
For Goldman, Government Gift from 2008 Crisis Keeps Giving - william_stranix
http://dealbook.nytimes.com/2014/11/19/for-goldman-government-gift-from-2008-crisis-keeps-giving/
======
gavanwoolery
Perhaps before reading this article, you should check out this one, also by
NYT:
[http://www.nytimes.com/2008/10/19/business/19gold.html?pagew...](http://www.nytimes.com/2008/10/19/business/19gold.html?pagewanted=all)

As usual, take any propaganda with a grain of salt, but IMHO, from the info I
have gathered thus far, Goldman Sachs and our government are almost the same
entity, separated only by who reaps the benefits. Private gains, public
losses.

~~~
api
I'd love to see a really scholarly non-sensationalistic analysis of _who_ this
new nobility actually _is_ and what the real power structure really looks
like.

I've seen bits and pieces of that, but they always strike me as kind of
superficial and conspiranoid-tinged, leaving me still skeptical. I accept the
central thesis -- there is obviously a nobility here in the classical "feudal"
sense -- but I'm not convinced people like Matt Taibbi have more than a
tabloid-ish understanding of it. People like him are also clearly selling
something, and that makes them play favorites in their own ways.

Such an understanding would be helpful if we are to have any hope of charting
an exit path from this condition. It could inform the authoring of meaningful
reforms instead of vapid and ultimately impotent populist trash.

~~~
bcoates
No grand conspiracy is needed.

The purpose of the government is to be a place you can go, when you need to
obtain someone else's money to spend on someone other than yourself (and if
you're doing it right, keep a bit for yourself).

The purpose of finance, is to be a place you can go, when you've been given
someone else's money, and need to find something to spend it on (and if you're
doing it right, keep a bit for yourself).

The interests are so perfectly aligned no external coordination or policing is
needed -- the system _just works_.

Naturally everyone involved is buddies with each other, and taking care of
your buddies so that they can stay in a position to take care of you is just
human nature. Even less sleazily, if you actually want to get something done
inside the system, the only source of actual competence is the insiders --
it's not like there's some priesthood of uninvolved experts that have the
slightest clue how to manage things. Financial regulatory capture isn't so
much a tragedy as the only way anything could possibly get done.

~~~
eli_gottlieb
Just because you can phrase things to sound similar does not mean they are
_actually_ similar _in reality_. For thousands of years, governments were not
run by or for bankers, except on the rare occasions when they were. In fact,
bankers were often lynched and run out of whole territories whenever
governments or even the masses could not pay their debts -- the state power
was held by those with lands and armies rather than by money-lenders.

If you cannot be bothered to examine today's situation in its particulars, you
won't come up with workable solutions.

For my own position: definancialization of the broader economy would go a long
way to breaking banks from the state.

~~~
pm90
They were definitely run for bankers, if not by them. In fact, one of the main
functions of Governments is to act as representatives of the people trying to
deal with individuals/organization who manage wealth.

------
Animats
If the Secretary of the Treasury in 2008 hadn't been from Goldman Sachs, the
collapse could have played out quite differently. Bush was inclined to let
Wall Street go bust. Goldman was about a month from bankruptcy when the
bailouts started.

If there hadn't been a bailout, the result probably would have been more like
the 1980s S&L crisis, with the FDIC and FSLIC taking over failed institutions,
winding them down, and selling off the real estate. Non-bank institutions like
Goldman (which wasn't a bank at the time) would have just gone bust, leaving
their investors with zero.

~~~
hackuser
It's a good question whether Henry Paulson showed favoritism to Goldman Sachs,
but we need evidence to make a judgment about the answer. The rest is
speculation about a hypothetical person's choices and their outcomes in a
highly complex, chaotic, novel situation.

Most experts, especially those within the establishment, say that allowing all
those institutions to collapse would have been catastrophic and that the
government should have rescued them. I think it's reasonable to expect that if
one of those establishment experts was the alternative to Paulson, a likely
scenario, then they would have acted similarly.

If someone acts to prevent catastrophe and succeeds, critics always can (and
do) say that the catastrophe wouldn't have happened anyway.

~~~
trevelyan
Paulson's brother worked for Lehman Brothers, and it doesn't take a lot of
reading between the lines to see that this was a strong factor in why the
company did _not_ receive any support.

In contrast, concerns about nepotism didn't apply to the relationship between
the Treasury and other banks, although the Treasury seemed sensitive to
Goldman (JP Morgan and Jamie Dimon got better treatment). Personally, I think
the Treasury and the Fed did a good job in response to the crisis, and that
Congress abdicated almost all responsibility for dealing with the crisis,
leaving the financial response dominated by monetary policy (which by
definition favors the financial sector by promoting unequal access to terms of
credit) instead of a more egalitarian process.

------
bushido
TARP was not a gift. It was an ultimatum that was forced on Goldman, Morgan
Stanley and a few others.[0]

Somethings worked out for them, BUT they did give up quite a lot along the
way.

Regardless the article is not well balanced and presented in a way that breeds
misinformation. Quote from the end of the article - about a quote from the
fed:

    
    
       In its analysis, the Fed added that **Goldman had asked** the Fed to determine if the grandfather clause permitted the activities to continue. But the analysis said that the Fed’s lawyers were still considering that request.
    

So Goldman is in the wrong because the Fed's can't decide what's permitted and
what's not? If anything Goldman should get points for asking.

If past behavior in compliance is any indicator to future compliance I would
like to bring attention to the following:

\- One of the things that was clear early was that proprietary trading[1] was
a big NO under the next bank status and TARP conditions and had to be wound
down by 2014.

\- Goldman Sachs shut that business down in under 4 months. It's worth noting
that they were probably the best trading desks with consistent great results.

\- Most other banks kept their trading desks around till quite recently

[0] [http://www.businessinsider.com/uncovered-tarp-docs-reveal-
ho...](http://www.businessinsider.com/uncovered-tarp-docs-reveal-how-paulson-
forced-banks-to-take-the-cash-2009-5)

[1]
[http://en.wikipedia.org/wiki/Proprietary_trading](http://en.wikipedia.org/wiki/Proprietary_trading)

edit: typo and grammar

~~~
guelo
Goldman and Morgan would not have survived without government intervention. My
preferred intervention would have been to nationalize the companies and fire
all the executives. But the intervention that we got was that money was
shoveled into the companies until the executives could start paying themselves
giant bonuses again.

~~~
ahomescu1
> My preferred intervention would have been to nationalize the companies and
> fire all the executives.

...and replace them with politically-connected cronies? That's what usually
happens for nationalizations.

~~~
crdoconnor
Didn't happen in Sweden. They followed this policy successfully and it worked
out great for them (back to growth a year or two later; banks healed).

------
jgalt212
Once again, Goldman proving that they are masterful in the practice of
regulatory capture.

------
api
The _response_ to the 2008 financial crash had a deep and profound effect on
my image of my home country, the USA, in a way nothing else in my lifetime
has.

Until then I'd always harbored at least some sense that the USA was different
in some fundamental way from Putin's Russia, China, or other totalitarian
oligarchies.

The arbitrary favoritism and obvious behind-the-scenes exercise of absolute
power displayed in the reaction to the 2008 financial crash showed me
otherwise. While America may have more of a functioning democratic republic
_on the surface_ , the clear message of actions such as these -- as I saw it
-- was that _at the top_ America is a nation of men and not of laws.

When people who know the right people get in trouble, laws no longer matter.
Any and every measure will be deployed to bail them out, even at the expense
of the long term health of the nation and of the civilian economy. We live in
a nation run for the benefit of those who run it, not its people.

This has deep implications going forward.

It's a clear signal to the American people that if something really bad does
happen, like a _serious_ financial crash or worse, we must assume that the
authority figures are not on our side. We can and will be sacrificed for the
benefit of the connected.

Secondly, it means that we must expect the situation to worsen. As time goes
on we must expect more and more of the legacy gloss of a functioning republic
to flake away, revealing the machinery of arbitrary lawless power that is
operating beneath. Unless something fundamentally changes we will become a
classic corrupt and barbaric empire, and then rubble. We're probably still
early in the process, but that's the trajectory.

I don't think this is overreaction. To me there's something different about
the 2008 reaction vs. Watargate, or the overreach of J. Edgar Hoover's FBI, or
anything else for that matter. For all those things it was possible to make a
reasonable argument that they were _exceptions_ driven by rogue or out of
control actors within a system of democratic republicanism that was still
basically intact. Nixon and Hoover were "cowboys." But this is just so
"business as usual," so utterly without clear authorship, that it betrays this
kind of favoritism as standard procedure rather than an exception.

It's the _banality_ of it. There was no Hoover, no Nixon, not even a 9/11 or
other traumatic event to inspire emotional over-reaction. It was just an
economic crunch, a particularly bad one, and there were many options that did
not involve obvious cronyism. Yet these were not taken, not even entertained.
The message was: " _Of course_ you'll be sacrificed to rescue Goldman Sachs.
They're members of the nobility and you're not."

I'd describe it as a total loss of confidence in my country. I no longer
believe America is in any way special or remarkable. It is morally equivalent
to other totalitarian oligarchies. It can only be said to be superior in
pragmatic ways.

P.S. The Iraq War is a close runner-up, but as I allude to above that is
somewhat "excusable" or at least explainable as emotionally driven overreach
due to a traumatizing event. It can also be attributed to a list of
identifiable actors -- there is someone to blame. There's still a sense that
it wasn't business as usual. I do not expect that America will arbitrarily
embark on another pointless invasion anytime soon, but I _do_ fully expect
that if another financial crash happens my and every other American who isn't
a member of the connected nobility will have their futures sacrificed without
a second thought. We now clearly have a noble class that are "more equal" than
anyone else.

I also still hold out some hope that this trend can be reversed, but only if
the level of political discourse in America can be elevated above naive
ideological pandering and tabloidism.

------
brohoolio
More info.

[http://www.cnbc.com/id/101724273#](http://www.cnbc.com/id/101724273#).

------
snowwrestler
> As panic paralyzed the financial system in September 2008, the government,
> with a stroke of the pen, allowed Goldman and Morgan Stanley to change their
> statuses from vulnerable, stand-alone Wall Street firms to regulated banks
> operating within the taxpayer safety net.

This sentence confuses me. I did not know that becoming a bank holding company
required prior federal permission. I thought it was a regulated state that any
financial institution could elect into. I thought Goldman and other investment
banks had avoided it previously because the regs cramped their style.

I also don't see how that places them within a taxpayer safety net. The two
biggest bank "safety nets" I can think of are the Federal Reserve discount
window and the FDIC. Neither spend taxpayer money; they are both self-funding.

~~~
AmirS2
I believe that, as a written rule, it took 90 days minimum to become a
regulated bank, in addition to complying with all the other paperwork one
would expect.

GS and MS were able to sidestep all the rules, and with the Fed's help, become
banks overnight.

------
chuckcode
I'd like to see all the banks and insurance companies have to report their
holding and liabilities the same way that mutual funds do every so often
(maybe 1 year after transaction). The only way to regulate these guys is to
open up their books and let them regulate themselves (e.g. lots of
leverage/liability means share holders run for exit). Letting all the players
in the market regulate each other is the only thing that is scalable and
flexible enough to keep up with these guys.

~~~
tacostakohashi
Umm, they do. All the banks and insurance companies of any consequence are
public companies required to issue annual reports and form 10-Ks with
financial statements - not to mention what they have to report beyond that to
their actual regulators (that is, their local federal reserve bank).

All the players also regulate each other, in the form of their different
credit ratings and cost of credit.

So, as far as I can tell, what you'd like to see is indistinguishable from the
current situation?

~~~
chuckcode
Actually they don't report their individual positions on trades or often their
liability very well as illustrated in the Atlantic's article last year "What's
Inside America's Banks?"[1]. Banks file the usual annual reports as do other
companies but the have a very different business model involving a lot of risk
management and do not report their individual positions, derivative contracts,
etc. Even the bank CEO's themselves can be quite surprised by what positions
their bank is taking even like JP Morgan Chase which is supposed to be one of
the better managed banks [2]. Reporting them in real time would be infeasible
but some sort of delayed reporting to a website or other entity would allow
third parties to see who is actually managing their risk.

Personally I don't think you're going to have regulations that scale to keep
up with the banks so what does scale other than the markets regulating them?
As far as I know most efficient market theory rests on transparency.

[1] [http://www.theatlantic.com/magazine/archive/2013/01/whats-
in...](http://www.theatlantic.com/magazine/archive/2013/01/whats-inside-
americas-banks/309196/?single_page=true) [2]
[http://www.forbes.com/sites/nathanvardi/2013/09/18/jamie-
dim...](http://www.forbes.com/sites/nathanvardi/2013/09/18/jamie-dimon-and-
jpmorgan-try-to-escape-the-london-whale/)

~~~
tacostakohashi
Well, in the US, equity trades are reported to the consolidated tape no later
than end of day.

The issue isn't that they don't report their assets and liabilities, or their
positions (which they mainly do), but they don't report their risk. That's
mainly because nobody can agree on how to measure that, though. There isn't
some standard, meaningful number that they have but don't report - they all
have their own proprietary, easily gamed methodologies for that.

~~~
desdiv
_Equity_ trades are reported, but what about the other types of securities?
What about derivatives? You know, the thing that had a huge role in the 2008
crisis?

------
tn13
The problem with government is that once the citizens give away any of their
freedom and help government expand it is extremely difficult to shrink it
back.

Economies rise and fall, there are steep jumps and falls but none of this
warrants government intervention. During the 2008 recession, american citizens
failed to keep the government out of it instead demanded that government
should do something. This is only a logical consequence.

------
autokad
I had taken notice of how GS and MS 'special' privileges in trading committees
quite a while back. The government isnt giving them a 'free' ride to profit
heaven, its been using these companies as a means of attack against 'america's
enemies'.

Arab spring was in large part caused by sharp rises in food prices, prices
that were inflated by trading. I had wondered at the time why the government
was allowing banks to trade in once regulated areas. it seemed like the wild
west was let loose, until Arab spring occurred and a lot of people the US
didnt like ended up out of power.

We (the US) has benefited quite beautify from the financial crisis's in so
many ways. US tentacles reach deep into foreign banks now (even Swiss banks
are like open source to the US government). is anyone surprised that the price
of oil has fallen off a cliff right when the US needs pressure on Russia (a
heavy oil rich exporter).

you can surely claim coincidence on a few incidents, but if you look back on
how price fluctuations has been working hugely well for us foreign diplomacy.

The US has weaponized its corperations.

