terrykeenan@email.com
Showing posts with label Goldman Sachs. Show all posts
Showing posts with label Goldman Sachs. Show all posts
Wednesday, January 13, 2010
Hoffa shows Geithner how to run things
Memo to Treasury Secretary im Geithner: If you want to survive another year in Washington, start channeling your inner Jimmy Hoffa. Yes, Hoffa James P. Hoffa, that is -- the current Teamsters boss and the one man who has stared down Goldman Sachs and the big-money crowd on Wall Street and come out a winner. While our Treasury Secretary has been busy covering the friendly tracks he laid as NY Fed Chief, in recent weeks Hoffa has showed Lloyd Blankfein and Co. who's boss -- and did so without even breaking a sweat. The Hoffa v. Wall Street battle began back in December and received little notice, but taxpayers should pay attention to the kind of deal that can be cut when a tough cookie like Hoffa is driving the negotiations. The dispute centered around YRC, parent company of the Yellow and Roadway fleets, the nation's biggest trucker and employer of 30,000 of Hoffa's union brothers. Loaded with debt, and saddled with a CEO who spent more time on CNBC in recent years than Jim Cramer, YRC was headed for a year-end rendezvous with bankruptcy unless it could convince most of its bondholders to swap their debt for stock. That's a tricky proposition under any circumstances, but YRC had another obstacle to face. Hundreds of millions of dollars worth of credit-default insurance on YRC debt would pay off if the company went bust, giving bondholders an incentive to see the company go Chapter 11. Hoffa understood this and decided to play hardball -- he accused Goldman, Deutsche Bank and a handful of hedge funds of trafficking in YRC's credit default insurance and raised the prospect of his 18-wheelers parked all the way from Park Avenue to Broad Street in protest. He also turned up the political heat with union-connected lawmakers in Washington. In the end, the bullying worked like magic and by Jan. 1, fully 88 percent of bondholders agree to participate in the exchange. Bankruptcy was averted, and Goldman Sachs was eventually praised for helping YRC get "over the goal line" by buying up YRC debt in the marketplace in order to exchange the paper for stock. A triumphant Hoffa called it his "first foray into high finance." Unfortunately, Hoffa looks to have a brighter future in that area than the man who currently commands the US Treasury Department. Compare the YRC drama with the slowly evolving tale of Geithner's role in the 2008 back-door bailout of Goldman Sachs and its subsequent cover-up. You'll see why taxpayers sense something is very wrong about this story, and rightly so. As we're now learning by the day, Goldman nearly bankrupted AIG in the fall of 2008 -- much as YRC's credit default holders almost bankrupt that company last month. The key difference is that in AIG's case, the taxpayer was left holding the bag, while Goldman and AIG live to trade another day. But it gets worse. Not only did AIG pay off those contracts to Goldman and a dozen other banks to the tune of 100 cents on the dollar -- or a remarkable $62 billion -- Geithner's NY Fed insisted AIG cross out any reference to the full price of the payout. As e-mails released by Congress last week show, the idea was to keep the public in the dark. The final cost to taxpayers from the AIG rescue -- $182 billion, or about half of the entire US defense budget. Imagine the bargain Hoffa would have driven home for US taxpayers had he been representing our interests the way he did that of his union brethren. Fifty cents on the dollar? You better believe that would have been at least his starting point. And why not? Those who profited from the government bailout of AIG, led principally by Goldman Sachs, obviously think that the alphabet soup of derivatives were spun in such a fine web that no mere mortal could never grasp what was really going on. But the public is not so naive. Jimmy Hoffa, Jr. understood this and rode to the rescue of his constituents. It's too bad Geithner didn't do the same for his constituents, the US taxpayers.
terrykeenan@email.com
terrykeenan@email.com
Monday, January 11, 2010
Peter Santilli - I wish I had written this! Chris Hedges @truthdig.com
Corporations, which control the levers of power in government and finance, promote and empower the psychologically maimed. Those who lack the capacity for empathy and who embrace the goals of the corporation—personal power and wealth—as the highest good succeed. Those who possess moral autonomy and individuality do not. And these corporate heads, isolated from the mass of Americans by insular corporate structures and vast personal fortunes, are no more attuned to the misery, rage and pain they cause than were the courtiers and perfumed fops who populated Versailles on the eve of the French Revolution. They play their games of high finance as if the rest of us do not exist. And it is a game that will kill us.
These companies exist in a pathological world where identity and personal worth are determined solely by the perverted code of the corporation. The corporation decides who has value and who does not, who advances and who is left behind. It rewards the most compliant, craven and manipulative, and discards the losers who can’t play the game, those who do not accumulate wealth or status fast enough, or who fail to fully subsume their individuality into the corporate collective. It dominates the internal and external lives of its employees, leaving them without time for family or solitude—without time for self-reflection—and drives them into a state of perpetual nervous exhaustion. It breaks them down, especially in their early years in the firm, a period in which they are humiliated and pressured to work such long hours that many will sleep under their desks. This hazing process, one that is common at corporate newspapers where I worked, including The New York Times, eliminates from the system most of those with backbone, fortitude and dignity.
No one thinks in groups. And this is the point. The employees who advance are vacant and supine. They are skilled drones, often possessed of a peculiar kind of analytical intelligence and drive, but morally, emotionally and creatively crippled. Their intellect is narrow and inhibited. They rely on the corporation, as they once relied on their high-priced elite universities and their SAT scores, for validation. They demand that they not be treated as individuals but as members of the great collective of Goldman Sachs or AIG or Citibank. They talk together. They exchange information. They make deals. They compromise. They debate. But they do not think. They do not create. All capacity for intuition, for unstructured thought, for questions of meaning deemed impractical or frivolous by the firm, the qualities that always precede discovery and creation, are banished, as William H. Whyte observed in his book “The Organization Man.” The iron goals of greater and greater profit, order and corporate conformity dominate their squalid belief systems. And by the time these corporate automatons are managing partners or government bureaucrats they cannot distinguish between right and wrong. They are deaf, dumb and blind to the common good.
These deeply stunted and maladjusted individuals, from Treasury Secretary Timothy Geithner to Robert Rubin to Lawrence Summers to the heads of Goldman Sachs, Morgan Stanley, J.P. Morgan Chase and Bank of America, hold the fate of the nation in their hands. They have access to trillions of taxpayer dollars and are looting the U.S. Treasury to sustain reckless speculation. The financial and corporate system alone validates them. It defines them. It must be served. This is why e-mails from the New York Fed to AIG, telling the bailed-out insurer not to make public the overpaying of Wall Street firms with taxpayer money, were sent when Geithner was in charge of the government agency. These criminals sold the public investments they knew to be trash. They used campaign contributions and lobbyists to turn elected officials into stooges and gut oversight and regulation. They took over retirement savings and pensions and wiped them out. And then they seized some $13 trillion in taxpayer money so they could lend it to us with interest. It is circular theft. This is why we will endure another catastrophic financial collapse. This is why firms like Goldman Sachs are more dangerous to the nation than al-Qaida.
“The psychology is about winning, and winning is marked by the level of compensation and bonuses and the power you have within the firm,” Nomi Prins, the author of “It Takes a Pillage” and a former managing director at Goldman Sachs, told me by phone from California. “Every investment bank is like a mini-country. The political maneuvering and the differences between individuals who run certain areas and move up the ladder of the company are not necessarily decided by a vote. They move up depending on how close they are to the person [above them]. If that person moves up they move up with them. A certain set of loyalties get created. It is an intense competition all the time. You have trading and doing deals with clients, but the result is to push people up the ladder and to make money.”
How you make money and how you climb the ladder of the corporate structure are irrelevant. Success becomes its own morality. Those who do well in this environment possess the traits often exhibited by psychopaths—superficial charm, grandiosity and self-importance, a need for constant stimulation, a penchant for lying, deception and manipulation, and the incapacity for remorse or guilt. They, like competitors on a reality television program, lie, cheat and betray to climb over those around them and advance. These demented individuals are admired and envied within the firm. They achieve heroic status. The lower-ranking employees are supposed to emulate them. And this makes Goldman Sachs and other speculative financial firms upscale lunatic asylums where the inmates wear Brooks Brothers suits and drink expensive chardonnay. Our problem is that the lunatics have been let out of the asylum. They have been empowered to cannibalize the government on behalf of the corporations that spawned them like mutant carp.
These corporations don’t make anything. They don’t produce anything. They gamble and bet and speculate. And when they lose vast sums they raid the U.S. Treasury so they can go back and do it again. Never mind that $50 trillion in global wealth was erased between September 2007 and March 2009, including $7 trillion in the U.S. stock market and $6 trillion in the housing market. Never mind that the total amount of retirement and household wealth trashed was $7.5 trillion or that we saw $2 trillion in 401(k)s and individual retirement accounts evaporate. Never mind the $1.9 trillion in traditional defined-benefit plans and the $2.6 trillion in nonpension assets that went up in smoke. Never mind the job losses, the foreclosures and the 35 percent jump in personal and small-business bankruptcies. There are bundles of new money, taken again from us, to make deals and hand out outrageous bonuses. And when these trillions run out they will come back for more until our currency becomes junk. Not that any of these people have thought this through. They are too busy focused on the pathetic, little monuments they are building to themselves and the intricacies of court intrigue.
These companies exist in a pathological world where identity and personal worth are determined solely by the perverted code of the corporation. The corporation decides who has value and who does not, who advances and who is left behind. It rewards the most compliant, craven and manipulative, and discards the losers who can’t play the game, those who do not accumulate wealth or status fast enough, or who fail to fully subsume their individuality into the corporate collective. It dominates the internal and external lives of its employees, leaving them without time for family or solitude—without time for self-reflection—and drives them into a state of perpetual nervous exhaustion. It breaks them down, especially in their early years in the firm, a period in which they are humiliated and pressured to work such long hours that many will sleep under their desks. This hazing process, one that is common at corporate newspapers where I worked, including The New York Times, eliminates from the system most of those with backbone, fortitude and dignity.
No one thinks in groups. And this is the point. The employees who advance are vacant and supine. They are skilled drones, often possessed of a peculiar kind of analytical intelligence and drive, but morally, emotionally and creatively crippled. Their intellect is narrow and inhibited. They rely on the corporation, as they once relied on their high-priced elite universities and their SAT scores, for validation. They demand that they not be treated as individuals but as members of the great collective of Goldman Sachs or AIG or Citibank. They talk together. They exchange information. They make deals. They compromise. They debate. But they do not think. They do not create. All capacity for intuition, for unstructured thought, for questions of meaning deemed impractical or frivolous by the firm, the qualities that always precede discovery and creation, are banished, as William H. Whyte observed in his book “The Organization Man.” The iron goals of greater and greater profit, order and corporate conformity dominate their squalid belief systems. And by the time these corporate automatons are managing partners or government bureaucrats they cannot distinguish between right and wrong. They are deaf, dumb and blind to the common good.
These deeply stunted and maladjusted individuals, from Treasury Secretary Timothy Geithner to Robert Rubin to Lawrence Summers to the heads of Goldman Sachs, Morgan Stanley, J.P. Morgan Chase and Bank of America, hold the fate of the nation in their hands. They have access to trillions of taxpayer dollars and are looting the U.S. Treasury to sustain reckless speculation. The financial and corporate system alone validates them. It defines them. It must be served. This is why e-mails from the New York Fed to AIG, telling the bailed-out insurer not to make public the overpaying of Wall Street firms with taxpayer money, were sent when Geithner was in charge of the government agency. These criminals sold the public investments they knew to be trash. They used campaign contributions and lobbyists to turn elected officials into stooges and gut oversight and regulation. They took over retirement savings and pensions and wiped them out. And then they seized some $13 trillion in taxpayer money so they could lend it to us with interest. It is circular theft. This is why we will endure another catastrophic financial collapse. This is why firms like Goldman Sachs are more dangerous to the nation than al-Qaida.
“The psychology is about winning, and winning is marked by the level of compensation and bonuses and the power you have within the firm,” Nomi Prins, the author of “It Takes a Pillage” and a former managing director at Goldman Sachs, told me by phone from California. “Every investment bank is like a mini-country. The political maneuvering and the differences between individuals who run certain areas and move up the ladder of the company are not necessarily decided by a vote. They move up depending on how close they are to the person [above them]. If that person moves up they move up with them. A certain set of loyalties get created. It is an intense competition all the time. You have trading and doing deals with clients, but the result is to push people up the ladder and to make money.”
How you make money and how you climb the ladder of the corporate structure are irrelevant. Success becomes its own morality. Those who do well in this environment possess the traits often exhibited by psychopaths—superficial charm, grandiosity and self-importance, a need for constant stimulation, a penchant for lying, deception and manipulation, and the incapacity for remorse or guilt. They, like competitors on a reality television program, lie, cheat and betray to climb over those around them and advance. These demented individuals are admired and envied within the firm. They achieve heroic status. The lower-ranking employees are supposed to emulate them. And this makes Goldman Sachs and other speculative financial firms upscale lunatic asylums where the inmates wear Brooks Brothers suits and drink expensive chardonnay. Our problem is that the lunatics have been let out of the asylum. They have been empowered to cannibalize the government on behalf of the corporations that spawned them like mutant carp.
These corporations don’t make anything. They don’t produce anything. They gamble and bet and speculate. And when they lose vast sums they raid the U.S. Treasury so they can go back and do it again. Never mind that $50 trillion in global wealth was erased between September 2007 and March 2009, including $7 trillion in the U.S. stock market and $6 trillion in the housing market. Never mind that the total amount of retirement and household wealth trashed was $7.5 trillion or that we saw $2 trillion in 401(k)s and individual retirement accounts evaporate. Never mind the $1.9 trillion in traditional defined-benefit plans and the $2.6 trillion in nonpension assets that went up in smoke. Never mind the job losses, the foreclosures and the 35 percent jump in personal and small-business bankruptcies. There are bundles of new money, taken again from us, to make deals and hand out outrageous bonuses. And when these trillions run out they will come back for more until our currency becomes junk. Not that any of these people have thought this through. They are too busy focused on the pathetic, little monuments they are building to themselves and the intricacies of court intrigue.
Sunday, January 10, 2010
How many lawyers does it take to help Lloyd and his buddies cover their asses?
How Should Goldman Sachs Cover its Ass This Bonus Season?
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For critics of the company and its fellow travelers, the timing could not be better.
Anxiety levels about the financial sector are on the increase, even on Capitol Hill. The tension between high profits in banking and stress in the rest of the economy becomes increasingly a topic of discussion across the nation.
And you are hard pressed to find any government official who has not by now woken up--in private--to the dangerous hubris of big banks. To add insult to injury (and many other insults), the Bank for International Settlements is holding a meeting to discuss excessive risk-taking in the financial sector; according to CNBC Thursday morning, Lloyd Blankfein of Goldman and Jamie Dimon of JPMorgan Chase were invited but did not show up (they really are very busy).
The smart strategy for Goldman in this context would be to pay no bonus for 2009 (in cash, stock or any other form), but this is not possible for three reasons.
(1) Goldman would need to make a credible commitment to employees to “take care of them next year.” But any legally binding commitment would be as good as a cash bonus (who knows, they could even be traded over-the-counter). And any verbal promises would be completely noncredible--among other things, Goldman cannot know for sure how the coming perfect storm will play out: the supertax on bankers in Europe, Sheila Bair’s good idea of tying deposit insurance premiums to the risk in banks’ compensation structures, Hank Paulson’s memoir on February 1, Chris Dodd’s resignation and the collapse of any meaningful Obama financial reform--allowing the Democrats to wake up to how they can run hard against Big Finance in 2010, etc. And besides, how much would you trust your boss at Goldman? The old culture there is gone.
(2) For all their communication blunders in recent months (internally they wince at “God’s work“), the responsible executives think they can hide the size of the bonuses or talk more about how stock and option grants encourage the right kind of behavior or put in some sophisticated clawback language. Some of the best lawyers in the country are working very hard on this question, but it’s all for naught. The headline bonus number will be at least $20 billion and if they try to hide this with sophisticated mumbo-jumbo, that will only bring greater attention and spread the pain over many news cycles as we run through denials, further exposures, more denials, and damning details. When you’re in a hole, stop digging--Goldman is talking with top p.r. consultants; perhaps they should bring in Tiger Woods to advise on this point.
(3) The most important reason is also Goldman’s greatest weakness: Throughout the organization, people really think they are worth the money. But remember these facts and keep track of how many times you hear them repeated: Goldman Sachs essentially failed in September 2008; it was saved by extraordinary and unprecedented government efforts at the end of September and subsequently (particularly through its conversion to a bank holding company, which gave access to the Fed’s discount window); partly this treatment was shaped by the special favor with which Hank Paulson viewed Goldman (documented in nauseating detail in Andrew Ross Sorkin’s Too Big To Fail); and the strategy of allowing Goldman to recapitalize through taking huge risk with an unconditional government guarantee in 2009 only makes sense if they use the proceeds to boost their capital--not if they pay out massive bonuses. In any reasonable economic analysis, the entire bonus pool at Goldman should be paid--with gracious thanks--to the government.
The refrain that will be repeated by Goldman executives is: We need to pay the bonuses in order to keep the best people. But think about this like a stockholder for a moment--where exactly would these people go to work if this year’s bonus is set at zero?Among the Casino Banks, Goldman is currently the best place to work and, looking forward, that’s where folks will make the most money. Hedge funds are not hiring in large numbers--most of the new financial sector jobs are at the other Too Big To Fail firms, who are now bringing people back (naturally).
Goldman’s management should come to its senses and pay no bonuses of any kind to anyone; no good people would leave. Fortunately, while the executives who run Goldman are smart, they are not that smart. The bonuses they announce on January 18 and pay in early February will become the rallying point for real reform.
[Cross-posted at The Baseline Scenario.]
Antichrist Lloyd Blankfein Up Close and Personal
He replaced Henry Paulson, who went on to assist the Bush administration in it’s demolishing of the economy.
Blankfein earned a total compensation in 2008 of $53,965,418.Base salary – $600,000
Cash Bonus – $26,985,474
Stock – $15,542,756
Options – $10,453,031
He declared in an interview that he was doing “God’s work”.
He suggested that Goldman would have been fine without financial assistance from the feds.
Goldman recieved $10 billion in direct aid from the US government.
The Financial Times chose Lloyd C. Blankfein as its person of the year.
He suggested that Goldman’s employees make more than everyone else because they’re better than everyone else. This resulted in massive bonuses.
Goldman Sachs gave out $4.82 billion in bonuses in 2008, despite earnings of only $2.32 billion that year.
Goldman’s revenue in 2008 was 22.2 billion and net earnings were 2.3 billion.
Blankfein is the poster boy for Wall Street’s incredible craving for massive profits.
After helping impact the global financial crisis to the tune of several trillion dollars he said that Goldman regretted any damage they may have committed and apologized.
The public was outraged, but unfortunately most were represented in Congress by a bunch of spineless, worthless cowards.
Today Goldman is a money machine, massive profits, massive bonuses, massive arrogance and a distinct lack of any perceivable code of ethics.
And in gratitude to the public that kept it afloat, kept the limos and private jets running, kept the pay scale far above what any single person is worth, kept it’s customers in a suicidal state and flipped the bird at regulatory agencies everywhere, it’s response is a heart felt “fuck you very much”.
Suckers
Saturday, January 9, 2010
Bank CEOs to answer for financial crisis
WASHINGTON (CNNMoney.com) -- As lawmakers start trickling back to Washington next week, a panel tasked with investigating the financial crisis is set to make its first big splash.
The Financial Crisis Inquiry Commission, a 10-member panel appointed last summer by Congress, will hold public hearings on Wednesday and Thursday.
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| Goldman Sachs CEO Lloyd Blankfein will be among four banking executives returning to Capitol Hill on Wednesday. |
The panel's chairman, Philip Angelides, said he's interested in hearing about the banks' role in creating the crisis as well as finding out how they became "too big to fail." The federal government stepped in to prop up the banks in fall 2008, creating the Troubled Asset Relief Program to help provide them with liquidity.
"We think it made sense to start by bringing up the four biggest investment banks that were involved in so many aspects of the crisis," said Angelides, former California State Treasurer, who warned about financial sector abuses back in 2002. "Many of them had arms that were involved in originating mortgages, some were packaging mortgage securities and some of them were betting against these mortgage securities."
Lawmakers say the commission was modeled after the Pecora Commission, a panel that was convened after the 1929 Wall Street crash and other events leading to the Great Depression.
The Pecora panel's findings led to an overhaul of federal banking laws, including the creation of the Glass-Steagall Act of 1933. Glass-Steagall divided investment banking from government-insured commercial banking; ending that separation in the 1990s was seen by some critics as contributing to the current crisis.
Slow start
The Financial Crisis Inquiry Commission has taken a while to get up on its feet.The panel was appointed last July and held its first meeting in September. It has only started getting staffed up over the past few months.
It has new offices in downtown Washington, a few blocks northeast of the White House. Funded to the tune of $8 million, it aims to employ between 40 and 50 investigators and other staffers.
The crisis panel's one big goal is to complete a final report, sort of like the final 9/11 Commission report that found federal agencies missed signs of the impending terrorist attacks in 2001. The financial crisis report is due Dec. 15.
Critics have noted the panel's impact may be blunted by timing, as the House has already passed a bill to overhaul regulations and the Senate is deep in negotiations on similar proposals.
But panel members have consistently pledged their work will serve as more than window dressing for politicians worried about the appearance that they allowed the financial crisis to happen.
The panel, which has subpoena power, plans to issue interim reports as it collects data, Angelides has said.
The panel's second-in-command is Bill Thomas, a retired California Republican congressman described as strong-willed during his tenure running the powerful Ways and Means Committee. Other key panel members include: Keith Hennessey, an economic adviser under President George W. Bush; former Sen. Bob Graham, a Florida Democrat; and Brooksley Born, a past chairwoman of the Commodities Futures Trading Commission, who called for stronger regulation of complex financial products such as derivatives in the 1990s.
On Wednesday, the panel will swear in bank chiefs Lloyd Blankfein of Goldman Sachs, Jamie Dimon of JPMorgan Chase, John Mack of Morgan Stanley and Brian Moynihan of Bank of America.
The panel didn't invite Citigroup (C, Fortune 500) CEO Vikram Pandit this go round, said panel spokesman Tucker Warren. "That doesn't mean we won't be talking with Citigroup, either publicly or privately, in the course of our investigation," he added.
The chief executives are no strangers to Washington hearings. Blankfein, Dimon and Mack were seated together last February when a House Financial Services pelted them with questions about the TARP program.
This time around, Angelides said he expects the tone to be "professional" but also "tough, thorough and fair."
"There's a real hunger among the people of this country to know what happened," Angelides said. "We're not out to get anyone. We're out to get to the bottom of what happened as best we can."
Wednesday, January 6, 2010
It's really very simple...
The Theft ( inside job)
Well, here is a quick reminder of how the theft of your money actually happened and in spite of what Obama says it was really, really simple. The government ie. the New York Federal Reserve Chairman agreed to pay the banks 100% of the price of the swaps that the banks including Goldman Sachs had bought from AIG.
Its simple really, Goldman Sacks bought the “swaps” ( don’t worry about what that means it doesn’t really matter) for 40 cents on the dollar and the Government gave them 100 cents on the dollar for them. That’s it, that’ s the brilliant “complicated” solution that Geithner’s brain belched out
This theft of your money was facilitated directly at by the then Chairman of the Federal Reserve Bank of New York just as Bloomberg reported after viewing the documents , “Part of a sentence in the document was crossed out. It contained a blank space that was intended to show the amount of the haircut the banks would take, according to people who saw the term sheet.” (The term “haircut” is financial slang representing the discount to par that an assets sells for. Say you bought a stock for $10 and sold it for $6 you got a 40% “haircut”.)
Clearly the FED initially sought to not pay full price to Goldman Sachs and a few other banks but rather, rightfully, allow them to take responsibility for their mistakes. The Chairman of the New York Federal Reserve Bank himself intervened and with a magic marker blacked out that sentence and gave Goldman Sachs an instant 60% profit. The total price tag was $62 Billion dollars for assets that were bought for about $29.6 billion. Goldman Sachs got the lions share of that to the tune of $14 Billion of our money over a 14 month period. Isn’t high finance grand when you can steal from the public with the permission and backig of the government? Just buy any garbage you can and if you lose money, hey, no sweat, Obama and the libs will make sure you’ll have a profit.
Be the resistance
The Payoff
The reward that the Chairman of the New York Federal Reserve got for stealing your money and giving it to Goldman Sachs?
Well, well, well, you see, Goldman Sachs had just gotten a $5,000,0000,0000 ( five billion dollar) loan form Warren Buffet. We can’t possibly let Warren Buffet lose money just because you are unemployed can we? Of course not, if you are unemployed and can’t give Buffet any money, why that’s no problem, the government will just put your children and grand children in debt..while Obama, Buffet and Soros and Gorelick and Geitner fly around in Air Force One. ( When the hell are we going to see the pics from inside Air force One anyway?)
OK back to the reward given to the Chairman of the new York Federal Reserve Bank for taking your and your children and your grand children money? Well, he became the Secretary of the Treasury, Tim Geithner!
Remember how the lib crooks and their lackeys in the media howled like banshees whenever anyone questioned the logic of giving the treasury job to a crook who couldn’t even figure out his own taxes? Now you know why. It’s because he gave your money and your children and grandchildren’s money to Goldman Sachs, Warren Buffet, George Soros etc. They in turn give the money to Obama and ACORN and you and your family have become surfs indentured to the cronies in high finance.
Apropos, Buffet gets $500,000,000 ( five hundred million) dollars in interest alone, every year because they stole your money to bail out Goldman Sachs, but its OK because we get to hear how brilliant he is.
The Backlash?
Fast forward to now, Goldman Sachs announces that the bonuses will not be cash and the media hails it as the second coming of Christ. Truth is that the bonuses will be astronomical and will be in stock. The future recipients of these bonuses are not worried about losing money if the stocks go drop in price, they’ll hedge against that. What worries them is what your reaction will be once you find out how much they made and if the financial system collapse because of the plan to cause the “golden crisis”. For that too they are finding ways to hedge, they are buying guns. Yes that’s right Godman Sachs and co. are very concerned that blogs such as this one will put out the truth and you might have objections to quietly selling your children into serfdom so that Geithner can buy another Bently, and Jamie Gorelick can get another ten million dollar bonus or Soros and Buffet can buy another private jet. They are buying hand guns. I bet with all that money they can probably get a very nice set of sequentially numbered Les Baers. Oh and just for the record, unless you are a Goldman Sachs big wig, good luck buying a gun in Mayor Bloomberg’s NYC – that’s reserved for the elites not for the likes of us rednecks!
You can see some of the Goldman Sachs Directors here
Saturday, January 2, 2010
Last year was a good one for financial titan Goldman Sachs (GS). Despite the downtrodden economy, Goldman managed to log a stellar performance, which will yield a record bonus payout of $23 billion to its workers. We certainly helped CEO Lloyd Blankfein and his minions with $52 billion in low-cost government financing.
Sharp Decline In Most Businesses
And let's not forget that Goldman was a huge beneficiary of ailing insurer American International Group's (AIG) bailout. When the Federal Reserve agreed to pay AIG's counterparties in full, Goldman pocketed a $12.9 billion check -- 100 cents on the dollar -- for its credit default swaps. But a perusal of Goldman's financial statements also reveals that it made big bucks in 2009 by trading commodities, currencies, bonds and stocks.
Without its trading business, Goldman would have had a miserable 2009. According to its November 2009 quarterly statement filed with the SEC, Goldman suffered a sharp decline in most parts of its business during the first three quarters of last year. Specifically, its investment banking revenues fell 22% to $3.2 billion and its asset management business declined 22% to $2.9 billion.
Other factors contributed to Goldman's record 2009. Its so-called trading and principal investments unit, which trades stocks, bonds, commodities, and derivatives for clients and its own account, spiked 89% to $23.8 billion and the money it made on lending rose 65% to $5.6 billion.
And the rise in Goldman's trading revenues translated into an even higher 112% boost in its pretax income. This despite a 29% increase in its operating expenses to $23.1 billion. Most of that increase in expenses was a result of a 47% increase in Goldman's compensation expense to $16.7 billion.
Trading Revenue Spike Mystery
Just how did Goldman make all that money trading? The short answer is, it's a mystery. What Goldman says in its quarterly report fails to provide insight: For example, in the first nine months of 2009 Goldman says it had "particularly strong performances in credit products, mortgages and interest rate products."
But Goldman fails to disclose specific reasons why it was able to generate this strong performance. All it discloses is that the improvement was due to "strong client-driven activity, particularly in more liquid products. In addition, during our second and third quarters of 2009, asset values generally improved and corporate credit spreads tightened." And Goldman boasts of "strong net revenues in derivatives."
This "disclosure" leaves investors scratching their heads trying to understand what Goldman actually did to nearly double its trading revenues. Perhaps it would help if it could provide a few examples of particularly profitable trades from "liquid products" -- whatever that means. Investors could also benefit from specifics on how improvements in asset values and tighter credit spreads boosted its trading revenue.
All in all, Goldman still operates its business with enormous risks -- including $46.3 billion that it has to repay in 2010 and 2011 to lenders and bondholders and a total of $277.8 billion it owes over the next several years -- that dwarf its $53 billion tangible equity base. Among these big risks are $66.2 billion in so-called Level 3 assets -- which have no observable market value and $130 billion in derivative contracts.
Goldman's Risky Balance Sheet
But the biggest risk on Goldman's balance sheet could come from the alphabet soup of off-balance sheet entities -- the kind that wiped out Enron -- which Goldman calls strange names like securitization entities (SEs) and variable interest entities (VIEs). These creatures are made up of slices of commercial and residential mortgages and total $82 billion for the SEs and $68 billion for the VIEs. It is a mystery how much losses from these entities will cost Goldman.
Does this mean that investors should expect Goldman to have a worse 2010? There is no way to know since its trading business is a black box. But one thing we can be sure of is that the U.S. will not let Goldman fail.
And thanks to all the taxpayer funded bailouts Goldman will soon pay its people an average of $782,313 -- about 13 times 2009's roughly $60,000 median U.S. family income.
Peter Cohan owns AIG shares.
Sharp Decline In Most Businesses
Without its trading business, Goldman would have had a miserable 2009. According to its November 2009 quarterly statement filed with the SEC, Goldman suffered a sharp decline in most parts of its business during the first three quarters of last year. Specifically, its investment banking revenues fell 22% to $3.2 billion and its asset management business declined 22% to $2.9 billion.
Other factors contributed to Goldman's record 2009. Its so-called trading and principal investments unit, which trades stocks, bonds, commodities, and derivatives for clients and its own account, spiked 89% to $23.8 billion and the money it made on lending rose 65% to $5.6 billion.
And the rise in Goldman's trading revenues translated into an even higher 112% boost in its pretax income. This despite a 29% increase in its operating expenses to $23.1 billion. Most of that increase in expenses was a result of a 47% increase in Goldman's compensation expense to $16.7 billion.
Trading Revenue Spike Mystery
Just how did Goldman make all that money trading? The short answer is, it's a mystery. What Goldman says in its quarterly report fails to provide insight: For example, in the first nine months of 2009 Goldman says it had "particularly strong performances in credit products, mortgages and interest rate products."
But Goldman fails to disclose specific reasons why it was able to generate this strong performance. All it discloses is that the improvement was due to "strong client-driven activity, particularly in more liquid products. In addition, during our second and third quarters of 2009, asset values generally improved and corporate credit spreads tightened." And Goldman boasts of "strong net revenues in derivatives."
This "disclosure" leaves investors scratching their heads trying to understand what Goldman actually did to nearly double its trading revenues. Perhaps it would help if it could provide a few examples of particularly profitable trades from "liquid products" -- whatever that means. Investors could also benefit from specifics on how improvements in asset values and tighter credit spreads boosted its trading revenue.
All in all, Goldman still operates its business with enormous risks -- including $46.3 billion that it has to repay in 2010 and 2011 to lenders and bondholders and a total of $277.8 billion it owes over the next several years -- that dwarf its $53 billion tangible equity base. Among these big risks are $66.2 billion in so-called Level 3 assets -- which have no observable market value and $130 billion in derivative contracts.
Goldman's Risky Balance Sheet
But the biggest risk on Goldman's balance sheet could come from the alphabet soup of off-balance sheet entities -- the kind that wiped out Enron -- which Goldman calls strange names like securitization entities (SEs) and variable interest entities (VIEs). These creatures are made up of slices of commercial and residential mortgages and total $82 billion for the SEs and $68 billion for the VIEs. It is a mystery how much losses from these entities will cost Goldman.
Does this mean that investors should expect Goldman to have a worse 2010? There is no way to know since its trading business is a black box. But one thing we can be sure of is that the U.S. will not let Goldman fail.
And thanks to all the taxpayer funded bailouts Goldman will soon pay its people an average of $782,313 -- about 13 times 2009's roughly $60,000 median U.S. family income.
Peter Cohan owns AIG shares.
Why is no-one calling this Enron instead of goldman sachs?
The Massive Ponzi Scheme at Goldman Sachs
In what might as well be called a perfect ending to the year - and maybe a reasonable summation of the decade - McClatchy is reporting on newly revealed documents from Goldman Sachs that point to a massive ponzi scheme by the Wall Street titan. (Credit to Truthdig for putting it on our radar.)By now it's clear that Goldman played the Fed and Treasury like a fiddle to reap billions of dollars through the AIG bailout, but these new documents illustrate how Wall Street's bonus-machine also ripped off its own investors. As Greg Gordon at McClatchy reports:
In some of these transactions, investors not only bought shaky securities backed by residential mortgages, but also took on the role of insurers by agreeing to pay Goldman and others massive sums if risky home loans nose-dived in value — as Goldman was effectively betting they would...and
The documents obtained by McClatchy also reveal that:It's an elaborate game of taking securities overseas and creating shells that look like legitimate, if complex, investment vehicles that Goldman knew couldn't sustain themselves and was privately betting to fail. Except for that last part - the hedging against the products it was selling to investors - Goldman's scheme brings back memories of Enron's "partnerships." But Goldman's twist, essentially betting on their investors to lose money, is what makes these revelations a scary capstone to the 2000s.
--Goldman's Caymans deals were riddled with potential conflicts of interest, which Goldman disclosed deep in prospectuses that typically ran 200 pages or more. Goldman created the companies that oversaw the deals, selected many of the securities to be peddled, including mortgages it had securitized, and in several instances placed huge bets against similar loans.
--Despite Goldman's assertion that its top executives didn't decide to exit the risky mortgage securities market until December 2006, the documents indicate that Goldman secretly bet on a sharp housing downturn much earlier than that.
--Goldman pegged at least 11 of its Caymans deals in 2006 and 2007 on swaps tied in some cases to the performance of a bundle of securities that it neither owned nor sold, but used as markers to coax investors into covering its bets on a housing downturn...
[Financial Services consultant Gary] Kopff said, Goldman appears to have created "mini-AIGs in the Caymans," arranging for investors to post the money that would cover the bets up front.
Kopff charged that Goldman inserted the credit-default swaps into CDO deals "like a Trojan Horse — secret bets that the same types of bonds that they were selling to their clients would in fact fail."
A decade that began with the collosal failure of Enron's indescribably complex, greed-driven and self-destructive schemes that cost taxapyers and investors billions ended with revelations of Goldman's indescribably complex, greed-driven and hugely profitable schemes that cost taxpayers and investors billions.
So is that it? Is Wall Street's big lesson of the The decade of the Oughts that you ought a bet against the people you're telling to trust you? You can't win just by suckering people to follow you down your perverted path; you also have to avoid being suckered by your own scam.
Sunday, December 27, 2009
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.
Monday, December 21, 2009
Just keeps gettin' better... And why more people care?!
By Christine Harper
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
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