Goldman Sachs As Welfare Queen

My blood is boiling again, when I realize just how much money has been given to Goldman Sachs, and how connected the problem-solvers of this financial crisis--Henry Paulson, Tim Geithner, Neel Kashkari-- are to the venerable investment house.

Read this posting from Josh Marshall's talkingpointsmemo.com.

These are the figures we know about:

TARP funds: $10 billion plus
AIG securities lending unit: $4.6 billion
Maiden Lane III: $5.8 billion
AIG collateral: $2.5 billion

Total: $22.9 billion plus

So we need to ask the question again: why is Goldman pretending that it didn't have exposure to the derivatives market crash and wasn't a counterparty to the notorious credit default swaps?

"Just for good measure, it's also worth noting that Goldman is getting an additional several hundred million dollars per year in interest savings, according to Gross, thanks to an FDIC program that guarantees bonds issued by banks. Under the program, which is designed to make it easier for banks to raise capital, Goldman has sold $21 billion in bonds since November."

Rolling Stone's Matt Taibbi Puts It All Together

Still reeling from the IRS bill that our family has to pay, today I received a link to Matt Taibbi's latest article for Rolling Stone. It will make your blood boil! Essentially the country, and perhaps the world, has been taken over by Goldman Sachs. And they aren't very good at it, this ruling the world thing.

Current Treasury Secretary Timothy Geithner, former Treasury Secretary Henry Paulson, and the guy who is allegedly overseeing the TARP payments, Neel Kashkari, well, they are all Goldman Sachs alum. It appears that the CEO of Goldman Sachs, Lloyd Blankfein, was in the room when the decision was made to bail out AIG. The reason: Goldman was the largest purchaser of the "financial products" devised by Joe Cassano at the AIG London office. If AIG failed, then Goldman would have no coverage for the credit default swaps they had bought.

"Goldman Sachs, it turns out, was Cassano's biggest customer, with $20 billion of exposure in Cassano's CDS [credit default swap] book. Which might explain why Goldman chief Lloyd Blankfein was in the room with ex-Goldmanite Hank Paulson that weekend of September 13th, when the federal government was supposedly bailing out AIG."

This is much more than bonuses, although surely it was greed and arrogance that propelled these insane risks. The entire banking system must be overhauled. Credit card companies have to be reined in from charging usurious fees.

Read The Big Takeover with a large martini in hand and then wonder: how the hell do we get ourselves out of this mess? It isn't by propping up the banks and insurance companies that got us here with their greed. But I don't know what to do. Do you?

Post script: The New York Times in its Deal Book blog, edited by Andrew Ross Sorkin (who will be on Bill Maher tonight), posted that Goldman disputes it had AIG exposure.

Further Post Script: Add Larry Summers to the list of Obama advisers who have a lot of hide in the financial crisis. According to Frank Rich in his NY Times column this morning, "An even dirtier secret is that a prime mover in keeping that stuff legal was Summers, who helped torpedo the regulation of derivatives while in the Clinton administration. His mentor Robert Rubin, no less, wrote in his 2003 memoir that Summers underestimated how the risk of derivatives might multiply “under extraordinary circumstances.”

"Given that Summers worked for a secretive hedge fund, D. E. Shaw, after he was pushed out of Harvard’s presidency at the bubble’s height, you have to wonder how he can now sell the administration’s plan for buying up toxic assets with the help of hedge funds. It will look like another giveaway to his own insiders’ club."

Pardon, Schmardon

Jerrold Nadler (D-NYC) is introducing legislation that would limit the right of sitting presidents to pardon officials for acts committed in their governmental roles.

That sounds great, but I doubt it's constitutional. The power of the president to pardon is pretty much absolute, but what I like about Jerrold Nadler's idea is that it will churn up the waves of public opinion. On that stage, folks won't just have to accept preemptive pardons. Because once a person is pardoned, there is no danger of indictment and incarceration. Guess what: then they have to speak under compulsion of subpoena.

That means that the inquiry into what happened: at Guantanamo, in those black sites throughout the world, with eavesdropping, inside the Justice Department, with energy companies, destruction of natural resources, refusal to deal with climate change, everything that has happened during the last eight years, is still on the table.

And it has to remain there. We must know. We have to know. Because if we as a people don't have the will to know, then any president, no matter his/her party, will have the opportunity to once again pull the wool over our eyes.

How did Henry Paulson get $700 billion plus for a bailout of the banks without any restrictions on how he used it, how it was used?

Because once again the Bush administration used fear to suppress questioning.

Now, suddenly, folks are asking questions about a bailout of the auto industry.

Well, collectively as a people, we have to insist on asking questions, whether or not there are pardons. The truth must come to light.

Credit Card Debt

We haven't seen the worst of this financial crisis yet. Now Germany, the European country with the broadest remaining manufacturing base, is officially in a recession. The banks, which were supposed to be relieved of their "toxic" mortgage paper are still holding onto it, because Treasury Secretary Henry Paulson has switched course, and decided that the US government is not buying those bundled mortgages anymore.

It's a mess. But it will get worse, because consumer credit card debt hasn't hit yet.

Many people borrowed money at astronomical interest rates from their credit card companies, forgetting, because it was just so damned easy to borrow that money, that credit card companies have some added protection. In 2005 the Congress amended the bankruptcy laws to make discharge of credit card debt much more difficult. The majority of folks file for bankruptcy because of medical bills and unemployment. Now we have a law that makes starting over nearly impossible. Yes, folks didn't know how to stop buying what they couldn't afford, that flat screen television, Coach purse, or a new car. But neither could the US government, states, and practically every corporation in the country, if not the world. Advertising works and people were constantly bombarded with the same message: Buy, buy, buy. Remember just two weeks ago, AIG executives were retreating at a luxury resort in Arizona, right before they asked for more bailout money.

With homes in foreclosure, many people are just walking away. But with credit card debt, that isn't possible. And starting over with massive debt payment schedules eating into weekly paychecks, if people even have them, makes starting over dismal, if not nearly impossible.

Now this isn't the consumer debt that Paulson is worried about as he decides singlehandedly what to do with the bailout money changing course once again.

This doesn't sound right because it isn't. No one should have this much power. And rather than worrying about whether consumer credit is available, once again, nothing is being done to assist the individual family.

With Christmas right around the corner, stores will feel the pinch of credit card balances, unemployment, and the failed bailout of banks. Who can afford to buy anything? Our friends have decided that we are giving food to the food banks rather than exchange gifts this year. And we are all employed still. And the banks, well, yesterday I was at Bank of America, and the small business specialist didn't know that the FDIC now insures interest-bearing deposits to $250,000. I left the bank wondering if anyone has had the time to train the folks who are actually dealing with consumers and small businesses.

It's a mess. I have the distinct wish that Bush resign (well, that has turned from impeachment to resignation ver the last eight years) and let Obama and his team take over before it gets much worse. Then I worry more. Will we crush this mortal man with our expectations?

Bank Bailout--Another Sleight of Hand

AIG is getting more money, another $150 billion, because, well, let's face it, no one knows what it did with the first hand outs to prevent the world's largest insurance company from going under. Let's look at the handouts so far: $85 billion, $38 billion, then it sold $21 billion in commercial paper to the federal government. Now there is this $150 billion. No one knows where the money has disappeared to because there is no accountability, no transparency, no oversight. $294 billion just to AIG. Click here to read The New York Times article, dated November 10, 2008.

Review the updated bailout chart at propublica.org.

Add to this the fact that banks received a very quiet assist from Treasury Secretary Henry Paulson while Congress was busy trying to turn his two-page idea into the original $700 billion, the purported first bailout. However, it wasn't.

Paulson repealed a tax code section that immediately provided $140 billion to banks, and no one in Congress noticed! It was a back door way to aid US banks. Read the Washington Post article and get really angry.

This morning NPR reported that CitiBank announced a moratorium on foreclosures of houses. The story was confirmed in the Washington Post although the numbers differ. That is good news, because there is another sneaky thing happening behind our backs that is aiding banks and screwing people and local government. HUD, Housing and Urban Development, is offering local governments funds to purchase foreclosed houses from banks through the Neighborhood Stabilization Plan. The local plans on how to do this are being written right now and then will be open to public comment. Nassau County, where I live in New York, is getting $7.6 million, a paltry sum, but Nassau has the fourth highest foreclosure rate in the State: some 6,000 houses in foreclosure.

But what happens when a municipality purchases these homes? It depresses the price of real estate for the other homeowners in the community, and yes, here it is: it bails out the banks by relieving them of the collateral for the bad loans they made and of being landlords.

What does it do for the families who are being displaced? Nothing.

I'm no economist, but I believe this money should be used to lease foreclosed houses from banks. Make the banks hold onto the real estate to prevent a serious dip in neighboring home values, and let the counties and towns lease the houses. Then municipalities can rent homes back to families to avoid dislocation. Families who might not be able to afford mortgage payments, would be able to afford some form of fair market rent.

The impact would be that the county could relocate more families while stabilizing communities. Every boarded up house is a potential liability to the neighborhood; every foreclosed home depresses the value of the surrounding homes. However, by keeping neighborhoods intact, we can keep children in their schools, families in their communities, and people at their jobs.

Plus, the municipalities will be able to rescue more families. Leasing is far less expensive than purchasing these homes.

Watch for the public hearings in your area. This is what it means to be engaged. Attend the meetings. Demand accountability.

Some Thoughts on the Bailout and What Really Matters For You and Me

As our life savings and being very close to 60, retirement funds, diminish, adding another few years onto my work life and yours, too, the former head of Lehman Brothers, Richard S. Fuld, Jr., was being grilled by members of the House Oversight and Governmental Reform Committee. Click here for the NY Times story, which is quite incomplete.

Once again, too late.

“Nobody, including me, anticipated how the problems that started in the mortgage markets would spread to our credit markets and banking system and now threaten our entire financial system and our country,” he said. “Like many other financial institutions, Lehman Brothers got caught in this financial tsunami.”

Notice the use of the passive voice. Lehman Brothers as victim, um?

In a report from All Things Considered this evening on NPR, it was reported that Fuld would neither admit that he did anything wrong nor that the government failed to regulate.

It's all show, once again, and all too late.

And if you really want to get mad, take a look at the compensation packages CEO's like Fuld received despite the fact that they ruined their companies, ruined the lives of their employees, and ruined our economy.

While the stock market jumped around as if it was having a heart attack, John McCain was calling Obama "touchy" and Sarah Palin was in Florida claiming that Obama is palling around with terrorists. Not exactly on point. But don't be fooled, this was all distraction from the fact that Henry Paulson, the Treaury Secretary, was appointing one of his Goldman Sachs proteges as the head of the government bailout program. His name is Neel Kashkari, and the office he is going to head is called the Office of Financial Stability. I'm not kidding! We are indeed right in the middle of "newspeak" from George Orwell's 1984.

From the Wall Street Journal: Kashkari’s appointment is another example of how deep those Goldman Sachs ties go. In fact, Paulson himself was recruited by a former Goldman Sachs banker: former White House Chief of Staff Josh Bolten. Bolten overcame Paulson’s reluctance to persuade him to take the job as Treasury Secretary at a time when Paulson was so wary of the job that he declined to meet with President Bush because he knew he couldn’t say no to the President himself. According to an article in The International Economy by Fred Barnes in 2006, Paulson also believed that the Bush administration would not be able to accomplish many financial changes in 2007 and 2008. Kashkari’s new job show just how wrong Paulson was back then.

It's clear that McCain doesn't want the election focus to stay on the economy or on banking. He's already admitted to how ignorant he is about economics, despite his service on the Senate Commerce Committee, and he's already shown how in the bankers' pockets he comfortably sits. Remember the Keating Five, the debacle that led to the savings and loan crash, which coincidentally also required a federal government bailout? If you don't, here's a clip from the Obama campaign to educate voters: http://www.keatingeconomics.com/

And although Sarah Palin might make for good comedic material on SNL, don't be distracted: her "hecks," "darns," "hockey moms," and "Joe six-packs" are coded racial messages. When was the last time you met an African American ice hockey player? And when she refers to McCain as a servant, that is also a code message to attract the attention of fundamentalist Christians.

Today is the opening of the October Term for the U.S. Supreme Court. Keep that in mind, too, as the election approaches.

Bamboozled Again--Another Example of Fact Checking Too Late

When Henry M. Paulson, Jr., Treasury Secretary, appeared before Congressional leaders and scared the daylights out of them with claims that the entire American economic system was about to collapse, I was skeptical. Once again, the sky was falling, i.e., the terrorists were coming in fifteen minutes, we needed to pass the Patriot Act immediately, we needed to eavesdrop, we had to invade Iraq, we need to torture, all because of the incompetence of this administration.

Each of these hysterical calls made fact checking inconvenient and a dangerous delay. Only afterwards has he truth come out.

This time with Democrats barely in the majority in both Houses, the Bush White House whipped the Democratic leadership to push through its unpopular bailout plan, convincing Republicans colleagues that it has to be. That there is no alternative. Interesting since Bush has no credibility with his own party, suddenly he has some with Democrats? OK, we will put in some accountability, a little transparency, maybe even a little bone for the American homeowners.

On September 27, 2008, The New York Times published an investigative story by Gretchen Morganson about the connections that remain between Henry Paulson, former CEO and Goldman Sachs. There is considerable self-dealing involved in Paulson's bailout plan and we should be infuriated. This crisis might be about the collapse of the American financial system, but for certain, this solution is about saving the asses of the same people who made a lot of money while this administration was busy deregulating and being incompetent. Why should we trust Henry Paulson when he is saving Goldman Sachs so that he can protect his own?

Two weeks ago, the nation’s most powerful regulators and bankers huddled in the Lower Manhattan fortress that is the Federal Reserve Bank of New York, desperately trying to stave off disaster.

As the group, led by Treasury Secretary Henry M. Paulson Jr., pondered the collapse of one of America’s oldest investment banks, Lehman Brothers, a more dangerous threat emerged: American International Group, the world’s largest insurer, was teetering. A.I.G. needed billions of dollars to right itself and had suddenly begged for help.

The only Wall Street chief executive participating in the meeting was Lloyd C. Blankfein of Goldman Sachs, Mr. Paulson’s former firm. Mr. Blankfein had particular reason for concern.

Although it was not widely known, Goldman, a Wall Street stalwart that had seemed immune to its rivals’ woes, was A.I.G.’s largest trading partner, according to six people close to the insurer who requested anonymity because of confidentiality agreements. A collapse of the insurer threatened to leave a hole of as much as $20 billion in Goldman’s side, several of these people said.

Days later, federal officials, who had let Lehman die and initially balked at tossing a lifeline to A.I.G., ended up bailing out the insurer for $85 billion.

Their message was simple: Lehman was expendable. But if A.I.G. unspooled, so could some of the mightiest enterprises in the world.

A Goldman spokesman said in an interview that the firm was never imperiled by A.I.G.’s troubles and that Mr. Blankfein participated in the Fed discussions to safeguard the entire financial system, not his firm’s own interests.

Yet an exploration of A.I.G.’s demise and its relationships with firms like Goldman offers important insights into the mystifying, virally connected — and astonishingly fragile — financial world that began to implode in recent weeks.

Although America’s housing collapse is often cited as having caused the crisis, the system was vulnerable because of intricate financial contracts known as credit derivatives, which insure debt holders against default. They are fashioned privately and beyond the ken of regulators — sometimes even beyond the understanding of executives peddling them.

Take time to read the article, and then raise hell.

America and Apple Pie

Jon Stewart interviewed Bill Clinton last night on The Daily Show after showing CNN's inane attempt to conceptualize $700 billion dollars, the price tag for the Wall Street bailout that Henry Paulson is pushing before Congress.

Treasury Secretary Henry Paulson's brilliant $700 billion plan could buy every single American 2,000 McDonald's apple pies.

Click here to see the segment.

Of course, the food metaphor worked with former President Clinton!

But it shouldn't work with the American people.

I was at a meeting yesterday with two retired women. Remember, women make only 76 cents to every men's dollar, and these women, both pioneers in the women's movement, made even less throughout their careers. One woman is a widow. With the price of gas, the rising cost of her contribution to health insurance, and the cost of medicine, she is worried that she might have to cut her volunteer work, because she can't afford to drive everyplace anymore.

The other woman is married and still needs to augment her pension with parttime work.

This is how the Wall Street meltdown is affecting real people. But not just retirees. Every house that goes into foreclosure diminishes the value of the other homes in a neighborhood. Every house that goes into foreclosure displaces another family, makes another child insecure.

My husband passed a three block long line in midtown Manhattan yesterday: young people trying to get into a job fair.

We must make sure that any Congressional bailout plan includes accountability. Let's find out just how much fraud was involved in marketing and selling these mortgages to people who couldn't afford them, and how much fraud was involved in bundling them as securities. Then let's prosecute the bastards for their greed and illegality. Let's make sure that everything the government does to shore up the financial markets has transparency. We need to see restrictions on salary and on the use of government power, too.

Since when should we trust Henry Paulson to solve this mess when his leadership at Goldman Sachs, and then his "nothing is wrong with American financial markets" attitude got us into this current crisis?

Deja vous to 911: do nothing and then grab power in the aftermath. Let's not forget we have a constitution and a method for enacting law and enforcing it.

Mortgage Meltdown

Watching Treasury Secretary Henry Paulson on Face the Nation, and then switching to Meet the Press to listen to New York City Mayor Michael Bloomberg, I was struck by a literary allusion to “The Foundation Trilogy” by Isaac Asimov.

I did read the then three volumes, one a day for the three days, following my completion of the grueling New York Bar Exam in July 1975. I was trying to quit smoking cigarettes and didn’t leave my apartment for three days. I did succeed in passing the Bar and completing the trilogy, however, within three weeks, I was smoking again.

If my memory serves me properly, the cycle of “foundation” civilizations went into inevitable decline when everything became so complicated that no one knew how to manage or fix anything.

That sounds like the economy of the United States.

Paulson, the former CEO of Goldman Sachs, the last of two remaining large, independent investment banking houses, was cagey in his responses to Bob Schieffer on Face the Nation. He appeared inarticulate, because frankly, he doesn’t know just how many of these bad mortgages the American taxpayers are about to buy, how much they are worth now, and what they might be worth later. No one does.

That’s the problem with deregulation. There is no oversight internally within the financial institutions. Why bother when the banks were making so much money. And there is no regulation from government, because the Republicans who controlled the White House and the Congress until 2006 have a dedicated belief in self-regulation until it is too late.

My problem with the bail-out is simple and two fold: first, it gives far too much unfettered discretion to this Treasury Secretary and the next, and second, it has no regulatory musts attached to it.

Mayor Mike was a bit more forthright in responding to Tom Brokaw’s questions on Meet the Press. He has taken a bipartisan stance, still talking to both candidates. His insights were deeper, because Mayor Mike made his money by understanding the markets, not just lending money. Mayor Mike spoke about a NYC mortgage program for first time home buyers that has loaned money to thousands of residents with only five foreclosures. He used this as an example of properly educating prospective home buyers and then responsibly lending them money.

Certainly, not everyone can benefit from the Bush enabled “ownership” society. Two big problems arise for people with too little income trying to buy homes, especially in high rent districts in and around cities. First, unless one itemizes, there are no tax benefits to paying interest instead of rent. And second, and perhaps more importantly, home ownership makes people less flexible and less able to just pick up and follow jobs. The glut of houses in the rust belt where 250,000 people have lost jobs in the automobile industry alone is evidence of this phenomenon: these workers can’t move to where the jobs are without selling the house first, because people's entire savings are often caught up in the house.

It isn’t just deregulation and greed, it’s incompetence once again. Remember John McCain was the senior member of the Senate Commerce Committee for how many years? And he admitted that he doesn't know much about the economy. Well, what was he doing for all of those years? Just listening to lobbyists, I suspect.

Here is the link to the transcript of Meet the Press, where Paulson also appeared later in the broadcast.