Goldman Sachs' Tentacles Reaching into Government

Here's a very clear presentation on how Goldman Sachs has woven its way into the fabric of our government. Is it any surprise that they are able to virtually print money?

Inside the Great American Bubble Machine

This is a must-read article about Goldman Sachs' abuses from Matt Taibbi at Rolling Stone.

Click here for related article.

Executive Pay Caps are a Sham

The government’s theory is that compensation plans at the big banks were responsible for the banks’ excessive risk taking. To curb the risky behavior, the government wants to limit pay to $500K per year. I guess the idea is that the bankers will engage in risky behavior until they’ve made their $500K, then they’ll pack up their beach chairs and go on vacation until January.

This is obviously a very indirect and gutless way to deal with a major problem, and for starters, it won’t work. The best managers and technicians in these risky endeavors are simply going to move on to banks that aren’t covered by the provisions of the law, or they’ll start up their own firms. Let's face it, if you make $5 million a year, you’ll move to London if you have to. Some sacrifice! The trouble is, the banks they leave will keep running their risky businesses, but they’ll just run them with less talented people; i.e., those who are willing to work for less than $500K a year. How’s that for an unintended consequence? We might as well let teenagers manage our nuclear arsenal as well.

The fact of the matter is that we don’t want our banks engaging in risky activities AT ALL, other than normal lending activities, which have historically been challenging enough for our bankers to manage. We need to restore banking to what used to be called the 3-6-3 principle: borrow at 3%, lend at 6%, and be on the golf course by 3 o’clock. As holders of the public trust, we want our banks to engage in simple, transparent activities. The days of banks using depositor money to speculatively trade in exotic derivatives and foreign currencies for their own accounts need to come to an end, as do the days of banks making loans and then selling them off with no further exposure to risk. If you make a loan, you need to be prepared to stand by the risk of that loan. You’ll then be more careful making the loan in the first place.

We’ve already seen plenty of evidence that Obama and his team are as corrupt as any group of politicians we’ve had in the White House. The payoffs to labor unions, special interest groups, and corporate bigwigs started as soon as Obama took office. So, it’s no surprise that his administration is pussyfooting around with implementing much needed reforms. It’s no surprise, but it’s inexcusable. (Full disclosure: I voted for Obama, but suffice it to say, I’d like my vote back.)

We don’t need indirect, half-hearted approaches to solving major problems. We need to identify root causes, and aggressively rebuild the systems that will serve the public’s interests and restore trust in our financial system. That’s what was done following the Great Depression, and the regulations that came out of that era served us well for many years until our politicians succumbed to lobbyists’ payola or to their own ill-conceived notions of how to create a "great society" that were completely oblivious to unintended consequences. We must return to basics. Restoring the Glass-Steagall Act would be a great place to start.

Geithner's PPIP: The Greatest Boondoggle in History

Treasury Secretary Tim Geithner's Public-Private Investment Program (PPIP) is the "greatest boondoggle in the history of the world," says William Black, a former bank regulator, who was counsel to the Federal Home Loan Bank Board during the S&L crisis. Says Black, an Associate Professor of Economics and Law at the University of Missouri - Kansas City, as occurred during the S&L era, the PPIP will allow banks to exchange "trash for cash" and turn "real losses into faulty gains." If the goal of Tim Geithner and other regulators was "to rip off the American taxpayer for the benefit of the least-deserving wealthiest people you can imagine, well - mission accomplished," Black says.

Black's interview on Yahoo! can be seen here:

Good Morning America Explains the Financial Crisis

This is really cute. So simple an 8th grader or a member of Congress can understand it.

Click here to watch video.

Bill Moyers: Discussion on Financial Crisis

Bill Moyers had another great show on the financial crisis tonight. The show unified many of the concepts I have written about in recent months. The discussion raises many important questions, perhaps none more important than whether the Obama administration will have the courage to support the newly-proposed Congressional panel that will investigate the crisis and propose reforms. Please watch.

Bill Moyers speaks with economist Simon Johnson and Ferdinand Pecora biographer and legal scholar Michael Perino. Johnson is a former chief economist of the International Monetary Fund (IMF) and a professor at MIT Sloan School of Management, and Perino is a professor of law at St. John's University and has been an advisor to the Securities and Exchange Commission.

Click here to watch video.

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.