Saturday, July 18, 2009
The real price of Goldman’s giganto-profits
Equity underwriting boomed during the period as dozens of banks raised money to strengthen capital and repay Troubled Asset Relief Program funds. The business reported record revenue of $736 million.via Article - WSJ.com.
So what’s wrong with Goldman posting $3.44 billion in second-quarter profits, what’s wrong with the company so far earmarking $11.4 billion in compensation for its employees? What’s wrong is that this is not free-market earnings but an almost pure state subsidy.
Last year, when Hank Paulson told us all that the planet would explode if we didn’t fork over a gazillion dollars to Wall Street immediately, the entire rationale not only for TARP but for the whole galaxy of lesser-known state crutches and safety nets quietly ushered in later on was that Wall Street, once rescued, would pump money back into the economy, create jobs, and initiate a widespread recovery. This, we were told, was the reason we needed to pilfer massive amounts of middle-class tax revenue and hand it over to the same guys who had just blown up the financial world. We’d save their asses, they’d save ours. That was the deal.
It turned out not to happen that way. We constructed this massive bailout infrastructure, and instead of pumping that free money back into the economy, the banks instead simply hoarded it and ate it on the spot, converting it into bonuses. So what does this Goldman profit number mean? This is the final evidence that the bailouts were a political decision to use the power of the state to redirect society’s 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.
Now, the counter to this charge is, well, hey, they made that money fair and square, legally, how can you blame them? They’re just really smart!
Bullshit. One of the most hilarious lies that has been spread about Goldman of late is that, since it repaid its TARP money, it’s now free and clear of any obligation to the government - as if that was the only handout Goldman got in the last year. Goldman last year made your average AFDC mom on food stamps look like an entrepreneur. Here’s a brief list of all the state aid that is hiding behind that $3.44 billion number they announced the other day. In no particular order:
1. The AIG bailout. Goldman might have gone out of business last year if AIG had been allowed to proceed to an ordinary bankruptcy, as AIG owed Goldman about $20 billion at the time it went into a death spiral. Instead, Goldman gets to call upon its former chief, Hank Paulson, who green-lights this massive, $80 billion bailout of AIG (with Lloyd Blankfein in the room), at least $12.9 billion of which went straight to Goldman. Moreover, let’s not forget this: both Goldman and Bank Societe Generale had been tattooing AIG with collateral calls in the period before AIG’s collapse, with Goldman extracting a full $5.9 billion from the company during that time. It was those collateral calls that really killed AIG.
Now, ask yourself: exactly how big would Goldman’s profits be this year, if they had to fill a still-extant $13 billion or even a $20 billion hole on its balance sheet from AIG’s collapse? You think it would still be $3.44 billion? What if Hank Paulson had elected to save Lehman instead of saving AIG/Goldman, how big would Goldman’s profits be then? Is anyone even asking this question?
I keep hearing people say, “Well, so what — it’s only fair that Goldman got paid off for its deals with AIG. After all, AIG was contractually obligated to Goldman. Goldman deserves that money, because it was doing the right thing in buying insurance from AIG in the first place.”
That’s bullshit, too. As Rich Bennett over at the hilarious monkey business blog pointed out to me the other day, Goldman was insane and reckless in making those deals with AIG. Goldman wasn’t removing risk from its books by buying CDS protection from AIG, they were exchanging one kind of risk for another kind of risk, counterparty risk. “If you have too much risk to one entity and they go bust, you’re shit outta luck,” Rich says. “They took AIG for a ride, and when the music stopped, they and their partners were going to be taking up the proverbial tookus.”
So to review: Goldman makes insane bets, runs wild on AIGFP’s house idiot Joe Cassano for a while, sticking him with $20 billion in risk, and when it all went to shit — as it inevitably had to — they drove a big stake through AIG’s heart and got the government to step in and pay them off using our money. How’s that for market capitalism? Just like Adam Smith drew it up, right? They’re just smart guys!
2. TARP. Much discussed, no need to really review here. Goldman got its $10 billion. It paid off its $10 billion. Good for them. However, there’s one thing to note here, and it hasn’t been mentioned really at all in the press. It is continually reported that now that Goldman has repaid its TARP money, it no longer has restrictions on its executive compensation. That’s actually not true. The government still holds warrants from Goldman and other companies that it acquired during the TARP process, and until the banks pay off those warrants (and they’re all already trying to pay them off at below market prices), the Treasury still technically has the authority to prevent lavish bonuses. Not that that will happen, of course, and this is yet another government handout — a firmer government would be hard on Goldman to the end of the process, while this government is doing its matador job and waving through these massive bonuses early on in the repayment schedule.
3. The Temporary Liquidity Guarantee Program. So Goldman last year converts from an investment bank to bank holding company status, which now makes it eligible for a new program that gives commercial banks FDIC backing for unsecured debt. This is not a direct subsidy in the sense of us actually handing over a bunch of money to Goldman, but it’s almost better, in a way. This basically hands over a free AAA rating to the big banks and allows them access to mountains of cheap money, with all of us on the hook if something went wrong. This is the equivalent of telling Exxon it can take crude from the Strategic Petroleum Reserve at below-market rates during an energy crisis and then turn around and sell it on the market at whatever price it wants, and pocket the difference, for the good of God and country. Goldman took full advantage of this deal, issuing $28 billion in FDIC-backed debt after its conversion. 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.
Ask yourself this question: has borrowing money gotten any cheaper for you this year? Did someone from the government walk up to you after you foreclosed on your house or missed payments on your charge card and, as a favor, just because you’re so cool, jack your credit score back up to the 99th percentile and invite you to start all over again? Because that’s what happened to these assholes. They made every bad move you can think of and they not only got a clean credit slate but a vitually ceiling-free spending limit.
4. The Fed Programs. By converting to a bank holding company, Goldman also became eligible for a whole galaxy of new bailout programs administered through the federal reserve like the Term Asset-Backed Securities Loan Facility (TALF); it also became eligible to borrow cheap money from the Fed’s discount window. There is so much to cover here that it would take forever to get to all of it, but the key number to remember here is $2.2 trillion (not billion, trillion). That’s how much the Fed has lent out in assistance since this crisis started and we have no idea how much of it went to Goldman or any other firm, thanks to Ben Bernanke, who refuses to disclose this information. But you can bet that Goldman has taken full advantage of all the various programs designed to relieve the banks of the worthless crap assets they acquired while they were playing roulette the past ten years or so. We just have no idea how much crap they unloaded on the Fed, or how much they borrowed. Would you really bet that it wasn’t much?
5. The TARP Repayment Bonanza. See the story at the top of this piece. As part and parcel of the TARP program, the banks that received money had strict guidelines imposed on them by the state in the area of how they could raise the money to repay. TARP recipients had to issue new equity according to certain parameters, and guess who one of the only major equity underwriters left on Wall Street is? That’s right, Goldman, Sachs. So say International Reckless Dickwad 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, Goldman’s equity underwriting department hauled in $736 million this quarter. Does this happen without the bailouts? No. Do the bailouts happen if banks like Goldman hadn’t blown up the universe in the first place? No. You do the math; this is another subsidy.
And that’s just some of the help they’ve gotten. Should we bother to count Goldman’s status as one of just 17 remaining primary dealers in U.S. Treasuries, which naturally did a crisp business last year as the U.S. borrowed its way out of a hole the banks had themselves created? Should we count the ban on short-selling Goldman asked for and got last year? Or how about the seemingly obvious fact that the bank used all of this state assistance and guarantees as a crutch to prop up lots of new risk-taking activity, which was the exact opposite of what was supposed to have been achieved by the bailouts, which were supposed to usher in an new era of austerity and temperance?
As Felix Salmon notes, Goldman last year, after it converted to bank holding company status, announced that it was “taking steps to reduce leverage.” But what’s happened since then is that Goldman has actually been emboldened by all its state backing to borrow more and gamble more than ever. This is the equivalent of a regular casino gambler who hears that the house has doubled down on his credit line and decides to stay up at the tables all night, instead of going home and sobering up. Just look at Goldman’s VaR, or Value at Risk, which measures the amount of money the bank puts at risk on any given day: it’s soared since last year.
Taken altogether, what all of this means is that Goldman’s profit announcement is a giant “fuck you” to the rest of the country. It is a statement of supreme privilege, an announcement that it feels no shame in taking subsidies and funneling them directly into their pockets, and moreover feels no fear of any public response. It knows that it’s untouchable and it’s not going to change its behavior for anyone. And it doesn’t matter who knows it.
There are going to be some people who say that some of this stuff isn’t government subsidy so much as ordinary government contracting. After all, do we criticize Boeing for making airplanes or Electric Boat for making submarines during a war? If we don’t do that, then why should we be pissed about Goldman making a profit underwriting TARP repayment stock issuances, or Treasuries?
The difference is that Boeing and Electric Boat didn’t start the war. But these guys on Wall Street causesd this crisis, and now they’re raking in money on the infrastructure their buddies in government have devised to bail them out. It’s a self-fulfilling cycle — beautiful, in a way, but at the same time sort of uniquely disgusting. That they’re going to get away with it is bad enough — that they’re getting praised for it, for being such smart guys, is damn near intolerable.
Goldman Sachs in Talks to Acquire Treasury Department
Sister Entities to Share Employees, Money
In what some on Wall Street are calling the biggest blockbuster deal in the history of the financial sector, Goldman Sachs confirmed today that it was in talks to acquire the U.S. Department of the Treasury.
According to Goldman spokesperson Jonathan Hestron, the merger between Goldman and the Treasury Department is "a good fit" because "they're in the business of printing money and so are we."The Goldman spokesman said that the merger would create efficiencies for both entities: "We already have so many employees and so much money flowing back and forth, this would just streamline things."
Mr. Hestron said the only challenge facing Goldman in completing the merger "is trying to figure out which parts of the Treasury Dept. we don't already own."Goldman recently celebrated record earnings by roasting a suckling pig over a bonfire of hundred-dollar bills.
Elsewhere, conspiracy theorists celebrated the 40th anniversary of NASA faking the moon landing.And in South Carolina, Gov. Mark Sanford gave his wife a new diamond ring, while his wife gave him an electronic ankle bracelet.
Obama’s War Signals
Iran in the crosshairs
Only Richard Nixon, whose political career was launched and sustained by an ostensibly militant anti-communism, could have traveled to China, and – with conservative support — effected a de facto strategic alliance with a country long considered an implacable enemy. This Nixon-to-China meme is regularly invoked as aphoristic evidence that we must expect the unexpected, and it comes to mind when considering the prospects of an impending military conflict with Iran: it occurs to me that only Barack Obama, who won the White House in large part due to his opposition to the Iraq war, could take us to war with Iran, and rally liberals and much of the left behind it.
Oh, I can hear the outraged howls of protest from the Obama cult, but consider:
The president has already set a September deadline for Iran to respond to our as-yet-informal proposal to negotiate over the completely phony nuclear issue – an oddly confrontational approach to opening the first on-the-record high level talks with the Islamic Republic since the Iranian hostage crisis of 1979.
The nuke issue is phony because our own intelligence community, speaking through the CIA, determined "with high confidence" the Iranians gave up their nuclear weapons program in 2003. Yet Obama has repeatedly said Iran is working to develop nuclear weapons. The great sigh of relief we all breathed when the CIA assessment was made public last year – effectively blocking any last-minute attempt by the Bushies to strike Iran in the waning days of Dubya’s reign – gives way to new anxieties.
The evidence that Obama is ramping up the US effort to encircle and eventually strike at Iran is building: added deployments to Afghanistan and our increasing intervention in Pakistan can always be attributed to the vagaries of the Af-pak front, but one can’t blame the Iranians from looking at it differently. The US military presence, to the south and the east, is looming larger. This, in tandem with an apparent hardening of the US stance – e.g. the "muscularity" of Hillary Clinton’s most recent peroration – can only be seen by Tehran as prefiguring war.
The spin prior to delivering her speech to the Council on Foreign Relations was that this was going to be a "muscular" speech, and indeed it was: threatening to use the military to "defend our interests, our allies, and our people" when it comes to Iran’s alleged nuclear weapons program, she declared, with typical Clintonian glibness: "this is not an option we seek nor is it a threat; it is a promise."
With those words, the first rhetorical shots of the third Middle Eastern war – and potentially the most devastating, both to the region and our national interests – have been fired. The phraseology is almost Bushian in its studied belligerence, and it is most certainly not a précis to a rapprochement with Tehran.
This is just about what any observer of the scene would have expected from our Secretary of State, given her past statements – the most recent being her threat to launch a "first strike" (her words) on Iran – and her ongoing refusal to retract her enthusiasm for the Iraq war. Indeed, in her comments to George Stephanopoulos on "This Week," she held up the invasion of Iraq as a model for how to deal with the Iranians.
As I pointed out on the occasion of her appointment, the State Department is going to serve as the War Party’s operational command post in this administration, and Hillary’s war cry delivered in the form of a speech is the signal that the push for war has begun. The CFR speech was widely touted as auguring Hillary’s great comeback, after taking a nasty fall, and her rising prominence and visibility puts an all-too-familiar face on American foreign policy, one that hasn’t changed in any but a cosmetic sense, at least as far as Iran is concerned.
Obama, consumed with the rapidly deteriorating US economy, will let Hillary define the terrain on which the conflict with Iran will unfold: the stage is being set. The actors take their places, and, amid frantic preparations taking place behind the curtains, hardly suspected by the audience, the drama takes its preordained course.
This will consist of three acts: the first, "negotiations," is bound to be the longest, and least interesting, as the US issues the usual ultimatums, accompanied by threats of economic and diplomatic sanctions. This is ostensibly meant to cow the Iranians into giving up their perfectly legal nuclear power program, which the IAEA says shows no signs of morphing into an effort to create a nuclear weapon – but Act One has little to do with Tehran. The real point is to convince the audience (that’s you, the international community and the American people) we tried talking before we started bombing.
Act Two will take us to the UN, where the "debate" will begin. At this point, that bothersome National Intelligence Estimate [.pdf] – you know, the one that said Iran has no nukes, and isn’t on the verge of acquiring them, either – is bound to be "revised," in light of new "intelligence." "The clock is ticking" on Iran, says Obama, and, like his predecessor, he’ll no doubt find the "facts" to fit a course of action that is preordained in the script.
To draw out the simile to what is perhaps the stretching point, what we ought to be asking at this point is: who are the scriptwriters?
Who wants war with Iran? Who has been demanding it, hoping for it, and doing their best to provoke it? What faction of the foreign policy "community" has been warning that Iran is months away from creating a nuclear weapon, and will certainly target a small "democratic" US ally in the region, one which Iranian President Mahmoud Ahmadinejad purportedly (but not really) threatened to "wipe off the map"?
It’s no secret the Israel lobby has been in the forefront of the effort to mobilize American political, diplomatic and military muscle for a dust-up with Iran: the alleged "threat" emanating from Iran was the theme of the last AIPAC conference, and the propaganda machine that does Tel Aviv’s bidding has been going full-bore since the Iraq war ended in "mission accomplished," targeting Tehran as the next victim of our post-9/11 madness. The current power struggle within the Iranian leadership, that culminated in the election fraud protests and the hard-liner clampdown, set the confrontational tone for the pro forma "negotiations" that will segue seamlessly into the second act, and, finally, the third – which will be played out here in this country, on the op ed pages of the nation’s newspapers (what’s left of them, anyway), and around dinner tables all across America.
Act Three will feature the debate here at home, but it will not take place in a vacuum: having carefully laid the basis for military action by establishing 1) Iranian intransigence, and 2) the veracity of US "intelligence" regarding Iran’s nuclear program, all the conditions for a launching an attack will have been met, but for one – the consent of the American people.
Of course, they’d never let us vote on it. Unfortunately, the Ludlow Amendment never passed, and since that time we’ve become so habituated to being hectored and bullied into war by all-knowing elites that no one has seriously proposed anything like it.
Yet the War Party can’t just go barging into a major military conflict without at least the passive acceptance of those who will be paying for it, as well as fighting and dying for it. Once we’re in, no matter how slender the pretext, the argument can be made that we can’t retreat without a major loss of face, and the "waste" of lives that have already been lost – essentially the same argument that sustained the Iraq war long after the futility and dishonesty of the effort had been widely acknowledged. The trick is getting in.
They say Iran’s possession of a nuclear weapons capability represents an "existential threat" to the Jewish state. This may indeed be true, and yet that threat is no more substantial than the threat to the US represented by Soviet nukes during the cold war era. In that historic facedown, each side was constrained by the certainty of mutual assured destruction if war should break out. Since Israel, as everyone knows, possesses a large nuclear arsenal, the Iranians would be similarly constrained not to use theirs. The great problem in the Middle East today is that Israel is not so constrained, at the moment: the Israelis enjoy a nuclear monopoly in the region, and they are determined to maintain it – yes, even if it means war.
Not a war between Israel and Iran, of course, but between the US and Iran. Israel is sending all kinds of signals that if we don’t start the bombing, they will, but the Israelis have neither the technical means nor the inclination to risk their own necks – and why should they bother, when they have us to do their dirty work for them?
The way to achieve a regional settlement of the nuclear issue ought to be clear enough: direct negotiations between Tel Aviv and Tehran and a mutual disarmament pact. Syria long ago proposed that the Middle East be declared a nuclear-free zone, a suggestion steadfastly ignored by Washington, and barely reported in the Western media. The Israelis, for their part, won’t even acknowledge having a substantial nuclear arsenal, and refuse to sign the Nuclear Nonproliferation Treaty, while Iran, a signatory, has opened its nuclear facilities to inspection.
This kind of even-handed common sense approach to peacefully resolving regional tensions is strictly forbidden in elite foreign policy circles, however, no matter which party is in power – for that would put the Israelis on the same level as everyone else in the Middle East, which Tel Aviv (especially the current regime) regards as an insult. There is one standard for Israel, and another for the rest of the inhabitants of the region – and anything less (or more) than that is evidence of "anti-Semitism."
Make no mistake: the enormous power of the Israel lobby – and it is formidable, don’t let anyone kid you – is being utilized to bring us to the brink, and we are moving along at a fairly rapid pace. It won’t be long before the clock stops ticking, and the fireworks begin: oh, to be sure, there will be plenty of drama, and secondary plots, along the way, but the essential narrative – Mad mullahs plan on blowing up Israel, if not the world – has already been written, rehearsed, and audience-tested.
It remains to be seen, however, if this particular show ever gets out of summer stock. The American people are in no mood for another war – certainly not a war of the scope necessitated by a huge and populous nation such as Iran. It will take a sustained political and propaganda campaign by the War Party to pull this one off – and yet you shouldn’t doubt they have the resources and the will to do it.
You thought you were safe, now that George W. Bush is out of the White House, and the neoconservatives have gone back to their well-subsidized holes – but you were wrong. I would not be at all surprised if the Iranian "crisis" – and it will be declared a "crisis," complete with ticking clocks and lines in the sand, of that you can be sure – required a "delay" in our plans to withdraw from Iraq. At that point, the American people will either rise up and put an end to the nonsense – or else they’ll acquiesce, without much protest, to what seems like the inevitable.
by Justin Raimondo
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