> Cam wrote: > credible on issues of politics. You can read it though. You can > drink it in as gospel I am okay with that. In fact expect that. >
Hey so does the Wall Street Journal! Did you expect that? Well anyway you can read the same Tiabbi facts with the style you eschew removed below. The one thing missed is the fact that most of Goldman's losses from AIG were offset by the AIG bailout itself. But wanna know the really kooky thing - it's was Goldman's collateral calls that drove AIG out and they were able to extract $7 billion just prior. Truly socialized losses and privatized profits. Ethical? Hell no. But nobody seems to care. If you're business card says "goldman sachs" I'm pretty sure you can push an old lady down a flight of stairs and steal her social security check. On the way out Americans will pay your cab fare and $100 for having to go over there in the first place. ------------------- http://www.businessinsider.com/okay-this-time-matt-taibbi-nails-goldman-and-the-bailout-2009-7 Whats wrong with Goldman isnt that is evil or even uniquely evil. Whats wrong is that it is pocketing money that it is making, in part, because it isnt subject to market discipline. It is close to a pure play government arbitrage firm these days. Taibbi ticks off the ways Goldman enjoys government support: The TARP Exit Subsidy. Under the relevant law, banks wanting to exit the TARP program were supposed to not face any obstacles. They could just sent the money in, consult with their regulator and theyd be out. This was intentionally included in the law, changing an earlier agreement that the original TARP banks made to not exit TARP until they got permission. But Tim Geithner didnt like this new deal so he ignored it. He decided to require that the TARP recipients had to issue new equity and new debt in order to exit. (Later, he eliminated the equity requirement but it was too latebanks were already issuing the equity.) As it turns out, this was a major boon to Goldman, since it got to underwrite many of the new issues. Taibbi really nails this one: So say International Reckless 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, Goldmans equity underwriting department hauled in $736 million this quarter. Does this happen without the bailouts? No. Do the bailouts happen if banks like Goldman hadnt blown up the universe in the first place? No. You do the math; this is another subsidy. Explicit Debt Guarantees. Under the Temporary Liquidity Guarantee Program, Goldman is basically able to piggy back on the credit of the United States taxpayers. Goldman issued $28 billion in FDIC-backed debt under this program. 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, Taibbi writes. The Discount Window. Its not well understood by the broader public how important access to the discount window is, and how it lowers Goldmans borrowing costs. Basically, anyone who lends money to Goldman knows that if theres ever a short term liquidity crunch, Goldman can turn around and borrow from the Fed. This means that lenders face a lot less risk that Goldman will run into the kind of liquidity crisis that ruined Bear Stearns, which means they lend to Goldman at cheaper rates. The Implicit Guarantee. This is one that Taibbi misses. (We forgive you Matt.) Goldman is now the equivalent of Fannie Mae, protected by a market-wide assumption that there is no way it can ever fail. Its creditors can count on Goldmans debt being almost as good as government paper. Except Goldie Mac is even worse than Fannie, which was at least subject to supervision by a dedicated federal regulator. (for all the good that did.) We still havent figured out how to regulate these systemically important, too big to fail monsters. So were just letting them run rampant across America hoping that someday well discover the financial equivalent of Saint George to slay the dragon. The Government Carry Trade. To sum up, Goldman Sachs is taken advantage of a new trade that was invented in the midst of the crisis. Its similar to the old fashioned carry trade where banks borrowed money in low interest rate currencies and lent where they could get higher yield. Only these days, the carry traders dont have to go abroad to find the low interest rate. Weve brought it home to them. They borrow cheap thanks to this conglomeration of explicit and implicit guarantees, and lend out at higher rates. If your cost of capital is artificially cheap, all sorts of trades that would never be profitable in a free market suddenly become profitable. As Taibbi points out, this isnt how it was supposed to work. The bailout was supposed to be an emergency measure that wouldnt permanently warp the market. Main Street was going to benefit as much as Wall Street. Everyone from Hank Paulson to the talking-heads on CNBC told us all it was irresponsible populism to describe this as a giant gift to Wall Street. You want some good news? Here it is. Were making progress in getting people to see the bailout more clearly. As Anna Schwartz warned us way back in October, the bailout was structured to save banks and bankers rather than the banking system, much less revitalize the economy. As Taibbi writes: This is the final evidence that the bailouts were a political decision to use the power of the state to redirect societys 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. None of this, of course, is confined to Goldman. It's now a systemic risk for which we are all paying the price. Oh, and as promised, here's the answer to the quiz. The first quote, with the mention of 'Goldie Mac' is from the Journal. The other, more sober sounding ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~| Want to reach the ColdFusion community with something they want? Let them know on the House of Fusion mailing lists Archive: http://www.houseoffusion.com/groups/cf-community/message.cfm/messageid:300470 Subscription: http://www.houseoffusion.com/groups/cf-community/subscribe.cfm Unsubscribe: http://www.houseoffusion.com/cf_lists/unsubscribe.cfm?user=11502.10531.5
