Sunday, July 19, 2009

Goldman Returns

“I read the news today, oh boy….”

That old Beatles’ line ran through my head as I heard that dear Goldman Sachs, the Wall Street banking/trading firm which the late Secretary of the Treasury, Hank Paulson used to head (he apparently left with a $500 million golden parachute) has just posted its greatest profits ever: second quarter net income of $3.44 billion. And the Dow of course rocketed higher, and many pundits were allowing as how this meant the financial crisis was over.

Not everyone was so sanguine, though. My favorite commentator, after Katherine Austin Fitts (heard Wednesdays on KPFA’s “Flashpoints” and blogging regularly on; she spoke about the scam Goldman has been running getting U.S. Treasury money at 1% interest or less, and making a killing with it), was financial analyst Max Keiser. In a video posted by above-mentioned, Keiser made several delicious observations, pointing out that though these “financial terrorists” at Goldman have engineered a “financial coup d’etat” wherein they now control the United States government (I gather by holding the United States hostage, through Paulson, to compel it to use taxpayer dollars to bail out the financial system or be responsible for a global financial collapse), they still only paid 1% in taxes last year. Moreover, he accused Goldman of “literally stealing $100 million a day…they’re front-running every single trade on the New York Stock Exchange with this high-frequency trading.”

When I looked into said “high-frequency trading,” it turns out the recent scandal involves a former Goldman employee, a computer specialist who designed their high-frequency trading platform which allows Goldman, in microseconds, to make decisions about trading information before everyone else on Wall Street can. The former Goldman employee was found to be stealing parts of the high-frequency system he designed for Goldman, and using it on behalf of his new employer in Chicago.

But to me, this seems a diversion. The real scandal involves Goldman’s use of government funds to continue its high-risk business model, which was what caused the financial collapse in the first place. As Robert Reich, Secretary of Labor under President Clinton, put it in a recent column:

“Goldman is still wagering its capital and fueling giant bets with lots of borrowed money. While its rivals have pared back risks, Goldman has increased them. And its renewed success at this old game will only encourage other big banks to go back into it….Meanwhile, Goldman is still depending on $28 billion in outstanding debt issued cheaply with the backing of the Federal Deposit Insurance Corporation. Which means you and I are still indirectly funding Goldman’s high-risk operations.”

I guess this is what Katherine Austin Fitts meant when she spoke of Goldman’s taxpayer-financed heist—borrowing money from the Federal government for practically nothing, and charging its customers 10 or 15 or 30 times that—when it’s not, that is, investing and leveraging these taxpayer- donated funds at ridiculous margins to play its Wall Street games.

Paul Krugman adds to this story in a recent column, “The Joy of Sachs” (pun intended, with us as the Sachs-ees.) What Krugman points out is not that Goldman Sachs is not a very competent financial outfit—which it is—but rather that they are part of, or perhaps the main proponents of the "financialization" of America. What this involved was the directing of huge sums of capital by the likes of Goldman Sachs into the “construction of unsellable houses and empty shopping malls. They increased risk rather than reducing it, and concentrated risk rather than spreading it. In effect the industry was selling dangerous patent medicine to gullible consumers.” What Goldman did that was different, according to Krugman, was to refrain from buying into “its own hype.” That is, rather than investing in the commodities they knew were toxic (yet they urged consumers to buy them), Goldman sold the securities backed by sub-prime mortgages—“and then made a lot more money by selling mortgage-backed securities short, just before their value crashed.” All of this was legal, says Krugman, but the “net effect was that Goldman made profits by playing the rest of us for suckers.” And now, having taken over the government—if Keiser is right—Goldman is lobbying heavily against any sensible new regulations that would prevent them from doing the same damn thing all over again, only this time with far worse consequences.

David Paul, in a new piece on, “The Greening of Goldman Sachs,” explains a bit more how Goldman did it. Not only did it receive $10 billion in TARP funds, it also managed to “convert itself into a commercial bank and member of the Federal Reserve system, gaining access to low or zero cost capital at the Fed Discount window and access to federally guaranteed borrowing through the FDIC Temporary Liquidity Guaranty Program.” This access to government funds literally saved Goldman Sachs, according to Allen Sloan of “By giving Goldman access to vast amounts of money…the Fed ended panicky demands from Goldman customers that the firm immediately return the cash and securities it was holding for them. That was the equivalent of a run on the bank, which no institution can survive.” The worst part is that the boys at Goldman are now trying to screw the very government that bailed them out by lobbying to buy “the stock purchase warrants it gave the government as part of the TARP deal” at bargain basement prices—something like $500 million for stock warrants worth around $1 billion. Turn a profit on everything and everyone, especially the suckers who saved your ass, seems to be Goldman’s motto.

So here’s the deal folks. Goldman Sachs, thanks to all the poor fools known as Mr. and Mrs. U.S. Taxpayer, is back bigger than ever, now with the U.S. government (the Obama administration and Congress) and our money in its hip pocket. Screw the unemployed. Screw the working stiffs. Screw those who’ve lost their pensions and savings and everything else. And most especially, screw those foolish enough to show you mercy. It’s bonus time on Wall Street once again.

Isn’t it also time for John Q. Public to get really pissed off?

Lawrence DiStasi

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