My recent tirade against bailing out the hedge fund half of AIG makes much more sense when you consider who is actually getting all of the taxpayer largesse: Counter-parties of AIG, especially one Goldman Sachs. Some estimates have been in excess of $25 billion to GS.

As AIG ran into the arms of the Fed for the first of 4 bailouts, Bloomberg reported:

“As much as $37 billion from federal bailout loans to American International Group Inc. has gone to investment banks including Goldman Sachs Group Inc., the firm Treasury Secretary Henry Paulson used to run.

Without the government money, Goldman, Merrill Lynch & Co., Morgan Stanley, Deutsche Bank AG and other firms could have become some of the biggest creditors in a bankruptcy filing by AIG, the world’s largest insurer, because of its billions in losses on subprime bonds and corporate debt. The firms received cash as AIG borrowed from a Federal Reserve credit line endorsed by Paulson, Goldman’s former chief executive. The insurer had borrowed $44.6 billion from the credit line as of Sept. 25, the Federal Reserve reported that day.”

Other rumored recipients of taxpayer dole include Morgan Stanley, Merrill Lynch, and Deutsche Bank.

Why rumored? Because of the infuriating refusal to turn over any information as to who these counter-parties are by the Fed and Treasury:

“The Fed refused yesterday to disclose the names of the borrowers and the loans, alleging that it would cast “a stigma” on recipients of more than $1.9 trillion of emergency credit from U.S. taxpayers and the assets the central bank is accepting as collateral.

Fed secrecy was the focus of a Senate Banking Committee hearing today in which the panel’s top two members said the central bank’s reluctance to identify companies benefiting from the American International Group bailout risks undermining public confidence in the government.

“If the American taxpayer’s money is at stake, and it is, big time, I believe the American taxpayers, the people, and this committee, we need to know who benefited, where this money went,” said Senator Richard Shelby of Alabama, the committee’s top Republican. “There is no transparency.”  (emphasis added)

Who is being made whole at the taxpayer expense? The taxpayer isn’t merely getting screwed here, we are taking the royal shaft up the patootie in previously unimaginable ways.

Nouriel Roubini explains the refusal to allow the public to learn how their monies are being disbursed:

“In the meantime, the massacre in financial markets and among financial firms is continuing. The debate on “bank nationalization” is borderline surreal, with the U.S. government having already committed–between guarantees, investment, recapitalization and liquidity provision–about $9 trillion of government financial resources to the financial system (and having already spent $2 trillion of this staggering $9 trillion figure).

Thus, the U.S. financial system is de facto nationalized, as the Federal Reserve has become the lender of first and only resort rather than the lender of last resort, and the U.S. Treasury is the spender and guarantor of first and only resort. The only issue is whether banks and financial institutions should also be nationalized de jure.

. . . AIG, which lost $62 billion in the fourth quarter and $99 billion in all of 2008 and is already 80% government-owned. With such staggering losses, it should be formally 100% government-owned. And now the Fed and Treasury commitments of public resources to the bailout of the shareholders and creditors of AIG have gone from $80 billion to $162 billion.

News and banks analysts’ reports suggested that Goldman Sachs got about $25 billion of the government bailout of AIG and that Merrill Lynch was the second largest benefactor of the government largesse. These are educated guesses, as the government is hiding the counter-party benefactors of the AIG bailout.”

Could Goldman Sachs dig in any deeper at Treasury?

Yes they can. Over at naked capitalism, Yves has the story of yet another highly conflicted Treasury nominee, Sullivan & Cromwell chairman H. Rodgin Cohen:

Sullivan & Cromwell has long been the outside counsel for Goldman, and outside counsel is a vastly more important role for a securities firm than just about any other type of business. In the stone ages, when I worked for a few years at Goldman, certain S&C partners had so much clout at Goldman that they could get a mid-level banker fired. And even then, “Rodg”, head of the banking practice, was a very influential figure at Goldman.

All for the greater glory of Goldman . . .

>

Previously:
Solvent Insurer / Insolvent Insurer (March 4, 2009)

http://www.ritholtz.com/blog/2009/03/solvent-insurer-insolvent-insurer/

Sources:
Fed Refuses to Release Bank Data, Insists on Secrecy
Mark Pittman and Craig Torres
Bloomberg, March 5 2009

http://www.bloomberg.com/apps/news?pid=washingtonstory&sid=aG0_2ZIA96TI

The U.S. Financial System Is Effectively Insolvent
Nouriel Roubini
Forbes, 03.05.09, 12:01 AM EST

http://www.forbes.com/2009/03/04/global-recession-insolvent-opinions-columnists-roubini-economy.html

Goldman, Merrill Collect Billions After Fed’s AIG Bailout Loans
Mark Pittman
Bloomberg, Sept. 29 2008

http://www.bloomberg.com/apps/news?pid=20601087&sid=aTzTYtlNHSG8&

Category: Bailouts, Derivatives, Hedge Funds, Markets, 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.

87 Responses to “Backdoor Bailouts for Goldman Sachs?”

  1. Mannwich says:

    The U.S. is officially a banana republic with nukes.

  2. Stuart says:

    stinks to high heaven, yup. Little wonder BB et al refuse to disclose ultimate recipients. They know they would be lynched. I still don’t understand how they are able to refuse to disclose as I understood that was supposed to be one of the terms embedded in the original legislation, i.e. that they keep congress appraised as to the details of what the funds were spent on.

  3. Paul Jones says:

    Unsteal the money.

  4. vaughn says:

    Correction: the U.S. officially a fascist oligarchy with nukes

  5. zot23 says:

    The death throes of empire don’t always make sense on paper. This is the last gasp of the old guard, trying to sacrifice the future to retain the impossible status quo of the past. They’ll go down, but not before they’ve grabbed for every cent they can get their grubby little hands on. What do they have left to lose?

  6. batmando says:

    Free markets being predicated on price discovery based on information available, TPTB can not afford to have the markets work freely as prices based on greater transparency would be an entirely different kettle of fish. As it is, current markets reflect bias toward worse case scenarios, increasingly so the longer the Treas/Fed charade goes on.

  7. leftback says:

    Surely the only reason Timmy is in the job is to manage the messy disentanglement of GS with those interesting CDS chaps in the AIG shop up in Wilton. It’s kind of intriguing that he doesn’t have any staff though. I still can’t shake the feeling that they locked him in with a couple of mops and told him to fix the mess.

    In my more lucid dreams I imagine the President thanking Timmy and Larry for their service and standing next to Volcker and Roubini, bringing in “The New Economic Team” to break with “The Failed Policies of the Past” and announcing the nationalization of GS and MS along with the rest.

    If our friend Nouriel is right (and he always is), then I imagine that Helicopter Ben is probably hard at work printing the next $1.5T right now. After all, the chaps in the UK have already started.

  8. Mannwich says:

    Excuse me, vaughn. You are indeed correct. Thanks for pointing that out.

    Speaking of criminals, Bloomberg reporting that new charges will be filed against Madoff. Don’t have details yet.

  9. usphoenix says:

    Cafe had a Stiglitz clip that blew my mind. $700B Bailout could have capitalized a clean, non-toxic entity capable of creating $7T in lending capacity.

    That seems to place our “leaders’ behind bars. Dumb and dumber rip us.

  10. fred55 says:

    If there are any s/holders of GS out there who would like to bring
    an action against them to compel disclosure on the ground that it
    is material, post. I may consider bringing such an action if there’s
    enough interest to justify it (I do securities fraud litigation). I’m
    not pitching for business I’m just disgusted but GS is a public
    company and $25,000,000 is not immaterial and wouldnt you
    think it would have to show up somewhere (cash flow statement,
    balance sheet, somewhere)…as well as be specially disclosed…

  11. CNBC Sucks says:

    How has the Goldman investing banking / corporate finance business activity been affected? Anyone follow the firm closely enough to know?

    I should probably just open the 10Q and read between the lines, but I am too lazy.

  12. fred,

    seeing as this an ongoing Carnival Ride, if you really want to do that, I’ll buy GS to join your Class..

  13. fred55 says:

    im afraid you can’t but thanks for the comment

    first of all, it would be one hell of a fight (but im up for it and im in nyc and bring it on)
    however…

    assuming there is a viable legal theory, and im off-hand certain enough that there might
    be to justify the research time on spec (ie i eat it)…

    if it would be derivative rather than direct, and it probably would be on some theory that
    the corporation as a whole (GS) is being harmed by their involvement in this, then one would
    have to have been a s/holder at the time of the harm and continuously all the way thru the
    time of the action

    also fwiw there pretty much are no class actions in securities fraud cases anymore

    didnt mean to lecture you i just want to avoid posts on technical issues, yes i know what
    im doing, no im not offering to be hired, and so on

    i am however expressing a willingness to consider action in what i would consider to be a
    matter of serious public interest

    fyi…

    i am also a quant and i used to do one-off structured cds design and i knew all about what
    the ratings agencies did and for all of early 2007 i got called a moron for insisting that what
    until then had been 1st amendment privilege (ratings agencies would assert that they were
    protected by the 1st amendment as they were only offering opinions) would not stand up to
    the new reality that they had a seat at the table as underwriters

    no one ever listens till its too late, i fear

  14. eren says:

    There is GAHPT, there is no PPT.

    GAHPT: Goldman and Hedgies Plunge Team, secret meeting at GS with Hedgies if you remember

  15. KidDynamite says:

    there’s another fantastic GS conspiracy theory – try this one on for size:

    theory: GS is the counterparty to Buffet’s long term SPX put sales (with no collateral)…

    they surely have some sort of hedge against this – but the problem is that Buffet doesn’t post collateral – so when the trade goes GS’s way, they make money on the Buffet side, but they don’t get that mark to market margin…. however, they have to PAY out on the margin for their hedge…this creates a problem, so they go to Warren and say “hey buddy, how about a little capital from you,” and hence Buffett’s investment last year.

  16. EAR says:

    “You only find out who is swimming naked when the tide goes out. ”

    And it’s especially painful when there’s a torrential snowstorm on the beach.

    The crooked lead the blind. Right off a cliff…

    http://www.reuters.com/article/topNews/idUSTRE52414820090305

  17. fred,

    not to belabor this, though, I thought your point was re: lack of reporting of material events..thereby, furthering injury..

    that is ongoing, no?

  18. leftback says:

    eren says: “GAHPT: Goldman and Hedgies Plunge Team, secret meeting at GS with Hedgies if you remember”

    Fly on the Wall reports that the following transpired: “OK, everyone, as soon as Obama gets in, sell the SPOOS and the QQQQs, let’s bury the f***er, then buy all the commodities you can lay your hands on.” True dat.

  19. Transor Z says:

    $9 trillion. Remember when everyone was gasping at the horrible prospect of a mere $4 trillion price tag in the fall?

    Personally, I wouldn’t care nearly as much if I thought the bulk of the bailout money was going to meet payroll for rank-and-file bankers and financial analysts at GS and elsewhere and buy time so these institutions could live to fight another day.

    But it isn’t. Huge chunks are going to small numbers of persons at the top and rank-and-file employees are losing financial jobs that may never come back in the U.S. after all is said and done.

    The deal in capitalism has always been that the capitalists are entitled to reap the lion’s share of reward on the theory that they risk the most, they are the drivers. True capitalists everywhere should want these individuals called to account — and should stop the bullshit kneejerk partisanship — because if things go to shit as a result of loss of faith in government and free-market capitalism, history has lots of examples of the hateful ideologies and demonic personages waiting in the wings to fill the power vacuum.

    The next crop of charming sociopaths we’ll fall prey to will take a lot more than just our money.

    In the end, history will show that the mechanisms of systemic failure were simple and easy enough for everyone to understand, not just the priestly banking caste. Easy money, over-large/complex and under-regulated financial institutions, sprinkle in the usual amount of human arrogance and greed, lust for power, political corruption. That which hath been is that which shall be; and that which hath been done is that which shall be done: and there is no new thing under the sun.

    Time for lunch.

  20. jpm says:

    “The Fed refused yesterday to disclose the names of the borrowers and the loans, alleging that it would cast “a stigma” on recipients

    So instead, the market assumes EVERYONE is on the take, and the stigma is on the whole sector.
    Nice call, Fed.

  21. jeff in indy says:

    i thought this was old news. wasn’t this discussed when sir henry made the initial aig ‘loan’ at $25b, which just happened to coincide w/GS’ aig exposure. talk about deja vu all over again. it reminds of the the movie line from ‘barbarians at the gate’ when kravis’ partner (forgot his name) said, “well, henry, a rumor is just a premature fact.”

  22. Myr says:

    It’s amazing how little(i.e. “nothing”) the public knows about the extent of the bailout. One day they’ll wake up and wonder how it is that they’ve been had…at which point the government will “rectify” the situation by turning around and screwing those who hold all that dollar debt by devaluing the currency. This market catastrophe will do it’s best to take everyone’s money. The tricky question is when to move into hard assets(gold, real estate, etc.) because, as far as I can tell, you actually want to be in dollars this year as deflation kicks our collective ass.

  23. fred55 says:

    I have no opinion whether someone buying stock in a company that is hypothetically involved in a continuing violation of law, and knows such at the time, has standing…you would think they would…

    As to the Buffett put, I suspect that the put buyer is large life insurer hedging their risk on annuities that are market-tied…those annuities usually guarantee that you cannot lose money and give you some participation rate, like 70% of the upside…No one else would rationally buy a 10 year at the money put for any reason I can see, even a pension plan, because those things (pension plans) are at least theoretically built to warehouse equity risk and in fact prohibit their investment advisers from using derivatives.

    Also not to put too much on this but at least in theory in liquid and complete markets continuous delta hedging can show a profit, and there’s no reason GS would let Buffett have the profit (assuming Buffett is hedging at all; who knows).

  24. DL says:

    Yes, but it’s all O.K.

    The reason? Because Bernanke is ANGRY at the AIG executives.

    That wipes the slate clean.

  25. SAH says:

    Hank Paulson, Bob Rubin. Geithner’s chief of staff is a former GS lobbyist. Who else do we have as impartial (ahem) fixit guys for the financial system?

    I’m looking forward to reading House of Cards: http://tinyurl.com/bjaqp7

  26. Andy Tabbo says:

    This is the type of stuff that will generate pitchfork and torch type mob behavior. The Feds and Treasury have to come clean quickly on this stuff….

    I can see some “civil unrest” in our futures….

  27. AT,

    so do they: “Including the insights of a number of noted scholars on the subjects of “wild cards” and “strategic surprise,” he argues that future disruptive, unconventional shocks are inevitable. Through strategic impact and potential for disruption and violence, such shocks, in spite of their nonmilitary character, will demand the focused attention of defense leadership, as well as the decisive employment of defense capabilities in response. As a consequence, the author makes a solid case for continued commitment by the Department of Defense to prudent strategic hedging against their potential occurrence.

    Survey: Known Unknowns: Unconventional “Strategic Shocks” in Defense Strategy Development
    http://www.strategicstudiesinstitute.army.mil/Pubs/Display.Cfm?pubID=890

    “It wouldn’t matter whether Obama or Bush was in office; the only thing that was necessary was for the economic conditions to degrade precipitously, and for average Americans, who played by the rules, paid their taxes, paid their mortgages and credit card bills, to see that they were going to be punished and forced to bail out the most irresponsible, and in many cases, overcompensated people in our society.

    Now that these responsible Americans see that they are at imminent risk of losing their stores, businesses, jobs and homes, due to a massively worsening economy, see that trillions of their tax dollars are being misappropriated and shipped to banks and financial institutions that helped ignite the fuse that led to the economic crisis, and now that they see that it does not pay to play by the rules nor go quietly into indentured servitude, there is going to be a mass movement at the grass roots level to basically ignore the structure and rules…”
    http://www.elitetrader.com/vb/showthread.php?threadid=152378

  28. leftback says:

    Andy, I have to agree. For the time being, I think that some non-violent civil disobedience should be imminent as soon as this spring. It would be a safe way of venting people’s frustration and maybe pushing the government towards clawbacks and perp walks, before peeps stop watching American Idol and the Bachelor and notice they’ve been fleeced. After that, if we have a hot summer, then things REALLY get ugly.

  29. natoK says:

    SAH Says:

    March 6th, 2009 at 12:32 pm
    Hank Paulson, Bob Rubin. Geithner’s chief of staff is a former GS lobbyist. Who else do we have as impartial (ahem) fixit guys for the financial system?

    Canada’s central Bank president is a former GS’er as well, Mark Carney. The headline from today’s national paper,

    OTTAWA — The Bank of Canada stressed on Thursday the urgency of fiscal action to stimulate spending and ease credit as a string of bad economic news batters consumer and business confidence.

    There’s that word again, ‘urgency’. He has also hinted at quantitative easing.

    I have to admit, all these guys can’t be THAT stupid. Maybe there is more to this co-ordinated effort than meets the eye? Britain Canada and the US central banks, all taking toxic crap from banks and filling them with cash, at the taxpayers expense ($$$ and standard of living).

    Meanwhile CHina is buying up hard assets all over the world to fund their growth AT ROCK BOTTOM PRICES. Who do you want to bet on in the long run?

    The GS masters of the universe must be in with the ONE world governmant nuts. They are creating socities so indebted, that they will be essentially bankrupt. What is next?

  30. Andy Tabbo says:

    Speaking of civil unrest…

    SP500 bottom pickers….I’d back those bids down 640ish now….this is not looking good in the very short term. I would be surprised if we don’t see a fairly rapid flush down to 640′s in the next 48 hours of trading. Call out the President’s Working Group on markets….aka…the PPT.

    At this point though, the moves down seem small relative to what we’ve seen….it’s just that the %s will seem big.

  31. km4 says:

    A tent city encampment in Sacramento, Calif grows as the economy worsens.
    http://www.msnbc.msn.com/id/29528182/displaymode/1107/s/2/

  32. jankynoname says:

    I’m just wondering where is our Board seats? I mean is owning 80% of AIG somehow not sufficient for a few seats on the company’s Board?? We should have taxpayer representatives on the Board of every company that has received TARP money, and especially at AIG. This way we can flush out where the money is actually going, instead of having our wimpy legislature try to beg these guys to hand it over. Total BS!

  33. natoK says:

    To add, I haven’t listened to the link, but there’s an hour long interview with G. Edward Griffin, Author
    of The Creature From Jekyll Island: A Second Look at the Federal Reserve. In his book he touches on bankers and the FEd and their cozy relationship. Give it a listen, he has an mp3 link to download.

    I am reading the book and am astounded to see how the playbook is the same from bailouts of the past. It is scary, really. ALways too big to fail, too interconnected, blah, blah, blah.

    At first it was millions, then billions, now trillions.

    Perhaps that site is a bit out there for readers here, but one has to admit, after seeing the list of blue chip penny stocks BArry posted, that what is going on in the markets is ‘out there’.

    http://www.financialsense.com/fsn/main.html

  34. CPJ13 says:

    Want to know what really gets me? This ’25 Billion’ to GS isn’t in the form of a ‘loan’ – it’s most likely a payout on CDS contracts that GS bought from AIG!! It’s ‘collateral posting’ or f’ing profit. THAT is what makes this criminal. Straight from the Treasury into GS’s income column. WTF.

  35. Kyle says:

    US announced the initial AIG bailout on Sept 16, 2009. Warren Buffett invests $5B in Goldman Sachs preferred shares September 23rd.

    Coincidence?

  36. DL says:

    I suppose that what’s happening is that the politicians are trying to push the problems off into the future as much as possible, even if those problems become much worse as a result.

    There’s no such thing as “transparency” in government.

  37. CNBC Sucks says:

    None of this matters if Obama or his successor – assuming that person is a Democrat – is able to get the progressive tax structure reinstated in this country. Not one bit. Right now, every one of us is angry because it is our money or our children’s money that is being used for the bailouts. But if we can get some semblance of sanity back in the tax code where the wealthiest Americans pay their fair share of the public-sector burden, who cares? Let the wealthy individuals who own the failing banks and their children pay for those corporate bailouts.

    I am not talking about Obama’s wimpy tax raises in his budget but a more structural, longer-term tax reform where the rich pay not only their “fair share”, but what is NECESSARY that they pay.

    http://cnbcsucks.wordpress.com/2008/12/18/taxation-is-the-lifeblood-of-civilization-and-only-the-rich-can-pay/

    And please stop defending the rich if you are not rich. Seriously…

    The Great CNBC Sucks
    Registered Republican

  38. miamiocean says:

    @fred55

    Here is a link to the asset purchase agreement between AIG and Maiden Lane II – the Fed’s little shell company for the TARP program to save AIG:

    http://idea.sec.gov/Archives/edgar/data/5272/000095012308017611/y73279exv10w1.htm

    Here is the shortfall agreement between Maiden Lane III and AIG — supposedly Maiden Lane III is where GS may be involved along with some foreign banks

    http://www.sec.gov/Archives/edgar/data/5272/000095012309000667/y73982exv10w1.htm

    It is all disgusting to me. The more news that leaks out the more I am outraged by the whole nest of lying thieves who have their paws on the taxpayer’s money.

  39. eleanorpagedarby says:

    What the hell is going on? Our parents and our friends’ parents are talking about retiring years later than they planned, and are worried being able to retire at all. Meanwhile bankers got ONLY $80 billion in bonuses this year and continue to get their hands on more bailout money.

  40. Schnormal says:

    josh marshall posted a really infuriating email today –

    (excerpt) ——————————————————-
    Respectfully, you guys are totally misunderstanding something crucial in the AIG bailout: Derivatives claims are not stayed in bankruptcy. (Yet another brilliant innovation from the 2005 bankruptcy reform legislation.)

    If AIG were to go down, derivatives counterparties would be able to seize cash/collateral while other creditors and claimants would have to stand by and wait. Depending on how aggressive the insurance regulators in the hundreds of jurisdictions AIG operates have been, the subsidiaries might or might not have enough cash to stay afloat. If policyholders at AIG and other insurance companies started to cancel/cash in policies, there would definitely not be enough cash to pay them. Insurers would be forced to liquidate portfolios of equities and bonds into a collapsing market.

    In other words, I don’t think the fear was so much about the counterparties as about the smoking heap of rubble they would leave in their wake.
    ——————————————————————-

    the rest is here —
    http://www.talkingpointsmemo.com/archives/2009/03/im_sure_the_knowledgeable_people.php

  41. Schnormal says:

    and leftback (7th comment) i love your dream, i have the same one.

  42. fully diluted says:

    Is there someone selling a derivative to bet that Bernanke will be employed by Goldman when his stint is over?

  43. bubba says:

    seems i’m a bit late…story of my life heh heh

  44. Schnormal says:

    yo bubba jinx! :)

  45. leftback says:

    CNBC Sucks is right. We need a progressive taxation system in this country and we need it now.

    Anyone who thinks that people making $250-350K/yr are rich and can bail out the entire country (banks, IBs, AIG, homedebtors and the Treasury) is insane and also can’t do math. We need to tax the über-rich using a sliding scale of tax increases as we go up the income levels to the recently retired WS chief executives. Even Buffett agrees…

  46. Anyone that was paying attention at the time knew that the AIG bailout was really a GS bailout. I seem to remember a TBP thread along those lines back then.

    That the Fed won’t say to whom it is lending money is the most riotously wrong aspect of all of this. I could somewhat see why we needed, back during the Cold War, the ability to fund projects outside of the public’s view. But this? It is egregiously self-serving to claim that we can’t know because it would hurt us or them or anybody.

    I hope AT, et al, is/are right that people will get righteously indignant at the funding of these black holes of finance. But I doubt it. We have a Pavlovian populace, trained to do its better’s bidding. We start salivating when someone walks by with a tray of government benefits. I doubt we have the capacity for revolt. They’ll lead us off to the slaughterhouse like sheep, enticing us along the way with promises of rewards that they have no intention, nor capacity, of keeping.

  47. Mannwich says:

    @CNBC & lb: Let’s bring back the phrase “I Like Ike”.

  48. Mannwich says:

    @Curmudgeon: I too have these doubts about our capacity for revolt but I have a sneaking suspicion that it’s slowly building behind the scenes as collective denial evaporates. Even my Dad, who scoffed at my claims for the past few years we were headed for big trouble admits that we’re probably in or head for a Depression. We may reach a tipping point where everything explodes. I have no idea if I’m right, but it’s just a gut instinct that I have. It may seem “calm” now but the storm is coming. Wait for it.

  49. Phil says:

    Careful BR…shining light on the Creature can get you a bullet in the brain bucket.

  50. rachel says:

    GS is the thread in the whole story. Paulson, Rubin, Geithner, AIG, death of Lehman, and so on. Even Buffwt is connected. Obama has the good will of most of the country. He must get rid of these guys and put together a respectable group of first rate thinkers: Volker, Roubini, Ritholtz, Steiglitz, Krugman, etc. These people have been right at every turn of events, while the GS guys have been taking us all to the cleaners. Obama is wonderful but his administration will be eviscerated by the errors at the Fed and Treasury. It’s time for a real change and the end of GS.

  51. jus7tme says:

    Here’s an idea:

    Instead of creating “bad banks”, as has been a popular suggestion for months now. why don’t just create a “bad insurance company” out of the bad half of AIG, AND THEN LET IT GO BANKRUPT.

    That ought to take care of a few things, included a whole big pile of naked/side-bet Credit Default Swaps.

  52. @mannwich,

    I hope you’re right. The problem is that we need a leader, but he must come from the sheeple, which is hard because sheeple generally don’t wish to lead. But then neither did Washington and Jefferson wish to lead. The plutocracy–both parties, and some in all industries–have been compromised. They all believe in saving the system, because, duh, it’s the source of their power. We have to reject the system and start anew. The system will destroy us if we don’t destroy it first.

  53. Todd says:

    All of this reminds me of a Heinlein Book The Past Through Tomorrow, actually a collection of short stories written basically in the 40-50′s. One of the short stories “If This Goes On—” is interesting.

    “If This Goes On—” is a science fiction short novel by Robert A. Heinlein, first serialized in 1940 in Astounding Science-Fiction and revised and expanded for inclusion in the 1953 collection Revolt in 2100. One of his Future History series, it recounts a future theocratic American society, ruled by the latest in a series of “Prophets.” The First Prophet was Nehemiah Scudder, a backwoods preacher turned President (elected in 2012), then dictator (no elections were held in 2016 or later).

    http://en.wikipedia.org/wiki/“If_This_Goes_On—”

    be careful in what you wish for.

  54. batmando says:

    AT -
    the next 48 hours of trading, as in by late Tuesday we see a bounce off 640s?
    I have this gut feeling that PPT will nowhere be in evidence into the close today

  55. jus7tme says:

    Bad insurance company: Apologies to Barry, he already in effect said what I commented 3 days ago. Not the same words, but the same concept.

  56. DL says:

    CNBC Sucks @ 1:12

    You’ll end up paying for this. Most likely there’s going to be a “carbon tax”…. everyone will pay that. There are rumors of a “value added tax” as well. And don’t forget, the higher the marginal tax rates go (on the rich), the more tax loopholes we’ll get as well.

    And, of course, the government will devalue the currency and then lie about the inflation rate.

  57. Andy Tabbo says:

    batmando. I don’t know about where it will bounce from….the pattern took a real ugly turn when it broke below 681.50 (SP futures) yday…it’s starting to “subdivide” in an ugly way. It looks to me that the move down from 723.50 to 676.25 was a small 1, we bounced today on the jobless report into a 50% at 699.25 for small 2, and now we seem to be collapsing in the small 3….so we should flush to 630′s-640′s…this is very, very short term stuff and sometimes the small picture can get a bit confusing…but I certainly wouldn’t be attempting any bottom picking….not watching CNBC but I can almost feel hopelessness and panic creeping in….

  58. call me ahab says:

    rachel said : Obama is wonderful

    Please qualify that statement. I mean you could mean that: Obama is wonderful because he can read from a teleprompter like a pro or maybe: Obama is wonderful because he sure knows how to pick a great cabinet or maybe: Obama is wonderful because he likes eramarks, thousands of them. Man- there are so many great wonderful things I could go on forever.

  59. Kyle says:

    CNBC Sucks,

    You’re right, but I think Obama is waiting till 2011 when he will have a filibuster proof majority to do what really needs to be done. Right now it’s just arbitrage.

  60. Greg0658 says:

    heads they win .. tails you lose
    I don’t see a good way out

    the coin = stocks in corporations

    riots = diaster cap’ism (some ‘ism) = win via mil’y ind’l complex contracts
    draw out cash to bonds = corporations buyback to private with held cash stores (then they alone own the bread & butter makers)(try to recreate a super-corp and compete)
    zero riots coup = loss of trust in the American system by our own and the world

    its called over a barrel imo

  61. Kyle says:

    CNBC Sucks

    P.S. your blog is blocked by the great firewall of China, I can’t read it :(

  62. karen says:

    I bet Leftback thinks he knows how to pick up a nic bottom, anyway. LOL. Jack wrote a great piece about bottoms in the BP Cafe:

    http://www.ritholtz.com/blog/2009/03/pick-a-bottom-any-bottom/

  63. Greg0658 says:

    best answer imo .. invest with knowledge in corporations
    followup by hire’g lawmakers to close the mess of skewed in favor of super-corps and the heads of industrys

  64. usphoenix says:

    @fred55: go for it.

    When BB reveals how much money flowed through the bailout to foreign interests, the US is completely and totally up for grabs. Especially if it went to former Congressman Gramm’s employer Credit Suisse. The same that made the stupid recession comment. And the same that put the blame back on FNM/FMC. And the same that as a Congressman pushed legislation that encouraged this mess.

    The tragedy is everybody’s anger will be focused on WS, not the HOUSE OF REPRESENTATIVES. They are the problem. Ask Princess Nancy about her earmarks and special tax breaks for friends/husband.

    There just are no regulatory reform bills passed without their approval, as in during Clinton’s administration. They are supposed to be the common person’s watchdog, not the fat cat funder boy toy.

    And yes the tax code needs to be fixed.

    BO wants to blow smoke up our butts about raising the top rate a minuscule amount. Try 70%, as it once was.

    But hey, we’ve to attack Social Security.

    I’m sorry, clear the decks. Look at how much the code has grown since Reagan’s “Tax Simplification Act”, which hit middle income squarely between the eyes.

    When companies can trade properties, recapture depreciation, begin depreciating all over again, without realized income, our tax code is BS.

    OK, Mr “Let’s make it right” BO. Go for it.

    BTW. BO is little more than Clinton JR. He’s following his pattern. Tell the people what they want to hear, Do what business wants. He too will leave the Presidency to a Manhattan address where he receives royal treatment from the people he took such good care of. At least they are loyal to those that feathered their nests at our expense. GBA.

  65. Greg0658 says:

    DoubleTree just told me to “Stay Cool” (my last stay and nice) … but back to reality … imo the too big to fail or fight needs to be curtailed .. super-corps are more powerful than governments ……
    they – super corps currently:
    1> dictate perks for themselves
    2> set and receive profit margin via consumers OR if failed pass losses onto consumers and regroup
    3> set scales of wages and who gets employed around the world
    4> set payouts to shareholders who helped set them for who they are
    5> have the ability to break even on the books (pay zero taxes) say with perks for themselves

  66. Robert M says:

    I am absolutely sure this means the money is being used to pay the interest on a bond in the current year and/or indemnifies the owner against a total loss of principal.

  67. Blurtman says:

    The Goldman Sachs Money Machine

    As Endorsed by Hank Paulson and Approved by Timmy Geithner

    1.) Create mortgage backed securities (MBS), and mortgage backed deriviatives including CDO’s, CDO squareds, and synthetic CDO’s.

    2.) Pay rating agencies to “incorrectly” rate these junk securities as Triple A

    3.) Sell these securities all over the world to yield hungry investors, making billions and billions

    4.) As you know how truly terrible these securities are, take out insurance (purchase CDS) on them, even if you no longer own them. Better yet, take out hundreds of CDS per security, why not, they are going to be gold!

    5.) The securities you created and sold for billions are unmasked to be the junk they always were, and the purchasers of this toxic sludge lose billions and billions. They complain, but you tell them “You should have done better due diligence.”

    6.) Now the CDS are way in the money, and AIG is paying you billions and billions on these sure bets. You knew what crap the securities were after all, and now you are making money in both directions. Ka Ching!

    7.) But wait, AIG’s cupboards are bare! What to do? Why, the argument that you should have done better due diligence is for others, but not for you.

    8.) “Uncle Timmy, Uncle Timmy, I want my billions, I want my billions!” you scream and cry.

    9.) No troubles, Little Goldy, those imbecile taxpayers will pay you billions and billions. And billions and billions. And billions and trillions. But just make sure you put in the good word for me for that TreasurySecretary spot, if you want to keep the treaure flowing your way.

    10>) Done and done. Ka Ching! Now that is the sound of change I can believe in. Ka Ching! Ka Ching!

  68. this is the part: “Sell these securities all over the world to yield hungry investors”

    I never understood. These ‘investors’ were paid some serious cash to undertake a fiduciary responsibility, no?

    w/that, why don’t we hear more about who they were? and, if they were ‘yield hungry’, why didn’t they just buy T-Bonds and/or contracts for them and write Calls all day long?

    that would have buried any return I’ve heard offered in conjunction with most of these securitized dealz..

    it, really, does take two, as is said, to Tango. we should fluff-up who was doing the ‘buying’, as well, while we’re at it..

  69. Blurtman says:

    Lowered interest rates on the govs, coupled with a higher return on these toxic triple A’s than similarly (i.e. legitimately) rated securities. Coupled with a charter to only invest in Triple A’s.

    Why not ask why Goldman Sachs and other counterparties did not do better diligence on AIG?

    Certainly they got the big bucks as well.

    There seems to be a certain lack of symmetry at work here.

    Wonder why?

  70. constantnormal says:

    Gosh, I hate to piss on a perfectly goof conspiracy theory, but would not Ben Bernanke have to be in on the scam, or at least have figured out what is going on? Not to mention a lot of other people within the Fed and Treasury.

    I can’t see that many suckers/blame-takers/bag-holders — participants that would not be direct beneficiaries of the theft — that would calmly and quietly continue to participate.

    But it’s a good story, worthy of a book by Paul Erdman. There may be (almost certainly is) some fraud and theft in the mix, but a giant siphoning of the US Treasury into Goldman Sachs, et al, via AIG is a bit too much.

  71. Trainwreck says:

    All this is making it hard to decide whom you can trust these days. We have a long list of those that we know we can’t trust; CNBC, the rating agencies, Madoff (and his like), Greenspan, Bernanke, mark to fantasy pundits of all suits. WHO THE FUCK CAN WE TRUST?

  72. constantnormal says:

    You can trust me — wire me all your funds and I’ll keep them safe, even guarantee no losses and a steady rate of return. I use sophisticated leveraged hedging methodologies. I’ll send you a secure offshore bank account number, and you can just send me the money.

    Trust me. Have I ever lied to you before?

  73. Trainwreck says:

    Ahh finally, wire on the way, I just hope you accept weimar bonds as collateral. http://query.nytimes.com/gst/fullpage.html?res=9C06E0D7163AF93AA15752C0A96E958260&sec=&spon=

  74. Blurtman says:

    It’s not a crime, its just an orderly processing of contracts, eh?

    And its not a conspiracy when its happening in plain sight.

  75. Trainwreck says:

    Allot of conspiracies happen right in front of our faces and we fail to see what is going on because too many believe in the wisdom of the herd. The guardians of our democracy just fail to see how easy it is for the herd to run right off the cliff. Say no to the herd, think independently, and never be afraid to strike out on your own path.

  76. carmen101 says:

    Information is leaking out as of this evening:

    http://online.wsj.com/article/SB123638394500958141-email.html

    The names of all of AIG’s derivative counterparties and the money they have received from taxpayers still isn’t known, but The Wall Street Journal has identified some of them and is publishing others here for the first time.

  77. philipat says:

    The reason they won’t disclose is self-evidently they are afraid of the second revolution, pitch forks on Wall st anyone? Not only the Santelli rant but now also the (Well managed) regional Banks are complaining about subsidising Wall St. And this is a democratic Administration?

    BTW, you already have a progressive taxation system. The top 5% of US taxpayers contribute 40% of all taxes collected, the top 10%, 60%. But hey, the US is going socialist anyway so why not tax the rich more.

  78. philipat says:

    @Blurtman.

    Agreed all. What I could never understand is why all the dumb as*hats at the other large Banks kept all thst cr*p on their OWN Balance sheets, or “Off Balance sheet” as the case may be. The guys at GS at least had the brains to make the money, take the bonuses and move on. And as many folks on this board will attest, there’s nothing wrong with being short or hedging anything.

  79. philipat says:

    And the reason they don’t want disclosure is that pitch forks on Wall St. get in way of business and don’t look good. Second revolution anyone?

  80. Greg0658 says:

    a> time to make Corporations borrow from us on our terms … no more cash for them on their terms

    b> draw out cash to bonds = corporations buyback to private

    a+b=heads they win .. tails you lose :-|

  81. rrgg says:

    Last fall Paulson ducked a question about whether money could be used to pay hedge funds and European banks. It should have been obvious to everyone that day that this would happen.

    I’m still waiting for AIG execs to be arrested for fraud. Sigh.

  82. farmera1 says:

    Barry,

    The January 19, 2009 issue of FORTUNE had a very interesting article on AIG.

    AIG: THE COMPANY THAT CAME TO DINNER

    http://www.insurancenewsnet.com/article.asp?a=top_news&id=102152

    It is a good read and well worth your time. Would be interested in seeing your comments on the article. My take away was that the government had no choice but to start shoveling money to AIG. Right or wrong that is the decision that was made. It is a good read.

  83. Castro Is Cool Again says:

    Great post Barry. Nice job pulling together several different pieces. I’ve been writing about this as well for the past month:

    Some snips:

    “I believe Henry Paulson is a criminal. Both for his role in creating this crisis in 2004 with the SEC rule change that allowed leverage to expand, as well as his decision to bailout AIG so that Goldman Sachs (his former firm from whom he received a $600 million tax-free severance in 2006) would be protected.”

    “And it still galls me to this day that the person leading the argument that morning in front of the SEC is none other than former Treasury Secretary Henry ‘Hank’ Paulson. I will ask again: when will a journalist with a large audience make it a goal to expose this man and what he has done to imperil your children’s future? He personally helped to pass the rule change that led to this crisis, then he led the effort to solve it by giving $700 billion of borrowed money from your kids to failed banks including his former employer Goldman Sachs, from whom he received $600 million in severance when he headed to Washington.”

    http://dailybail.com/home/2009/2/23/the-bank-bailout-verdict-we-are-a-nation-led-by-idiots.html

    http://dailybail.com/home/2009/2/5/rule-bending-banking-bastards-the-taxpayer-shithole-that-is.html

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  85. [...] the AIG bailout. Barry Ritholtz of the Big Picture points out that some estimates are over $25B.  http://www.ritholtz.com/blog/2009/03/backdoor-bailouts-for-goldman-sachs/ Ritholtz is one of the very few high-profile writers with the courage to question Goldman’s [...]

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