Goldman Sachs: One of the Banksters

Editor's Note:  While we usually limit our posts to items that are directly related to and referencing  Goldman Sachs, we thought this article was interesting to post


With the House and Senate at work on differing proposals for financial reform, real change in the financial system seems more elusive than ever. Rebounding bank profits, a direct result of government giveaways, and gobbledygook from the industry have successfully fogged the issue. The vast public is in danger of losing sight of what was once, for a brief moment, plain as day: the financial system in its current form is ill-designed and unstable. Here are five essential facts the financial industry would rather be ignored.

1. Investment banking was the specific source of the problem. The so-called financial "tsunami" was entirely man-made. The problem arose directly and specifically from widespread abuses of trust involving inordinate risks taken with other people's money. Investment banking in its pure form is the arrangement of risky deals for third parties to participate in. Like real estate agents, investment bankers collect fees on completed deals. Those fees increase with the size of the deal, and with its risk. The problem arose when individuals charged with prudently managing other people's money began to imitate investment bankers seeking ever bigger, ever riskier deals with the associated high fees. The problem multiplied as investment bankers, through their marketing efforts and through institutional ties, gained access to huge pools of capital in our financial system to exploit for their own purposes. Never again should government funds, our own money, be used to subsidize irresponsible risk taking for the benefit of dealmakers. Nor should commercial banks, so essential to the modern economy, be conflated with investment banking schemes.
2. Investment bankers were given a second chance. And not just any second chance. Instead of punishment for obvious transgressions, they've been rewarded beyond their dreams. So far the Federal Government has provided nearly 3 trillion to bail out the financial sector and promised a further 8 trillion if necessary. Investment bankers were big beneficiaries. Some benefits were direct, for example the government backed rescue of Bear Stearns, the government guarantee in the Merrill Lynch/Bank of America deal, TARP funding to financial firms, and widespread access to free money at the Fed's discount window. Others were indirect, such as the bailout of AIG from debts that it couldn't pay to Goldman Sachs among other lenders.
3. Investment bankers are now even more thoroughly integrated into the system. During the panic, investment banks were either bought by commercial banks -- Bear Stearns bought by JP Morgan, Merrill Lynch bought by Bank of America, Lehman absorbed by Barclays -- or magically converted into commercial banks like Goldman Sachs and Morgan Stanley. This has several effects. First, institutions, like Merrill or Bear Stearns that were deemed too big to fail are now even bigger, effectively guaranteeing that no matter what they do the public will be on the hook. Second, investment bankers now have access to even more money to use for their risky deals. And finally, through investor insurance and similar guarantees the public fisc is explicitly committed to some of these risky activities.
4. Incomplete reform won't work. Major proposals, including those now being worked on by both House and Senate committees as well as the White House proposals fail to comprehensively tackle the root cause of the crisis -- bankers making huge profits by taking inappropriate risks with other people's money. The most useful part of these proposals is to mandate higher capital requirements on large and interconnected firms. That's a step in the right direction. But commercial banks already had very strict capital requirements, yet that didn't stop Citibank and Bank of America from getting into trouble. Any loopholes, whether via derivatives or newer financial schemes, will provide an end run around stricter capital requirements. Without rethinking risk across the board higher capital requirements won't be very effective.
5. Policymakers confused cause and effect. The government's economists rightly recognized that banks are strong when the economy is strong. But they foolishly sought to strengthen the economy by strengthening banks. In fact for every dollar spent to stimulate the non-financial economy, three times that amount has gone into the financial system. The functions of banking are essential for the economy to prosper. But specific banks when bankrupt should be sold and reopened under new management. After committing nearly one year's total national economic output, the government has helped Goldman Sachs have one of its most profitable years ever while legions of firms and individuals deemed small enough to fail, fail.

The purpose of comprehensive financial reform isn't to limit bankers' wealth or to prevent yesterday's specific problems. It's about strengthening the financial system. Reducing systemic risk will benefit the whole economy, and in the long run the banks themselves.

Report On Goldman Sachs - AIG Bailout

This article appeared in Daily Kos

Breaking WSJ: Massive Goldman-AIG Bailout Conflict Of Interest

by bobswern

Share this on Twitter - Breaking WSJ: Massive Goldman-AIG Bailout Conflict Of Interest

Sat Dec 12, 2009 at 08:58:08 AM PST

A story in this morning's Wall Street Journal, "Goldman Fueled AIG Gambles," by Seena Ng and Carrick Molenkamp, details how Goldman-Sachs obfuscated the fact that the firm was actually on the hook for far more billions of dollars in exposure to AIG's collapse than Goldman has previously acknowledged, in September 2008, when former Goldman CEO and then-Treasury Secretary Henry Paulson proclaimed a dire need to bailout the insurance firm with what eventually grew to become more than $180 billion in taxpayer-funded support. In what may very well go down into the annals of journalism history as being right up there with Woodward's and Bernstein's coverage of the Watergate break-in, today's piece blows the lid off of the extent of the level of conflict of interest that was in place in the Treasury Department at the time the AIG bailout occurred.

• bobswern's diary :: ::

Putting it quite simply, between 2004 and 2007, Goldman-Sachs was up to its neck in AIG's business (Treasury Secretary Henry Paulson ran Goldman through 2006, prior to being appointed to his Bush administration post); and Goldman was exposed to far greater liability than any MSM reports have indicated to date. We know, from the breaking WSJ story that: 1.) "Goldman underwrote roughly $23 billion of the $80 billion in mortgage-linked CDOs that AIG agreed to insure."
2.) "When the federal government bailed out the insurer, Goldman avoided losses on its trades with AIG covering a total of $22 billion in assets."
Putting it a bit more succinctly, it's becoming increasingly clear to anyone that bothers to connect the dots that, despite any misdirected comments to the contrary by the firm, the very ongoing existence of Goldman Sachs may have hinged on AIG receiving the bailout, as turned out to be the case when Congress enabled the Treasury Secretary to serve up what eventually became more than $180 billion in taxpayer funds to AIG.
As is self-evident from today's WSJ story, the extent of the Goldman-AIG relationship was downright massive. I strongly suggest you read the entire piece, but here's a little more from the article (which speaks for itself):

Goldman Fueled AIG Gambles
by Seena Ng and Carrick Molenkamp
Wall Street Journal
December 12, 2009 ...A Wall Street Journal analysis of AIG's trades, which were on pools of mortgage debt, shows that Goldman was a key player in many of them, even the ones involving other banks.
Goldman as Middleman
Goldman originated or bought protection from AIG on about $33 billion of the $80 billion of U.S. mortgage assets that AIG insured during the housing boom. That is roughly twice as much as Société Générale and Merrill Lynch, the banks with the biggest exposure to AIG after Goldman, according an analysis of ratings-firm reports and an internal AIG document that details several financial firms' roles in the transactions.
In Goldman's biggest deal, it acted as a middleman between AIG and banks, taking on the risk of as much as $14 billion of mortgage-related investments. Then Goldman insured that risk with one trading partner--AIG, according to the Journal's analysis and people familiar with the trades.

Lastly, as noted by numerous reports since Fall 2008 (See: "Eight Days," by James Stewart, from the September 21st, 2009 edition of the New Yorker, and various other stories and blog posts), Goldman CEO Lloyd Blankfein was, literally, in the room with Treasury Secretary Paulson for much of that entire weekend in mid-September 2008 when the decision was made to bailout AIG. And, as many have asked, ever since: What the hell was he doing there? As time passes, eventually the real answer--the truth--is now coming out.
This story is, most certainly, going to have major implications going forward.  I could speculate as to where this will take us, but I'll leave that up to you in the comments, below. Go for it...

Read the full WSJ article referred to...click here

Obama's sellout to Goldman Sachs

In the previous post, Larry comments on Matt Taibbi's latest article on Goldman Sachs and the rest of the Wall Street crime cabal- "If we want change we need to clean house - not just the White House but the House of Representatives and the Senate where you have long term members (dictators) who run the show."

I couldn't agree more. If I vote for a Democrat or a Republican, I'm voting for Goldman Sachs and therefore, voting for Wall Street to rape the middle class. For the first time in my 50+ years, I feel that I must vote for a third party candidate. With the exception of a few people like Bernie Sanders, neither side can be trusted. Sure they'll promise us a rose garden, talk big about all the financial reform they are going to impose but in the end, it's all talk.

If you haven't read Taibbi's article, you should. It lays out very clearly the betrayal.

Obama's Big Sellout

The president has packed his economic team with Wall Street insiders intent on turning the bailout into an all-out giveaway

Barack Obama ran for president as a man of the people, standing up to Wall Street as the global economy melted down in that fateful fall of 2008. He pushed a tax plan to soak the rich, ripped NAFTA for hurting the middle class and tore into John McCain for supporting a bankruptcy bill that sided with wealthy bankers "at the expense of hardworking Americans." Obama may not have run to the left of Samuel Gompers or Cesar Chavez, but it's not like you saw him on the campaign trail flanked by bankers from Citigroup and Goldman Sachs. What inspired supporters who pushed him to his historic win was the sense that a genuine outsider was finally breaking into an exclusive club, that walls were being torn down, that things were, for lack of a better or more specific term, changing.

Then he got elected.

.....

Read the rest of the article here.