Earn Like Goldman Sachs, a ProPublica How-To
|August 1, 2009||Posted by Jeffery J. Smith under Progress Report, The Progress Report|
Earn Like Goldman Sachs, a ProPublica How-To
Bailout Overseer Says Banks Misused TARP Funds
Will we ever see any of the money ourselves? We trim, blend, and append four 2009 articles from: (1) the Washington Post, July 20, on misuse of TARP by Binyamin Appelbaum; (2) the Huffington Post, July 15, on Wall St Jrnl editorials by Arianna Huffington; (3) ProPublica, July 16, on Goldman Sachs by Sharona Coutts; and (4) the AP, July 15, on suing raters.
by B. Appelbaum, by A. Huffington, by Sh. Coutts, and by Associated Press
- Bailout Overseer Says Banks Misused TARP Funds
Many of the banks that got federal aid to support increased lending have instead used some of the money to make investments, repay debts, or buy other banks, according to a new report from Neil Barofsky, the special inspector general overseeing the government’s financial rescue program.
The report surveyed 360 banks that got money through the end of January and found that 110 had invested at least some of it, that 52 had repaid debts, and that 15 had used funds to buy other banks.
Roughly 80% of respondents, or 300 banks, also said at least some of the money had supported new lending.
The Treasury has refused to collect such detailed information from banks about their use of federal aid provided under the Troubled Asset Relief Program.
Officials claim the subsidy is to help healthy banks make more loans. From the beginning, however, the government invested in troubled banks — most prominently Citigroup — that had publicly announced intentions to reduce lending.
JJS: Not only has somebody in a government beholden to big money come out with criticism of big bankers, so has the capitalist Bible.
- The Wall Street Journal Goes After Goldman and the Bank Bailout
The editorial page of the Wall Street Journal labeled the government bailout of Wall Street “a dumb move” and “a bust and took shots at Wall Street darling Goldman Sachs.
The capitalist Bible noted Goldman “enjoys the best of both worlds: outsize profits for its traders and shareholders and a taxpayer backstop should anything go wrong.”
The Journal’s take — “We like profits as much as the next capitalist. But when those profits are supported by government guarantees or insured deposits, taxpayers have a special interest in how the companies conduct their business”
Robert Reich says that “Goldman’s high-risk business model hasn’t changed one bit from what it was before the implosion of Wall Street.” It should send shivers down the backs of every American who has lost a large chunk of retirement savings or a job.
The bailout editorial by Andy Kessler rejects the all-too-frequent conflation of the Wall Street economy and the real economy. It faults the Obama administration for ignoring “the structural problems that got us into trouble in the first place.” The only people defending the administration’s Wall Street policies are the people benefiting from them and Tim Geithner and Larry Summers, ex-Wall Streeters now in government.
JJS: The line between government and Goldman is a hazy one. The bank gets both money and apparently insider information not available to competitors that is sells for a hefty return.
- Earn Like Goldman Sachs, a ProPublica How-To
Goldman Sachs record quarterly profit of $3.44 billion ($) has spurred debate over how the bank did it. In addition to making money via its own trades, Goldman profits by advising clients about deals. Some of that advice has proved quite savvy.
Goldman advised clients to bet on declines of the creditworthiness of some states — California, New Jersey, New York, and Florida. Goldman advised hedge funds to take the bets by buying credit default swaps, the insurance-like financial instruments that have been blamed for contributing to the financial meltdown last fall.
The strategy angered California Treasurer Bill Lockyer because his state was paying Goldman millions to help market the same bonds that Goldman was advising other clients to bet against.
For the record, it doesnt look as if many people followed Goldmans advice, which the company said it stopped giving around October. Fewer than 200 contracts for swaps on California bonds are out, with a net value of just under $760 million. For Florida, there are 133 and for New York, there are 95.
Those figures are dwarfed by the numbers of swaps on companies, such as Southwest Airlines, which has over 4,600 contracts covering nearly $2.5 billion of underlying debt.
Even that is considerably fewer than the contracts on another company: Goldman Sachs. There are over 6,500 contracts on Goldman, covering $5.3 billion of debt.
JJS: Telling some prospective buyers that ones product is good and telling others that its bad is fraud — both claims cant be true. Doing so made Goldman filthy rich and often got it hauled into court. Now its colleagues go before a judge for their role.
- Calpers sues rating companies over $1 billion in bond losses
The California Public Employees’ Retirement System, the largest US public pension fund, sued the three major bond-ratings companies for $1 billion in losses it said were caused by “wildly inaccurate” risk assessments.
Standard & Poor’s, Moody’s Investors Service, and Fitch Ratings used methods to analyze medium-term notes and commercial paper from February to November 2006 that were “seriously flawed in conception and incompetently applied,” Calpers said in a lawsuit filed in state court in San Francisco.
The companies all gave their highest ratings to Cheyne Finance Ltd., Stanfield Victoria Funding, and Sigma Finance Inc., prompting Calpers to invest in them in 2006, the fund said in its complaint. The Structured Investment Vehicles collapsed in 2007 and 2008, defaulting on payments to Calpers, it said.
Calpers, with $173 billion in assets, manages retirement benefits for more than 1.6 million California public employees, retirees and their dependants.
JJS: At the bottom, the problem is letting land (mortgages) be an object of speculation instead ground rent being a source of security for all society. Switching to geonomics would harness the rise in location values for the benefit of everyone.
Jeffery J. Smith runs the Forum on Geonomics.
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