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November 23, 2009

Bailout or Disaster Capitalism? The Goldman Testimony

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This past weekend Goldman Sachs took the opportunity to give its own version of the AIG bailout laundering scandal in response to questions from Gretchen Morgenson.
 
The most telling point came at the very end of spokesman Lucas van Praag’s missive, where he closes with a cold, curt dismissal of Morgenson’s question about the legitimacy of $20 billion in GS bonuses under these circumstances. Praag replies, “Finally, there is no linkage between the AIG rescue and compensation. Best/Lucas.” Thank you, that’s that, case closed, end of story, get a life.
 
They’re adamant on this, the core point. This comes from the fanaticism of greed and their knowledge that their greed and their very existence has zero moral or economic basis. They know they are nothing but criminal parasites who add zero value. So to make up for this they conjure up the endemic arrogance and ideological certainty that makes them think they’re just vessels of God, the same arrogance and ideology which caused this crisis in the first place. And that same arrogance and ideology leads them to this rude, obnoxious kissoff, even where presumably they intend to be on their good political behavior. They just can’t help themselves.
 
Certainly GS wants us to think there’s no linkage. They insult our intelligence by telling us they were never bailed out, and that anyway cash isn’t fungible. Goldman wants us to remember only the TARP, which they never needed and paid back thank you very much. They want us to forget, not only this $13 billion AIG-laundered theft, but tens of billions worth of FDIC backing since their bogus change to a “holding company”, god knows how much borrowing through Fed “facilities” (the Fed is still stonewalling the people on this, but these secrets will soon be coming out as well), endless free money thrown down from the Fed’s helicopter, as well as the TBTF premium, and the general oligopoly rent premium.
 
They want us to believe they’re still capitalists, still viable, that they still “earn” legitimate revenues and profits. They pretend they’re still free men. That they aren’t pure zombies of the bailout, just as much as AIG. They’re trying to deny that we the people of America OWN THEM. It’s true, many of the people haven’t yet realized this, but they’ll soon understand.
 
The great collateral call will come. The Great Reckoning.
 
In the meantime, let’s go over these remarks, which encapsulate the Goldman Sachs world view. The party line is simple:
 
1. We never needed for AIG to be bailed out.
 
2. The AIG bailout nevertheless helped everyone so we supported it. As they put it in a formulation evidently important to them since they repeat it verbatim throughout the remarks, “We have consistently stated our belief that a collapse of AIG would have had a very disruptive effect on the financial system and that everyone benefited from the rescue of AIG.”
 
They reiterate versions of these in response to Morgenson’s three questions about the SIGTARP report. They claim they could easily have sold $4.3 billion notional worth of CDOs; that they were hedged through CDS they had bought against an AIG failure, and this protection would have paid off; and that in some mysterious way they would have “managed the risk” on the CDOs upon whose value they had bought CDS from AIG if they couldn’t have sold these to the Maiden Lane slush “vehicle”. They add for good measure that the Maiden Lane sale was simply good citizenship on their part, at the Fed’s request.
 
This sure doesn’t sound right. They didn’t need the bailout, yet they did all this? Why? They have to be either lying about (1), or else were operating in a predatory, disaster capitalist manner fueled by money looted from the public. What other option is there?
 
Here’s an interesting contradiction. On one hand GS makes this false claim: 
 

First, the SIGTARP report does not state that Goldman Sachs was more vulnerable to an AIG failure than the firm contends. It raises three general “what if” scenarios, which our collateral arrangements, risk management and accounting practices took into account.

 
But those aren’t general prospects. They’re very specific.
 
But on the other hand:
 

When the US Government decided that a failure of AIG posed a risk to the stability of the entire financial system, it stepped in to bail out the company. By definition, that meant bailout funds would be used to allow AIG to meet its obligations.

 
Now that’s a “general” assertion. In itself it doesn’t mean anything regarding any specific obligations.
 
So Goldman rejects SIGTARP’s “general”, i.e. specific points, while depicting its specific gift from the Fed in general terms.
 
According to Morgenson’s Sunday column Geithner parroted this line to her.
 

He said the report’s view that the Fed didn’t use its might to get better terms in the rescue was unfair. “This idea that we were unwilling to use leverage to get better terms misses the central reality of the situation — the choice we had was to let A.I.G. default or to prevent default,” he said. “We could not enforce haircuts without causing selective defaults and selective defaults would have brought down the company.”

 
False. They wouldn’t have been defaults if the haircut was voluntary. Isn’t that what their “extend and pretend” is all about?
 
Here’s the nitty gritty of the laundering. According to GS the $12.9 billion breaks down as follows.
 
*There was $2.5 billion AIG was disputing out of a $10 billion collateral call. Of course GS continues to assert that this was an “obligation”, but if AIG was disputing it, why was it Geithner’s right to make that call with the people’s money? Especially since Goldman says they didn’t need it.
 
*The “Maiden Lane III” purchase by the Fed and AIG (using bailout money) of the assets upon which the CDS were written: $5.6 billion. This is the part where GS keeps harping on how it transferred to the government “assets of equivalent value”. But this toxic paper still has only the phony book value nobody ever tested or wanted to test in the market, and Goldman never wanted to either, in spite of all their gung ho language in these remarks.
 
*$4.8 billion to repay a loan to AIG, while Goldman gave back the collateral of “highly marketable US Government Agency securities”. “If AIG hadn’t repaid the loan, we would simply have sold the securities.”
 
Much of this, like the broad assertion that every Goldman position vis AIG was safe, looks bogus. They would have “easily liquidated” $4.3 billion in CDOs? To whom? $4.8 billion in securities (“highly marketable”). To whom? The fact is, the market was seizing up. Nobody wanted to buy this toxic paper at all, nor could anyone borrow the money to do so even if they had wanted since credit was also freezing up. (And, since all the free money from the Fed became available, still nobody wants to buy this junk, even using free money. On their face Goldman’s claims are bogus.)
 
If those $4.8 billion in securities were so marketable, why didn’t GS just sell them? The fact is, Goldman and Geithner clearly agreed that there was no market for this or anything else, so that’s why this laundered bailout had to be arranged. Otherwise they would have just sold the collateral.
 
I guess that was one of the points discussed at the secret government meeting attended by only one private banker, Blankfein.
 
GS foolishly tries to split hairs:
 

On Maiden Lane III – at the time this vehicle was created, the government was already providing backing for all of AIG’s obligations, including those that were transferred to the new vehicle. As the report states in respect of the $5.5 billion of positions not included in Maiden Lane III, “continued Government backing of AIG provided Goldman Sachs with ongoing protection against an AIG default on the remaining $5.5 billion.” It is illogical to argue that we were protected against the $5.5 billion, but not against the $4.3 billion that was included in Maiden Lane III.

 
What kind of nonsense is this? It argues that the government bailout protected ALL of it, whether it was laundered through Maiden Lane or not. 
 
The “assets of equivalent value” lie is really a kind of tautology or fallacy. A tells B something is worth x, B agrees and buys it at that price using C’s money. Then when C protests, A and B each cite the testimony of the other as proof that the thing really is worth x. Needless to say, this is not proof or even evidence of real value. On the contrary, it’s strong evidence of fraud.
 
Goldman even repeatedly claims the “assets” have “increased in value”. Again, this is the same old phony notional value which was never tested and never could be tested. No one’s been able to actually sell any of it, which is the only test. The moment the market really tried to discover these prices, everything crashed. That’s how we got here. Now, just as Goldman continues to commit the same old crimes, it keeps peddling the same old lies.
 
Throughout, we have the assertion that all other securities were maintaining value even if AIG went down, such that the rest of Goldman’s hedging and collateral would remain intact. So then why did they mark down $10 billion on those securities and make that collateral call?
 

The SIGTARP report states that an AIG collapse “might” have made it difficult for us to collect on the credit protection – not that it would. That is an important distinction. We believe, in contrast, that the vast majority if not all of the financial institutions providing us with credit protection would have continued to perform, and thus that the protection would have been effective.

 
This, and several other remarks, is saying that not just Goldman but everyone else as well would have come through an AIG collapse intact.
 
Then what’s the basis of Party Line (2) “the AIG bailout benefited everyone”? Is this merely disaster capitalism? “Never let a good crisis go to waste”?
 
In fact we can infer from Goldman’s comments a third element to the Party Line:
 
(3) Our other counterparties didn’t need the AIG bailout either.
 
Isn’t this tantamount to saying the entire bailout was unnecessary? And then it would follow that everything GS proactively did – taking the TARP money, changing to a bank holding company, etc. – was under false pretenses, fraudulent. (Where it comes to those aggressive actions you can’t argue, the way I assume they do where it comes to the AIG payout, that fiduciary duty to shareholders forbade them to do otherwise. You have no duty to aggressively push the envelope of political and legal crime.)
 
So according to Goldman Sach’s own testimony, there was never any need for the bailout. We can reassess their mantra:
 

We have consistently stated our belief that a collapse of AIG would have had a very disruptive effect on the financial system and that everyone benefited from the rescue of AIG.

 
According to (1), disruptive but not fatal. Everyone could have soldiered on if we had allowed the free market to function.
 
So then what was this sector-wide “benefit”? It was simply disaster capitalism, a massive looting expedition. It was the biggest corporatist crime yet. We now have, if it wasn’t clear before, a de jure kleptocracy, a criminal government.
 
With this testimony: “The bailout was never necessary, for us or for Wall Street as a whole, but we did find it very beneficial”, Goldman itself has attested to the fact.
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5 Comments

  1. A superb dismantling of the self serving sophistry trafficked in by the uber scum from Goldman Sachs. I also like your take on their mindset:

    “They know they are nothing but criminal parasites who add zero value. So to make up for this they conjure up the endemic arrogance and ideological certainty that makes them think they’re just vessels of God, the same arrogance and ideology which caused this crisis in the first place.”

    There is only one way to take these shitty hubris besotted cads down, and that is TO TAKE THEM DOWN! It won’t happen on Obama’s watch though as they own the empty suit in chief as well.

    I keep reading pathetic (and frankly infuriatingly stupid) pieces by folks who continue to invest in the possibility that Obama will somehow-how do I put it- “come around.” That Barry O will live up to the misplaced faith that so many have placed in him.

    I marvel at their benightedness and denial where Obama’s true worth is concerned. If I had to analyze this sad phenomenon, I’d offer that no one likes to feel that they have been had, and equally, no one really wants to face up to the glaringly obvious fact that the U.S. is, indeed nothing more than, as per your phrase, a de jure kleptocracy.

    Comment by Edwardo — November 23, 2009 @ 10:39 am

    • Yeah, I can appreciate how some people were so desperate to get out of the Bush hell that they’d suspend their critical faculties during the campaign and maybe for a little while afterward.

      But to have remained an Obama cultist for very long, after Geithner and Summers, after the botched stimulus “fight”, and after he made it clear that Wall Street uber alles was to be the guiding principle for his regime, was to be willfully blind and stupid.

      Well, I don’t think this corrupt government, Reps and Dems, whether led by Obama or anybody else on the horizon, is going to be any help to the people at all. The only question is how long it’ll be able to maintain real authority, and how aggressively hostile it’ll get against the people in the meantime.

      Whatever the people are going to do, if anything is possible at all, will have to be built from the base up.

      I’m still trying to figure out what’s the best kind of writing I can do toward that goal.

      Comment by Russ — November 23, 2009 @ 3:44 pm

  2. And here’s someone, from near enough to the mainstream for government work, who confirms, more or less what we are saying. Financial oligarchy anyone?

    http://market-ticker.denninger.net/archives/1654-Hoh-Hoh-Tavakoli-On-Buffett.html

    Comment by Edwardo — November 23, 2009 @ 12:21 pm

    • That’s a funny example of how Buffett gets away with this scam that he’s better than the rest of them. Just because he tells the truth once in awhile, knowing damn well nobody’s going to listen to him.

      I don’t know, I guess Tavakoli would think I’m weird, but I tend to divide people into who uses power to work against the public interest and who doesn’t. Those who fall on the bad side of that, for all of them I regard it as their defining trait. Another one of my wacky ideas.

      Comment by Russ — November 23, 2009 @ 3:33 pm

  3. Amen, brother, to that, idea. Tavakoli is another fine financial forensics investigator, but that talent is not married to much that I can see.

    Comment by Edwardo — November 23, 2009 @ 9:28 pm


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