http://www.pbs.org/newshour/
NOMI PRINS, former managing director, Goldman Sachs: First, of course, they received $10 billion in TARP money. Even though, a year later, they can say, "Well, we didn't really need it," They really needed it.
And look what they did with it!
Goldman's CEO recently testified on the Hill about his company's record profits and big bonuses from 2009, when many Americans were suffering terribly. He basically said that they did it without government help, and that they are just a kickass operation that "allocates capital" and grows wealth for millions of people out there. They are "important" to the economy. While that is probably true, it also glosses over some inconvenient details of how they got there.
Goldman is basically a hedge fund that applied for bank status in order to get TARP funds, and the government went along. Only 10% of their revenue comes from i-banking, and 75% came from trading (mostly commodities and currencies). So we can't really buy the "we're nice guys who lend money so you can make money" story. And they did so well in trading partially due to "front running" of clients. Say Goldman thinks oil is undervalued, so they buy up a crap load of it (where they get the funds to do this will surprise you too - I'll explain soon). Then they consult their clients to do the same, of course AFTER they have gotten in at a lower price. So by their sheer size and the reach of their advising, they can move global markets in their favor. Technically this is illegal, but it's hard to prove and enforce. And in their case, it's amazingly profitable.
In addition, they were selling risky mortgage-backed securities to pension funds while they were taking out huge insurance policies with AIG and others to protect against losses from those securities. Pension fund managers were much less savvy, and just wanted to get in on this seemingly booming market. Goldman gave them the green light, and they trusted them. Of course their greed blinded them from questioning why brainy Goldman would want to sell something solid and profitable to another party. But instead, they sold a suicidal guy a gun, and then took out a life insurance policy on him. Most people now agree that Goldman's political connections and heavy pressuring of Washington helped them decide to bail out AIG. This allowed AIG to pay Goldman the $13B it owed on the policies, which Goldman then used in 2009 to make huge bucks off a troubled market.
Goldman was traditionally a trading house, but applied to become a bank-holding company in order to gain access to TARP funds. They claim that they didn't need to for survival, but were pressured to do so by the government (to help disguise to the public which banks were the most distressed, all the banks too some money). They quickly paid back their $10B TARP loans in order to unfetter themselves from government regulations (especially bonus limits). But as a "bank", they had access to basically limitless Federal Reserve credit at near zero interest rate (0.1-0.3% at most). And their debt was insured by the FDIC. What a deal. And here's the best part - Goldman used taxpayer money to buy Treasury bonds that paid out 3.5-4%. So with zero risk, Goldman transferred huge sums of money from the Fed to Treasury, and the government paid them a commission for it.
Of course there were many more lucrative investments out there in 2009 than T-bonds, so Goldman also used Fed cash to make money in other markets. With the security of government backing, Goldman raised a ton of private capital ($28B in 2009) versus other Wall Street players, and they did it at an interest rate only 1-1.5% higher than what the US government borrows at. So basically that means people think Goldman is as meager of a borrowing risk as the USA. And really, is there a difference at this point?
I know some Goldman supporters will say they deserve it, because it was all more-or-less legal. They were smart and they exploited loopholes and panic. They are in the cutthroat business of wealth maximizing, and make no apologies for doing their job. This is their MO; they beat competitors by finding new and "clever" ways of making money. Blame the system and the government (comprised of many ex-Goldman folks and others with an interest in Goldman's success). Well I do also. Drug dealers and weapons traffickers are also innovative businessmen who make big money. Maybe making money isn't a sin by itself, but what depths do you sink to do so?
Like Enron, they're the smartest assholes in the room. But I'm sure that one day they will get Enron-ed too. Pride cometh before the fall.
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