firm has grown more dominant in the past year, increasing its market share, Viniar told analysts on Oct. 15. It has benefited from having fewer competitors -- Bear Stearns Cos., Merrill Lynch & Co. and Lehman Brothers were all subsumed into other banks during the financial crisis -- while larger rivals such as Citigroup Inc. and UBS AG have been hobbled by writedowns and a lower appetite for risk.
“The crisis has created an oligopoly,” says Solomon, who founded his firm in 1989 after leaving Lehman Brothers.
Value-at-Risk
Goldman Sachs has also increased the size of the bets it’s making. Its value-at-risk -- an estimate of how much the trading desk could lose in a single day -- jumped to an average of $231 million in the first nine months of 2009, a record for the firm. At the end of September, the company estimated that a 10 percent drop in corporate equity held by its merchant-banking funds would cost it $1.04 billion, up from $987 million at the end of June.
Revenue generated by trading and investing, the most unpredictable part of Goldman Sachs’s business, accounted for 79 percent of the firm’s revenue in the first nine months of 2009, up from 28 percent in 1998. Early the next year, before Goldman Sachs’s initial public offering, executives, led by Paulson, told investors the company would try to decrease the percentage.
The government is acting schizophrenically by arguing that Goldman Sachs needs taxpayer support because it poses a risk to the financial system at the same time as it’s failing to do anything to curtail that risk, says Nobel Prize-winning economist Joseph Stiglitz, who teaches at Columbia University in New York.
“We say they’re too big to fail, but we refuse to do anything about their being too big to fail,” Stiglitz says. “We say that they represent systemic risk, but we don’t regulate them effectively.”
‘Biggest Single Gift’
Stiglitz also points to the Fed’s $182.3 billion AIG bailout as an example of how policy has been tilted to support Goldman Sachs.
“The biggest single gift was the AIG rescue,” he says. “No one has ever provided a good argument for why we did it other than we were bailing out Goldman Sachs.”
On Sept. 16, 2008, a day after Lehman filed the biggest bankruptcy in U.S. history, the Fed authorized Geithner, then president of the Federal Reserve Bank of New York, to lend $85 billion to help AIG avoid a similar fate by allowing it to continue to post collateral owed on contracts and to settle securities-lending agreements. Geithner later told a Congressional Oversight Panel that the government acted because “the entire system was at risk.”
$12.9 Billion
In November, the Fed created two entities: Maiden Lane II to repurchase securities that had been lent out in return for cash, and Maiden Lane III to purchase collateralized-debt obligations so AIG could cancel the credit-default swaps, similar to insurance policies, it had written on them. In the latter program, the Fed allowed the counterparties to settle contracts at 100 percent of their value.
Goldman Sachs was the biggest beneficiary, receiving a total of $12.9 billion in cash, consisting of $5.6 billion to cancel insurance on CDOs, $4.8 billion to repurchase securities and $2.5 billion of collateral.
If Goldman Sachs and AIG’s other counterparties hadn’t been paid off in full by the Fed, they might have taken losses on their contracts.
Other bond insurers had canceled agreements by paying less than par. Merrill Lynch accepted $500 million from Security Capital Assurance Ltd. in late July 2008 to tear up contracts guaranteeing $3.7 billion of CDOs. On Aug. 1, 2008, Citigroup agreed to accept $850 million from bond insurer Ambac Financial Group Inc. to cancel a guarantee on a $1.4 billion CDO.
Barofsky Report
In a Nov. 16 report on the AIG bailout, Neil Barofsky, special inspector general for TARP, said the Fed tried for two days to negotiate with counterparties, an effort that failed because the Fed felt obliged to make any discounts voluntary and because French counterparties said they couldn’t legally be required to comply. Goldman Sachs refused to negotiate because it felt it was hedged if AIG failed to pay, Barofsky wrote.
“Notwithstanding the additional credit protection it received in the market, Goldman Sachs (as well as the market as a whole) received a benefit from Maiden Lane III and the continued viability of AIG,” Barofsky wrote. Goldman Sachs would have been saddled with the risk of further declines in the market value of about $4.3 billion in CDOs as well as some $5.5 billion of CDSs, he added.
‘Fascination With AIG’
Viniar, who held a conference call in March to answer questions about the firm’s relationship with AIG, said Goldman Sachs didn’t need a bailout because the firm’s hedges meant it faced no significant losses if AIG failed.
“I am mystified by this fascination with AIG,” he said in an interview in April. “In the context of Goldman Sachs, they’re one of thousands and thousands of counterparties, and the results of any trading with AIG are completely immaterial to what we do. Always have been, and always will be.”
Suspicions that the fix was in for Goldman Sachs have been fanned by the firm’s political connections.
Paulson worked at the company for 32 years, the last eight of them as CEO, before becoming Treasury secretary in 2006. Geithner selected former Goldman Sachs lobbyist Mark Patterson to serve as his chief of staff at Treasury. Stephen Friedman, a former senior partner who serves on the company’s board, stepped down as chairman of the New York Fed in May amid controversy over his purchases of the firm’s shares in December 2008 and January 2009 after it became a bank holding company regulated by the Fed. Geithner and Lawrence Summers, President Barack Obama’s National Economic Council director, worked earlier in their careers under former Treasury Secretary Robert Rubin, who was once co-chairman of Goldman Sachs. Geithner’s successor as New York Fed president is William Dudley, a former chief U.S. economist at Goldman Sachs.
Political Contributions
Goldman Sachs and its employees have donated $31.4 million to U.S. political parties since 1989, more than any other financial institution and the fourth-highest amount of any organization, according to the Center for Responsive Politics, a Washington research group.
Regulators and lawmakers are attempting to make changes that they say will protect taxpayers in the future. One proposal being considered by the U.S. Congress is to require financial institutions whose failure could cause a breakdown of the entire system to hold more liquid assets and a larger buffer of capital to help absorb losses.
The bill would also empower regulators to step in and liquidate a major financial institution, or merge it with another, rather than bail it out or let it collapse.
Safety Net
That’s not enough for Paul Volcker, the former Fed chairman who serves as an economic adviser to Obama. Volcker, 82, has argued that the government safety net should be limited to financial institutions that provide utilitylike services such as deposit taking and business-payment processing essential to economic functioning. All risk-taking functions should be done separately, he says.
“I do not think it reasonable that public money --taxpayer money -- be indirectly available to support risk-prone capital market activities simply because they are housed within a commercial-banking organization,” Volcker said in a Sept. 16 speech at a conference in California.
Asked about Goldman Sachs in a Dec. 11 interview in Berlin, Volcker said, “They can do trading and do anything they want, but then they shouldn’t have access to the safety net.”
Black, the former bank regulator, agrees.
“The answer is not to give these guarantees but to make sure there are no more systemically dangerous institutions,” he says. “They shouldn’t be allowed to grow, and of course, that’s what they’re doing right now. They’re mostly growing like crazy.”
Ground Zero
On a cold, rainy morning in December, rust-colored beams poke above a fence that surrounds the construction pit at Ground Zero in lower Manhattan. Across West Street, workers in yellow slickers are landscaping the strips that separate the entrance to Goldman Sachs’s new headquarters from the highway. In the lobby, a brightly colored abstract painting by Ethiopian- American artist Julie Mehretu, which cost about $5 million, greets employees who have already relocated.
The new building has twice as much space and costs 14 times as much as Goldman Sachs’s old headquarters a half mile (0.8 kilometer) away. Two American flags the size of bed sheets dominate the stone and concrete facade of the 30-story building at 85 Broad St., constructed almost three decades ago when Goldman Sachs was a private partnership with about 2,700 employees in New York.
In 1983, the year the firm moved in, it had pretax earnings of $462 million, one-twenty-fifth of what it made in 2007.
While Goldman Sachs has outgrown its old headquarters, one thing hasn’t changed: It’s still getting subsidies to remain in lower Manhattan. When it built 85 Broad St., the company received about $9 million in incentives to stay, according to a press report at the time. Now, it’s getting $115 million -- an amount dwarfed by the funds U.S. taxpayers provided in the heat of the 2008 financial crisis.
To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net