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Why is it that the only people who seem to care are the faux-news folk?
The astounding 2nd quarter earnings of GS, JP Morgan and now BOA are the final proof that everything that has been done (by the end of the Bush administration and the beginning of the Obama administration) to get "us" out of the economic recession has been done not only to rescue the very financial companies that brought such havoc to our "free market" system but to help them achieve record profits (and disperse record bonuses). As the rest of America lose jobs, struggle to keep their homes and get locked into a crumbling country, the financial oligarchs are gleefully getting their freak-on and hastening the process of the final looting of whatever value is left in this country.
From Clusterstock(discussing Matt Taibbi):
But Matt Taibbi, whose famous Rolling Stone article proposed a somewhat absurd conspiracy theorythat described Goldman as a bubble machine, has finally figured it out.What’s wrong with Goldman isn’t that is evil or even uniquely evil. What’s wrong is that it is pocketing money that it is making, in part, because it isn’t subject to market discipline. It is close to a pure play government arbitrage firm these days.
[Here are the] ways Goldman enjoys government support.
The TARP Exit Subsidy.Under the relevant law, banks wanting to exit the TARP program were supposed to not face any obstacles. They could just sent the money in, consult with their regulator and they’d be out. This was intentionally included in the law, changing an earlier agreement that the original TARP banks made to not exit TARP until they got permission.
But Tim Geithner didn’t like this new deal so he ignored it. He decided to require that the TARP recipients had to issue new equity and new debt in order to exit. (Later, he eliminated the equity requirement but it was too late—banks were already issuing the equity.)
As it turns out, this was a major boon to Goldman, since it got to underwrite many of the new issues.
Taibbi really nails this one:So say International Reckless Dickwad Bank needs to issue $100 million in new stock to pay off TARP; they hire Goldman to do the deal, and since the fee for equity underwriting is 7%, Goldman gets, in essence, a state-mandated $7 million fee. Because so much money was lent out under TARP, the underwriters on Wall Street made a massive bonanza on all the new bank stock. As noted above, Goldman’s equity underwriting department hauled in $736 million this quarter. Does this happen without the bailouts? No. Do the bailouts happen if banks like Goldman hadn’t blown up the universe in the first place? No. You do the math; this is another subsidy.
Explicit Debt Guarantees. Under the Temporary Liquidity Guarantee Program, Goldman is basically able to piggy back on the credit of the United States taxpayers. Goldman issued $28 billion in FDIC-backed debt under this program. “Exactly how hard is it for a bank to make a profit when it has unlimited access to virtually free money? It is almost impossible for banks to not make money when their cost of capital sinks this low,” Taibbi writes.
The Discount Window. It’s not well understood by the broader public how important access to the discount window is, and how it lowers Goldman’s borrowing costs. Basically, anyone who lends money to Goldman knows that if there’s ever a short term liquidity crunch, Goldman can turn around and borrow from the Fed. This means that lenders face a lot less risk that Goldman will run into the kind of liquidity crisis that ruined Bear Stearns, which means they lend to Goldman at cheaper rates.
The Implicit Guarantee. This is one that Taibbi misses. (We forgive you Matt.) Goldman is now the equivalent of Fannie Mae, protected by a market-wide assumption that there is no way it can ever fail. Its creditors can count on Goldman’s debt being almost as good as government paper. Except Goldie Mac is even worse than Fannie, which was at least subject to supervision by a dedicated federal regulator. (for all the good that did.) We still haven’t figured out how to regulate these systemically important, too big to fail monsters. So we’re just letting them run rampant across America hoping that someday we’ll discover the financial equivalent of Saint George to slay the dragon.
The Government Carry Trade. To sum up, Goldman Sachs is taken advantage of a new trade that was invented in the midst of the crisis. It’s similar to the old fashioned carry trade where banks borrowed money in low interest rate currencies and lent where they could get higher yield. Only these days, the carry traders don’t have to go abroad to find the low interest rate. We’ve brought it home to them. They borrow cheap thanks to this conglomeration of explicit and implicit guarantees, and lend out at higher rates. If your cost of capital is artificially cheap, all sorts of trades that would never be profitable in a free market suddenly become profitable.
As Taibbi points out, this isn’t how it was supposed to work. The bailout was supposed to be an emergency measure that wouldn’t permanently warp the market. Main Street was going to benefit as much as Wall Street.
Fuck the politicians. They're either all fucking morons or all fucking liars. I'm so sick of the flat-out, in-our-face, transfer of wealth from the poor and middle-class to the rich. I'm so sick of the Dem vs. Republican bickering going on that keeps us from seeing or acting on what is happening right in front of us. This is not a free-market vs. government-controlled discussion over how to run our economy, and the longer we think it is, the more time we give them to clean out our country.
Srsly, fuck it, I'm moving to China. At least there, everybody understands that the powers that be are there just to rip you off.
Hi Kady,
I don't know that I have ever taken the time to tell you this, but I heart you. Srsly.
Posted by: Gunfighter | August 23, 2009 at 10:14 PM