Goldman Sachs Fleecing of America

Word is circulating that in the midst of one of the largest financial catastrophes in global history, Goldman Sachs is getting ready to report record profits and pay out hefty bonuses to its employees. You might be tempted to say that Goldman deserves it; they did after all navigate the financial crisis and come out relatively unscathed. Except that’s not really the case.

Word is circulating that in the midst of one of the largest financial catastrophes in global history, Goldman Sachs is getting ready to report record profits and pay out hefty bonuses to its employees. You might be tempted to say that Goldman deserves it; they did after all navigate the financial crisis and come out relatively unscathed. Except that’s not really the case.  

Goldman survived the financial crisis because the government stepped in and gave it billions in public money. The most obvious and explicit assistance came in two forms: 

  1. It funneled $13 billion to Goldman through AIG, taking it off the hook for the bad decision it made to depend on AIG insurance. 
  2. Goldman was allowed to sell $5 billion in FDIC guaranteed bonds. The public guarantee allowed the bank to tap capital markets at a lower rate.
 Goldman has also received public assistance from the Fed and other government programs.
 

So, what do we get for all of this help? The finger.

In an article in Rolling Stone called the Great American Bubble Machine, Matt Taibbi lays out a pretty damning indictment of Goldman’s behavior over the last twenty years. There are two many good quotes from the article to fit them all in, but Taibbi makes the case that Goldman and its vast alumni network have worked tirelessly to weaken government regulation and then use its insider status and knowledge to gather money from ordinary people like you and me, and enrich itself. That’s why Goldman Bankers are getting ready for fat bonuses (the average salary at Goldman is over $600,000) while the average American is trying to keep their job and a roof over their heads.

He writes:

“The bank's unprecedented reach and power have enabled it to turn all of America into a giant pumpanddump scam, manipulating whole economic sectors for years at a time, moving the dice game as this or that market collapses, and all the time gorging itself on the unseen costs that are breaking families everywhere — high gas prices, rising consumercredit rates, halfeaten pension funds, mass layoffs, future taxes to pay off bailouts. All that money that you're losing, it's going somewhere, and in both a literal and a figurative sense, Goldman Sachs is where it's going: The bank is a huge, highly sophisticated engine for converting the useful, deployed wealth of society into the least useful, most wasteful and insoluble substance on Earth — pure profit for rich individuals.”

It’s hard not to think this is pure hyperbole, but it’s not. Taibbi is right. Wall Street and their vampire investment banks are sucking you, me, small businesses, and this country dry.

Just think about what has happened. They engineered the biggest housing bubble of all time. There is no doubt about it; Wall Street was the catalyst behind the housing rise and fall. They lowered the lending standards, created mathematical formulas that magically turned toxic loans into AA rated debt, and then sold this crap across the world. All the while, they knew that the stuff was foul.  

As Taibbi writes:

“Not that Goldman was personally at any risk. The bank might be taking all these hideous, completely irresponsible mortgages from beneath-gangster-status firms like Countrywide and selling them off to municipalities and pensioners — old people, for God's sake — pretending the whole time that it wasn't gradeD horseshit. But even as it was doing so, it was taking short positions in the same market, in essence betting against the same crap it was selling. Even worse, Goldman bragged about it in public. "The mortgage sector continues to be challenged," David Viniar, the bank's chief financial officer, boasted in 2007. "As a result, we took significant markdowns on our long inventory positions … However, our risk bias in that market was to be short, and that net short position was profitable." In other words, the mortgages it was selling were for chumps. The real money was in betting against those same mortgages.” 

So they created the problem, they profited from it and when it went bust, they used public money to recoup their losses. Then they took that public money and have used it to make more money. 

Do you know what’s behind Goldman’s record profits? The trading of fixed income securities. Do you have any idea what the biggest fixed income security is at the moment – Treasury Bonds, Bills, and Notes. 

So, to add insult to injury, Goldman is profiting from the sale of Treasury Bonds, which are used to finance the deficit, a deficit which was created partially because we had to bail out investment banks like Goldman, who are profiting because of the public money they have received.

 Now you can understand why Goldman’s big earners are sitting on their yachts, receiving their multi-million dollar salaries, and laughing at us all.

Last January, I wrote that the average person didn’t stand a chance in the stock market or many other investment markets:

“We've been told to buy and hold stocks; that it is the path to a better future. But the common person does not stand a chance in the stock market. CEOs and their executive team are running the companies for short term gain in order to maximize their own personal wealth and siphon the profits.  Recent news about ex-Merrill (and now ex Bank of America exec) CEO John Thain only reinforce the point.” 

What I didn’t add is that it’s not just the CEOs who are raping public companies, it’s also the bankers. 

They have inside knowledge and they are manipulating results and taking advantage of loopholes that the common person doesn’t have. It’s why they are so rich. 

So what can we do? Here’s my list:
 
  1. Express outrage to your elected officials that your money is being used to support these fat-cat lifestyles. Insist that they use the public’s power to level the playing field and squeeze these inefficiencies out of the financial system.
  2. Opt-out of their game. If you invest in stocks and mutual funds you are playing their game. You will lose. They have insider information and the game is tilted in their favor.
  3. Invest in yourself, local businesses, friends and family businesses. If you have money to invest, try investing in the businesses of friends and family. This may seem risky, but that’s just what Wall Street wants you to believe. Is investing in your neighbor really more risky than investing in GM, or Enron, or Citibank? You know your neighbor, can keep track of your investment, and don’t have to worry about greedy bankers taking all of your profit.
  4. Bonds. Invest in bonds and other fixed income. Plan to hold them for their yield. This reduces the chance of being caught in a speculative bubble. Investment banks can’t skim as much from bonds as they can from other types of investments.
Most of you will read this and ignore it. You’ll continue investing in mutual funds that keep the investment world humming. You’ll allow your wealth to be used to support their boats, and cars, and mansions. You’ll read about Wall Street bankers buying $10 million apartments - with your money. You’ll read about Goldman Sachs bonuses and give a nod and a shrug.

Everything will be business as usual. And Wall Street will be laughing all the way to the bank.

 

Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

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