Thursday, July 16, 2009

Banksta Gangstas ("Scum!") Succeed Where Deregulation Led

Glenn Greenwald has done a masterful job of raking Chuck Todd NBC News political director (insider apologist) over the coals here. I just adore these true patriots! As a regular reader of Wired Magazine, I still have to give a decidedly big tip of my sunbonnet to Urantian Sojourn's sharp-eyed reporters for the article exposing one of the forces behind the banksta gangsta's (Goldman (Government) Sachs). (Emphasis marks added - Ed.)

. . . as dazed bankers, politicians, regulators, and investors survey the wreckage of the biggest financial meltdown since the Great Depression, Li is probably thankful he still has a job in finance at all. Not that his achievement should be dismissed. He took a notoriously tough nut—determining correlation, or how seemingly disparate events are related—and cracked it wide open with a simple and elegant mathematical formula, one that would become ubiquitous in finance worldwide.

For five years, Li's formula, known as a Gaussian copula function, looked like an unambiguously positive breakthrough, a piece of financial technology that allowed hugely complex risks to be modeled with more ease and accuracy than ever before. With his brilliant spark of mathematical legerdemain, Li made it possible for traders to sell vast quantities of new securities, expanding financial markets to unimaginable levels.

His method was adopted by everybody from bond investors and Wall Street banks to ratings agencies and regulators. And it became so deeply entrenched—and was making people so much money—that warnings about its limitations were largely ignored.

Then the model fell apart. Cracks started appearing early on, when financial markets began behaving in ways that users of Li's formula hadn't expected. The cracks became full-fledged canyons in 2008—when ruptures in the financial system's foundation swallowed up trillions of dollars and put the survival of the global banking system in serious peril.

How could one formula pack such a devastating punch? The answer lies in the bond market, the multitrillion-dollar system that allows pension funds, insurance companies, and hedge funds to lend trillions of dollars to companies, countries, and home buyers.

A pretty story perhaps, but . . . if you think that the Rubins and Greenspans of Wall Street didn't see this coming (even at its advent), you are a sure candidate for several more bridges in Brooklyn - cheap!

Skippy has the final word on Government Sachs ("scum") at his site here.

"Goldman Sachs is literally stealing $100 million a day!"

Back to reporting on my favorite gangstas (those fine, upstanding citizens running Goldman Sachs and the country (presently)), Robert Scheer reports to our incredulity (NOT!) (emphasis marks added - Ed.):

Connect the dots: Goldman Sachs made $3.44 billion in profit this past quarter, while the U.S deficit topped $1 trillion for the first time in the nation’s history and appeared to be headed toward doubling that figure before the budget year is out. Since most of the increase in the federal deficit is due to bailing out the banks and salvaging the greater economy they helped destroy, why is the top investment bank doing so well? Well, because that was the plan, as devised by Bush Treasury Secretary Henry Paulson, a former CEO of Goldman Sachs. Remember that Lehman Brothers, Goldman’s competitor, was allowed to go bankrupt. The Paulson crowd wouldn’t let Lehman change its status to that of a bank holding company and thus qualify for federal funds; soon afterward, Goldman was granted just such a deal, worth a quick $10 billion. Much is now made of Goldman paying back part of its bailout money, but forgotten is the $12.9 billion that Goldman got as its cut of the $180 billion AIG payoff. That is money that will not be paid back. Goldman is considered a very smart bank because it was early in reducing its exposure to the mortgage derivatives that in large part caused the meltdown. However, it had done much to expand the market and continued to sell suspect derivatives to unwary buyers as sound investments, even as Goldman divested. The firm still holds $1.85 billion in real estate and lost $499 million in the previous quarter on bad loans, but made up for it by playing the vulture role and issuing high-interest debt to governments and companies made desperate by the recession that the financial gimmicks of the banks brought on in the first place.

And Goldman was not just another bank. Before Paulson ran the Treasury Department, another former Goldman head, Robert Rubin, pushed through the repeal of the Glass-Steagall controls on banking activity. While some now play down the significance of this radical deregulation, not so Goldman Sachs CEO Lloyd C. Blankfein — at least not back in June 2007, when the markets were still doing well. “If you take an historical perspective,” Blankfein told The New York Times by way of explaining his company’s spectacular success at the time, “we’ve come full circle, because that is exactly what the Rothschilds or J.P. Morgan the banker were doing in their heyday. What caused an aberration was the Glass-Steagall Act.” That 1933 Act was repealed in a law signed by President Bill Clinton at Rubin’s urging, and in the following eight years Goldman Sachs recorded a 265 percent growth in its balance sheet. “Back then,” The Wall Street Journal reports, “Goldman was churning out profits by trading credit derivatives, speculating on currencies and oil and placing big bets [on] the roaring stock market.” Big bets made in a casino designed by Goldman, which now makes money off loans to the victims. High on the list of victims are state governments that have to turn to Goldman for money because the federal government that saved the banks won’t do the same for the states, which have watched their tax bases shrink because of the banking meltdown. As the WSJ noted, “issuing debt to ailing governments” is now a growth industry for Goldman. Why didn’t the federal government just lend the money to the states? Why was all the money thrown at Wall Street instead of needy homeowners or struggling school systems? Because the federal government works for Goldman and not for us. Indeed, when it comes to the banking bailout, Goldman Sachs is the government. So much so that last fall The New York Times ran a story, headlined “The Guys From `Government Sachs,’ ” that stated: “Goldman’s presence in the Treasury] department and around the federal response to the financial bailout is so ubiquitous that other bankers and competitors have given the star-studded firm a new nickname: Government Sachs.” One of those stars was Stephen Friedman, another former head of Goldman. Friedman was both a director of the company and chairman of the New York Federal Reserve Bank when he helped work out the details of the Wall Street bailout. The president of the N.Y. Fed at the time, Timothy Geithner, now secretary of the treasury, requested a conflict-of-interest waiver that allowed Friedman to buy more Goldman Sachs stock, and Friedman ended up with 98,600 shares. At market close on Tuesday that was worth $14,756,476. That’s nothing – three years ago, the 50 top Goldman execs made $20 million each, and this year could be better.

They’re not hurting.

And although you don't really need the death blow, listen to or read a portion of Amy Goodman's interview with Matt Taibbi, a never-ending source of excellent information about exactly how Goldman Sachs crashed your future. (Emphasis marks added - Ed.)

TRANSCRIPT: AMY GOODMAN: We turn now to the situation right down the street here, on Wall Street. While the US deficit topped one trillion dollars for the first time in the nation’s history, the blowout bonuses are back on Wall Street.

Well, not all of Wall Street, just at Goldman Sachs, the nation’s most powerful financial company, which reported the richest quarterly profit in its 140-year history: $3.44 billion between April and June. Goldman Sachs announced Tuesday that it would set aside nearly $11.4 billion from its profits to pay bonuses. If Goldman continues to earn profits at the same level, its employees could each earn, on average, close to $770,000 this year, with senior executives and bankers being paid much more.

The average compensation amount is close to what it was during the boom in 2007, when Goldman set a Wall Street pay record.

Goldman’s record profits come just one month after it repaid $10 billion of TARP money to the US Treasury, and in so doing, freed itself from restrictions on year-end bonuses. Last year the firm also received $13 billion as part of the bailout of the failed insurance giant AIG and $28 billion in low-interest loans.

Well, we’re joined right now by Matt Taibbi. He’s a contributing editor at Rolling Stone and author of the new article “The Great American Bubble Machine.” The article examines Goldman Sachs’s role in the current economic crisis.

So, welcome to Democracy Now!, Matt.

MATT TAIBBI: Thanks for having me back.

AMY GOODMAN: Were you surprised when the profits were just posted yesterday of Goldman Sachs?

MATT TAIBBI: I was a little surprised that the number is a little higher than everybody expected, but I wasn’t surprised that they made an enormous profit. They had — they were the beneficiaries of massive government subsidies in the last year or so. And it would be actually kind of a surprise if they didn’t come out with a big number in this quarter, just because they’ve had such an enormous advantage. Not just this bank, but all the banks on Wall Street have had so much access to cheap money since the bailouts have started that it would be a surprise if they didn’t start making money.

AMY GOODMAN: So, let’s talk about the bailouts and the bonuses and how this happened for Goldman Sachs. That’s what you lay out in a remarkable article that you’ve just written.

MATT TAIBBI: Right. Well, one of the things that people have to remember is, how do banks make their money? They have to pay depositors, normally, to get their money, and then they try to invest that money and make money, make their profits on the spread between those two costs. Goldman has access to an enormous amount of cheap money from the government, because they have asked—because they converted to a bank holding company status last year.

That made them eligible for about $28 billion in federally backed loans, as you — sorry, in federally backed debt, as you mentioned in your intro, which means that they have access to money that is incredibly cheap, so their cost of capital is incredibly low. And they take that cheap money, and they lend it back to the economy at higher rates, and they make money on the spread. And because so many of their competitors, like Lehman Brothers and Bear Stearns, are now no longer in existence, they’re able to dominate the market in ways that they never were before.

So they’re taking all these advantages, and instead of — you know, the implicit idea last year with the bailouts was that these banks would take these advantages and that they would use that money to kickstart the economy. Instead, they’ve just decided to keep all the money and turn it into bonuses.

And I think that’s something that everybody has to examine now.

Read the rest here. Suzan _________________

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