How Goldman deftly diverted attention away from the tens of billions it has taken from the public.
The best illusionists deflect audience focus away from the heart of the trick until the final moment of revelation. The way Goldman Sachs has worked its multi-prong bailout is like that. During last week's chatter about submitting their TARP payback application, the firm deftly diverted attention away from all the real money they took from the public.
Now, I have no problem with Goldman repaying their cut of the TARP money. (note: I’m using them as an example here because they’re the best financial illusionists out there, but I could easily pick JPM Chase or others for different reasons.) Plus, I sat through enough internal earnings meetings when I was at Goldman to know that CFO, David Viniar, can make the squirrels in my backyard seem as rich as Warren Buffet.
True, most of finance is based on the ability of Wall Street to make money by convincing investors that what they’re hocking on any given day has value. Reality is as good as your best sales pitch. Which is exactly what months of PR-spun words regarding strength and TARP payback intentions are. And why they have translated into billions of dollars worth of increased firm value as investors buying their myth of health drive up the stock price, which plump the pockets of the chieftains that own the stock and options. The thing is, though, that Goldman took far more public money than their little piece of TARP. So did all the other banks. In fact, the finance sector got $7.5 trillion in loans and assistance from the FED, $1.6 trillion from the FDIC, $2.4 from the Treasury (including TARP) and another $1.5 from joint federal efforts.
But, let’s focus on the ten steps of Goldman’s big public rip-off: (Or keep $42 billion give back $10 billion and see your stock price double)
1) Enlist assistants. a) The Treasury department -- under both former Goldman Sachs CEO, Henry Paulson, and Wall Street-mentored Tim Geithner -- has worked really hard at ensuring our (and Congress’s) attention is on the measly $700 billion of TARP money that Congress approved last fall, and not on the other $12.3 trillion of cheap Fed loans, FDIC backed guarantees and other favors the banks got. And, it kept going last week, as Geithner told Congress, “While TARP is proving effective at improving the immediate stability of the financial system, the scope of the issues that the [Obama Administration and the Treasury] face extend beyond TARP to include striking the delicate balance between intervention and allowing market participants latitude to operate; devising a new financial regulatory structure for the future; and working through the tough problems of what form our government-sponsored enterprises, Fannie Mae and Freddie Mac, should take as we emerge from this difficult period." Translation: focus away from the Wall Street banks, while we try not to open them to any uncomfortable new restrictions.
b) The FED, which has kept a cloak of secrecy around its $7.5 trillion giveaways (they call them facilities) including which bank got what deal. This is to “protect” us from the truth.
2) Become a bank. On Sunday night, September 21st, while Paulson and Fed Chairman, Ben Bernanke were talking global catastrophe, Goldman and Morgan Stanley sidestepped the standard 5-day antitrust waiting period to receive instant Fed approval to become bank holding companies. Did they ever make consumer loans or take deposits like other bank holding companies? No. Have they since? No.
3) Use that status to access the FDIC’s Temporary Liquidity Guarantee Program (TLGP). That way you can raise money through issuing FDIC guaranteed debt, at much lower rates than if you had to raise it on your own. Do this to the tune of $28 billion if you’re Goldman, $23 billion if you’re Morgan Stanley, and $40 billion if you’re JPM Chase.)
4) Have the balls to frame taking FDIC guarantees meant to spur consumer lending as a good thing. “We still have some capacity under the FDIC-guaranteed at pretty attractive spreads,” Goldman CFO, David Viniar told investors on a conference call last month.
5) Take $10 billion of TARP money, while saying you don’t really need it, you’re just being a good corporate citizen and don’t want to make the other firms look bad.
6) Take $12.9 billion from the TARP and FED money that was given to AIG so you can back your AIG related losses, while saying that you really hedged all your positions to AIG and didn’t really need that money.
7) Watch your stock rise nearly double in value since TARP, and through executing the rest of your strategy, though much of your capital is coming from federal assistance.
8) Laugh as Geithner’s NY FED boss and former Goldman CEO Stephen Freidman, said he just bought some stock in Goldman because it was ‘inexpensive’ and made $3 million out of the purchase before resigning his position, after helping his former firm stay at the top of the Wall Street pecking order through a host of friendly decisions.
9) Tell everyone you are paying back TARP because you’re healthy and don’t really want to be unencumbered by trivial restrictions (not that there are that many to begin with.)
10) Emit high-fives all around as Geithner and Bernanke backs you up, and Geithner takes the Congressional heat for all the help he provided you – like the AIG money that the government was ‘forced’ to provide, which boosts your stock price more. Then, if that’s not enough, smile as Geithner reiterated this week that the government’s $1 trillion gift from the public cash registers would be coming through in, June for all those private investors who want to put up a little of their money and get a lot of government money, to buy some of the junky assets that the Fed doesn’t yet have.
What can we do about this particular pillage:
Usually, I just vent about these kinds of Machiavellian strategies. But, I realize this may not accomplish much by itself. So here are some things you can do to help out:
One, add your support to Representative Alan Grayson’s (D-FL) bill HR 1207 –
http://action.firedoglake.com/page/s/Fed1207 which requests opening the Fed’s books to Government Accountability Office (GAO) inspection– so we can know just how much money banks got cheaply in return for relatively worthless assets posted as collateral, and keep them from churning these cheap loans into faux stock value.
Second, email FDIC Chairwoman, Sheila Baird at Chairman@fdic.gov, stating: Don’t let Goldman Sachs, Morgan Stanley, JPM Chase and others repay TARP money, just to get out of restrictions without requiring arrangements to repay the FDIC backed money they raised, nor without strings attached just because they had it to begin with.
Third, write to Tim Geithner: We are not idiots. Don’t provide our money to private investors to purchase Wall Street’s toxic assets while banks (and not just Goldman) are not admitting they already have been dumping assets into the Fed.
In general, Geithner’s notion of ‘letting’ banks repay or not, is also a scam. It’s as if the Treasury department is somehow in control of them, which they clearly aren’t. Yes, banks should repay TARP, they should also repay cheap FED loans and FDIC guaranteed debt. Why? Because that’s the only way to get a true read on their condition. Anything else is just smoke and mirrors.
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