Charlie Gasparino and all the weird defenses of Goldman Sachs
Gasparino is perfectly within his rights to make that argument, but when he makes that argument, he’s doing exactly what he accuses me of doing – speculating. He doesn’t have any more information than I do when he chooses to put his innocent spin on all those events, using phrases like “a more plausible explanation is…” and “connect the dots…” He misses completely the point of all the uproar over Goldman’s role in the AIG mess, which is that a speculative interpretation, from me or anyone else, isn’t even necessary: the bare facts are ugly enough. Here’s what we know, for a fact:
1)Goldman was underwriting billions of dollars worth of toxic/crap mortgage-based instruments and selling them as investment-grade paper. In 2006, again, Goldman underwrote over $59 billion in non-prime MBS, which was 7% of the whole market. They then bet massively against the same stuff. At worst, this was fraud. At best – and remember, Goldman itself apologized for getting caught up in the “euphoria” of the mortgage boom – they played an important role in creating a market for irresponsible mortgage-lending.
2)But, as Gasparino pointed out, Goldman didn’t sell all of that stuff. They kept a big enough chunk of it, leaving them with billions and billions of dollars of exposure to these absurd/toxic MBS investments. Remember also that Goldman was able to have even more leverage here than before thanks to the fact that its then-chief, Hank Paulson, had in 2004 personally lobbied the SEC to relax reserve requirements. As a result, Goldman steamed into 2008 with a crazy debt-to-equity ratio of 24-1.
3)As a means of dealing with this insane gamble on mortgage-backed crap, Goldman then made an equally insane decision to “insure” its investment with AIG’s resident dipshit, Joe Cassano, tagging this half-baked little shyster with a full $20 billion in risk via CDS contracts.
4)When AIG gets downgraded, Goldman freaks out and starts blasting AIG with collateral calls, demanding that AIG pay up.
5)When AIG goes into its death spiral, in large part thanks to these collateral calls, there is suddenly a meeting of government officials to see if something can be done to make sure that Goldman’s stupid investments in MBS can be paid off, if not by a private bailout, then somehow with public money. The players in this bailout discussion include Goldman CEO Blankfein, former Goldman chief Hank Paulson, NY Fed chair Stephen Friedman (a former Goldmanite), and Tim Geithner, who has only served under no fewer than five ex-Goldman bankers in his career, among them Bob Rubin.
Did Blankfein go to Paulson and beg him to fork over public money to help pay off his mistakes? Maybe, maybe not. Who cares? It’s bad enough that it looks the way it does. The point is that these idiots were incredibly irresponsible for year after year, making decisions that should by all rights have put them out of business forever (what kind of fool jacks up his leverage to 24-1 and bets all that money, money he doesn’t have, on Joe Cassano and a bunch of subprime mortgage borrowers? Would you bet the fortunes of 30,000 employees on those things?), and yet instead of going out of business as they all undoubtedly deserved to, they got bailed out with public money by a bunch of officials who, in a big coincidence, just happened to be former employees of their bank.