Good Question (0.00 / 0)

Where's the rest of us indeed?

I keep wondering when this administration might make some gesture toward the have-nots.

I do hope they aren't tacitly concurring in the Coe-Cunningham-C Street upsde-down religious view that only the wealthy are deserving of wealth -- that that is what Jesus meant?  

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by: jjmm @ Tue Jul 14, 2009 at 16:34:13 PM CDT

A question for experts (4.00 / 1)

Over the past few years, was Goldman putting itself into the same sort of financial peril as most of the other big banks were doing by basically betting the house on mortgage-based securities, and thus in need of a bailout to avoid going under? Or was it smarter than the others (along with, perhaps, JP Morgan), and made sure to not bet it all on those Potemkin securities, and thus didn't really need bailout funds? Because my understanding is that it was the latter. And if so, then the question is less was Goldman doing anything illegal or verging on such, than was Goldman engaging in activities that were technically legal, but extremely dangerous? Again, I suspect that it was the latter.

My point is that the financial deregulation and lax (if not criminally so) oversight of the past 10 years allowed financial companies to make insane profits on unproductive (and ultimately destructive) real estate-based securities speculation, but while most financial firms did so by making crazy, unsustainable and quite likely illegal bets, that either led to their downfall (Lehman, Bear), or to their having to be bailed out by the government (Citi, Morgan), firms like Goldman (and perhaps JPM) appear to have done so by making smarter, more sustainable and likely legal bets, that did not imperil them financially, or really require bailout funds. So we're dealing with two different sets of problems here, if I understand things correctly.

One, is the lax oversight of already too lax regulations that allowed the firms that either fell, or needed to be saved, to make such horrible bets. And two, is the lax regulations themselves, that allowed firms that haven't faced bankruptcy to make out like gangbusters. The lax regulations allowed both sets of firms to do things that were absolutely insane and unwise. The lax oversight allowed the less disciplined firms to basically destroy themselves, and the economy, which wasn't as much of an issue for the more disciplined firms, who instead profited hugely from the whole situation. So we have to fix both elements, the regulations and oversight, if we're to get to the bottom of this.

As I see it, the only viable and acceptable sort of financial regulatory and oversight reform is one that not only makes it much, much harder for undisciplined firms to do stupid and destructive things that make them go under or require a bailout, but which also makes it much, much harder for more disciplined firms to make a killing whether the market is going up or down. Firms should still be allowed to take on risk and make healthy profits. But not crazy risks, or crazy profits, neither of which help the economy, and both of which, as we've seen, often hurt it, horribly. There is absolutely no good reason that a firm like Goldman should be making off like bandits as the rest of the economy suffers. Something is seriously wrong when that's possible. That has to be changed. Permanently. And it won't turn us "socialist" or destroy capitalism. If anything, it will only strengthen it.

I'm guessing that even Smith and Hamilton would agree.

"Those who stand for nothing fall for anything...Mankind are forever destined to be the dupes of bold & cunning imposture" -- Alexander Hamilton

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by: kovie @ Tue Jul 14, 2009 at 17:14:02 PM CDT

Didn't they hedge their bets? (0.00 / 0)

I was under the impression (though I admit I can't keep all this stuff straight in my head) that Goldman made plenty of irresponsible bets on crazy derivatives but also hedged their bets at the end of the bubble by shorting such stuff. That's where AIG and corruption come in. It was AIG on the hook to pay out to Goldman. Goldman execs were at the table when the decision was made for the government to bail out AIG and pay out all its creditors 100 cents on the dollar. Goldman had to have known that AIG was utterly incapable of paying off on its insurance of all this toxic crap. There is no compelling moral argument for the government to make good on these obligations. It was all a giant game. And Goldman has so much power over our government that they can force all of us taxpayers to subsidize them to the tune of tens (or hundreds) of billions of dollars. Anyone feel free to correct me if I have any details wrong.

miasmo.com

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by: miasmo @ Tue Jul 14, 2009 at 17:30:03 PM CDT

[ Parent ]

Well then isn't that the point? (0.00 / 0)

That they could hedge such hazardous bets, due to lax regulations AND oversight (and the ultimately smart bet that if things got out of hand, the government would step in to bail the out)? My point is that such bets shouldn't be allowed by law, and prevented by oversight.

I've worked in the industry, having joined it soon after the original trading scandals of the mid-80's led to the imprisonment of the key players and downfall of the major firms involved in them, and worked for two major firms that (through no involvement of my own, mind you, since I was an IT grunt) ended up being busted big time for their own securities violations. So regulation and oversight can and does work, IF they're effective, in place and enforced.

I think that Goldman is no more moral than any of these other firms. They're just smarter, and better connected. That's why they came out on top, and are making out like bandits.

Smart bandits.

"Those who stand for nothing fall for anything...Mankind are forever destined to be the dupes of bold & cunning imposture" -- Alexander Hamilton

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by: kovie @ Tue Jul 14, 2009 at 17:36:56 PM CDT

[ Parent ]

Sounds about right. (0.00 / 0)

No disagreement here.

miasmo.com

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by: miasmo @ Tue Jul 14, 2009 at 17:54:14 PM CDT

[ Parent ]

There is much I agree with (0.00 / 0)

Goldman did a better job of risk management that the other firms, which as you suggest allowed them to destroy themselves.

Post October, they have fewer competitors, and are in a much stronger equity position than the competitors that do remain.  They also have incredible power in Washington.  

There are two issues that aren't discussed enough about all of this:
1.  There is a very real problem with Corporate Governance on Wall Street.  This problem can be seen in the lack of transperancy about their actions, and in their inability to place reasonable risk controls on their internal processes.

I know that sounds really boring, but this is really the core problem with much of Corporate America.  

2.  The reason that many of these risky bets were made was because they made sense from an employee perspective. There is obviously a serious problem with the bonus system on the Street, which leads individuals to take actions that are not in the corporation's interest.   This problem exists in part because senior management at these firms aren't doing their fricken jobs.
 

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by: fladem @ Wed Jul 15, 2009 at 11:43:34 AM CDT

[ Parent ]

Unless there is strong and smart government oversight (0.00 / 0)

of how these firms do business, then most of them will continue to expose themselves, their investors, and the economy, to excessive risk. Some, like Goldman, smart and disciplined enough to avoid the worst risks, will probably do ok no matter what happens, and even exploit other firms' lack of discipline to its advantage. But in terms of the overall financial markets and economy, there is simply no substitute for strong, smart and effective government oversight, in the form of enforced regulations. As history has amply shown, most players need to be protected from themselves, and the public needs to be protected from most players. That's why government exists.

I wonder if there is some positive aspect to Goldman's being able to thrive in the face of all this turmoil. Sure, much of this was due to its having disproportionate advantages not directly deriving from its own technical superiority, such as close government ties and a dwindling number of direct competitors. But much of it was due to the technical superiority and discipline of its employees and management. Clearly, its internal governance was able to avoid the worst risks, apart from its having good reason to believe that if worse came to worse, they'd probably be bailed out by the government. Perhaps its system of governance can be used as a template for financial regulatory governance reform.

I.e. instead of killing this golden (Goldman?) goose, take its best aspects, such as its governance system, and apply them to other firms, while at the same time applying external regulations to restrict the kinds of transactions that financial firms are allowed to engage in, to avoid a repeat of the meltdown. And maybe force Goldman and other "too big to fail" financial firms to split up, into investment banking, commercial banking and sales and trading divisions, or something along those lines. While they should be allowed to make a healthy profit and engage in some risk, they must be made to serve the overall economy, not vice-versa. The current situation is way too parasitical, and needs to be made more symbiotic.

"Those who stand for nothing fall for anything...Mankind are forever destined to be the dupes of bold & cunning imposture" -- Alexander Hamilton

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by: kovie @ Wed Jul 15, 2009 at 15:14:44 PM CDT

[ Parent ]

Obama whipped for TARP (0.00 / 0)

You write:

It is time for a movement to take on the big bankers

I couldn't agree more. And why on earth would you imagine that the Democrats wouldn't do everything in their power to opposed that movement?

I am in earnest -- I will not equivocate -- I will not excuse -- I will not retreat a single inch -- AND I WILL BE HEARD.  

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by: lambert @ Tue Jul 14, 2009 at 17:46:43 PM CDT

First place to start is join a credit union. (0.00 / 0)

Particularly if we bank with a huge financial conglomerates like Chase, BofA, Wells Fargo.

Second, is to advocate for real financial reform. President Obama's financial reform is non-starter to decreasing the power of the financial oligarchy.


RebelCapitalist - Financial Information for the Rest of Us.

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by: RebelCapitalist @ Tue Jul 14, 2009 at 18:11:41 PM CDT

You're wasting your breath, sadly (4.00 / 1)

Short of an insurrection (hopefully peaceful, the sit down type of rebellion), I don't see that Goldman or any politician will do anything. Clearly they can make billions while millions are foreclosed on, lose their jobs, and go bankrupt. They don't need or even exist in the economy the other 99% of the country lives in.

In my view crime is not only breaking the law. It's willfully destroying things even when it is legal, becoming so greedy that you destroy the livelihood and lives of millions of people. In that sense, I say Goldman and their ilk should be broken up. Anyone on Wall Street who made more than a million dollars in the past 30 years should be given one million dollars and the rest of what they own clawed back to pay for their criminal greed. If they can't live on a million, then they'll have to live like the rest of us won't they?

And to say that what they do is worth millions is pure caca. It's paper pushing backed up by complex mathematical models. It's like the emperor's new clothes: what they do for work is worth millions only if they can convince us that they are worth that much. Well I say the king is naked.

So from your lips to Gods ears. But these guys are 100% immune and probably will stay that way.

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by: TSlavin @ Tue Jul 14, 2009 at 19:28:28 PM CDT

Question for the Obama Administration: (0.00 / 0)

These record profits were driven almost entirely by revenue from trading - hardily a reliable source of revenue.  So, if they trading tanks will we bail them out again?

Goldman Sachs is still a bank holding company and FDICs debt guarantee program has not expired.

BTW, Goldman Sachs VaR (value at risk) reached record levels.

Goldman Sachs is hedging that TBTF will save them again.  

RebelCapitalist - Financial Information for the Rest of Us.

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by: RebelCapitalist @ Tue Jul 14, 2009 at 19:51:41 PM CDT

This is THE question (0.00 / 0)

to ask.  Goldman is now a bank, and that appears to make absolutely NO difference in how there are running the company.

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by: fladem @ Wed Jul 15, 2009 at 11:34:34 AM CDT

[ Parent ]

until Obama dumps Geithner and Summers (0.00 / 0)

nothing will change.

One of my friends owns a small retail business and cannot find any bank to give her a line of credit right now. The bailout was supposed to free up credit to businesses, but it ain't trickling down.

Join the Iowa progressive community at Bleeding Heartland.

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by: desmoinesdem @ Tue Jul 14, 2009 at 23:03:48 PM CDT

It isn't just Geithner and Summers (0.00 / 0)

it is the washington establishments political philosophy.  We need new people entirely.  They have been trained by game theory and the freee market fundies  to think corruption a virtue.

This sort of thinking is where higher broderism comes from and most of them are infected with it.  

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by: Dameocrat @ Wed Jul 15, 2009 at 00:15:39 AM CDT

[ Parent ]

I don't get it (0.00 / 0)

The whole point of bailing out banks was not to bail THEM out (i.e. their employees and investors), but to bail out their customers and creditors, and to maintain a functioning credit market so that non-financial businesses could keep on functioning. Instead, they, and their creditors were bailed out, but their customers, and the economy, hasn't really benefitted from it. Perhaps the argument could be made that things could have been worse, but things could also be much better, if more credit was extended to those who most need it.

I'm no expert, but whenever I hear even a Krugman say that monetary policy has been stretched to its limit, which is why we need massive fiscal policy solutions--i.e. more stimulus spending--I have to wonder, has monetary policy really been taken to its limit? Perhaps credit is flowing freely to banks now, at record low rates, but if this money isn't making it to banks' traditional customers, then monetary policy has been artificially not been allowed to work, with adverse consequences to the economy.

If Obama and his economic experts really believe that by providing effectively unlimited credit to banks, this money will make its way to the economy, then they're dead wrong, and engaging in either pony chasing, or favoratism that verges on government corruption. Who cares if BoA, Citi, Goldman, etc., survive and succeed, and what difference does it make, if the overall economy doesn't benefit from it? Or are they, either out of ideology, or indifference, subscribing to a sort of economic Darwinianism, i.e. let the mighty succeed (with the taxpayers' help, of course), and everyone else is on their own?

Something just doesn't make sense. Is Obama a fool, a crook, a coldhearted bastard, or is this yet more 11D chess?

"Those who stand for nothing fall for anything...Mankind are forever destined to be the dupes of bold & cunning imposture" -- Alexander Hamilton

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by: kovie @ Wed Jul 15, 2009 at 15:27:08 PM CDT

[ Parent ]

I'm Not Inclined (0.00 / 0)

to criticize Obama much, but the failure to demand a quid pro quo for helping the likes of Goldman thru the financial collapse makes me mad.  A surtax on financial industry overcompensation would have been appropriate, but it is nowhere on the horizon.

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by: bob h @ Wed Jul 15, 2009 at 05:34:27 AM CDT

This comment needs changing (0.00 / 0)

" I wouldn't be so completely pissed out of my mind if we didn't already know, based on the last eight years"

The head of the Treasury under Clinton was a former Goldman CEO, and the Glass-Stegall regulation happened in 1999.

I can't see when it comes to Goldman how the Clinton Administration was different in ANY way from the Bush Administration.

Clinton people have no standing to complain about Goldman in my book.  

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by: fladem @ Wed Jul 15, 2009 at 11:33:23 AM CDT