Wall Street's Bailout Hustle (Matt Taibbi)

by Dollars and Sense

Matt Taibbi's latest at Rolling Stone; also check out a blog post by Taibbi in which he agrees with Bailout Nation author Barry Ritholtz that "we should have gone Swedish on their asses" (i.e. the U.S. gov't should have temporarily nationalized the banks the way the Swedes did in the early 90s); and check out an interesting post by Edward Harrison on that topic at Naked Capitalism.

Wall Street's Bailout Hustle

Goldman Sachs and other big banks aren't just pocketing the trillions we gave them to rescue the economy—they're re-creating the conditions for another crash

On January 21st, Lloyd Blankfein left a peculiar voicemail message on the work phones of his employees at Goldman Sachs. Fast becoming America's pre-eminent Marvel Comics supervillain, the CEO used the call to deploy his secret weapon: a pair of giant, nuclear-powered testicles. In his message, Blankfein addressed his plan to pay out gigantic year-end bonuses amid widespread controversy over Goldman's role in precipitating the global financial crisis.

The bank had already set aside a tidy $16.2 billion for salaries and bonuses—meaning that Goldman employees were each set to take home an average of $498,246, a number roughly commensurate with what they received during the bubble years. Still, the troops were worried: There were rumors that Dr. Ballsachs, bowing to political pressure, might be forced to scale the number back. After all, the country was broke, 14.8 million Americans were stranded on the unemployment line, and Barack Obama and the Democrats were trying to recover the populist high ground after their bitch-whipping in Massachusetts by calling for a "bailout tax" on banks. Maybe this wasn't the right time for Goldman to be throwing its annual Roman bonus orgy.

Not to worry, Blankfein reassured employees. "In a year that proved to have no shortage of story lines," he said, "I believe very strongly that performance is the ultimate narrative."

Translation: We made a shitload of money last year because we're so amazing at our jobs, so fuck all those people who want us to reduce our bonuses.

Goldman wasn't alone. The nation's six largest banks—all committed to this balls-out, I drink your milkshake! strategy of flagrantly gorging themselves as America goes hungry—set aside a whopping $140 billion for executive compensation last year, a sum only slightly less than the $164 billion they paid themselves in the pre-crash year of 2007. In a gesture of self-sacrifice, Blankfein himself took a humiliatingly low bonus of $9 million, less than the 2009 pay of elephantine New York Knicks washout Eddy Curry. But in reality, not much had changed. "What is the state of our moral being when Lloyd Blankfein taking a $9 million bonus is viewed as this great act of contrition, when every penny of it was a direct transfer from the taxpayer?" asks Eliot Spitzer, who tried to hold Wall Street accountable during his own ill-fated stint as governor of New York.

Beyond a few such bleats of outrage, however, the huge payout was met, by and large, with a collective sigh of resignation. Because beneath America's populist veneer, on a more subtle strata of the national psyche, there remains a strong temptation to not really give a shit. The rich, after all, have always made way too much money; what's the difference if some fat cat in New York pockets $20 million instead of $10 million?

Read the rest of the article.

Labels: bailout, financial crisis, Goldman Sachs, Lloyd Blankfein, Matt Taibbi, Sweden

 

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2/22/2010 04:06:00 PM 0 comments

 

Arming Goldman With Pistols Against Public

by Dollars and Sense

From Bloomberg; hat-tip to Taki M. When did Bloomberg get so radical? Will they be joining us at the barricades with pitchforks? Given the disclaimer at the end, maybe just Alice Schroeder will come along.

Commentary by Alice Schroeder

Dec. 1 (Bloomberg)—'I just wrote my first reference for a gun permit,' said a friend, who told me of swearing to the good character of a Goldman Sachs Group Inc. banker who applied to the local police for a permit to buy a pistol. The banker had told this friend of mine that senior Goldman people have loaded up on firearms and are now equipped to defend themselves if there is a populist uprising against the bank.

I called Goldman Sachs spokesman Lucas van Praag to ask whether it's true that Goldman partners feel they need handguns to protect themselves from the angry proletariat. He didn't call me back. The New York Police Department has told me that 'as a preliminary matter' it believes some of the bankers I inquired about do have pistol permits. The NYPD also said it will be a while before it can name names.

While we wait, Goldman has wrapped itself in the flag of Warren Buffett, with whom it will jointly donate $500 million, part of an effort to burnish its image—and gain new Goldman clients. Goldman Sachs Chief Executive Officer Lloyd Blankfein also reversed himself after having previously called Goldman's greed 'God's work' and apologized earlier this month for having participated in things that were 'clearly wrong.'

Has it really come to this? Imagine what emotions must be billowing through the halls of Goldman Sachs to provoke the firm into an apology. Talk that Goldman bankers might have armed themselves in self-defense would sound ludicrous, were it not so apt a metaphor for the way that the most successful people on Wall Street have become a target for public rage.

Pistol Ready

Common sense tells you a handgun is probably not even all that useful. Suppose an intruder sneaks past the doorman or jumps the security fence at night. By the time you pull the pistol out of your wife's jewelry safe, find the ammunition, and load your weapon, Fifi the Pomeranian has already been taken hostage and the gun won't do you any good. As for carrying a loaded pistol when you venture outside, dream on. Concealed gun permits are almost impossible for ordinary citizens to obtain in New York or nearby states.

In other words, a little humility and contrition are probably the better route.

Until a couple of weeks ago, that was obvious to everyone but Goldman, a firm famous for both prescience and arrogance. In a display of both, Blankfein began to raise his personal- security threat level early in the financial crisis. He keeps a summer home near the Hamptons, where unrestricted public access would put him at risk if the angry mobs rose up and marched to the East End of Long Island.

To the Barricades

He tried to buy a house elsewhere without attracting attention as the financial crisis unfolded in 2007, a move that was foiled by the New York Post. Then, Blankfein got permission from the local authorities to install a security gate at his house two months before Bear Stearns Cos. collapsed.

This is the kind of foresight that Goldman Sachs is justly famous for. Blankfein somehow anticipated the persecution complex his fellow bankers would soon suffer. Surely, though, this man who can afford to surround himself with a private army of security guards isn't sleeping with the key to a gun safe under his pillow. The thought is just too bizarre to be true.

So maybe other senior people at Goldman Sachs have gone out and bought guns, and they know something. But what?

Henry Paulson, U.S. Treasury secretary during the bailout and a former Goldman Sachs CEO, let it slip during testimony to Congress last summer when he explained why it was so critical to bail out Goldman Sachs, and—oh yes—the other banks. People 'were unhappy with the big discrepancies in wealth, but they at least believed in the system and in some form of market-driven capitalism. But if we had a complete meltdown, it could lead to people questioning the basis of the system.'

Torn Curtain

There you have it. The bailout was meant to keep the curtain drawn on the way the rich make money, not from the free market, but from the lack of one. Goldman Sachs blew its cover when the firm's revenue from trading reached a record $27 billion in the first nine months of this year, and a public that was writhing in financial agony caught on that the profits earned on taxpayer capital were going to pay employee bonuses.

This slip-up let the other bailed-out banks happily hand off public blame to Goldman, which is unpopular among its peers because it always seems to win at everyone's expense.

Plenty of Wall Streeters worry about the big discrepancies in wealth, and think the rise of a financial industry-led plutocracy is unjust. That doesn't mean any of them plan to move into a double-wide mobile home as a show of solidarity with the little people, though.

Cool Hand Lloyd

No, talk of Goldman and guns plays right into the way Wall- Streeters like to think of themselves. Even those who were bailed out believe they are tough, macho Clint Eastwoods of the financial frontier, protecting the fistful of dollars in one hand with the Glock in the other. The last thing they want is to be so reasonably paid that the peasants have no interest in lynching them.

And if the proles really do appear brandishing pitchforks at the doors of Park Avenue and the gates of Round Hill Road, you can be sure that the Goldman guys and their families will be holed up in their safe rooms with their firearms. If nothing else, that pistol permit might go part way toward explaining why they won't be standing outside with the rest of the crowd, broke and humiliated, saying, 'Damn, I was on the wrong side of a trade with Goldman again.'

Alice Schroeder, author of The Snowball: Warren Buffett and the Business of Life and a former managing director at Morgan Stanley, is a Bloomberg News columnist. The opinions expressed are her own.

Labels: Bloomberg, Goldman Sachs, Henry Paulson, Lloyd Blankfein, Warren Buffet

 

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12/02/2009 10:26:00 AM 0 comments

 

The Public Purpose of Banking

by Dollars and Sense

Maybe Goldman Sachs should have used some of its bonus money to hire better P.R. folks—the company has really been taking a beating, and not just because it is "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money," as Matt Taibbi put it in Rolling Stone. Really, the company's making it even worse than it has to be.

First (back in October) there was the Goldman Sachs international adviser Brian Griffiths telling people that inequality was good for society as a whole

"We have to tolerate the inequality as a way to achieve greater prosperity and opportunity for all," Brian Griffiths, who was a special adviser to former British Prime Minister Margaret Thatcher, said yesterday at a panel discussion at St. Paul's Cathedral in London. The panel's discussion topic was, "What is the place of morality in the marketplace?"

This is true, apparently, because higher compensation encourages more charitable giving. "To whom much is given much is expected," Griffiths said, according to Bloomberg. "There is a sense that if you make money you are expected to give."

Later that month, Goldman Sachs abandoned adorable kittens. No kidding. As reported on the website of New Deal 2.0 (where we notice that a number of D&S authors, and at least one ex-boyfriend of a current D&S co-editor, are among the "braintrusters"), The Villager newspaper in lower Manhattan reported that Goldman Sachs "neglected to pay the vet bills for homeless kittens found in its nearly-completed Battery Park City headquarters." The newspaper offered this apology on Goldman's behalf:

Since Goldman Sachs has been a big part of the Lower Manhattan fabric for almost a century and a half, we'd like to take this opportunity to apologize to the rest of the country on behalf of our neighbor, a financial giant personifying much of what is wrong on Wall St.

Before we get to the multibillion-dollar stuff, we'd first like to apologize that the firm has not yet paid a few thousand dollars of vet bills for the five kittens born in its headquarters building nearing completion in Battery Park City. In August, after our sister publication Downtown Express reported the kittens' discovery, Goldman offered to pay the bills and encourage its employees to adopt the 'BlackBerries.'

It may be just a matter of Goldman waiting to get the vet invoices—we can't imagine they'd stiff kittens while writing out bonus checks worth $23 billion—but the cats still need adoptive homes. (Incidentally, anyone interested in one of these adorable kittens should e-mail their rescuer, the Brotmans, at rbrotpaw--at--aol.com.)

(This was a while back—I doubt any of the kittens are still homeless.)

Now Goldman's CEO, Lloyd Blankfein, is mouthing off to the London Times about how bankers do "God's work." The whole article is terrific, but here's the quotable quote:

Is it possible to make too much money?

"Is it possible to have too much ambition? Is it possible to be too successful?" Blankfein shoots back. "I don't want people in this firm to think that they have accomplished as much for themselves as they can and go on vacation. As the guardian of the interests of the shareholders and, by the way, for the purposes of society, I'd like them to continue to do what they are doing. I don't want to put a cap on their ambition. It's hard for me to argue for a cap on their compensation."

So, it's business as usual, then, regardless of whether it makes most people howl at the moon with rage? Goldman Sachs, this pillar of the free market, breeder of super-citizens, object of envy and awe will go on raking it in, getting richer than God? An impish grin spreads across Blankfein's face. Call him a fat cat who mocks the public. Call him wicked. Call him what you will. He is, he says, just a banker "doing God's work"

See what I mean? They need to hire better P.R. folks or at least forbid travel to London.

This is all a lead-up to the following piece, by Marshall Auerback (also of New Deal 2.0), from Naked Capitalism. Auerback takes Blankfein as his jumping-off point for a discussion of Christopher Dodd's new banking regulation bill.

Attention Lloyd Blankfein: The Public Purpose of Banking

By Marshall Auerback, a fund manager and investment strategist who writes for New Deal 2.0.

It seems odd that days after we were told by Goldman Sachs's CEO, Lloyd Blankfein, that bankers are doing "God's work", we are still having active debates about how to regulate these selfless apostles of capitalism.

The latest foray into financial reform comes from the Senate. Senator Christopher Dodd will propose creating a single U.S. regulator that would strip the Federal Reserve and Federal Deposit Insurance Corp. of bank-supervision authority, according to a report from Bloomberg. Dodd, according to the Bloomberg report, has faulted the U.S. bank regulation system, saying "it encourages charter shopping and a 'race to the bottom' by agencies to win oversight roles." Bloomberg notes that "his proposal goes further than proposals by President Barack Obama and House Financial Services Committee Chairman Barney Frank to merge the OTS and OCC."

Certainly, almost anything is an improvement over the abomination that came out of Barney Frank's committee. But we feel that the 'race to the regulatory bottom' could easily be solved via a simple mechanism: If you don't fall in line with our regulatory requirements, you're simply denied a banking license to operate in this country. Problem solved. The United States is the biggest banking market in the world. Do you think any major bank would willingly vacate this market?

And even if the "too big to fail" behemoths decided to transplant a bunch of their operations elsewhere, the country would still be left with thousands of community banks which could fill the void and better fulfill the public purpose described by Mr Blankfein: namely, to "help companies to grow by helping them to raise capital", rather than extracting their pound of flesh via grotesquely high financial intermediary fees, as is the case today.

We have argued before on New Deal 2.0 that the FDIC is best suited to carry on the role of chief systemic regulator, given its role as deposit insurer. That regulator has the best institutional incentives to be concerned with systemic risk and to be a vigorous regulator. It should be the least subject to regulatory capture (a pervasive problem at the Fed, which is full of quant economists who have virtually no interaction with other Fed examiners).

But WHO controls the banks is ultimately less important than HOW we control the banks' activities. Oversight is all very nice, but at times it pays to get back to first principles. What on earth is the public purpose of these things?

Banks are set up and supported by government for the further benefit of the macro economy via providing a payments system and lending in a way that is specifically defined by regulators. Newsflash: the public purpose of banking is NOT to provide profits per se to shareholders. Rather, the provision of the ability to earn profits is only a tool used to support the attendant public purpose. Banks should only be allowed to lend directly to borrowers, and then service and keep those loans on their own balance sheets. There is no further public purpose served by selling loans or other financial assets to third parties, but there are substantial real costs to government in regulating and supervising those activities. There are severe consequences for failure to adequately regulate and supervise those secondary market activities as well.

Banks should be prohibited from engaging in any secondary market activity because it serves no public purpose and may result in severe social costs in the case of regulatory and supervisory lapses. Some argue that these areas might be profitable for the banks, but this is not a reason to extend government sponsored enterprises into those areas. Therefore, banks should not be allowed to buy (or sell) credit default insurance. The public purpose of banking as a public/private partnership is to allow the private sector to price risk, rather than have the public sector pricing risk through publicly owned banks.

If a bank instead relies on credit default insurance, then it is transferring that pricing of risk to a third party, which is counter to the public purpose of the current public/private banking system. Banks should not be allowed to engage in proprietary trading or any profit-making ventures beyond basic lending. If the public sector wants to venture out of banking for some presumed public purpose it can be done through other outlets.

If the activities of the banks are not facilitating the production and movement of real goods and services what public purpose do they serve? It is clear they have made a small number of people fabulously wealthy. It is also clear that they have damaged the prospects for disadvantaged workers in many parts of the world.

It's more obvious to all of us now that when the system comes unstuck through the complexity of these transactions and the impossibility of correctly pricing risk, the real economies across the globe suffer. The consequences have been devastating in terms of lost employment and income and lost wealth.

All governments should sign an agreement which would make all financial transactions that cannot be shown to facilitate funding for real goods and services illegal. Simple as that. When we keep these principles at the front of the argument, we can see that what Senator Dodd and Congressman Frank are arguing about is akin to how to rearrange the deck chairs on the Titanic.

Read the original post.

Labels: banking regulation, Brian Griffiths, Goldman Sachs, kittens, Lloyd Blankfein, Matt Taibbi, New Deal 2.0

 

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11/11/2009 03:13:00 PM 0 comments