Today I Googled "Goldman Sachs Federal Reserve Bank" and the first hit was Badabing’s diary in DailyKos from a day or two ago (with 450 comments). The diary itself is a rave review of Matt Taibbi’s relentless exposure of the role of Goldman Sachs in the current worldwide financial meltdown. Taibbi is particularly "impressed" by Goldman Sach’s recent second quarter profit of $3.44 billion. He asks:
So what does this Goldman profit number mean? This is the final evidence that the bailouts were a political decision to use the power of the state to redirect society’s resources upward, on a grand scale. It was a selective rescue of a small group of chortling jerks who must be laughing all the way to the Hamptons every weekend about how they fleeced all of us at the very moment the game should have been up for all of them.
But the real explosive story here – some of which Taibbi himself apparently is not familiar with -- is the deep nexus between the U.S. Treasury, the Federal Reserve, and these chortling banking executives he alludes to.
What is the nature of this nexus? Three prongs: (1) the CEOs of the biggest banks like Goldman Sachs’ and J.P. Morgan actually sit on the board of directors of the Federal Reserve; (2) CEOs of these largest banks typically fill top positions in the U.S. Treasury (eg. Hank Paulson, ex Goldman Sachs CEO); and (3) as ABC News reported in 2008: "As a group, Goldman Sachs bankers have been the country’s top political campaign contributors this year, and have given $29.5 million since 1989."
What does this type of penetration and money buy? Taibbi tells most of the story. He correctly points out that one of the things that enabled Goldman Sachs to "bounce back" so quickly from imminent doom was the AIG bailout. Little known at the time of the bailout, AIG owed Goldman money. A lot of money. About $20 billion. When former Goldman Sachs CEO and now Treasury Secretary Hank Paulson gave the go-ahead to the AIG bailout, $12.9 billion went directly to Goldman Sachs. Paulson saved Goldman Sach’s bacon with taxpayer money.
Taibbi also points out how Goldman Sachs scored a huge win last year by converting from an investment bank to a bank holding company. Sound esoteric? It is, but it gives Goldman access to FDIC insurance for its unsecured debt. Free AAA credit rating on unsecured debt. Wow. This too gave it a big "leg up" on the way to bumper profits. The chairman of the New York Federal Reserve at the time it made this decision was a director of Goldman Sachs named Stephen Friedman. His dual role finally came to light when the ranking Republican on the banking committee expressed outrage that Friedman had obtained a waiver that enabled him to buy stocks in Goldman after this change went through.
But there is more than Taibbi or Greenwald give us. There is for excample the surprising fact that when the Federal Reserve Board last year stepped in in an unprecedented move to guarantee the riskiest $28 billion of Bear Stearns assets to enable J.P. Morgan to buy Bear Stearns at fire sale prices – the big surprise was that the CEO of J.P. Morgan actually sat on the Board of the New York Federal Reserve that actually made the decision. And this nasty little bit of "insider trading" has never been revealed in any major media.
So what are we to think? Is Taibbi right? Is this meltdown a massive wealth transfer to the richest people from the middle class and the poor? How does it make you feel about the Federal Reserve Bank and the bankers who control it?