The New York Times excoriated Goldman Sachs in an editorial published in yesterday's paper and described Goldman's pledge to provide $500 million in funding to small businesses as "crumbs from its table". The article went on to say that Blankfein's mea culpa earlier in the week didn't "come close to an apology" and suggested Goldman should turn their massive 2009 bonus pool over to the taxpayers who funded their survival.
I'm not sure what moral high ground the Gray Lady thinks she's standing on, but it brings up some interesting points. There is an increasingly popular market myth that Goldman Sachs didn't need to be bailed out and that they were just taking one for the team when they accepted $10 billion in TARP money. It's a nice story, but it's patently false.
More evidence of this came out this week when John Mack addressed Wharton in this
. While describing Morgan Stanley's precarious position in October of last year, Mack stated that he received numerous calls from a desperate Blankfein begging him to hang in there, "because I'm 20 minutes behind you".
So I guess what I'm left to ponder is what is the morality here? What is the "right" thing for Goldman to do? The bank was saved by a socialist government scheme, was then allowed to buy their way out of the punitive measures of the program by repaying the taxpayers with their own money (AIG bailout funds), yet maintain their status as a bank holding company (which allows them access to the Fed funds window) and use the money set aside for businesses to enrich their bonus pool through proprietary trading.
Another issue is not the legality of the AIG payoff to Goldman, but the morality of it. To this day, both Goldman and Geithner refuse to disclose the nature of the swaps held with AIG, whether they were naked, and what the true value of them was at the time the Treasury paid off at face value.
In another story published in the Times on Saturday, Gretchen Morgenson quotes Janet Tavakoli, an expert in derivatives at consulting firm Tavakoli Structured Finance, who urged Goldman to repay money from the AIG bailout, saying Goldman should be forced to take back toxic collateralized debt obligations, or CDOs, which had been insured with AIG."The prices of the collateralized debt obligations against which Goldman bought protection from AIG were in sickening freefall, and the cost of replacing AIG's protection would have been sky-high," she said. "Goldman must have known this, because it underwrote some of those value-destroying CDOs."
Goldman should do this before it gives bonuses to "taxpayer-protected employees," Tavakoli said in the Times report.
At what point does it stop being about dollars and cents and start being about right and wrong?
Goldman should use its bonus pool to help REDUCE the public debt? The money would likely get quickly swallowed up in supporting some social agenda like healthcare... The government should have piled more money into Goldman - it made a healthy return (quite a bit better than its other "investments"). Is Goldman going to be indebted to the government forever because it took government aide? It reminds me of an individual who takes out a loan - starts up a successful company with the money - then repays the loan - but the loaner thinks he still has a claim on the company.
Comments like this are deeply troubling and signal to me either a complete misunderstanding of the issues or a blind faith in the field of "high finance."
mittrader needs to look up the word "risk"
Pretty much what the mafia does to people who borrow money...
Seriously, $500 million from an estimated bonus pool of 16 billion seems like ping in the bucket.
The government and the taxpayers made money on the Goldman bailout- they owe nothing to America. I doubt we will ever see any of out money that wentinto the sinkhole of BoA and AIG.
Goldman was in the same position as BofA and AIG. Exactly what is the difference? An alleged 23% return on the bailout funds? The government robbed legitimate market participants of their legal and moral returns by bailing out the banks. And that includes Goldman. Don't kid yourself that Goldman Sachs is any better than any other welfare bank.
"I'd like my $12.9 billion back before you pay $16 billion in bonuses" - The American Tax Payer
Let's get this straight: they get paid 100 cents on the dollar in a backdoor bailout through AIG (on what may or may not have included naked CDSs), and have access to the Fed's discount window which essentially allows them to borrow without interest. Btw, they were given an overnight exception to become a bank holding Company, the process normally takes a week.
They may have paid back the initial bailout money which was "forced upon them" but they've been sitting pretty thanks to the backdoor bailout (just low Lloyd likes it) and access to the Fedls discount window. You've got to be dense to think the way you do.
Though, they are doing "God's work," give me a break...
I'd suggest you actually read SIGTARP on Maiden Lane 3(the transaction you're apparently referring to).
http://www.sigtarp.gov/reports/audit/2009/Factors_Affecting_Efforts_to_…
First off, it was 13.9 bill, which breaks down as follows:
1) 8.4 billion in collateral which had ALREADY been deposited with GS
2a) AIG's position was that this represented the ENTIRE drop in value of the portfolio dealt with in ML3 (the residual portfolio's value was 5.5 bill)
2b) Goldman's position was that the portfolio's value was actually 4.3 bill, thus AIG owed it an additional 1.2 bill in collateral.
Given their interests, it's reasonable to take Goldman's estimate as the low end of portfolio value and AIG's estimate as the high end.
3) 1.2 bill in CDS against the chance of AIG default which Goldman had purchased once AIG stopped paying it what it considered sufficient collateral. GS had already collected some percentage of this as collateral from its counterparties.
Because the 8.4 billion was ALREADY POSTED in cash or cash equivalents, the actual ML3 transaction with GS nets out to:
5.5 bill from AIG in exchange for 4.3 bill (marked to market, according to pessimistic view of GS) of CDO + 1.2 bill against AIG default (including the associated collateral)
Now, SIGTARP reaches the conclusion that despite Goldman's complete immunity from an AIG default on paper, Goldman may have realized a loss in such an event due to the following hypotheticals:
i) An AIG default may have so roiled the markets that the portfolio of CDOs would have dropped further in value ii) Goldman's counterparties on the AIG CDS may have themselves defaulted. Goldman's exposure in this case would be the excess value of the CDS over the collateral already posted on these contracts
Both are reasonable counterfactuals. Neither justifies an ignorant cry like "give us our X billion dollars back".
I'm also uncertain if there's any source which gives the current value of the CDOs which Goldman gave to AIG as part of this deal. Anybody?
I came across an interesting article on the internet, and I thought I'd reiterate a few points:
-GS made 12.4bn net revenue / 3.2bn net income -Revenue breakdown unusually high in areas: 6bn trading / 2.8bn equities / 1.3bn principle investments -Traditional IB services generated the following revenues: · Investment banking: $899 million in revenue, down 31% · Financial advisory: $325 million in revenue, down 14%, mostly due to a decline in merger activity · Underwriting: $574 million in revenue, down 15% · Asset management: $1.45 billion in revenue, down 29% · Securities services: $472 million in revenue, down 48% -So when GS was converted to a commercial bank by being given the keys to the discount window, theoretically it was so they could operate as a commercial bank (hence the bailout). -Yet GS, unlike other commercial banks, pegs compensation to net revenue and NOT net income: so of the 7.8bn expenses it incurred, 5.4bn were spent on salaries and bonuses
-The author highlights that most people complain about a huge bonus pool (which I'm sure makes a lot of aspiring bankers on this forum drool and like GS that much more) or the insensitivity to taxpayers bailing them out. The bigger point, or so this guy feels, is "the fact that this huge bonus pool comes from a firm's conversion into a hedge fund, when it's legal status as a commercial bank should forbid this activity".
-By gaining access to the fed funds window, GS is able to leverage the edge they have in high frequency with the low borrowing rates from the government, and effectively use taxpayers money to trade and generate the majority of their revenues.
-Ignoring some of the idiotic posts on this thread so far (mittrader, MMBinNC: both arguably aspiring to work in 'high finance'), at the end of the day, GS is operating in an unethical manner by generating pools of profits/bonuses without actually providing appropriate services to society. They are barely lending and aren't really operating as a commercial bank -- why should they get access to the discount window?
The NYT's attack on GS is completely justified.
Fantastic post. Just on point on every level. Nicely done. GS is a giant hedge fund calling itself a bank.
Totally agreed. Goldman, despite its prestige, is not doing as well as many people think in traditional investment banking activities. Last summer, when I interned in a BB, I noticed that a lot of people had the same opinion about Goldman: that they were doing business not as a bank, but rather as a "gigantic hedge fund". Several friends who interned in other BBs said they heard similar comments from senior people in their teams/divisions.
This is a really interesting subject. So do you all view GS as an evil corporation that is making immoral profits from taxpayer money?
I'm curious to see if this is a common opinion on this board. That would be interesting because it seems that everyone here wants to work for these companies anyway
Who the hell wouldnt want to? the goverment takes enough cheese out of your paycheck to put up section 8 housing and support 53% of america that is on some kind of welfare....its a two way steet. "think outside the box" survival of the fitest.
So, let me get this straight. Your defense is "two wrongs make a right?" If you're alright with your taxes going towards funding record bonuses at Goldman, I'm sure you wouldn't mind writing me a check then...ya know, because it's a two way street.
PM me and I'll get you my pay pal info. Look forward to it.
It's nice to see some level-headed criticism towards Goldman. That's a solid change from the "Goldman is run by evil Jews.." crap you hear all the time.
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