Sunday, April 19, 2009

Goldman Sachs' Trading Profits: the more things change, the more they remain the same.

That's Lloyd Blankfein, CEO of Goldman Sachs. You'd be smiling too if you'd just gotten away with one of the biggest heists of all time. Here's why he's so happy:
  1. In 2008, Goldman loses billions trading in mortgage-backed securities and related derivatives.
  2. To qualify for bailout funds, Goldman's application to convert to a bank holding company is expedited, even though it doesn't engage in any common banking activities. (Have you ever seen a Goldman Sachs ATM, credit card, or TV commercial?)
  3. Their former CEO, then-Treasury Secretary Hank Paulson, gives them $10 billion of TARP money...well, they are a bank now, after all.
  4. News surfaces that Goldman had been hedging its exposure to losses in mortgage securities by buying credit default swaps from AIG. (Oh, so you mean they have insurance to cover their losses? Why didn't they tell us that before we gave them the TARP money?)
  5. The Fed and Treasury think a calamity will ensue if AIG fails and its counterparties, like Goldman, are not paid off. So, an additional $80 billion of taxpayer money is given to AIG, who promptly pays off its counterparties, including several foreign banks. Goldman Sachs gets $13.9 billion. (But wait! Didn't we already cover Goldman's losses with TARP money?)
  6. Goldman loves the volatility in the markets--it makes for great trading--and racks up $5.7 billion in trading revenues in the first three months of this year. In short, they're right back to doing the same things that got them into trouble in the first place.
  7. Goldman says it doesn't like that the TARP funds came with strings attached, so they want to pay the money back early. Things are going pretty well for them these days, so they sell $5 billion in stock to raise additional money to pay back the TARP funds.

Happy days are here again!

I would like for Obama to ask his people how the public was supposed to be helped by providing Goldman with the risk capital to run its trading desk. TARP money was intended to fund loans to businesses and consumers, not high-risk trading operations.

Good grief.

Here's more on the whole debacle from Time:

Click here for Time article.