I understand that Goldman representatives met with senior staff of Senate Banking, House Financial Services, the Joint Economic Committee and other leadership staff, late last week, to put forward a view on the good bank – bad bank type of approach.

Sources have informed me they wonder if the plan discussed by Goldman was put forward in coordination with, with knowledge by, or with support from the Treasury Department. Included in the presentation are several telling statements including:

- “Government actions to date have prioritized interacting with banking institutions rather than directly influencing troubled asset prices”;
- “To date, banks have executed minimal de-risking, have not attracted meaningful additional common equity capital or sufficiently increased lending”; and
- “A government program which provides non-recourse loans for asset markets should have a material impact on addressing these current challenges and could be an attractive alternative for the “aggregator bank” to explore:”

I am unable to vouch for the authenticity of the following document but I was told, by senior Hill sources, it was provided to those legislators and their staff briefed by the Goldman representatives. I have little reason to doubt my multiple sources.

>

09.01.29.Good Bank-Bad Bank

Category: Bailouts, Politics

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

56 Responses to “Goldman’s Rescue Plan ?”

  1. doug says:

    I am not smart enough to understand, but did they leave out a ‘bad bank structure’ with an example like Wamu? I don’t see one like that in their comparison. What am I missing?

  2. Marc399 says:

    I for one am quite unhappy with the guy I voted for, Obama.

    He should either let the big banks go out of business or nationalize them. Once the shareholders start screaming, things will change. It’s not the CEOs fault but the shareholders and BODs that enabled them. The CEOs are greedy, that’s why they were hired in the first place. If you’re going to hire a hitman, you’d better keep an eye them or you’ll be their next hit.

  3. macro says:

    The Goldman Sachs presentation conveniently ‘forgets’ to mention that the Swedish Securum was preceeded by a full nationalisation of the bank which ‘sold’ the assets to Securum for the nominal value of 10 cents (equaling 1 Swedish krona).

    I TOTALLY disagree with the bogus explanation about illiquidity premiums pushing the value of of the ABS/CDO/MBS/Agency securities that are held by the banks. The California data says it all. The prime market is now going exactly down the same pipe of the sub-prime and alt-a market. Even if such a illiquidity premium causes the bid ask spreads to be wide, such a ‘illiquidity premium’ typically benefits either a) the buyer or b) the seller. The Goldman Sachs guys seems to think that the seller have a god given right to retain that premium. Typical Wall Street entitlement thinking/hogwash.

  4. constantnormal says:

    When GS talks about the banks providing “Equity” in exchange for the government providing “Leverage”, is what they are saying is that they want to be able to sell shares (prolly owned by senior mgmt, or possibly shelf registrations diluting existing shareholders) to the government, for some multiple (“leverage”) of their actual market value, like maybe 10-20-40X?

    All that GS cares about is helping GS, whether or not this helps the nation, the economy, the taxpayer or the banking system is irrelevant.

  5. newsieuzi says:

    This would explain why there’s been all this dissembling, diffusion, misdirection… LYING going on up on the hill.

    Check this out to see what I mean:

    http://tv1.com/playlists/225

  6. pmorrisonfl says:

    Talk about a market hold up.

  7. DeDude says:

    They say lets save the shareholders, CEO’s, CFO’s and everybody else who made the mess.

    I say lets nationalize them and then sell them off in small pieces to mid-size banks that have had the smarts to position themselves to be able to purchase those pieces. You know punish the idiots that did wrong and reward those who didn’t. There is going to be all kinds of con-games and lies to avoid a just solution. The final outcome will show us how much better the Obama administration is than the previous group of criminals in charge.

  8. harold hecuba says:

    why my responses are being deleted i do not konw. my question has been why 0n earth firms like morgan stinky and glodman stack have been recipients of taxpayer money. if ever there was an outrage by the taxpayer this should be at the top of the list. these firms are nothing but PARASITES.

  9. Maseratij says:

    Nationalize, Nationalize, Nationalize blah blah blah do it or shut up. Every day the executives of these banks are selling shares of stocks at whatever price they can. I would love to see the insider trading numbers for stock sales in financial stocks. Bastards Burn them now so there kids, ok their grandkids have to work for a living.

  10. going broke says:

    Questions:

    What would happen if they just let these companies fail?

    Wouldn’t it cost the taxpayer less in the long run?

  11. Mannwich says:

    Hank Paulson made off with $500MM in ’06 (much of it tax free, I believe) and is from Goldman. Goldman only looks out for Goldman. That’s their only agenda. I rest my case.

  12. whskyjack says:

    Went and talked to BOA about refinancing our debt and locking in these low interest rates.
    4.5%

    (ok with the points the real APR is 5.25%. But I just love the way 4.5% rolls off the tounge)

    We could lock it in for 60 days because they said they were so busy that it would take them that long to process everything.

    Jack

  13. In other words, the government should lend money so that people can leverage up and buy securities and other assets from Goldman at inflated prices, rather than the real market prices. This, despite the fact that the problem started with people borrowing money to buy assets at inflated prices…

    This is good for Goldman. Bad for the government, worse for anybody stupid enough to buy the “depressed” assets from them.

    The problem with this is that it starts out with the presumption that the market is wrong, and that the price currently being paid for the assets is “unreasonable.”

    Lesson for the future: Build your capital base with assets that are easily valued and stable.

    -btc

  14. mitchn says:

    My read: Even with their boy running Treasury, the GS mafia does not think enough has been done to bail out the shadow banking system. To which we, the taxpayers, should say: “No transparency, no more f*ckin’ money.”

  15. Steve Barry says:

    Bob Doll is the new Abby Joseph Cohen…good job Bob!

  16. Mike in Nola says:

    The only thing that holds out hope is tha Obama made some remark yesterday or today indicating that some of the banks weren’t viable and would have to be disposed of. Hope he wasn’t talking about the little guys. Of course, could just be cover for the deal being made.

  17. dunnage says:

    Don’t want to leave Goldman out.

  18. dunnage says:

    1. You gave hundreds of billions to us. We kept it. You need to do something about our assets.

    2. So because we insolvent and you did the above we necessarily did nothing.

    3, N0n-recourse loans are almost as good as the Cash Paulsen handed us, and therefore would be like a nice thing for you to do for us. Aggregator Bank, too many g’s and makes us think of gravel.

  19. Steve Barry says:

    I love the explanation given by the banks for giving bonus money out after getting TARP funds…”it’s a different pot of money.”

    Banks that we trust with our money don’t seem to know how currencies work…they are fungible. Unless you mark all your money and don’t intermingle funds, it’s all one pool…that’s the benefit of having currency.

  20. damo says:

    I have a better idea:

    1. Start a 3 different hedge funds with a mandate to invest only in certain troubled assets
    2. Let them raise as much equity capital as they can
    3. Give them $200b of debt each at government borrowing rates in return for a series of options at higher prices
    4. Funds must be fully invested within a 12month period (with some get out clauses if liquidity returns)
    5. Let market pricing sort it out

    Benefits:
    * If the banks don’t sell these securities (because they are worried about realising losses) then with no supply and lots of buying the prices should fly up to a level where the banks are happy to get rid of them.
    * The three funds will need to compete on price to get the big licks of debt from the various banks that hold them, but also have thier own performance issues to consider.
    * Banks can’t just make their own price as they have to compete with other banks on pricing
    * Equity investors in the funds will (probably) get a great return if there are only a few of them (as leverage will be astronomical with $200bn of debt), but the more equity that gets ends up in these hedge funds the lower the returns but the more bad debt that will be bought back (good for everyone) and the lower the risk for the government. If they are open for investment but closed for redemptions.
    * If hedge funds make a motza then government exercises options to assuage public outcry
    * Chances are you will see other traders wanting to front-run the portfolio and getting in to buy these securities, helping to push prices up
    * With a short time frame to full investment, banks should be able to hold on to loans until they reach more realistic levels. If current levels are in fact realistic then these banks need to be nationalised anyway so we will have lost little (if anything)…

    Negatives??

  21. km4 says:

    Goldman’s Rescue Plan ….

    Cry me a FREAKIN’ RIVER, you FREAKIN’ ^#&@%$&#^!!!
    http://www.dailykos.com/storyonly/2009/2/2/144544/9825/507/692080

  22. psm2000 says:

    I was able to understand how Bush helped Wall Street bankers including GS. I am not understanding why Obama is doing the same. I was expecting better from President Obama.

    It has been proven by now that the Fed and Treasury guys are either 1> not smart or 2> not honest or both. In any case, they should not be in this administration. I like Obama and admire his smartness but this is a puzzle to me.

    I think the last corrupt money making scheme will be the Bad Bank. That will empty the US treasury and bankrupt our future.

  23. super_trooper says:

    When will it hit the left that Obama is just like any other president. And like most democrats in the pocket of the financial sector. Why pick Larry Summers? And why on earth would you listen to Goldman Sachs at this juncture. They’ve clearly shown that they know how to F&*k things up. If anything, hire some Swedish experts (yeah real socialists) to clean the mess up. At least in socialist countries they know how to put taxpayers ahead of stock holders.

  24. bcasey says:

    I think Paulson and GS should be cannibalized when their assets are nationalized.

  25. capt dave says:

    Everybody in the US needs to know that GS was the largest contributor to Obama. I tell that to people, and they repeat the MSM lie that he raised all his money from little people on the internet. Obama ended up raising 4 times the money that McCain raised, who was supposedly the candidate of big business. The election was a switcheroo, Obama was the big money’s man all along (you dont rise in Chicago politics if you cant take orders), and McCain was set up to take the dive.

  26. karen says:

    capt dave, who cares where the money came from this time. Obama is our only hope.

  27. AGG says:

    Well, the old “buy shares and make money” seems to be working. Why not nationalize them with a twist; the people own the shares, vote for the board of directors, etc. It’s called Democracy. Some of you dictatorship corporate types might even benefit from it.

    Wells Fargo & Co. says it will pay a $371.5 million dividend to the U.S. Treasury, which bought 25,000 shares of the company as part of the federal bailout package.

    The government bought the shares for $25 billion under the Troubled Asset Relief Program, which is designed to unfreeze the credit markets and boost the economy.

    Wells will pay the quarterly dividend on Feb. 15.

  28. AGG says:

    psm2000,
    Holder, the new AG, was confirmed today. Give Obama a little more time. Holder is going to tear ass and he’ll be watching the SEC and Treasury like a hawk.
    Obama is being subtle, not just careful. Have you noticed that our soldiers have stopped getting killed? The Pres already read Petreus the riot act. Things are changing. Remember that there are still some very dangerous and noisy people controlling the media. This bullshit came to full bloom in 30 years. Give Obama some time. He’s no saint but, unlike Bush, he is a patriot.

  29. AGG says:

    Hey, GS is advising traders to buy puts on the S&P 500. They think it’s going to tank by year’s end. Now is the time to call their bluff. BUY CALLS and LEAPS for a modest upturn ( about 1 to 2 %) if you think the administration will restore confidence. Otherwise, go ahead and bet our economy goes even more to hell this year. Put your money where your mouth is folks.

  30. Mike in Nola says:

    Speaking of Wells Fargo, Mish goes through Wells’ balance sheet and finds almost a trillion in loans on the balance sheet, much of it HELOC’s and CRE that doesn’t sound too solid. How much are they hiding off balance sheet?

    http://globaleconomicanalysis.blogspot.com/2009/02/wells-fargos-balance-sheet-scaring.html

    Do will really thing the bad bank can hand all this from only the 3rd biggest?

  31. AGG says:

    More good news:
    Ha Ha Ha Halliburtun paying the US government 551 millon smackers to settle the Nigeria bribery charges case. This was when Cheney was the CEO, no less. Ain’t it amazing how this was “settled” just before Holder is in and just after Cheney ain’t VP no more? You just can’t make this up. Happy days are coming folks.

  32. Mannwich says:

    Give it a rest, capt dave. I was one of many first time “small donors” to O’s campaign. He may have gotten big donors as well but the small donor thing was/is no lie. Please give a freakin’ rest. The man’s been on the job for two weeks and is facing maybe the toughest job that any president has faced in our lifetimes due to the shit sandwich your boy W handed him.

    karen’s (with a small “k”) right. As sad as it may be, O’s our only hope since Congress seems to think that it’s business as usual. You should be rooting for him too, unless you’re a regular Rush listener.

  33. psm2000 says:

    @AGG,

    I’ll surely give Obama 4 years to put this house in order. I do not know much about Holder but even a monkey is going to look upstanding and competent when compared to the earlier frauds. Given this, I am not sure why Holder needs to do anything more, in other words, I am not sure why you are so confident about Holder.

  34. Stuart says:

    Many of the sticking points come across as conveniently termed in a gentile sterilized manner such as describing the negotiated settlements between the Govt and Institution at establishing asset prices. A rather important detail I would think. For any of the options that require the injection of funds by the Government, it is never said where the Government would get those funds from in the 1st place. Considering that we’re discussing trillions, another rather important detail and I should think THE important detail when one factors in that just at a time the Treasury needs the funding the most, external sources of financing are drying up due to curtailed trade surpluses. Where does the Govt get 4,000 Billion from. The market choked last week partially due to the crowding out of a measly $70 odd billion. $4,000 billion (4 Trillion) it would seem is beyond reach of borrowing. Who has that much left available without absolutely tanking what is left of every other market….. or does Ben just print it.

  35. Sus Anoo says:

    The big problem (aside from being totally unfair) is giving a bunch of money to shareholders and greedy banksters does nothing to address how this mess started.

    No I am not talking about the careless loans made just for the short term profits. I am talking about the reasons WHY so many people have borrowed so much. You can measure it a bunch of different ways but the reality is most of America has got almost nothing from the past 10 years of economic growth. The 2000s were not just a time when people borrowed far too much, it was also a time when income inequity meant if you didn’t borrow you couldn’t keep up. As even the wall street journal notes (link below) the only time in modern history that income inequity was worse was in the 1920s, which was of course rapidly followed by a bubble and a massive multi-year depression.

    Of course the US isn’t the only country that saw income inequity escalate. Japan in the 1980s saw a rapid increase in income equity followed by a bubble and a multi-year depression that they still haven’t come out of (link below). There are likely a bunch of reasons why Japan has spent the past 20 years with minimal economic growth. But one of the big differences between the US in the 1930s and Japan for the past 20 years is that back then the US reduced economic inequity and Japan didn’t.

    This isn’t rocket science. If 80% of the population are barely scrapping by after paying for essentials and they won’t be consuming or investing or innovating and taking risks. Debt or “asset growth” might make it seem like things are okay for a bit, especially during a debt fueled bubble, but neither are income. Nor am I talking about “socialism”. Very little economic inequity and there is no incentive to try and you get slow economic growth. Too much economic inequity and people will just be focused on getting by and you get slow economic growth. Perhaps the 7% of income that went to the top 1% in the 1970s was a bit low (perhaps not) but clearly the 24% of income that went to the top 1% last year was way too high.

    If Obama and the dems actually want to avoid Japanifiying the US economy they need to stop trying to be Bill Clinton and start trying to be FDR. If the top 5 US banks are zombies that require a few trillion dollars in taxpayer money to shuffle around then fine the government should use the money. But if taxpayers are buying the banks then taxpayers should own them. I don’t know the best way to do that in a way that addresses income inequity, but I know the big ripoff won’t be it. Personally I think it would be pretty amazing to nationalize them, clean them up, mark down the debts and then give every single one of the 300 million US citizens (yep including children) an equal share of the good banks that come out.

    http://online.wsj.com/article/SB119215822413557069.html?mod=hpp_us_whats_news
    http://www.usatoday.com/money/world/2006-07-23-japan-usat_x.htm

  36. DL says:

    Steve Barry @ 7:08

    The only way that I ever watch CNBC is via a DVR recording.

    Bob Doll is one of those perma-bulls that I “fast-forward” through.

  37. Blurtman says:

    Somebody should call Goldman Sachs out already. Their questionable reputation as the smartest of the bunch has been totally exposed. Now they look like a bunch of mooching buffoons. C’mon, this emperor is absolutely stark naked, and it ain’t too pretty. Let these clowns go down and let the market elevate the next contender. They are a total joke.

  38. DL says:

    psm2000 @ 8:53

    Yeah, I don’t understand why Obama is so beholden to the banks.

  39. Big Tony says:

    With all due respect, I’d like to side with capt dave @ 10:23 pm. By my watch here is what Obama has done during his first month on the job:

    -Supported 2 tax evaders for his appointed positions (Geithner & Daschle). (A common person would be prosecuted for similar charges).
    -Negotiated with insolvent bankers that are at the mercy of the federal government. The same bankers that have me and the majority of the population F@$# LIVID, over their greedy, deplorable actions.
    -Endorsed an 800+ billion dollar stimulus plan full of waste, the very waste that Obama himself said several weeks ago would not be present when asked by a reporter.

    I am politically neutral, but consider me unimpressed, and as stated above, a monkey could have done a better job than George W.

  40. Mannwich says:

    @Big Tony: I hear you about Geithner and Daschle but O’s been on the job all of TWO weeks, not a month. Good grief. Give the guy some time. He’s not going to swoop into the cesspool that is Washington and clean up all its excesses in two weeks. He may not succeed but we do have to give it more than two weeks.

  41. ThreeFold Commonwealth says:

    No bail outs until you’re in jail.

  42. mark mchugh says:

    Here’s the thing, guys,

    I don’t think we’ve got any margin for error right now, and quite frankly, I don’t trust the guys whispering in his ear. I’d rather see this package turned inside out and delayed, rather than rubber-stamped.

    Remember what happened in September. We were so scared by a 600 point sell off (if I remember right) that we threw our wallets at Paulson. Did he save us? Our retirement savings? Will he go to jail for making terrorist threats? Nah, he just wanted to scare up some bonus cash.

    For God’s sake, let’s not make the same mistakes again.

  43. Big Tony says:

    @ Mannwich

    I agree, it is extremely early in Obama’s term. His real report card isn’t for several more years. However, I can’t overlook Geithner and Daschle. From my peanut gallery in the world, it appears the majority of people are already disgusted by the skeletons of these 2 appointees. O would have gained tremendous respect had he tactfully dismissed them for lack of personal responsibility and/or competency. It is early though….

  44. Sus Anoo says:

    If the top 5 US banks are zombies that require a few trillion dollars in taxpayer money to avoid death then fine the government should use the money. But if taxpayers are buying the banks then taxpayers should own them. I don’t know the best way to do that in a way that addresses income inequity, but I know the big ripoff won’t be it. Personally I think it would be pretty amazing to nationalize them, clean them up, mark down the debts and then give every single one of the 300 million US citizens (yep including children) an equal share of the good banks that come out.

  45. Expat says:

    Executive summary of the Executive Summary;

    1. The bailout was nice since we got our bonuses, but now you have to buy all our toxic crap at par.

    2. We won’t do a damn thing to help the economy until you achieve number one.

    3. Make sure you leave about $50 billion in the kitty to pay for bonuses for next year.

  46. haxen says:

    4. We need to renovate our offices again. Earmark that as well.

  47. Steve Barry says:

    QQQQ volume ahs been below its 100 day MA for 47 straight tading days…not a good sign when it happened last year.

    Dryships plunging to new lows…another bad indicator for longs.

  48. Steve Barry says:

    BTW, despite MSM touting Nasdaq yesterday, it made a lower low and lower high.

  49. JungWhippersnapper says:

    General Obama: Years ago, you served my father in the community organization wars; now he begs you to help him in his struggle against the Empire. This is our most desperate hour. Help me, Obi-Wan Kenobi; you’re my only hope.

  50. RangerTurtle says:

    Goldman shorted other banks to survive and are above NOTHING to keep themselves alive now, including propaganda to help rid themselves of toxic assets.

    They can’t even predict oil prices “”.

  51. dead hobo says:

    So, in order to fix all the banks, Uncle Stupid has to give horribly managed banks a do-over. I think this might be possible, providing each bad bank participating offers up the board of directors and the existing management team as human sacrifices.

  52. dead hobo says:

    RangerTurtle Said:
    February 3rd, 2009 at 9:09 am

    Goldman … can’t even predict oil prices “”.

    reply: Yes they can, but their prediction depends on if they are short or long at the time, if gullible money confuses their hype with inside knowledge, and if they can collect fees somewhere in the trade.

    BTW, their prediction does not have to be correct. It just has to be convincing enough to fool people into thinking they know what they are talking about. Then they make money if the gullible fall in line, once again.

  53. zeppiecr says:

    Can someone tell me how I can see the document I keep getting errors.

  54. TruthTeller says:

    Where’s the blog about the bogus b.s. bail out package that will be the single worst decision made by any government, business, or person in the history of the world?

    How can you single out banks, CEOs, homebuyers and investors for making stupid or greedy decisions without drawing attention to Congress’ pork barrel that eclipses all these?

    This blog has no credibility.

  55. batmando says:

    (1) When Joe The Plumber, Joe Six-Pack or I are insolvent, our cashflow or lack thereof cannot cover our obligations, we are unable to obtain add’l credit to see us through our hard patch, and we are forced to file bankruptcy, we don’t have the option to hold out for better price for our assets that are “liquidity/leverage premium”-challenged and that will be worth so much more somewhere down the road.
    No, the sheriff auctions off those illiquid assets.
    So why should Goldman Sucks receive different treatment for their “high risk assets” whose “prices reflect ‘liquidity/leverage’ premia rather than cumulative loss expectations”?

    (2) IF Obama is putting on a superb poker face, setting up to call the bluff by GS, BAC, et. al. (BTW I give less than 50/50 odds that is his game), how soon might we see the bank holiday when they all get closed down and re-opened under new management? Would love to see them parceled out to responsible regional banks that have kept their balance sets relatively clean. Question is, are there enough (any) of them to swallow the pieces?

    (3) IMHO, Geithner and Daschle as well as the pork stimulus bill seriously damage “Change we can believe in”. All of piece, all too reminiscent of last fall’s threats of either pass TARP or it’s martial law.

  56. batmando says:

    “kept their balance sheets relatively clean.”