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This is the "I Hate Goldman Sachs" Thread
Hachface
Not the Minister Farrakhan you're thinking ofDammit, Shepard!Registered User regular
Not the Minister Farrakhan you're thinking ofDammit, Shepard!Registered User regular
While the rest of the American financial industry is a shattered ruin, investment bank Goldman Sachs is sitting pretty and rich. Below is the story from our beloved newspaper of record:
That New York Times article is fairly adoring. Matt Taibbi's take on it is not. An excerpt below:
And the indefatigable Glenn Greenwald uses the public record to show how the AIG bailout ended up being little more than a way for the federal government to funnel money into Goldman Sachs:
How is it possible for one entity to profit so much from such devastation, and only a few bloggers and one "gonzo" journalist raise an eyebrow? Given how many former Goldman executives have found their way into the highest levels of government, including the cabinet of a supposedly reformist president, and stand there in plain sight, how are we supposed to evaluate the journalists who are supposed to watch these kinds of things: are they complicit, or just stupid? The most distressing thing about this massive transfer of wealth is how it makes one feel so powerless, even cheated. How many posters here volunteered or donated to Barack Obama's political campaign? And how many expected his cabinet to be as thoroughly infested with industry insiders as his predecessor's? Whether or not you buy whoelsale Taibbi's story of how Goldman Sachs virtually engineered the entire crisis, it is undeniable that the investment bank has profited enormously and disproportionately from it, with the help of taxpayer money and the support of public officials old and new. All I can say really is--What the fuck, America?
The New York Times wrote:Most of Wall Street, and America, is still waiting for an economic recovery. Then there is Goldman Sachs.
Up and down Wall Street, traders are buzzing that Goldman, which only recently paid back its government bailout money, will report blowout profits from trading on Tuesday.
Analysts predict the bank earned a profit of more than $2 billion in the March-June period, because of its trading prowess across world markets. If they are right, the bank’s rivals will once again be left to wonder exactly how Goldman, long the envy of Wall Street, could have rebounded so drastically only months after the nation’s financial industry was shaken to its foundations.
The obsessive speculation has already begun, along with banter about how Goldman’s rapid return to minting money will be perceived by lawmakers and taxpayers who aided Goldman with a multibillion-dollar cushion last fall.
“They exist, and others don’t, and taxpayers made it possible,†said one industry consultant, who, like many people interviewed for this article, declined to be named for fear of jeopardizing business relationships.
Startling, too, is how much of its revenue Goldman is expected to share with its employees. Analysts estimate that the bank will set aside enough money to pay a total of $18 billion in compensation and benefits this year to its 28,000 employees, or more than $600,000 an employee. Top producers stand to earn millions.
Goldman was humbled along with the rest of Wall Street when the financial markets froze last year. As a result, it lost money in the final quarter, a rarity for the bank. Along with other big banks, it was compelled to accept billions of dollars in federal aid, which it paid back last month.
Amid the crisis, it also converted from an investment bank to a more regulated bank holding company.
Goldman declined to comment over the weekend, pending its Tuesday earnings report.
But if the analysts are right — and given the vagaries of Wall Street trading, any hard forecast is little more than a guess — the results will extend a remarkable run for Goldman that was marred only by the single quarterly loss last fall of $2.12 billion.
Goldman Sachs is betting on the markets, but the markets are also betting on Goldman: Its share price has soared 68 percent this year, closing at $141.87 on Friday. The stock is still well off its record high of $250.70, reached in 2007.
In essence, Goldman has managed to do again what it has always done so well: embrace risks that its rivals feared to take and, for the most part, manage those risks better than its rivals dreamed possible.
“It is, in many respects, business as usual at Goldman,†said Roger Freeman, an analyst at Barclays Capital.
Traders said Goldman capitalized on the tumult in the credit markets to reap a fortune trading bonds. It profitably navigated a white-knuckled run in stock markets. It bought and sold volatile currencies, as well as commodities like oil. And it reaped lucrative fees from the high-margin business of underwriting stock offerings, which surged this year as other, more troubled financial institutions raced to raise capital.
Whether Goldman can keep this up is anyone’s guess. With so much riding on trading, the risk is that the bank might make a misstep in the markets, or that today’s moneymaking trades will simply vanish. The second half of 2009 looks tougher, many analysts say.
Goldman is not the only bank that appears to be returning to health. JPMorgan Chase is also emerging as one of the strongest players in this new era of American finance. JPMorgan and several other big banks are expected to report strong second-quarter profits as well this week, again in large part based on robust trading results.
But to a degree unique among its peers, Goldman has turned the crisis to its advantage. Its perennial rival, Morgan Stanley, has refused to gamble in the markets and, as a result, is expected to post a humbling quarterly loss. The giants Citigroup and Bank of America, still in hock to the government, are struggling to regain their footing. Banks like Merrill Lynch, now owned by Bank of America, ran into trouble trying to replicate Goldman’s success.
Richard Bookstaber, a former hedge fund executive and author of a “A Demon of Our Own Design,†wonders if Goldman’s resurgence will prompt other banks to push once again into riskier forms of trading, possibly at their peril.
“Someone takes risks and makes money — maybe they were smart, maybe they were lucky,†Mr. Bookstaber said. “But then everyone else feels like they need to take the same risks.â€
While others are shying away from risks, Goldman is courting them. A common measure of risk-taking at Goldman and other banks is known as value at risk, which estimates how much money a firm might lose on a single day. At Goldman, that figure rose by more than 20 percent in the first quarter. Analysts predict Goldman’s V.A.R. ran high in the second quarter as well.
“It’s taking opportune risk that others aren’t taking,†said Charles Geisst, author of the forthcoming “Collateral Damaged†and a Wall Street historian. “They are scooping up all the risks that are available.â€
On Wall Street, where money is the ultimate measure, Goldman is both revered and reviled. Its bankers and traders are sometimes referred to as the Bandits of Broad Street. An executive at a rival bank characterized Goldman traders as “orcs,†the warlike creatures of Middle Earth in Tolkien’s “The Lord of the Rings.â€
Even mainstream America is taking notice. An article about Goldman in a recent issue of Rolling Stone, by Matt Taibbi, characterized Goldman as “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.†Goldman dismissed the article as the ramblings of conspiracy theorists.
For all its success, Goldman is not impregnable. In addition to the federal money it took last fall, it benefited from the government’s bailout of the American International Group, being paid 100 cents on the dollar for its $13 billion counterparty exposure to the insurer, and it has $28 billion in outstanding debt issued cheaply with the backing of the Federal Deposit Insurance Corporation.
Goldman’s chief executive, Lloyd C. Blankfein, has described the crisis as “deeply humbling.†But his bank bounced back with remarkable speed. In the first quarter, it posted profits of $1.66 billion. Now, the second quarter looks even better.
“They are a trading firm,†said an executive at rival firm, barely able to hide his jealousy. “It’s what they do.â€
That New York Times article is fairly adoring. Matt Taibbi's take on it is not. An excerpt below:
The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.
Any attempt to construct a narrative around all the former Goldmanites in influential positions quickly becomes an absurd and pointless exercise, like trying to make a list of everything. What you need to know is the big picture: If America is circling the drain, Goldman Sachs has found a way to be that drain — an extremely unfortunate loophole in the system of Western democratic capitalism, which never foresaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy.
They achieve this using the same playbook over and over again. The formula is relatively simple: Goldman positions itself in the middle of a speculative bubble, selling investments they know are crap. Then they hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage. Finally, when it all goes bust, leaving millions of ordinary citizens broke and starving, they begin the entire process over again, riding in to rescue us all by lending us back our own money at interest, selling themselves as men above greed, just a bunch of really smart guys keeping the wheels greased. They've been pulling this same stunt over and over since the 1920s — and now they're preparing to do it again, creating what may be the biggest and most audacious bubble yet.
And the indefatigable Glenn Greenwald uses the public record to show how the AIG bailout ended up being little more than a way for the federal government to funnel money into Goldman Sachs:
Glenn Greenwald wrote:
Tom Edsall, The Huffington Post, April 2, 2009:Decisions made during the final months of the Bush administration created an environment in which the most politically connected investment banks, Goldman Sachs and Morgan Stanley, not only flourished, but saw their competitors laid waste, with firms like Lehman in bankruptcy, and others, like Merrill Lynch and Bank of America, forced to merge in desperate hope of surviving.
Former federal bank regulator Bill Black, The Bill Moyers Show, April 3, 2009:BLACK: The Bush administration and now the Obama administration kept secret from us what was being done with AIG. AIG was being used secretly to bail out favored banks like UBS and like Goldman Sachs. Secretary Paulson's firm, that he had come from being CEO. It got the largest amount of money. $12.9 billion. And they didn't want us to know that. And it was only Congressional pressure, and not Congressional pressure, by the way, on Geithner, but Congressional pressure on AIG.Where Congress said, "We will not give you a single penny more unless we know who received the money." And, you know, when he was Treasury Secretary, Paulson created a recommendation group to tell Treasury what they ought to do with AIG. And he put Goldman Sachs on it.MOYERS: Even though Goldman Sachs had a big vested stake.BLACK: Massive stake. And even though he had just been CEO of Goldman Sachs before becoming Treasury Secretary. Now, in most stages in American history, that would be a scandal of such proportions that he wouldn't be allowed in civilized society.MOYERS: Yeah, like a conflict of interest, it seems.BLACK: Massive conflict of interests.MOYERS: So, how did he get away with it?BLACK: I don't know whether we've lost our capability of outrage. Or whether the cover up has been so successful that people just don't have the facts to react to it.
The Washington Post, April 4, 2009:Lawrence H. Summers, one of President Obama's top economic advisers, collected roughly $5.2 million in compensation from hedge fund D.E. Shaw over the past year and was paid more than $2.7 million in speaking fees by several troubled Wall Street firms and other organizations. . . . Fees ranged from $45,000 for a Nov. 12 Merrill Lynch appearance to $135,000 for an April 16 visit to Goldman Sachs, according to his disclosure form.
How is it possible for one entity to profit so much from such devastation, and only a few bloggers and one "gonzo" journalist raise an eyebrow? Given how many former Goldman executives have found their way into the highest levels of government, including the cabinet of a supposedly reformist president, and stand there in plain sight, how are we supposed to evaluate the journalists who are supposed to watch these kinds of things: are they complicit, or just stupid? The most distressing thing about this massive transfer of wealth is how it makes one feel so powerless, even cheated. How many posters here volunteered or donated to Barack Obama's political campaign? And how many expected his cabinet to be as thoroughly infested with industry insiders as his predecessor's? Whether or not you buy whoelsale Taibbi's story of how Goldman Sachs virtually engineered the entire crisis, it is undeniable that the investment bank has profited enormously and disproportionately from it, with the help of taxpayer money and the support of public officials old and new. All I can say really is--What the fuck, America?
Hachface on
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hrm
but what is to be discussed here
Well, for one:
How could this situation be the result of anything but endemic corruption?
Qualify "this situation". Do you mean the success of Goldman, or the financial meltdown?
There is definitely an argument to be made that the former is the case. It's highly likely that favoritism from former Goldman employees in certain high ranking government positions gave them an undue advantage. The latter, however, is hyperbole to say the very least.
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We have laws against corruption. Which laws were broken? Were bribes paid? Was somebody black-mailed?
Investment banks make tons of money. Last year, we decided that we wanted them to survive rather than fail. Surviving for an investment bank means making tons of money. Are you angry because they make lots of money, or because they got bailed out? If the former, well, that's not this thread. If the latter, then you can make a case that the damage wouldn't have been too terrible if they had been allowed to fail last fall. Maybe you're right, nobody knows, but we did the risk vs benefit and decided to bail them out. But it would be hypocritical to be for bailing them out and simultaneously pissed that they were successfully bailed out. Frankly, I'm more worried about the banks that were bailed out and are still foundering.
Even on the surface, though, the fact that Henry Paulson was so intricately tied to Goldman (he was a former CEO for goodness sake) probably played a role in determining whether they'd live (through bailout money) or die (like Lehman).
I'm not as outraged as Hachface, though. I see it as favoritism moreso than horrific corruption.
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Who is "we"? Certainly not you or me. Definitely not, say, Paul Krugman or Joe Stiglitz. Not really Congress, either. It seems to me that there was no "we" at all. The mastermind behind TARP was basically Henry Paulson, a former Goldman Sachs exec who hysterically shouted down anybody who opposed his plan of giving away government money with no oversight by threatening utter economic annhilation. That program has continued into the next administration operating more or less the same way, despite meek calls from the Congressional oversight panel for more transparency.
There aren't many people who deny that a bank bailout was necessary in some form. However, the purpose of the bailout should have been to loosen the credit squeeze and get banks lending to consumers and businesses again. That really hasn't happened the way it was supposed to.
wee looks what Morgan Stanley and GS are DOING AGAIN
Even if you see this as "favoritism," it doesn't change the fact that every dollar that was misdirected to Goldman was a dollar that did not get lent to the kinds of businesses that actually employ people and keep the real economy working. Keeping Goldman execs rich -- and making them richer -- is not doing to do shit for the economy; it's pure wealth extraction.
Does Goldman not employ people? Does it not keep the real economy working? Is there some sort of "fake economy" like the "fake America" that voted for Obama?
Our representatives. Don't like representavie democracy? I guess we could try the direct variety. Surely that will work better.
The ratio of employees-to-revenue at a place like Goldman is tiny. I'd rather the money go to Wal-Mart for God's sake.
Indeed, I don't see why Hachface is not outraged about any of the 50 other banks (e.g. BB&T) that have paid back their bailout money.
The people are Goldman are making bank, sure, but they're making bank because they're managing the money that they got effectively. If one of their employees makes the company money, then they're entitled to compensation.
Now, if you want to have a philosophical discussion about the priorities of the TARP funding being askew, that's perfectly fair. The government should be doing more to help the 16% unemployment rate instead of giving money to institutions like Goldman. But you can't fault Goldman for making money with the money that was given to them, especially given that they paid the government portion back so quickly.
EDIT: I shouldn't have said "fault", it's too mellow. You probably can fault them and those who gave it to them. I should've said "demonize", which is a much stronger and more accurate word for what you're trying to do.
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I didn't realize that being appointed by someone who was elected makes you immune to criticism. My mistake.
if goldman had failed (which was unlikely anyway)
theres a good chance we'd all be fucked
Hard to know, sadly, and that's what makes the favoritism so easy. Paulson, or anyone in a similar position, is easily able to state that "the sky is falling if we don't do X" and have everyone believe them.
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Just answering your question. Of course you can criticize them, but it's not clear what the nature of your complaint is. That the bailout is ok, they're just doing it wrong? Ok, how would you do it better?
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Goldman is estimated to be paying out an average of $600,000 per employee after the earnings are announced. That is fairly astonishing considering the current financial climate.
Well, how much money did the company make?
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As long as they aren't being paid with taxpayer $$$ I don't really mind if someone wants to pay themselves whatever.
Yes Goldman is opportunistic (and successful). The blame for not stopping rulebreaking or exploitation falls squarely on the shoulders of both regulators and the laws written by congress. If we don't like them building speculative bubbles and then cashing in on them at the expense of the economy at large, then we should make it illegal and actually enforce the laws, not bitch about it pointlessly.
I am absolutely for tighter regulation and better laws. Bringing back Glass-Steagal would be a good start.
While it's silly to speculate, I remember with Enron the whole thing seemed like a huge accident with a bit of dirty dealing on the side, and it wasn't until years later that all the details came out to show how it all had been deliberately orchestrated by a few people. I'm not saying it's more likely than not at this point, but you couldn't rule it out.
Also, it was generally obvious that any bank that was reasonably healthy in this climate would eventually come roaring back thanks to the death of those near it. If Goldman has repaid its TARP debt then there isn't any problem. If they block the bank reform that people want then there is a problem, and I doubt Goldman is capable of winning a lobbying shootout with Citigroup etc.
So, put me on the cynical side, I guess.
I know that Goldman stood to lose a lot if AIG went down. Goldman and AIG were primary trading partners, and AIG was on the hook to Goldman for some $13 billion, which AIG paid to Goldman through bailout money. That seems to be a clear-cut case of Goldman using public funds to secure their risk, and then reaping massive private rewards.
Repealing Gramm-Leach-Bliley would definitely be a good start, but I doubt we will get far due to the incredible lobbying power exhibited by these companies, the complexity of the issues, and the publics utter disinterest with anything having to do with finance that is more complicated than putting the magic plastic in the money machine for dollars.
This is where competent, principled, and charismatic lawmakers would recognize widespread popular anger at the banking industry and funnel it towards appropriate legislation. Or we could just as easily get the money back by bashing our teeth out with a hammer and waiting for the tooth fairy to pay out.
That's a complicated question, actually. They had a lot of exposure through AIG, but the bailout of AIG allowed AIG to pay off those obligations to Goldman at full price, although the actual value of those obligations was far less.
So Goldman avoided losses through bailout funds, although in a circuitous way. Had they realized the full cost of their failed transactions, they would not have posted a profit. The American taxpayer essentially covered the vast majority of those losses, so Goldman's profits are essentially created entirely through government intervention and support.
I am hesitant to criticize the bailout of Goldman, AIG, and other large financial institutions as corrupt because I am unsure of what would have happened without that intervention. If anything, I think the US government should have aimed for some ownership in the banks, precisely so everyone could share in any return to profitability by the institutions instead of merely breaking even (or losing money if everything went south). Instead, we got our money back but never got a cut of the upside that our loans allowed to happen.
Ding! This is precisely the issue at hand, which is why railing at Goldman Sachs is a non-answer. Finance is complicated, and the entities regulators are supposed to regulate have every incentive to wring as much money out of said regulations, which really doesn't help. And the public is apathetic and ignorant and wants easy credit but is suspicious of the fancy risk-management that allows said easy credit.
It's very easy to say, after the fact, good god man Goldman Sachs is actually solvent, why are you pouring yet more money into them? but regulators had (just) overestimated the solvency of Lehman Brothers. Hindsight is 20/20 and all that.
Any proposed regulatory reform will have to take into account that any new regulatory bodies will be liable, again, to regulatory capture. Politicians will always want easier credit for their constituents. The public will continue to be apathetic and will just briefly lash out at whoever's convenient after the next bubble bursts.
I have a close friend who is an analyst in the Houston office of Goldman in the energy group.
This is the meltdown according to him: Goldman didn't need the money. If AIG or Morgan Stanley had gone under it would have wrecked Goldman also, but neither of those happened.
Goldman didn't want to take the money, but there was political pressure on the strong banks to take bailout loans so that the banks that actually needed the money could take it without ruining their image.
The loans came with all sorts of strings that made it hard for banks to operate in the black, hence everyone that could paid back the bailout ASAP.
So getting pissed because Goldman is making bank even though they had taken the fed bailout is a little crazy. If anyone is worthy of your ire it's the fed for pressuring healthy banks to take the loans, and then hamstrinigng them after the fact by changing the rules on them.
If goldman is guilty of anything it's of forcing their people to work 100+ hours a week. I was staying at my buddies apartment for a week and I saw him for a total of a few hours. He knows two people in his office that came to work straight from the hospital after their wives gave birth. It's ludicrous. The analysts don't even really make good money for the amount they work.
Goldman-Sachs total Political Donations:
http://www.opensecrets.org/orgs/summary.php?id=d000000085
but then the people at the top get paid ridiculous amounts
that is truly crazy
Not really. It's called 'paying your dues' and most high-end professionals (doctors, lawyers, etc.) go through the same thing.
Except Goldman only made bank because their bogus investments were honored due to taxpayer funding. They essentially gambled with the condition that they keep the winnings and taxpayers cover the losses.
So Goldman wasn't really healthy. Its pretty easy to post a profit when you get to ignore all of your losses.
They weren't bogus investments. They payed to hedge their bets, which is the prudent thing to do, and while it's true that their hedges wouldn't have been made good if the government hadn't bailed out AIG, that just goes to whether you think that the bailouts were justified are not.
Bogus investments in that they wouldn't have had any positive returns. If I "invest" all my money in Vegas, keep everything I win and have my parents cover the losses, does that make my investment legitimate?
Guess it depends on how you define legitimate. Should Goldman accept a gigantic taxpayer bailout it doesn't need? Is it Goldman's fault or the Fed's?
I don't know specifically about G-S, but a lot of the banks were essentially forced (maybe heavily coerced?) to take the bailouts.
Except they didn't 'lose' in your analogy. The correct analogy would be going to Vegas, winning, and having the casino be unable to cover your winnings without going to a third party (the mob? the mob as the Fed? -yeah, I like that). And now you're accusing them of ripping off the mob.