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Jul. 16 2009 - 12:31 pm | 4,848 views | 24 recommendations | 134 comments

The real price of Goldman’s giganto-profits

Goldman Sachs Chairman and CEO Lloyd Blankfein in Washington DC in November 2008 (Chip Somodevilla/Getty)

Goldman Sachs Chairman and CEO Lloyd Blankfein in Washington DC in November 2008 (Chip Somodevilla/Getty)

Equity underwriting boomed during the period as dozens of banks raised money to strengthen capital and repay Troubled Asset Relief Program funds. The business reported record revenue of $736 million.via Article – WSJ.com.

So what’s wrong with Goldman posting $3.44 billion in second-quarter profits, what’s wrong with the company so far earmarking $11.4 billion in compensation for its employees? What’s wrong is that this is not free-market earnings but an almost pure state subsidy.

Last year, when Hank Paulson told us all that the planet would explode if we didn’t fork over a gazillion dollars to Wall Street immediately, the entire rationale not only for TARP but for the whole galaxy of lesser-known state crutches and safety nets quietly ushered in later on was that Wall Street, once rescued, would pump money back into the economy, create jobs, and initiate a widespread recovery. This, we were told, was the reason we needed to pilfer massive amounts of middle-class tax revenue and hand it over to the same guys who had just blown up the financial world. We’d save their asses, they’d save ours. That was the deal.

It turned out not to happen that way. We constructed this massive bailout infrastructure, and instead of pumping that free money back into the economy, the banks instead simply hoarded it and ate it on the spot, converting it into bonuses. So what does this Goldman profit number mean? This is the final evidence that the bailouts were a political decision to use the power of the state to redirect society’s resources upward, on a grand scale. It was a selective rescue of a small group of chortling jerks who must be laughing all the way to the Hamptons every weekend about how they fleeced all of us at the very moment the game should have been up for all of them.

Now, the counter to this charge is, well, hey, they made that money fair and square, legally, how can you blame them? They’re just really smart!

Bullshit. One of the most hilarious lies that has been spread about Goldman of late is that, since it repaid its TARP money, it’s now free and clear of any obligation to the government – as if that was the only handout Goldman got in the last year. Goldman last year made your average AFDC mom on food stamps look like an entrepreneur. Here’s a brief list of all the state aid that is hiding behind that $3.44 billion number they announced the other day. In no particular order:

1. The AIG bailout. Goldman might have gone out of business last year if AIG had been allowed to proceed to an ordinary bankruptcy, as AIG owed Goldman about $20 billion at the time it went into a death spiral. Instead, Goldman gets to call upon its former chief, Hank Paulson, who green-lights this massive, $80 billion bailout of AIG (with Lloyd Blankfein in the room), at least $12.9 billion of which went straight to Goldman. Moreover, let’s not forget this: both Goldman and Bank Societe Generale had been tattooing AIG with collateral calls in the period before AIG’s collapse, with Goldman extracting a full $5.9 billion from the company during that time. It was those collateral calls that really killed AIG.

Now, ask yourself: exactly how big would Goldman’s profits be this year, if they had to fill a still-extant $13 billion or even a $20 billion hole on its balance sheet from AIG’s collapse? You think it would still be $3.44 billion? What if Hank Paulson had elected to save Lehman instead of saving AIG/Goldman, how big would Goldman’s profits be then? Is anyone even asking this question?

I keep hearing people say, “Well, so what — it’s only fair that Goldman got paid off for its deals with AIG. After all, AIG was contractually obligated to Goldman. Goldman deserves that money, because it was doing the right thing in buying insurance from AIG in the first place.”

That’s bullshit, too. As Rich Bennett over at the hilarious monkey business blog pointed out to me the other day, Goldman was insane and reckless in making those deals with AIG. Goldman wasn’t removing risk from its books by buying CDS protection from AIG, they were exchanging one kind of risk for another kind of risk, counterparty risk. “If you have too much risk to one entity and they go bust, you’re shit outta luck,” Rich says. “They took AIG for a ride, and when the music stopped, they and their partners were going to be taking up the proverbial tookus.”

So to review: Goldman makes insane bets, runs wild on AIGFP’s house idiot Joe Cassano for a while, sticking him with $20 billion in risk, and when it all went to shit — as it inevitably had to — they drove a big stake through AIG’s heart and got the government to step in and pay them off using our money. How’s that for market capitalism? Just like Adam Smith drew it up, right? They’re just smart guys!

2. TARP. Much discussed, no need to really review here. Goldman got its $10 billion. It paid off its $10 billion. Good for them. However, there’s one thing to note here, and it hasn’t been mentioned really at all in the press. It is continually reported that now that Goldman has repaid its TARP money, it no longer has restrictions on its executive compensation. That’s actually not true. The government still holds warrants from Goldman and other companies that it acquired during the TARP process, and until the banks pay off those warrants (and they’re all already trying to pay them off at below market prices), the Treasury still technically has the authority to prevent lavish bonuses. Not that that will happen, of course, and this is yet another government handout — a firmer government would be hard on Goldman to the end of the process, while this government is doing its matador job and waving through these massive bonuses early on in the repayment schedule.

3. The Temporary Liquidity Guarantee Program. So Goldman last year converts from an investment bank to bank holding company status, which now makes it eligible for a new program that gives commercial banks FDIC backing for unsecured debt. This is not a direct subsidy in the sense of us actually handing over a bunch of money to Goldman, but it’s almost better, in a way. This basically hands over a free AAA rating to the big banks and allows them access to mountains of cheap money, with all of us on the hook if something went wrong. This is the equivalent of telling Exxon it can take crude from the Strategic Petroleum Reserve at below-market rates during an energy crisis and then turn around and sell it on the market at whatever price it wants, and pocket the difference, for the good of God and country. Goldman took full advantage of this deal, issuing $28 billion in FDIC-backed debt after its conversion. Exactly how hard is it for a bank to make a profit when it has unlimited access to virtually free money? It is almost impossible for banks to not make money when their cost of capital sinks this low.

Ask yourself this question: has borrowing money gotten any cheaper for you this year? Did someone from the government walk up to you after you foreclosed on your house or missed payments on your charge card and, as a favor, just because you’re so cool, jack your credit score back up to the 99th percentile and invite you to start all over again? Because that’s what happened to these assholes. They made every bad move you can think of and they not only got a clean credit slate but a vitually ceiling-free spending limit.

4. The Fed Programs. By converting to a bank holding company, Goldman also became eligible for a whole galaxy of new bailout programs administered through the federal reserve like the Term Asset-Backed Securities Loan Facility (TALF); it also became eligible to borrow cheap money from the Fed’s discount window. There is so much to cover here that it would take forever to get to all of it, but the key number to remember here is $2.2 trillion (not billion, trillion). That’s how much the Fed has lent out in assistance since this crisis started and we have no idea how much of it went to Goldman or any other firm, thanks to Ben Bernanke, who refuses to disclose this information. But you can bet that Goldman has taken full advantage of all the various programs designed to relieve the banks of the worthless crap assets they acquired while they were playing roulette the past ten years or so. We just have no idea how much crap they unloaded on the Fed, or how much they borrowed. Would you really bet that it wasn’t much?

5. The TARP Repayment Bonanza. See the story at the top of this piece. As part and parcel of the TARP program, the banks that received money had strict guidelines imposed on them by the state in the area of how they could raise the money to repay. TARP recipients had to issue new equity according to certain parameters, and guess who one of the only major equity underwriters left on Wall Street is? That’s right, Goldman, Sachs. So say International Reckless Dickwad Bank needs to issue $100 million in new stock to pay off TARP; they hire Goldman to do the deal, and since the fee for equity underwriting is 7%, Goldman gets, in essence, a state-mandated $7 million fee. Because so much money was lent out under TARP, the underwriters on Wall Street made a massive bonanza on all the new bank stock. As noted above, Goldman’s equity underwriting department hauled in $736 million this quarter. Does this happen without the bailouts? No. Do the bailouts happen if banks like Goldman hadn’t blown up the universe in the first place? No. You do the math; this is another subsidy.

And that’s just some of the help they’ve gotten. Should we bother to count Goldman’s status as one of just 17 remaining primary dealers in U.S. Treasuries, which naturally did a crisp business last year as the U.S. borrowed its way out of a hole the banks had themselves created? Should we count the ban on short-selling Goldman asked for and got last year? Or how about the seemingly obvious fact that the bank used all of this state assistance and guarantees as a crutch to prop up lots of new risk-taking activity, which was the exact opposite of what was supposed to have been achieved by the bailouts, which were supposed to usher in an new era of austerity and temperance?

As Felix Salmon notes, Goldman last year, after it converted to bank holding company status, announced that it was “taking steps to reduce leverage.” But what’s happened since then is that Goldman has actually been emboldened by all its state backing to borrow more and gamble more than ever. This is the equivalent of a regular casino gambler who hears that the house has doubled down on his credit line and decides to stay up at the tables all night, instead of going home and sobering up. Just look at Goldman’s VaR, or Value at Risk, which measures the amount of money the bank puts at risk on any given day: it’s soared since last year.

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Taken altogether, what all of this means is that Goldman’s profit announcement is a giant “fuck you” to the rest of the country. It is a statement of supreme privilege, an announcement that it feels no shame in taking subsidies and funneling them directly into their pockets, and moreover feels no fear of any public response. It knows that it’s untouchable and it’s not going to change its behavior for anyone. And it doesn’t matter who knows it.

There are going to be some people who say that some of this stuff isn’t government subsidy so much as ordinary government contracting. After all, do we criticize Boeing for making airplanes or Electric Boat for making submarines during a war? If we don’t do that, then why should we be pissed about Goldman making a profit underwriting TARP repayment stock issuances, or Treasuries?

The difference is that Boeing and Electric Boat didn’t start the war. But these guys on Wall Street causesd this crisis, and now they’re raking in money on the infrastructure their buddies in government have devised to bail them out. It’s a self-fulfilling cycle — beautiful, in a way, but at the same time sort of uniquely disgusting. That they’re going to get away with it is bad enough — that they’re getting praised for it, for being such smart guys, is damn near intolerable.


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  1. collapse expand

    Back to your second paragraph: did the Administration really have jobs in mind when it went this route? Or was it just a wished-for side effect, like “trickle down economics”? (and didn’t Stockman eventually apologize for trickle-down anyway?)

  2. collapse expand

    There is no one looking out for the taxpayer. Once again the people in charge of looking out for our welfare are instead protecting the asses of their own industry. Not much different than having a coal mine owner enforce safety regulations.

    Consider how much money the treasury could have made if they offered bonuses for making deals to save these companies and recover taxpayer money with profit. Or perhaps taking repayment of tarp money in stock. Did they do that? How much interest was involved in repayment.

    I once went on a binge writing to congress pressing for a line by line audit of the national budget. In showbiz there are specialists in recovering funds from the mysterious studio accounting system. Usually they get a hefty percentage of whatever they can recover and it’s remarkable how much they do find. I would love the government to do this for all us taxpayers.

    Curious but do you intend to write a book about all of this? You seem to have quite a bit of material and I appreciate the way you decode all the bullshit economic speak and your colorful outrage.

  3. collapse expand

    It’s amusing and depressing to see you make the same crystal clear points re: GS’s (and Wall Street’s) assholery time and time again in slightly different ways for the benefit of people like Claudia Deutsch and Megan McCardle, who seem congenitally incapable of outrage.

    The only way I can explain informed people not being murderously angry about this story is that allowing oneself to fully take in the magnitude of what’s occurred really requires admitting that America has become a third-world kleptocracy. And that’s not an easy thing to admit.

    • collapse expand

      Actually, I think it’s on the order of the BCCI scandal supersized, something never before seen. Prosecutors and reporters couldn’t grasp the enormity & complexity of the BBCI-with the heads of over 72 countries involved.

      Ted Kopple said at the time on Nightline it was clear was that people were spending decades constructing these massive global financial crimes. And that was before the decade+ long effort to get rid of Glass Seagall funded in part by predator Sandy Weill at Citigroup/advocated by his great pal Phil Graham.

      I wondered at the time why all the ink and $72M to go aft Clinton’s BJ and knew it was some kind of shell game. It was the gun to the head they needed to get the GS Act rescinded I believe as a rider on a Friday night….$72M was a biz expense picked up by taxpayers. A NECESSITY to start this entire sham. And in 2002 the second part was put in place.

      And now they have the nuclear $1.14 quadrillion in totally unregulated derivatives.

      That sneering contempt evidenced in that GS CEO weasel’s face is part they can’t touch this, and wait till ya’ll see what’s next.

      Arianna Huffington said it’s clear that Obama’s admin has moved on to other priorities beyond getting Wall Street corralled–and that she needs a drink.

      When I was younger used to walk around Paris and think how much I loved it but that there was something bloodthirsty in the French people for lopping off aristocratic heads while they ate whatever lunch they could scrap together…and cheered. Now I admire them.

      In response to another comment. See in context »
  4. collapse expand

    They’re not smart in the “wow, I just figured out how to store energy at ten times the density of today’s batteries using ordinary, environmentally safe materials” sense, they’re smart like they figured out how to rob fort knox without using weapons and (almost, thanks Matt) anyone even realizing they robbed the bank. And they’re smart in the sense that they hedged their hedges with AIG by planting former executives in the government, in positions to cover their bad bets. They’re smart enough to run a brilliant PR campaign, pretending to never need any help at all from the government, all the while being on the verge of collapse.

    Anyone who thinks most of the other financial firms wouldn’t do the same thing if they could get away with it is as delusional as the bankers that sold all those junk mortgages. Unlike the former smartest guys in the room, these guys are smarter than the rest of the guys in the room of bankers, as they pulled this off without breaking any laws. It doesn’t make it right, it doesn’t mean they deserve any praise, it just means they have elevated parasitic behavior to unprecedented levels and scope.

  5. collapse expand

    And what are Americans prepared to do about it?

    Matt sheds light on the scourge, but where are the revolutionaries who want to smash these people to smithereens?

    Maybe that Russian with the NYSE manipulator device is a start. Maybe he’ll start talking, and people will get busted, and GS will go down.

    Who knows.

  6. collapse expand

    Is it time to say that Obama has fallen far short of expectations? I was an early supporter, and it’s just great to see him throw out the first pitch at the All-Star Game, pick flies out of the air during an interview, and charm our European allies. He knows how to boost the spirit.

    But what he and his economic team are doing is, frankly, a disaster. On his watch, the continued — if not increased — transfer of wealth to the richest few in this country is staggering. And no, Matt, no one from the government has come and offered me cheap loans. Looking to refinance my house to help cash flow, and the rates are steadily climbing (while CD and saving account rates continue to be miniscule). nice to know that I have to pay state tax on the money I’m taking out to help pay the bills. I also need $15G for one semester for my son, and the loan rate for students now stands at 6.8%.

    Sadly, like most of us who are paying the freight here, I have not been deemed too big to fail. But I can see when a president is failing, and one the economic front, this one is failing miserably.

    • collapse expand

      Yes. I forewarned those I talked to that Obama would be weak on economic matters, but took some comfort that his circle of advisers was wider than Clinton’s had been and wasn’t an exclusive club of neo-liberals. My how that changed the day after he won. He’s got Clintonistas and Bushies running foreign policy and the economy. Unlike Bush’s team, Obama’s gang has time left over to get back to business of meddling mayhem in Central and S. America. We are so screwed (not that the average Democrat will ever admit that anymore than the average Republican will admit that Reagan was a senile disaster.

      In response to another comment. See in context »
      • collapse expand

        It doesn’t matter who was president. Goldman Sachs would still be part of the picture. I have more contempt for Obama then I do for Bush and his cronies. Obama was supposed to be for change. Instead he continues the unhealthy relationship with GS. I see this man and his beautiful, well-dressed, well-fed, well- educated, well taken care of family and think, this is the same man that supports crimes against America that have crushed and continue to crush many less fortunate families.

        In response to another comment. See in context »
    • collapse expand

      You see, that’s your problem right there; you had expectations in the first place. We all know Edwards was the only good (well, decent (middling)) choice on the democratic side. But hey, Obama’s a bit better than McCain, so, Yay US!

      In response to another comment. See in context »
    • collapse expand

      No, it’s not time yet. I don’t actually agree with Obama’s choices – Geithner has to go and he should declare a moratorium on Ivy League hires – but he deserves a quarter more to observe the effect (or lack thereof) of his policies. If he is the man we hope he is, then he will make an adequate adjustment (full 180?). If Americans are to have any hope that their government will be reality-based, we have to stay the course a little longer.

      In response to another comment. See in context »
  7. collapse expand

    This is what I didn’t understand when they first started proposing the giant bailouts. Their rationale was that we needed to keep these financial institutions afloat so that credit would keep flowing and the economy wouldn’t come to a halt. They talked about how if they didn’t give these banks money then we wouldn’t be able to get loans for cars or school or houses. And I kept wondering, if the government is willing to dish out billions (trillions?) of dollars to keep our economy from collapsing, WHY DIDN’T THEY LOAN US THE MONEY DIRECTLY? Why didn’t they open the doors to a bank of the United States? In some horrible mutilation of free market principals, they assumed that private entities would be best able to get credit flowing, so they gave these private entities the keys to the PUBLIC TREASURY.

    Matt, if it’s your goal to get people really fucking angry about all this, then I want to let you know that with me, at least, you’ve succeeded. Please don’t shut up about this.

  8. collapse expand

    Here’s what I’m learning from GS: if I play a concert and screw up the rhythm, throwing off the entire ensemble, the audience should pay MORE for season tickets next year. That’ll encourage me to practice more – and more efficiently, right? Even if it doesn’t, I can pass on the lesson learned to my students. Maybe GS will become my patron in the bargain!

    All this information is making me sad that I did not take advice given 2 years back to liquidate a majority of my assets. I thought they might bounce back but my doubts are growing larger.

    Or is that a detonator by head?

  9. collapse expand

    The revolution was not televised.

    Really, is there any way to view what the bankers have accomplished over the last year as anything less than a coup?

    The results won’t be undone until the real economy gets so bad that there’s rioting in the streets. In the meantime, all the news media will focus on an improving stock market (which is being propped up by high frequency trading and wishful thinking), pretending that is the real economy and declaring recovery.

    Yeah. Welcome to the first “jobloss” recovery.

  10. collapse expand

    What about Bear Stearns and their counterparties? Was Goldman’s on that list? Was Fuld another Cassano? Was Thain? What about the other monolines like MBIA – they seem to be taking a stronger stand against the bankstas.

    Again – great article. It amazes(sort of) me how degraded our country’s attention span is. These bankstas bank on that.

    Correct me if I’m wrong here, but my understanding is that these guys made hundreds of billions in crap mortgages(knowing full well and demanding that they were crap), then they bought insurance on these bundled mortgages knowing full well they were going to burn and then they would collect on the policies at a much more instant profit instead of waiting 30 years for the loans to pay out..

    • collapse expand

      The financial powers have created a system that is gamed to produce monies whenever the market is churned. The more the churn, the more the profits. Goldman and their ilk are doing what comes naturally, and they aren’t going to change their ways. They are not capable of being shamed.

      The only way that change will occur is if the government succeeds at regulation to limit their activities. There is no other way.

      Obama needs to get the message soon and act on it, otherwise we have lost an historic opportunity

      In response to another comment. See in context »
  11. collapse expand

    Matt:

    I suggest you do a piece in which you interview some leading figures in the “tea-bagger” movement about their outrage concerning this giant taxpayer give-away. How about that nitwit from the Chicago trading pits who got so much attention?

    Then, you can get some choice quotes from the people who are currently ginning up “populist” outrage about the proposed 1% tax increase on those making more than $350K per year to help defray the cost of minimal health insurance for the tens of millions who currently don’t have any. Are they howling with outrage about the trillions funneled to GS and the other masters of the Universe?

    When you do the interviews, make sure to arrange for enough time to try and explain the gist of your recent research and writing about this subject, and then ask them some questions to determine if they have any comprehension at all about what you have been talking about.

    As they say in the trade, the piece writes itself…

    • collapse expand

      The people who got the Tea Party movement going are the original anti-bailout folks, so you are way behind the curve on this. Welcome to the club. The may not know all the specifics of the GS activities, but they opposed the bailouts because it was anti-free market, and because these huge government payouts are playgrounds for graft and political payoffs. Always.

      And now we see they were right. I thought they were nuts at the time, but by the time of the stimulus bill cramthrough, I started to see the light and joined the movement.

      Oh, by the way, did you know GS owns $1 billion carbon credits and a large percentage of the Chicago Climate Exchange? If you are for the carbon cap and trade bill, you are for the continued transfer of wealth from the middle-class to Wall Street.

      In response to another comment. See in context »
    • collapse expand

      That tax increase will hit small businesses right between the eyes. You know they’re the engine of job creation, right? How smart is this when the unemployment rate shows no signs of recovery?

      Again, middle-class and small business will take the hit from this and Waxman-Markey. The big boys can afford it without even blinking, and they can afford to pay off politicians. The medium and small guys can’t.

      This is why big business loves big government programs. It’s a great way of killing off upstart competitors, the ones who are the innovators.

      In response to another comment. See in context »
    • collapse expand

      Sorry to keep replying to you, but your condescending tone is similar to that of the smug GS guys laughing at us rubes while weekending in the Hamptons.

      Were you on the phones to your congressmen trying to stop the bailouts last fall? The people who later started the Tea parties were. They melted the phone lines, to no avail. Some of them even stayed home on election day, because both Obama and McCain voted for it.

      I bought into the whole “the earth will explode if we don’t do this” story, but they didn’t. They were way ahead of you and me.

      We are all on the same side on this, but people like you who look down on the middle-class folks who’re fighting this are not helpful.

      In response to another comment. See in context »
  12. collapse expand

    I’m a third year law student. If any lawyer out there is contemplating a class-action lawsuit on behalf of the of the United States’ taxpayer (or, alternatively, on behalf of every person who has taken a loan of the public’s money at bank-inflated rates), I would love to work for you. E-mail me at pjamesduncan at yahoo dot com.

  13. collapse expand

    Upshot: The financial industry and its regulators have decided to blow up another bubble by printing money and giving Wall Street public dollars collected from tax payers. For this we taxpayers might – I said, might! – get to keep our jobs and – perhaps! – continue paying down our overpriced mortgages.

    Perhaps this time we’ll have another stock market bubble. Or, maybe they’ll get creative and find a way to manipulate bonds again. This is a fucking merry-go-round, with rich elites using rigged markets to blow up and then pop bubbles. With each cycle they cream a percentage of accumulated GDP spread through citizens’ houses and personal accounts. With each cycle more people go bust and our collective per-capita income declines. But why should they care? They’re rich! They don’t own businesses which manufactures and sells actual product to market, so why should they care if people can’t afford to buy stuff any longer?

    Our government doesn’t seem to care much either. I’d say the parasites now run the show, and they’ve made it clear they intend to eat the whole golden goose. Perhaps they prefer roast goose to golden eggs because they would rather eat the animal today than enjoy sharing its golden eggs tomorrow.

  14. collapse expand

    Matt once again you are the one-man Woodward & Bernstein when it comes to exposing Wall St. and in particular, Goldman Sachs. Where, oh WHERE in the mainstream press is this? It’s like we’re being robbed in front of our very eyes, you’re calling the cops, and they’re just standing there, watching.

    Excellent work, yet again!

  15. collapse expand

    Nice work Matt — keep the heat on! Once again our government and the powerful i.e. Goldman Sachs don’t think the American people can “handle the truth”. The tone has completely been one of “just let us handle the details” and at the end of the day everything will go back to normal.

    Most major media outlets cover extensively the amount of debt that governments and private citizens in this country hold and usually blame these figures for our recent economic woes and those woes yet to come. However recent reports from the Federal Reserve Flow of Funds report, Bureau of Economic Analysis show one sector with the most outstanding debt in this country. Guess who holds this title? The financial sector made up of Goldman Sachs, JP Morgan, Blackrock, etc, etc.

    The report shows that the financial sector holds $17.2 trillion in debt, followed by private sector debt at $13.7 trillion and “on the books” debt for all governments (feds, states, and local) at $12.6 trillion.

    As Matt points out, the amount of risk taking by the likes of Goldman has actually increased — so you can imagine that $17.2 trillion dollars leveraged up the wazoozy by our friendly banking sector causes some sleepless nights in the halls of lever pulling.

    The fact that these fine institutions actually still pose the greatest risk to our financial system is why our government is still bending to their wills and still we don’t get the truth.

  16. collapse expand

    Superbly said! I feel like I’m living in a dark cave at times with all the non-information floating about with only an occasional burst of light like your article. Thanks for the good work.

  17. collapse expand

    Thanks for working on this critical illumination of the parasites infesting the transactional economy. Regarding the announced profits and bonuses, that’s the tip of the iceberg. Just imagine what’s in numbered accounts offshore.

    It always reminds me of Vonnegut’s “money river”.

    And as to the lead tea-baggers, Santelli’s pancake makeup never fails to remind me of Baby Jane.

  18. collapse expand

    Rich says. “They took AIG for a ride, and when the music stopped, they and their partners were going to be taking up the proverbial tookus.”

    It would hurt even more if they were going to be taking <> up the proverbial tookus.

  19. collapse expand

    This just in:
    “Goldman Sachs in Talks to Acquire Treasury Department”:

    According to Goldman spokesperson Jonathan Hestron, the merger between Goldman and the Treasury Department is “a good fit” because “they’re in the business of printing money and so are we.”

    The Goldman spokesman said that the merger would create efficiencies for both entities: “We already have so many employees and so much money flowing back and forth, this would just streamline things.”

  20. collapse expand

    Matt,

    Another great article. I really enjoy reading your articles. So, if we cannot legally go after these guys (our politicians certainly won’t do it because they are bought by these corrupt banks), I propose the following:

    1. Fully reinstate the Glass-Stegall Banking Act of 1932

    2. Encourage investors to take their checking, savings, 401ks, IRAs, etc. and put them in credit unions. Let these corrupt mega-banks collapse. Sure, the economy will take a nasty blow, but at least we (taxpayers) have some recourse.

  21. collapse expand

    From the article:

    This is the final evidence that the bailouts were a political decision to use the power of the state to redirect society’s resources upward, on a grand scale.

    It was a selective rescue of a small group of chortling jerks who must be laughing all the way to the Hamptons every weekend about how they fleeced all of us at the very moment the game should have been up for all of them.
    _____________________________________

    And who made all of this possible? GW Bush and Henry Paulson who confidently raided the US Treasury for the chortling jerks.

  22. collapse expand

    So did Bank Societe Generale get one hundred pennies on the dollar from AIG the way Golden Slacks did, or are some Master of the Universe more equal than others?

  23. collapse expand

    Am heartsick over Obama’s revealed true colors. Thanks, Matt, for helping us non-experts to sorta get it. Keep writing, keep decoding! You are our hero!

  24. collapse expand

    “…or are some Master of the Universe more equal than others?”

    That should be “Masters” (plural) of the Universe.

    I knew I’d regret the lack of a preview feature.

  25. collapse expand

    I am as outraged every time I learn more from your reporting and again wonder why does the mainstream media ignore this? My question now is what can the Government do to put an end to this abuse by Goldman? Any ideas Matt? I would love to start working on Congress to reign them back in, if possible.

    • collapse expand

      Besides middle of the road networks, notice how Fox News, which could make a populist hay-day out of what Obama and Geithner are doing with Goldie Sucs and Wall Street say almost nothing. Actually liberal/progressives such a Rachel Maddow and HuffPost say more bad things about govt bailouts and handouts to banks than do the “free-market” types on Fox, CNBC etc.

      If you did a piece on Fox, 60 minutes, MSNBC, CNN with Matt talking about this sutff with some good visuals of fat cats living large in the Hamptons, the whole country would be enraged immediately a network could get eyballs night after night just showing their lavish lifestyle along side a small business man that can get not credit, a tax-payer drowning in debt, someone struggling to pay 25 precent interest on their credit car. Mike Moores movies always make money, and yet MSM wouldn’t touch this

      In response to another comment. See in context »
  26. collapse expand

    Well, seems to me that given that the game is so clearly rigged, the only thing to do is just buy GS stock. That’s clearly the only way to not get your ass raped.

  27. collapse expand

    Another excellent piece Matt. If I can describe it in a nutshell: enraging then depressing. My wife and I were laid of the day after the first big bailout last October. Our company was owned by banksters that were itching to cut expenses and was granted the perfect excuse to do so.

    Like I’ve said before, it is high time to dust off the guillotines and roll them onto Wall and K streets. Sadly, we missed our chance to do it on the 14th in commemoration of Bastille Day.

    • collapse expand

      I’m all for dusting off guillotines, ropes, firing squads, and putting them into overdrive with a steady stream of bent politicos, bankers and their associate hangers on. When the system is set up and operated from both ends, by the same rat bastards within and without government, you come to realize its a turnstile of profit for they and they alone with a big middle digit to everyone outside their special circle. Only when their rotting corpses swing from the lamp posts on Wall Street will any of those vermin get the message. Don’t expect them to change on their own because they’re genetically programmed this way.

      In response to another comment. See in context »
  28. collapse expand

    Why does Obama want to raise taxes on the rich? He knows that that a huge part of the middle class wealth has been transferred to the oligarchy that runs the U S i. e. Goldman, JP Morgan etc. It won’t work. Rates might go up but so will loopholes. In the end the oligarchy won’t really pay more. It’s just a razzle dazzle. Matt, I just started to read some of your stuff. But have you looked at the illegal alien angle and Goldman? Goldman supports legalization of illegal aliens and suppors pro illegal alien immigration groups. It’s just another attack on the middle class, their jobs, property, wealth. It just never ends.

  29. collapse expand

    Matt –

    I blame Jar-Jar Binks.

    If it hadn’t been for that animated mess of shuffling audience-hate, people would have paid attention to the plotline from “The Phantom Menace.”

    And maybe, just maybe, when this ginned-up “financial disaster” was being dangled in front of our limbic response systems, we wouldn’t have been seduced by the solution offered by Senator Palpatine and his Sith companion, Darth Bernanke.

    We gave them the power to save us from a menace of their own making.

    Damn you, Jar-Jar. Damn you to hell.

    • collapse expand

      Settle down, poindexter.

      In response to another comment. See in context »
      • collapse expand

        Mock my enthusiasm, but can you quibble with the thesis?

        Have we not been living through a hood-winking of unprecedented proportions, where we were literally told we had mere days to respond? All we had to do was “temporarily” cede control to those who could cure us.

        (By comparison, the run up to Iraq was a slow-motion train-wreck, where there was at least the time to register complaint and dissent.)

        In response to another comment. See in context »
        • collapse expand

          Ike Pigott said: “Mock my enthusiasm, but can you quibble with the thesis?”

          Ike, how long did you think about the introduction to your reply before you came up with (in sequence) – an alliteration, a comedic synonym for ‘question,’ and a pedantic synonym for ‘argument?’

          I called you a poindexter because I think you’re an inferior form of nerd. And you reply with a forced-Klosterman defense?

          Just shave off your beard and prove my point, poindexter.

          In response to another comment. See in context »
          • collapse expand

            I’m not that hard to research, if you care.

            The answer is, I don’t spend any time at all on my writing, this is pretty much how I write (and talk, for that matter). The best way to communicate and persuade is by finding an analogy (or series of analogies) that bring the point home.

            I will take it as a compliment.

            Now show me you’re capable of being serious for a moment.

            There were many of us sounding the alarm of skepticism last September when the Chicken Littles were asking for the keys to the kingdom, and how civilization as we knew it was hours from oblivion.

            We were told to shut up, and let the experts handle things (oh, and can you give us the checkbook and unlimited overdraft insurance?)

            This is and was a Phantom Menace. The sooner we recognize it, the sooner we can tell the modern-day Sith to cram it as they attempt to enslave us for our/their own good.

            In response to another comment. See in context »
  30. collapse expand

    Let’s see, if we treated GM like Goldman we would had done the following: Forked over the price of the entire Iraq war to them within a week or two of them imploding, which have been like, seven years ago. Goldie Sucs was very profitable basically up to Sept 2008 ’cause of their high reward for high risk behavior, which tends to make you good money just up to the point the crap hits the fan, then it fails horribly. GM had to spiral down for about 5 years, and then suffer for another year and half during all of 2008 into 2009 before govt lent them anything. GM’s final death knell was their improper management of the risk of a black swan event like a abnormal peak in gas prices combined with a general recession, lead by housing collapse and later exasperated by gas prices. Goldie Sucs only had to be on death bed for a few weeks for us to step, no one in Am save a few MI House members seem to think we should have helped GM sooner or with more cash than we did, but if they were Goldie Sucs, we would have come to their rescue in 2001 or to be real conservative wait until they were unsustainably unprofitable, say in mid-2008. If that seems wrong for GM, why is it right for Goldie Sucs?

    Then, if we were to give the Goldie Sucs treament to GM, we would give them some cronyist deals with govt, say we promise to buy all new cars for entire Federal govt fleet from GM at 2007 prices, maybe we could call in PICC-UP, public investment in crap cars and have Geithner promote it, get all those toxic Hummers and SUVs off the factory lots at inflated prices.

    What else could we do for GM, equivalent to what we have done for Goldie Sucs…Let’s see, maybe if all the GM cars that SU govt and citizens bought from them during their bailout suddenly died due to bad construction, then maybe we could give GM a bunch of good cars siezed from middle-class tax payers, and then let GM sell them back to the car starved population and a 7 percen commission that still had a job and needed to get to work or to the small businesses that needed to deliver products.

    Of course, if they were to get the Goldie Sucs treatment, we’d be ensure with govt money that the GM union workers got the same wages as their best years, and make sure the GM CEO kept his job and bonuses.

    So GM, if treated like Goldie Sucs, woudl be a highly profitable company even though it would bankrupt but for the grace of the US taxpayer as represented by their lame and corrupt politicians.

    And the coup de grace, the final way we’d give GM the Goldie Sucs treatment, after we did all this for them, we would be praising this company, that managemetn ran into the ground by dumb move, after dumb move and lack foresight, this govt supported GM, we would be calling the smart guys, ’cause, after all their profitable.

    Now if that seems a wrong way to have treated GM, a company that actually make something we need, why is a acceptable way to treat Goldie Sucs?

  31. collapse expand

    Great article – perhaps it would also be worth noting that Goldman has also cornered the market in automated trading – the stolen algorithms story – a machine sat it the corner whirring with flashing lights and simply SUCKED their profit straight out of the economy……

    Brill.

  32. collapse expand

    You know, its really time to do a splashy, media attracting protest against Goldman…this needs some political drama to get regular folks hip to this

  33. collapse expand

    i have to register a small disagreement. matt wrote “Goldman might have gone out of business last year if AIG had been allowed to proceed to an ordinary bankruptcy…”

    naw. no might about it. would have gone out of business.

    thank you matt, for being one of the few people speaking truth about this outright theft. much less speaking in such a clear, understandable manner. the failure of 99% of the business so-called journalists is shameful.

  34. collapse expand

    Funny how these slimy crookster like Goldman Sucs always get adulation before the completely destroy their companies. In my industry, I knew a company like them, on a very very small scale. they gave out awards to their employees for the most “rat-like cunning” the got business by getting govt codes written to exclusively benefit their proprietary product when other products could also do, and they always did “black-box” things like not revealing their technical data to engineers, while all other product manufacturers were transparent. Thing is it worked at first, some founders made big money, but now they have almost no market share. Long-term their strategy failed. They were arrogant and just willing to consider and think of how to go lower and be more unethical than their competition could even concieve, for this, everyone said they were so smart, such god business people, but to me they were just slash and burn farmers.

    As ancient native americans prophecies said of the coming Europeans, they will be clever, but not wise.

  35. collapse expand

    one more thing. don’t get me wrong, matt is great and his reporting has been excellent. but this is hardly investigative journalism. all the facts matt compiles and expresses in his own wonderful style are just lying out there, for anyone with a brain and a job as a reporter to easily gather. matt’s sources, named and unnammed are not revealing any deep secrets that many other sources have shared with to the handful of other writers following these events.

    this vast corruption and theft has occurred in broad daylight, for the world to see. and those whose jobs are to explain and report it to the rest of us, who may not understand or follow economics and business, those folks in the media have not only failed, they are complicit in maintaining the charade of what now passes for capitalism.

  36. collapse expand

    Matt,

    Government involvement seems to be the element driving the plot in this story, correct (e.g. repealing the Glass-Steagall Act)? It threads the narrative; our political heroes opening doors at every turn for the villains. I agree that the people at Goldman Sachs are rapacious fucks. To paraphrase the old saw, if someone gives a mouse your cookie, should you be pissed at the mouse or the person handing out your fucking cookies?

    Goldman Sachs is functioning just as it should – “beautiful, in a way, but at the same time sort of uniquely disgusting.” It’s gestalt, but this grand theft points directly at a system that is either broken, or inherently crooked.

    So what I want to know is, do you think investment banking is a cancer in general, and that large concentrations of wealth are the festering tumors built upon that capitalist pathology? Or is the system worth saving, and how?

    Love your writing and grasp of this Joycean shit-on. How about some forward momentum to go with our situational outrage?

  37. collapse expand

    Matt-when you say:

    “We constructed this massive bailout infrastructure….”

    is this the Royal “WE” as in Goldman Sachs??

    certainly it is not as in “We the People..”

    The basic infrastructure was set forth in the very short demand letter bearing the signature of Henry Paulson stating that unless he was immediately presented with $$700,000,000.00 with no oversight or accountability,the world economy would be collapsed by morning..
    Ornamental details were frantically added to conceal the shoddiness and true thrust of this letter.

  38. collapse expand

    AIG’s $85Billion Federal Reserve credit line was announced in an SEC 8-K filing effective 9-22-08. Buried in this document is an Exhibit 99.1”Credit Agreement”, which references borrowings AIG had already taken down from the Federal Reserve. The document lists the following Notes executed by AIG in favor of the Lender: Federal Reserve Bank of New York:

    - $14 Billion on Sept. 16, 2008
    - $14 Billion on Sept. 17, 2008
    - $6 Billion on Sept. 18, 2008
    - $ 3 Billion on Sept. 19, 2008

    So, the total outstanding loans were $37 Billion as of Sept. 22, when the Federal Reserve granted AIG access to an additional $85 Billion credit line. It seems the original $37 Billion has been overlooked in media reports, and since nothing indicates the credit line was used to pay off the notes, we could reasonably conclude those notes still exist. Further evidence of this fact can be seen in a letter filed with the SEC dated December 1, 2008, from the former CEO Maurice Greenberg, who still has a substantial interest in the company.

    The letter is directed to Chairman and CEO Edward Liddy, under Mr. Greenberg’s letterhead for C.V. Starr & Co, Inc. In this letter Mr. Greenberg references the “restructured government funding for AIG announced on November 10, 2008”, and he poses some questions about issues related to AIG’s financial position at that point in time. Here are a few of the crucial questions posed in this letter:
    - “Regarding the Multi-sector CDS Financial Entity – For the purchase of $70b of notional amount of CDS, where did the $35b of cash collateral come from?”
    - “Has the $70b of notional amount of CDS already been purchased and as part of that purchase, has the $35 of cash collateral already been paid out to those CDS counterparties?”
    - “Has the $70b of notional amount of CDS already been purchased and as part of that purchase, has the $35b of cash collateral already been paid out to those CDS counterparties?”
    - “What else was paid to those CDS counterparties?”
    There are more questions, but they all lead to the same conclusion which is communicated in his closing statement: “Thank you in advance for providing answers to these critical yet simple questions.”

    My own research suggests AIG was never involved in “credit default swaps” for mortgage-backed securities, although such protection seemed to be available from Bermuda-based and Cayman Islands entities – not that it gives me a lot of comfort. Unfortunately those offshore entities are not too reliable, as our regulators are well aware of.

    I’m guessing AIG bought some garbage contracts from Financial Assurance Holdings, or one of their affiliates/associates, which represented those worthless “credit default swap” agreements that taxpayers had to pay, because they were supposedly “legally-enforceable” contracts.
    Yep, everything’s legally-enforceable – for a sociopath.

    The point is this: the money funneled through AIG was simply extortion. Nothing more, nor less. They placed their bets in a sleazy, Bermuda-based racketeer reinsurance agency that had no business issuing guarantees for the securities being issued by corporations

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    About Me

    I'm a political reporter for Rolling Stone magazine, a sports columnist for Men's Journal, and I also write books for a Random House imprint called Spiegel and Grau.

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