Goldman Sachs: Betting Against American Taxpayers – Betting on TARP Bailout

Goldman Sachs & the $10 billion TARP bailout. Was Goldman EVER in serious financial trouble from the housing crisis? Was Goldman in danger of going bankrupt? Could Goldman have failed without bailout support? The straight answer is no. Show Date: April 29, 2010 with Dr. Joyce Starr.

If you’ve been listening to our show and/or reading my posts, you know I try to bring crucial facts to your attention.

So let’s examine the sequence of events concerning Goldman Sachs.

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Goldman Sachs realizes that the housing market is heading south by mid-2007 and bets against it. They lose over a billion dollars, yet their balance sheet remains in the black in 2007 and 2008 because they hedged their bets.

Goldman donates four times as much to the Democratic Party as the Republican Party in 2008 – including a sweet $1 million directly to the Obama campaign. Goldman spent over $2.8 million in 2009 on Washington lobbyists. One can assume the numbers were roughly the same in 2007 and 2008.

Surprise! In late 2008 – less than a month before the election – Goldman receives $10 billion in TARP “emergency” funding – thanks to an emergency bill that few Members of Congress read before they sign it.

Americans were told that the sky will fall if the biggest banks aren’t saved (from themselves). Banks agreeing to receive preferred stock TARP investments from the Treasury included Goldman Sachs Group Inc., Morgan Stanley, J.P. Morgan Chase & Co., Bank of America Corp. (including Merrill Lynch), Citigroup Inc., Wells Fargo & Co., Bank of New York Mellon and State Street Corp.

Six Goldman officers and advisers are then appointed to KEY positions in the Obama Administration. Within a year, Goldman profits and bonuses are soaring. Break out the champagne. Does anyone seriously believe ANY of this was a coincidence? Goldman didn’t game the American system. The system is Goldman’s partner.

It’s the American people who were gamed. Maybe it makes sense after-all.

Was Goldman in serious financial trouble from the housing crisis? Was Goldman in danger of going bankrupt? Could Goldman have failed without bailout support? NO! Goldman Sachs CEO Lloyd Blankfein said so himself with the entire world watching. He stated that Goldman exposure to the housing crisis was limited in 2007 and thereafter contained when they hedged  their bets by betting against mortgage backed securities. Yet, there was no follow-up, nary a word, from Senate Committee members on this revelation.

I spoke with a Washington insider, an attorney who works closely with the SEC. I asked his opinion on the SEC action against Goldman,and here’s what he said: “What they did may not prove to be inherently illegal, but it is morally reprehensible. If you believe the SEC did, Goldman went too far.  It’s not your typical fraud case, where x number of people profited. Paulson made a great deal of money. But Paulson wasn’t named, because he didn’t misrepresent anybody in particular.”

I asked, “With so many former Goldman officials in the Obama administration, didn’t it take guts to go after Goldman?”

He responded, “Frankly, nearly everyone who matters has worked at Goldman, Merrill and Bear Sterns. You want senior economic officials to know what they’re talking about. But the head of SEC enforcement, Robert Khuzami, is a tough guy. What took courage is going after the one company that people thought was doing the right thing, but in fact, were just about as evil as they come. They make the rich richer and the poor poorer. They’re all out to line their own pockets.”

Robert Khuzami is a…no-nonsense, thorough, award winning Prosecutor: This guy is the real deal — he busted terrorist rings, broke up the mob, took down security frauds. He is now the director of SEC enforcement. He is fearless, and was awarded the Attorney General’s Exceptional Service Award (1996), for “extraordinary courage and voluntary risk of life in performing an act resulting in direct benefits to the Department of Justice or the nation.” When you prosecute mass murderers who use guns and bombs and threaten your life…you ain’t afraid of a group of billionaire bankers and their spreadsheets. My advice to anyone on Wall Street in his crosshairs: If you are indicted in a case by Khuzami, do yourself a big favor: Settle. ~ Barry Ritholtz, Ritholz.com

Goldman Chairman Lloyd Blankfein said that “The worst day of his life is losing other people’s money.” Do we really believe that? Or that he understands what worst days can be for people who lose their homes, life savings and hope? Zachary Roth of tpmuckraker.com assembled some interesting numbers:

- Goldman received $10 billion in TARP funds through a Treasury Department purchase of preferred stock. Goldman got a much sweeter deal on those loans from Treasury than it did when it raised capital from Warren Buffet a month earlier. The more generous terms are worth an additional $500 million a year to Goldman.

- But Goldman was also a major counter-party to AIG’s disastrous credit default swaps. As a result, Goldman was the biggest American beneficiary of the various government bailouts of the collapsed insurance giant (which itself is almost 80 percent owned by the federal government):

- Goldman received $4.8 billion from AIG’s securities lending unit.

- It received $5.6 billion, almost twice as much as any other American bank, from Maiden Lane III, the Fed’s “special purpose vehicle” created to unwind AIG’s credit default swaps;

- And AIG posted $2.5 billion in collateral to Goldman last fall, which came directly from its government bailout, according to AIG’s own list of what it did with its bailout money.

- Goldman is getting an additional several hundred million dollars per year in interest savings, according to Gross, thanks to an FDIC program that guarantees bonds issued by banks. Under the program, which is designed to make it easier for banks to raise capital, Goldman has sold $21 billion in bonds since November.

A commenter on Roth’s article asks: How is it that Goldman, the largest beneficiary of the AIG collapse and bailout, was able to negotiate a $10B bailout of their own – while denying that they had a direct stake in what happens to AIG? And when they were never in danger of collapse?

According to Wikipedia, numerous TARP recipients failed to use the money for the reasons it was injected.

Others told investors their money was invested in the federal TARP financial bailout program and other securities which didn’t in fact exist. Neil Barofsky, Special Inspector General for the Troubled Asset Relief Program (SIGTARP), told lawmakers, “Inadequate oversight and insufficient information about what companies are doing with the money leaves the program open to fraud, including conflicts of interest facing fund managers, collusion between participants and vulnerabilities to money laundering.” An overwhelming majority of banks saw the program as a no-strings-attached windfall that could be used to pay down debt, acquire other businesses or invest for the future.

Something is terribly wrong with this picture. If Goldman saw major problems int the housing industry by mid-2007, didn’t other major banks anticipate it as well? Is it possible that the TARP party was planned well in advance of the so-called crisis of October, 2008? That the players had already lined up to get their unfair share of our future. Will we ever know the truth?

The one thing that we do know is that the SEC action against Goldman is a fault line. An earthquake of revelations could soon erupt that will put the entire system to shame.

Could the Goldman fraud be the first in a series of  post-TARP scandals? We welcome your opinion.

To the truth,

Dr. Joyce Starr

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Mortgage Fallout and Fraud

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Mortgage Fallout & Fraud: Predatory lending, greed & panic in the financial markets

by Joe Stallard, FreshStartIndy.net

Unless you’ve been living in a cave, you’re probably vaguely aware of the current meltdown that’s recently hit the financial world.

The effects of the mortgage industry debacle have been far-reaching and not always welcome.

As lenders rushed to build their portfolios based on bad business models, greed and predatory practices, the final outcome was pretty much inevitable. Their house of cards has collapsed.

As a result, we’re in the midst of watching as the market starts to shake out the bad players (which was long overdue, anyway) and get back on a solid footing.

Along the way, there have been a lot of ripples that have affected not just the mortgage market, but have extended into other areas.

A couple of these ripples are:

- Fallout from the mortgage mess and its effect on related industries, and
- Fraud – the current mess has given rise to a whole new genre of criminals

We’re going to look at one industry that has been particularly hard hit by the fallout – the Auto Finance industry.

One characteristic shared by the auto finance and mortgage industries is the constant need for new capital. Or, to put it another way – investors. Through both public and private sectors.

Fallout from the Mortgage Mess

As the investors in the mortgage sector entered into their state of panic, it wasn’t long before this fear crept into the auto finance industry. The result has been a lack of confidence on the part of investors to pony up the money needed for continued growth.

The result of this panic has been a significant shake-up in the auto finance industry. Strangled by a lack of new capital, we have seen some pretty dramatic changes occurring.

A significant number of lenders have just closed their doors. Gone. Out of business. Still others have stopped accepting new customers – now focusing on collecting and servicing their business that’s already on the books.

A number of others are still in business but with new, more stringent guidelines that seem to change with the wind.

Just like the mortgage industry, this shake-up is not all bad. The weakest of the lenders have fallen by the wayside. And a number of the really bad players have disappeared from the scene.

Firms that are well-capitalized with realistic approaches to lending are surviving.

Since the auto finance sector lags well behind the mortgage sector, we are now seeing a substantial upheaval in the market today. The same upheaval that the mortgage industry has already been through – and survived.

For the time being, though, the reality is that financing a car loan is a tough proposition for anyone with previous credit issues. More extensive documentation and bigger down payments are the keywords for now.

Will it turn around? Well, if history is any indicator, the answer is yes. The difficulty lies in trying to visualize just how the market will look once it does turn around.

Remember – the auto manufacturers are going through their own little nightmare while the financial market is trying to survive and recover.

Fraud in the Marketplace

Because of the seriousness of fraud in the mortgage industry, we feel compelled to offer some words of warning.

If you happen to be one of the unfortunate that is facing the possibility of foreclosure, take note.

The mortgage mess has spawned a new breed of criminal.

The ads are everywhere. On the side of the road. On the late-night infomercial (Get Rich Quick in Real Estate). On the internet. Maybe in your mailbox. This new criminal will offer you “great” news – how you can avoid foreclosure.

The rub is this – you’ll either pay them a fee, or you’ll make your payments to them instead of your mortgage lender. Either way, they will flat out steal your money. And do absolutely nothing to head off your impending foreclosure.

The bottom line – run like crazy from this new breed of scammers. If you’ve got a mortgage problem, go to the HUD website and find a HUD counselor in your area. It’s a free service.

And it works.