It simply amazes me that those who are cheerleading the seeming return of Wall Street to health overlook the extensive, hydra-headed subsidies they’ve received and continue to receive. The media has bought and is touting the line, “Hey, they (more accurately some) paid back the TARP, so what’s the beef?”
Let us consider the other forms of support:
Bailout of AIG, in which collateral payments went directly to counterparties, particularly Goldman, which was most heavily exposed. The new urban legend about the firm is that it has good risk controls. Getting in that deeply to one counterparty is clear evidence of deficient risk controls. Recall the firm also got a costly lifeline from Warren Buffet on the eve of the TARP infusion. The firm most assuredly on the ropes last year and would not be around ex extraordinary assistance.
FDIC guaranteed bond issues. Has anyone paid those back?
ZIRP-level interest rates
A list too long to keep track of of Fed “goose the market” special facilities
We’ve inveighed along these lines elsewhere. The industry has gone from a supposed bastion of capitalism to the poster child of Mussolini-style corpocracy.
From Denninger (hat tip Richard R):
Let’s dispense with this sort of bilge from The Washington Post right here:
Money can’t buy love? For proof, look no further than Goldman Sachs. Last week, the firm reported a spectacular quarterly profit — close to $3.5 billion for the bank and about $385,000 in compensation for each employee for the first half of the year — and right on cue, the braying began for the heads of the Goldmanites. Earlier this month, Rolling Stone’s Matt Taibbi, in a comprehensive exercise in conspiracy mongering, primed the pump of outrage with his article “The Great American Bubble Machine.” Now a chorus of supporters has chimed in, shocked that in a recession the evil Goldman could turn such profit.
I know nobody that objects to making a profit.
I know a lot of people who object to theft.
What began as an effort to keep the financial industry from repeating its mistakes has turned into, as at other points in history, an attack on the idea of trading profit. It is no longer enough that the banks should be reformed; the opportunity to make this kind of profit should be eliminated.
That’s an outrageously false statement.
Many in the community, myself included, object strenuously to a poker player who has an extra set of aces up his or her sleeve. We also object to a casino capitalist model where the winnings are kept but the losses are forced onto someone else.
And that, dear reader, is what Goldman and the rest of the big banks have been doing for the last two years.
Over the last several years Goldman Sachs entered into a metric ton worth of credit default swaps with AIG, even though AIG was incapable of paying off on those swaps. They did so as the “brightest people in the room”, that is, either knowing that AIG was incapable of covering the bet or simply not caring that AIG could not cover the bet.
These transactions allowed Goldman (and the other banks who engaged in them) to hold “assets” on their books at intentionally-inflated values – that is, at demonstrably more than those “assets” were actually worth in the market, under the rubric that should their value fall Goldman would be able to “recover” under their insurance policies (the CDS.)
But in point of fact these transactions were never any good, because AIG didn’t have the money to pay.
When this became evident Goldman (and others) managed to connive the government into “saving” AIG by throwing more than $100 billion dollars of taxpayer money into the firm. About $13 billion of that went directly to Goldman Sachs to “pay off” those contracts. Billions more went to other institutions, including banks in Europe.
In doing this, Goldman and these other banks forced the taxpayer to eat their bad bet – that is, their loss. That $13 billion was in fact unearned – they had no right to it, as AIG was in fact insolvent and they would have collected zero had the firm gone into bankruptcy. Goldman and these other banks were either unable or unwilling to rescue the firm themselves, so through the use of political influence peddling they got the taxpayer to do it for them, thereby collecting on a transaction that they either knew or should have known had no chance of being paid off at the time they entered into it.
Having done this, they placed yet more bets. This time they won those bets, and made a “profit.” But they would have never had the capital to place the bets but for the taxpayer bailing them out in the first place, as they would have likely gone under last fall.
The real objection of Taibbi and others is that Goldman, except for one bad quarter at the nadir of the financial crisis, has turned a profit. Big profit.
No, the real objection of Taibbi and others (myself included) is that Goldman managed to steal $13 billion dollars of American Taxpayer money, without which they would not exist today. Having stolen that money through claims of imminent financial collapse made by their former head, Henry Paulson, at their urging, they now have speculated with that taxpayer money and kept the proceeds.
Nobody would object were Goldman to return not only their “TARP” money but also the entirety of the “passthrough” benefits they have received, specifically but not exclusively the $13 billion dollars that was funneled through AIG to them.
But if Goldman had done that, they would have posted a huge loss, and in addition would not have had the money to repay TARP.
Nobody I am aware of cares if a firm is able to turn a legitimate profit through their actions in the market. We object not to profit, but to blatant chiseling of the taxpayer after a company or individual makes a bad bet due to their own incompetence or willful blindness, then demands that the taxpayer cover it, yet when their bets turn out well, they keep the money and hand it to their “associates.”
That’s robbery, and I and others will continue to point it out until the shills who advocate for same and try to excuse it, along with Goldman themselves, are held to account.