Saturday, May 2, 2009

Goldman, Goldman Goldman

"The question taxpayers might still ask, however, is whether Goldie is also willing to forswear a bailout when it next gets into trouble. Is it still 'too big to fail'? ... The Washington crowd wants to hide its own role in the financial crackup--supereasy money, Fannie and Freddie--so it has taken to blaming the bankers, and the Troubled Asset Relief Program is its velvet truncheon. The sooner every bank can safely escape Barney Frank and Chris Dodd, the faster we can restore a capitalist financial system. ... [Goldman] has benefited enormously from the federal bailout, and many of our sources believe that Goldman would have failed without it. ... There's no denying, however, that Goldman has been among the largest recipients of AIG cash since the bailout. Goldman is getting the same terms as AIG's other counterparties, but the partnership of AIG and the Federal Reserve has been a lot nicer to Goldman than AIG was as an independent firm. ... But the underlying assets of the CDS contracts continued to decline. Would a bankrupt AIG have made Goldman whole? All we know for sure is that taxpayer-funded AIG and the Fed kept on paying Goldman. ... By way of comparison, a similar resolution in 2008 involving Merrill Lynch and XL Capital Assurance resulted in Merrill receiving 13 cents on the dollar, not the 100 cents Goldman received. ... The point is that Goldman and other banks can't have it both ways. If they want taxpayers to save them, then they have to take fewer risks and become smaller", my emphasis, Editorial at the WSJ, 15 April 2009.

"It used to be the most respected investment bank in the world. Now it seems to be part of more conspiracy theories than the Central Intelligence Agency. ... Unlike many of them, it appears to have had effective risk-management systems. It says it spent $100 million buying protection against something that seemed ridiculously unlikely at the time--a default of [AIG]. Yet its denial that it profited from the government's bailout of the insurance giant is greeted with scorn. ... David A. Viniar, [GSG's] chief financial officer, sounded bewildered when I asaked him that. 'We are so careful in what we try to do. We are so careful about compliance and following rules, and doing all the things we should do,' he said. 'I read the stories and I scratch my head.' ... [GSG's] explanations sometimes do not ring true, even if they are. ... Viniar says that [GSG] was fully protected if AIG did default, and that AIG's bailout had little if any effect on [GSG's] earnings. When I talked to Mr. Viniar, he conceded to me, as he had to others, the obvious fact that [GSG] would have been affected in an AIG collapse had led to a systemic failure. ... [GSG's] aura goes back at least a generation. When I was in business school in the early 1980s, getting a job there was viewed as the ultimate accomplishment. It should be no surprise that a firm that often got first choice in hiring ended upo with some very good people. ... The belief that [GSG] has a pipeline to the administration in Washington--whichever administration that might be--has been around for a long time. ... Once again, [GSG] people seem shellshocked. 'I've read the "Government Sachs' articles.' Mr. Viniar told me, adding that he thought public service was to be encouraged, not rebuked. 'For people to write stories that they were there to help [GSG] is offensive.' ... Unfortunately for [GSG] and other banks, the public has decided TARP is welfare", Floyd Norris, 17 April 2009 at the NYT, link: http://www.nytimes.com/2009/04/17/business/economy/17norris.html.

Suppose GSG forswears? Then what? Assume it's just GSG "takiwa" and when the time comes, GSG will accept the next federal bailout "for the good of the country". Oh, the sacrifices GSG makes for its 304 million fellow Americans. GSG executives should receive Presidential Medals of Freedom. Restore a "capitalist financial system", while the Fed exists? Is the WSJ serious? Yes, suppose AIG went bankrupt. See my 18 December 2008 post: http://skepticaltexascpa.blogspot.com/2008/12/deprizio-doctrine-and-aig.html. Of course GSG and the other banks can "have it both ways". Kill the Fed!

Viniar slays me. He should leave GSG and become a stand-up comic. His routine is that good. Besides we in the US need a new Rodney Dangerfield who got "no repect". More "effective risk-management systems"? Of course, Robert Rubin, Henry Paulson, Robert Steel, Neel Kashkari ... Scorn? Had GSG not profited from the AIG bailout, it would not have happened. So careful? Hmm, see Graffam v Burgess, my 24 October 2007 post: http://skepticaltexascpa.blogspot.com/2007/10/call-out-cops.html. . Viniar, feel free to be offended. I'm sure I've offended you dozens of times. Tough.

4 comments:

Anonymous said...

It was an unending kabuki play to watch so many actions of the Fed and Treasury benefit GS...

Viniar a comic? Ha ha...

Now old Goldman Sachs is a commercial bank...

So... what does that mean? That it earns the bulk of revenues from commercial and retail lending?

Oh... principal trading you say... I guess it's another case of jumping the regulatory gun like the Citi/Travelers merger... these folks are just so powerful that the regulators roll over... the Federal Reserve has given lip service to any CDS oversight... uhmmm... unless you call overseeing the AIG/Goldman CDS payout at 100 cents on the dollar "oversight"...

I forgot another thing the new President of the New York Fed is a Goldmanite... fancy that... amazing isn't it...

Sir Blankfein was in the media a fair amount recently... must of been spooked... spooky Blankfein...

Jr Accountant said...

poor Goldman. They are getting beat up on left and right.

Good. We're almost there.

If things go right, Goldman will snitch like the rats they are when exposed. and you know where that will lead...

jr

darkcloud said...

SC -

IMHO, and in line with your post here, I offer the following:

'The people who make a lot of money out of the system as it is have a lot of political power and they don't want it changed,' said Charlie Munger, vice-president at Berkshire and long-time partner to chairman Warren Buffett.

'It will be politically hard to remove from the system the evil and folly that helped create the mess,' Munger told the US financial TV channel CNBC in a rare interview.

link: http://www.dailymail.co.uk/money/article-1176680/Buffett-deputy-fires-broadside-evil-power-bankers.html?ITO=1490

I'll say it again: that mi2g article I recommended for which you commented on my blog (and I thank you), is most impactive for us today.

Best regards. And many, many thanks for recognizing my blog - I'm honored.

Jenny said...

Very interesting article. Goldman definitely has their hands full.