A brutal NY Times editorial and a provocative, fact-filled column and Q&A with a Goldman Sachs' spokeperson by Gretchen Morgensen--all in this Sunday's edition--paint a blistering picture of Goldman Sachs' hubris, dishonesty and greed. We're also reminded that, even to this day (despite the damning observations to the contrary by Wall Street analysts and TARP Inspector General Neil Barofsky), Treasury Secretary Tim Geithner refuses to admit the truth--which even Goldman, itself, is finally beginning to acknowledge directly contradicts earlier statements the firm had made on this matter--wherein Goldman profited handsomely from then-NY Fed-Chair Geithner's actions relating to his supervisory efforts/decisions concering the bailout of AIG in the Fall 2008, as well.
It's all right here...
Sunday's NYT editorial: "Goldman's Non-Apology."
Gretchen Morgenson's column in today's NYT: "Revisiting a Fed Waltz With A.I.G."
A.I.G.' response to Morgenson's questions: "Goldman's Response to Questions About A.I.G."
First up, today's NY Times editorial which--for lack of a better way of putting it--reams Goldman-Sachs a new one. From my vantage point, the Times' editorial, "
Goldman's Non-Apology," tells Lloyd Blankfein and Company to shove their 500 million-dollar joint philanthropic offer (which may actually be
less than that once one understands that financier
Warren Buffet will be participating in the effort). The reality is, in
combination with Buffet's support, Goldman's feeble p.r. play is equal to roughly 3% of the bonuses the firm's paying its employees this year. And, in fact, Goldman's share may well turn out to be less than that, once everything's said and done. (Again, we're not talking about Goldman's "profits," we're only talking about Goldman's employee bonuses, which are a fraction of its annual profits.)
The reality is that Goldman, to this day, still relies upon far more than just the $10 billion in TARP funds it has "paid back." Once one realizes that the highly-publicized TARP program accounts for only a tiny amount for which U.S. taxpayers are actually on the hook, as far as Wall Street-related government support is concerned, Goldman--one of the supposedly "healthier" Wall Street entities--to date, has benefitted to the tune of at least approximately $62 billion in direct payments, backstops and taxpayer guarantees.
Former Goldman Sachs Managing Director Naomi Prins spells this all out for us quite nicely, right HERE.
From today's NY Times editorial: "Goldman's Non-Apology."
Goldman's Non-Apology
New York Times Editorial
Published Online: November 21, 2009 Published In Print: November 22, 2009
...It is widely and correctly understood that Wall Street, with Goldman as a leader and with regulators in thrall, helped to inflate and profited from a credit bubble that burst and cost tens of millions of Americans their jobs, incomes, savings and home equity. American taxpayers continue to stand behind the bailouts and other government interventions that have stabilized the financial system, including Goldman, enabling the firm to post blowout profits in 2009 and to set aside $16.7 billion for bonuses so far this year.
Goldman does not see it that way. It says it never really needed government aid to survive the financial crisis. In that telling, taxpayer dollars have not helped to generate its post-crash profits, and anger over bonuses is jealousy over the good fortune of others.
That is absurd. Goldman has repaid its initial $10 billion bailout allotment, but that is only a sliver of its taxpayer support. The firm was paid $12.9 billion, for example, in the bailout of American International Group, and a report by the bailout's inspector general refutes Goldman's claim that it did not need the money. Perhaps the biggest continuing prop is that the government clearly considers Goldman too big to fail, which means that taxpayers are on the hook if Goldman faces the abyss again.
--SNIP--
So, here's a thought: A multibillion-dollar gift to the federal Bureau of the Public Debt, which accepts tax-deductible donations to reduce the national debt. The donation can come from the bonuses; that way, it would not harm shareholders, because they only get their cut after the bonuses are paid. Goldman's tax savings from the donation could help finance the small-business initiative...
The editorial continues on to suggest that if Goldman doesn't provide a multi-billion-dollar donation to the public debt, then we should implement a windfall tax on corporate bonuses, post haste.
Why not both?
# # #
Gretchen Morgenson, described by many as our nation's top business journalist, also in today's Times, observes a few inconvenient facts as to what happened in the Fall of 2008 with regard to our nation's Troubled Asset Relief Program, (a/k/a "TARP") while "Revisiting a Fed Waltz With A.I.G."
A "ray of sunlight," as Morgenson references it, appeared through the fog this past week when TARP Insepctor General Neil Barofsky published his report on our government's bailout of American International Group (AIG). The 36-page report is available HERE.
Revisiting a Fed Waltz With A.I.G.
By GRETCHEN MORGENSON
Published Online: November 21, 2009 Published Online: November 21, 2009
...It's must reading for any taxpayer hoping to understand why the $182 billion "rescue" of what was once the world's largest insurer still ranks as the most troubling episode of the financial disaster. And it couldn't have come at a more pivotal moment.
Many in Washington want to give more regulatory power to the Federal Reserve Board, the banking regulator that orchestrated the A.I.G. bailout. Through this prism, the actions taken in the deal by Treasury Secretary Timothy F. Geithner, who was president of the Federal Reserve Bank of New York at the time, grow curiouser and curiouser.
Of special note in the report: the Fed failed to develop a workable rescue plan when A.I.G., swamped by demands that it pay off huge insurance contracts that it couldn't make good on as the economy tanked, began to sink. The report takes the Fed to task as refusing to use its power and prestige to wrestle concessions from A.I.G.'s big, sophisticated and well-heeled trading partners when the government itself had to pay off the contracts.
The Fed, under Mr. Geithner's direction, caved in to A.I.G.'s counterparties, giving them 100 cents on the dollar for positions that would have been worth far less if A.I.G. had defaulted. Goldman Sachs, Merrill Lynch, Société Générale and other banks were in the group that got full value for their contracts when many others were accepting fire-sale prices.
On the question of whether this payout was what the report describes as a "backdoor bailout" of A.I.G.'s counterparties, Mr. Barofsky concluded: "The very design of the federal assistance to A.I.G. was that tens of billions of dollars of government money was funneled inexorably and directly to A.I.G.'s counterparties."
--SNIP--
The report zaps Fed claims that identifying banks that benefited from taxpayer largess would have dire consequences. Fed officials had refused to disclose the identities of the counterparties or details of the payments, warning "that disclosure of the names would undermine A.I.G.'s stability, the privacy and business interests of the counterparties, and the stability of the markets," the report said.
Perhaps what's most damaging to current Treasury Secretary Tim Geithner's position on the matter, since he was the person vested with actually implementing the bailout via his role at the time as head of the NY Federal Reserve Branch--to this day he stands by comments made by Goldman Sachs last Fall that generally stated that Goldman would not benefit from AIG's receipt of government bailout funds--is that Morgenson has elicited an admission, of sorts, from Goldman that they, indeed, along with many others in Wall Street, benefitted substantially from Geithner's actions, at the time.
This is a rather explosive set of facts, folks, since Morgenson lays it all out for us, between her column, linked above, and her Q&A with Goldman, linked right here, with Goldman spokesman Lucas van Praag: "Goldman's Response to Questions About A.I.G."
It is damning, despite van Praag's feeble attempts to paint a picture, otherwise.
You see, Morgenson also tells us one basic fact: for all intents and purposes, now-Treasury Secretary Geithner really had neither the time nor the inclination to make an effort to find out just how substantially Goldman was going to benefit from our government's actions when all of this was going down; but, he did maintain enough overall knowledge and background to accurately gauge the matter.
Goldman's Response to Questions About A.I.G.
Published: November 21, 2009
...MORGENSON: Does Goldman maintain, as it did in September 2008 after my article was published,that it had no reason to be concerned about AIG's financial troubles and had no "economic interest in the outcome" of the rescue?
Van PRAAG: ...When the US Government decided that a failure of AIG posed a risk to the stability of the entire financial system, it stepped in to bail out the company. By definition, that meant bailout funds would be used to allow AIG to meet its obligations.
If AIG had failed, our direct exposure to loss was essentially zero. That was because of the cash collateral we held and the hedging we used to cover shortfalls. We spent more than $100 million to buy that additional protection. It is worth noting that our hedges would only have worked if there have been an event of default, i.e. AIG being unable to meet its obligations when they fell due.
At the time AIG was bailed out, our exposure was as follows:
$20 billion of notional exposure against an underlying portfolio of CDOs;
Approximately $10 billion gross exposure reflecting the mark-to-market on the underlying portfolio;
Approximately $7.5 billion of cash collateral paid to Goldman Sachs by AIG;
Approximately $2.5 billion of credit protection on AIG we had bought from large financial institutions which covered the shortfall in collateral received against the $10 billion.
Finally, the figure of $12.9bn that AIG paid to GS post bailout is made up as follows:
$2.5bn that AIG owed us in collateral (see above). This amount was part of AIG's obligations that had to be met to avoid an event of default. It's worth noting that 86% of AIG's collateral payments were made to firms other than Goldman Sachs.
$5.6bn that, post bailout, AIG and the New York Federal Reserve decided to pay to buy the assets they were protecting against, so they didn't have to meet any more collateral calls. AIG and the New York Federal Reserve also bought back assets they were protecting against from other banks. These transactions were executed through a special purpose vehicle called Maiden Lane III, set up by AIG and the Federal Reserve.
$4.8bn for highly marketable US Government Agency securities that AIG had pledged to Goldman Sachs in return for a loan of $4.8bn. They gave us the cash, we gave them back the securities. If AIG hadn't repaid the loan, we would simply have sold the securities.
If so, how does that square with SIGTARP's conclusions that Goldman benefited from Maiden Lane III and the rescue of AIG?
It is clear that the financial system as a whole benefited from the rescue of AIG...
Diarist's Note: You REALLY have to read Morgenson's column and Goldman's response to her questions to get a TRUE sense of the EXTREMELY SQUIRRELLY nature of Goldman's answers. They're incredulous, IMHO!
In short, Goldman's claims that it did not benefit from the AIG bailout are all but COMPLETELY DISCREDITED, both by the facts as demonstrated by Morgenson, and even by the feeble attempt at navigating around the truth by Goldman now. And, perhaps more importantly, for Tim Geithner to continue act ignorant about all of this is, to say the least, questionable.
From Morgenson's column:
According to an e-mail message that Goldman sent to the New York Fed at the time [ diarist's note: late September 2008], Mr. Geithner talked about the article with Mr. Viniar, Goldman's chief financial officer, before calling me. When Mr. Geithner called, he said that Goldman had no exposure to an A.I.G. collapse and that the article had left an incorrect impression about that. When I asked Mr. Geithner if he, as head of the regulatory agency overseeing Goldman, had closely examined the firm's hedges, he said he had not.
Mr. Geithner told me on Friday that he spoke with Mr. Viniar that day to ensure that Goldman's hedges were adequate. And, notwithstanding the inspector general's findings, he said he still believes Goldman was hedged.
Probing, in-depth analyses of regulatory responses to the financial meltdown are worth their weight in gold. Mr. Barofsky's certainly is. Yet in its rush to put financial reforms into effect, Congress seems uninterested in investigating or grappling with truths contained in such reports -- and until it does, our country's economic and financial system will continue to be at risk.
Again, if you're going to come to independent conclusions on this matter, you should read the items sourced in this piece in their entirety. Morgenson, Barofsky and others have done just that, and their conclusions are damning.
Peace!