July 16, 2009
They can’t seem to get away from it, no matter how hard they try. Goldman Sachs is finding itself confronted with bad publicity on a daily basis.
It all started with Matt Taibbi’s article in Rolling Stone. As I pointed out on June 25, I liked the article as well as Matt’s other work. His blog can be found here. His article on Goldman Sachs employed a good deal of hyperbolic rhetoric which I enjoyed — especially the metaphor of Goldman Sachs as a “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money”. Nevertheless, many commentators took issue with the article, especially focusing on the subtitle’s claim that “Goldman Sachs has engineered every major market manipulation since the Great Depression”. I took that remark as hyperbole, since it would obviously require over 120 megabytes of space to document “every major market manipulation since the Great Depression” — so I wasn’t disappointed about being unable to read all that. Some of Taibbi’s critics include Megan McArdle from The Atlantic and Joe Weisenthal at Clusterstock.
On the other hand, Taibbi did get a show of support from Eliot “Socks” Spitzer during a July 14 interview on Bloomberg TV. Mr. Spitzer made some important points about Goldman’s conduct that we are now hearing from a number of other sources. Spitzer began by emphasizing that because of the bank bailouts “Goldman’s capital was driven to virtually nothing — because we as taxpayers gave them access to capital — they made a bloody fortune” (another vampire squid reference). Spitzer voiced the concern that Goldman is simply going back to proprietary trading and taking advantage of spreads, following its old business model. He argued that, a result of the bailouts:
. . . their job should be, from a macroeconomic perspective, to raise capital and put it into sectors that create jobs. If they’re not getting that done, then why are we supporting them the way we have been?
This sentiment seems to be coming from all directions, in light of the fact that on July 14, Goldman reported second-quarter profits of 3.44 billion dollars — while on the following day, another TARP recipient, CIT Group disclosed that it would likely file for bankruptcy on July 17. On July 16, The Wall Street Journal ran an editorial entitled: “A Tale of Two Bailouts” comparing Goldman’s fate with that of CIT. The article pointed out that since Goldman’s risk is subsidized by the taxpayers, the company might be more appropriately re-branded as “Goldie Mac”:
We like profits as much as the next capitalist. But when those profits are supported by government guarantees or insured deposits, taxpayers have a special interest in how the companies conduct their business. Ideally we would shed those implicit guarantees altogether, along with the very notion of too big to fail. But that is all but impossible now and for the foreseeable future. Even if the Obama Administration and Fed were to declare with one voice that banks such as Goldman were on their own, no one would believe it.
If there is a lesson in this week’s tale of two banks, it’s that it won’t be enough to give the Federal Reserve a mandate to “monitor” systemic risk. Last fall’s bailouts are reverberating through the financial system in a way that is already distorting the competition for capital and financial market share. Banks that want to be successful will also want to be more like Goldman Sachs, creating an incentive for both larger size and more risk-taking on the taxpayer’s dime.
Robert Reich voiced similar concern over the fact that “Goldman’s high-risk business model hasn’t changed one bit from what it was before the implosion of Wall Street.” He went on to explain:
Value-at-risk — a statistical measure of how much the firm’s trading operations could lose in a day — rose to an average of $245 million in the second quarter from $240 million in the first quarter. In the second quarter of 2008, VaR averaged $184 million.
Meanwhile, Goldman is still depending on $28 billion in outstanding debt issued cheaply with the backing of the Federal Deposit Insurance Corporation. Which means you and I are still indirectly funding Goldman’s high-risk operations.
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So the fact that Goldman has reverted to its old ways in the market suggests it has every reason to believe it can revert to its old ways in politics, should its market strategies backfire once again — leaving the rest of us once again to pick up the pieces.
At The Huffington Post, Mike Lux reminded Goldman that despite its repayment of $10 billion in TARP funds, we haven’t overlooked the fact that Goldman has not repaid the $13 billion it received for being a counterparty to AIG’s bad paper or the “unrevealed billions” it received from the Federal Reserve. This raises a serious question as to whether Goldman should be allowed to pay record bonuses to its employees, as planned. Didn’t we go through this once before? Paul Abrams is mindful of this, having issued a wake-up call to “Turbo” Tim Geithner and Congress.
As long as we keep reading the news, each passing day provides us with yet another reminder to feel outrage over the hubris of the people at Goldman Sachs.
Avoiding The Kool-Aid
November 5, 2009
All right . . . “Turbo” Tim Geithner didn’t really say that (yet) but we’ve all seen how his actions affirm that doctrine. Former federal banking regulator, Professor William Black, recently criticized Geithner for not protecting the taxpayers when Turbo Tim bailed out CIT Group to the tune of 2.4 billion dollars this past summer. CIT has now filed for bankruptcy. Henry Blodget of The Business Insider described Professor Black’s outrage over this situation:
After Tuesday’s election defeats for the Democrats in two gubernatorial races, the subject of “bailout fatigue” has been getting more attention.
Acting under the pretext of “transparency” the Obama administration has developed a strategy of holding meetings for people and groups with whom the administration knows it is losing credibility. Jane Hamsher of FiredogLake.com has written about the Obama team’s efforts to keep the disaffected Left under control by corralling these groups into what Hamsher calls “the veal pen”. She described one meeting wherein Rahm Emanuel used the expression “f**king stupid” in reference to the critics of those Democrats opposing the public option in proposed healthcare reform legislation.
A different format was followed at what appeared to be a “message control” conference, held on Monday at the Treasury Department. This time, the guest list was comprised of a politically diverse group of financial bloggers. One attendee, Yves Smith of Naked Capitalism, described the meeting as “curious”:
Michael Panzner of Financial Armageddon and When Giants Fall adopted Ms. Smith’s description of the event, adding a few observations of his own:
The most informative rendition of the events at the conclave came from Kid Dynamite, whose two-part narrative began with a look at how Michael Panzner interrupted a Treasury official who was describing the Treasury’s current focus “on reducing the footprint of economic intervention cautiously, quickly and prudently”:
Kid Dynamite’s report contained too many great passages for me to quote here without running on excessively. Just be sure to read his entire report, including Part II (which should be posted by the time you read this).
David Merkel of The Aleph Blog also submitted a two-part report (so far — with more to come) although Part 2 is more informative. Here are some highlights:
John Jansen from Across The Curve included his report on the meeting within his usual morning posting concerning the bond market on November 4. In a subsequent posting that afternoon, he referred his readers to the Kid Dynamite report. Here’s what Mr. Jansen did say about the event:
The report at the Accrued Interest blog drew some hostile comments from readers who seemed convinced that Accrued was the only blogger there who actually drank the Kool-Aid being served by the Treasury. Their reaction was easily understandable after reading this remark (which followed a breach of protocol with the admission that Turbo Tim was there in the flesh):
Huh? All I can say is: If you like being in powerful bowels, just take a cruise over to duPont Circle. Actually — it was at his next statement where he lost me:
— and then it was all downhill from there.
The administration’s “charm offensive” has moved to the dicey issue of financial reform, where it is drawing criticism from across the political spectrum. Given the fact that they have all but admitted to a strategy of simply reading The Secret and willing everything to get better by their positive thoughts — Michael Panzner might as well start writing Financial Armageddon — The Sequel.