Goldman Sachs & the ten billion dollar TARP bailout.
Was Goldman in serious financial trouble from the housing crisis? Was Goldman in danger of going bankrupt? Could Goldman have failed without bailout support?
Show Date: April 29, 2010
By mid-2007, Goldman Sachs realizes that the housing market is heading south 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 one million dollars 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.
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.
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