

Goldman Sachs: Don't Blame Us - known
http://www.businessweek.com/print/magazine/content/10_15/b4173030234603.htm

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stretchwithme
The real problem is not that Goldman Sachs knows how to exploit bubbles or
that they sell bad products or turn to the government when their gambles don't
pay off.

The real problem is that our government seems to be at the beck and call of
Goldman Sachs and entities like it.

Congress has even surrendered its responsibility for our money to the Federal
Reserve, a scheme hatched by bankers that created the bubble leading up to
first great depression.

~~~
cynicalkane
"First great depression"?

The "first" great depression had the Dust Bowl, mass migration, people
starving to death right in public, shantytowns popping up everywhere, and 25%
unemployment. The "first" great depression had a 30% decline in GDP.

When was the second great depression?

~~~
pw0ncakes
I call this the Petty Depression. It's not nearly as bad as the depression of
the 1930s, but it's worse than a recession. Recession is the predictable,
brief, and necessary period of creative destruction and contraction in a
functioning economy. It causes some people to get laid off, but they usually
get better jobs within 1-3 years, and the economy as a whole improves. This is
something else, and will have a long-term scarring effect on the nation.

The fact that "petty" means both small (which this one is, as far as
depressions go) and mean-spirited (price-gouging on housing with young
families at the barrel-end) means it fits surprisingly well.

~~~
stretchwithme
how about we see how this goes before we declare it healed?

The government borrowing massively to keep the government sector expanding and
is paying people to consume in an effort to convince everybody that things are
recovering.

This is not sustainable and only worsens our situation. One day, we must face
up to our debts. We'll be very lucky if interest rates aren't jacked up on us.

And, as in Japan, it seems they want to keep the zombie banks alive and avoid
acknowledging the extent of the problems.

~~~
pw0ncakes
I'm not ready to "declare it healed", but the probability that our depression
becomes anywhere near as severe as the 1930s Great Depression is very low. It
has created a lot of suffering, and will likely cause a lot more, and we may
not get out of it until the 2020s, but I don't see it as likely that people
will starve in this country, nor do I see widespread bank failures as likely.

~~~
codexon
We will never see another depression driving down living standards to the
level of the 1930s due to technology.

But a relatively similar percentage reduction? Quite likely. I would say that
this depression looks quite similar to the beginning of the great depression
when you consider unemployment percentages and debt as a percent of GDP.

------
AmericanOP
Finally some macro on HN :)

I can buy the argument that Goldman didn't see the subprime coming since they
were initially exposed (or so the story goes
[http://www.vanityfair.com/business/features/2010/04/wall-
str...](http://www.vanityfair.com/business/features/2010/04/wall-street-
excerpt-201004?printable=true&currentPage=1.)) Because of this, they were the
first big bank to see the coming _pop_ , and acted.

However, while their CFO may be the most "frustrated" he's ever been during
his 30 years as a Goldmanite, I'm the most frustrated I've ever been in my 23
years as an American. To see this bank make millions every day because a
luiqidity-at-all-costs monetary policy issues taxpayer debt to TBTFs as near-
zero % interest loans which they use to jack the DOW to all time highs is
ridiculous. Yes, the US government is totally unable to tackle the country's
financial problems which creates opportunities for I-banks like GS, but I can
hardly believe the right path requires a bonanza for these guys. Non-CNBC
headlines consistently point to a blatant conflict of interest between fiscal
policy and wall street profits (today:
[http://www.zerohedge.com/article/guest-post-tim-geithner-
sni...](http://www.zerohedge.com/article/guest-post-tim-geithner-sniveling-
scamster.)) They want to play the dangerous game of squeezing the heart of our
nation during a time of impending crisis.. look to Blackwater for PR advice.

Obligatory: <http://creattica.com/photoshop/ut104/18473>

~~~
rrhyne
They saw it coming. They shorted the same subprime products they were selling.
GS bankers are on tape saying they will murder the client on a specific deal
related to these shorts.

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sever
This situation makes me so mad my teeth hurt, but I don't think Goldman is at
fault. They were no better or worse than other i-banks, interspersing
themselves into the money flow, probably sucking out more value than they were
creating -- I think so. The fault is with the government for bailing them out.
They should be bankrupt, shareholders wiped out, company carved up and sold
off, making room for better companies. Instead the government decided to give
them billions (which they paid out as bonuses to themselves). It was
ludicrous, the government gave them 100 cents on the dollar for AIG. Why 100,
why not 120, why not 200, it would have made just as much sense.

~~~
vlod
"Goldman vigorously disputes that it could not have survived if the government
hadn't paid it in full"

Maybe you missed the part in the article where they said they could have
survived without the money.

Also the TARP money was pretty much forced on them <http://goo.gl/N7SP>
(businessinsider.com)

~~~
stretchwithme
they would have survived, but they certainly would have had a big loss without
that 12 or 14 billion payoff from AIG.

------
Daniel_Newby
What bullshit.

1\. Goldman blew up AIG by making AIG post collateral based on market prices
(for bond insurance AIG had written). Because this is only fair.

2\. Goldman got the feds to pay off the insurance at 100% value, not market
value. Without an insurable event happening, and without executing the
insurance by delivering the bonds.

3\. Goldman used the pay off to buy the bonds. At unspecified prices,
presumably market prices if we read between the lines.

4\. "Qualified investors" knew what they were getting into massive risks
buying certain instruments. They were well informed and knew how to
investigate and rate risk properly. But when Goldman bought bond insurance
from AIG, they were shocked, shocked to find AIG could not pay.

~~~
yummyfajitas
1\. Two multinational corporations staffed by highly sophisticated investors
came up with a contract. One corporation then enforced the terms of the
contract.

How evil.

4\. The "qualified investors" knew that the contract might obligate them to
pay out large sums of money. If you bet money on a horse race, you better plan
for losing.

On the other hand, Goldman (and everyone else) did not expect gigantic AAA
counterparties to go bankrupt. If you bet money on a horse race, you might not
plan for winning but then having the track going bankrupt.

~~~
codexon
1\. When anyone loans money or buys an insurance policy, they are subject to
counterparty risk: <http://www.investopedia.com/terms/c/counterpartyrisk.asp>

What is evil is that if it was you instead of Goldman Sachs, AIG would have
paid you pennies on the dollar instead of the full value on paper.

4\. See #1. Counterparty risk is part of every deal.

Example:

If you took a bet from Joe Sixpack that would probably pay $1000, but possibly
$10 million (more than his life time earnings), the US government would not,
and should not, be using taxpayer money to pay you $10 million in the worst
case scenario. Unless you happen to be Goldman Sachs.

~~~
yummyfajitas
The post I'm responding to is not criticizing the bailout, it is criticizing
Goldman for enforcing it's contracts with AIG.

For the record, I'm not defending the bailout, I've always opposed the
bailout, and one of my highest rated comment on HN ever is a snarky post
criticizing the bailout.

~~~
codexon
_it is criticizing Goldman for enforcing it's contracts with AIG_

It is nowhere near the financial norm to expect companies to have the
government pick up the tab for failed counterparties.

Why can't people criticize Goldman for doing that? Can I not criticize multi-
billion dollar companies for putting former members into high ranking officers
to influence the politics? Can I not criticize connected donors that break
laws and then are able to get a pardon from the President?

Just because they _can_ , doesn't mean they _should_.

~~~
vlod
So what your saying is that the CEO who used to run the most successful bank
on Wall St and probably knows more about financial markets than the majority
of people shouldn't be used to run the FED?

Who would you want to run the FED? An elected politician? :)

~~~
codexon
Actually yes, that is exactly what I am saying.

And just so you know, the chairman of the Fed is Ben Bernanke, who has never
been part of Goldman Sachs. The fact that Goldman is so successful is because
Goldman members like Henry Paulson are _unelected_ politicians, the worst
type.

~~~
vlod
Maybe you have more faith in your elected politicians than I do! :) I however
don't trust anyone who needs to lobby everyone all the time to raise enough
money to get elected.

Right.. my bad. Ben's great and seems to be great for the job.

~~~
codexon
It's much worse when you let one person (even the president) do the picking.

------
clammer
Weird, no one seems to blame our own government.

~~~
stretchwithme
I did if you check my first comment.

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hackermom
It's so hilarious seeing bankers and investers pointing finger elsewhere -
especially Goldman Sachs, of all the greedy, evil people...

~~~
lrm242
Greedy, sure ok. But 'evil'... seriously?

~~~
pw0ncakes
Goldman Sachs is pretty fucking scummy, but not substantially worse than the
rest of Wall Street; anyway, the pace-setting for scumbaggery was set in the
past by many firms that don't even exist anymore. The only thing I would call
_evil_ about GS is the way it is managed to convert its economic power into
political power, thus preventing proper regulation of the banking industry,
and that's the government's fault (and ours) as much as it is theirs.

------
johnohara
I don't know whether the actions of GS, AIG, Citi, BoA, Lehman, Merrill,
Countrywide, New Century, the Fed or anybody else involved in the slicing and
dicing of mortgages constitutes treason but they sure betrayed my trust and
confidence in financial institutions, breached my faith in financial markets,
and made me realize that investing with these organizations is treacherous.

I'm sure the good people of Iceland would agree.

~~~
vlod
Huh? you lost me. Care to explain how you got from mortgage slicing to
treason?

~~~
stretchwithme
he said he DIDN'T know if it constitutes treason.

~~~
vlod
Although technically he said he 'DIDN'T know', then why did he think it was
worth while saying it? He wanted to use the word 'treason' in his argument for
affect, without taking responsibility for it's use. Too bad. I'm calling on
it.

It's like me saying "I don't know if obesity is related to use of baseball
caps but i've lost my trust in the government". Yeah.. it's ridiculous.

------
DuncanIdaho
Jury, you've heard every word, But before you decide. Would you look into
those mother me eyes, I love you, for you my love, For you my love.

Don't blame, The sweet and tender hooligan, hooligan, 'Cause he said that he'd
never, never, never, never do it again.

He was a sweet and tender hooligan, hooligan, Because he'd never, never,
never, never do it again.

-The Smiths, Sweet and Tender Hooligan

~~~
julio_the_squid
I approve, Duncan Idaho.

