Goldman Sachs and Our Government

Peggy Noonan: This is something new in modern political history, and I’m not sure we’re fully noticing it. Americans are starting to think the problems we are facing cannot be solved.

Such despair makes sense. The only people with a plan are the traitors — the national enemies — who are raiding our Treasury.

Treasury Secretary Hank Paulson (ex-CEO, Goldman Sachs) and Treasury Secretary Tim Geithner (voted as head of Federal Reserve Bank of New York, by Goldman Sachs) somehow are unable to make their sweetheart bailout loan to CIT secured on anything — so the Treasury Department has just lost its entire investment to CIT.

At the same time, Goldman Sachs deliberately deceived clients, making billions on a housing crash. Of course, this did not stop Goldman Sachs from collecting two bailouts to protect it from losses in the housing crash.

Another former CEO of Goldman Sachs has been endorsed by Barack Obama for re-election as Governor of New Jersey.

12 thoughts on “Goldman Sachs and Our Government”

  1. “…cannot be solved…” by the Establishment Parties on their present course, I might append. There seems to be an unstated third part to the Noonan piece: “Regardless, Small America ™ will navigate a solution course beyond both their own flagging confidence and their leaders’ disimagination.”

  2. I’ve never much liked Peggy Noonan – but this is nice:

    “We are governed at all levels by America’s luckiest children, sons and daughters of the abundance, and they call themselves optimists but they’re not optimists—they’re unimaginative.”

    I couldn’t agree more. There seems to be an inability on behalf of the boomer population to confront modern obstacles, hand over the reigns of power, and/or accept their declining power. In their selfish delusion, they’ve chosen to drag all of us to the grave with them.

  3. Tim,

    Agreed 100%. I delayed reading the Peggny Noonan piece, because I have never been impressed with her. Until I read this:

    We are governed at all levels by America’s luckiest children, sons and daughters of the abundance, and they call themselves optimists but they’re not optimists—they’re unimaginative. They don’t have faith, they’ve just never been foreclosed on. They are stupid and they are callous, and they don’t mind it when people become disheartened. They don’t even notice.

    Right on.

    Moon,

    I hope so, but sustaining one’s own life or business is not the same thing as protecting our national greatness. 🙁

  4. I think your analysis of GS is a bit off. What you call deceiving clients and betting on the housing crash could equally be described as hedging their exposure to sub-prime. If more of the banks had had the foresight to do something similar, instead of buying the toxic crap right up until the crash, we might not be in the midst of the Great Depression 2.0.

    Similarly, it’s not obvious that GS required a bailout of AIG, since AIG posted collateral equivalent to, IIRC, about 75% of GS’ exposure, and GS hedged the rest via CDS on AIG debt.

  5. Vimothy,

    I think your analysis of GS is a bit off. What you call deceiving clients and betting on the housing crash could equally be described as hedging their exposure to sub-prime.

    Indeed.

    They secretly hedged against risks that they advocated their clients expose themselves to.

    We agree.

    If more of the banks had had the foresight to do something similar, instead of buying the toxic crap right up until the crash, we might not be in the midst of the Great Depression 2.0.

    Indeed.

    Goldman Sachs’ lack of fiduciary responsibility here is striking.

    Similarly, it’s not obvious that GS required a bailout of AIG, since AIG posted collateral equivalent to, IIRC, about 75% of GS’ exposure, and GS hedged the rest via CDS on AIG debt.

    Advocates of a bailout here appear to be in an impossible position, of simultaneously arguing that without an AIG bailout, the CDS structure would collapse, but Goldman Sachs would not have been armed by a lack of an AIG bailout, as it was insured by CDS.

  6. AIG had to post collateral against their trades with GS. The remaining exposure was hedged with CDS on AIG debt. Therefore, it did not need a bailout. I haven’t made an argument about the “CDS structure” and I am not an advocate of the bailouts.

    And in fact, GS were very early in saying that the mortgage market was in serious trouble. Their well respected chief economist Jan Hatzius as far back as 2005 issued a note warning investors of the systemic risk implications of house price declines. AIG were pretty pissed at GS’ attitude at the time.

    This story has its origins in an article the execrable wrote in Dec 07, which was carried on by the fantasists at Zero Hedge, and then sold on to Matt Taibi for his Rolling Stone piece.

    In a rush; will post links later!

  7. For Hatzius’ Sept 05 note warning of the housing bubble, see this: http://www.businessweek.com/the_thread/hotproperty/archives/2005/09/goldman_sachs_e_1.html

    For friction between AIG and GS, stemming from GS’s skepticism over the MBS market, see Sorkin’s Too Big To Fail.

    For the value of the collateral ($8.4bn) that GS held against its trades with AIG, see this 8-K-filing: http://www.sec.gov/Archives/edgar/data/5272/000095012309004684/y75292be8vkza.htm

  8. Vimothy,

    Thanks for the veyr informative comments!

    Could you help me understand the 8-K? Does this line

    Goldman Sachs – $13,978,535,327 – $8,422,666,771 – $7,998,529,640

    Indicate that around half of Goldman’s exposure to AIG was insured? Or am I reading it wrong?

  9. Pretty much right, I think. GS had $14bn in *notional* exposure (via CDS it had bought to insure its CDO portfolio–though it’s important to note that notional is not actual exposure). Against this it held $8.4bn in collateral, and bought CDS on AIG debt to hedge the remainder.

  10. Just realised that I wasn’t totally clear in my reply.

    The notional value of GS’ CDS trades with AIG was about $14bn. They held collateral against those trades worth $8.4bn. But the notional value of the CDS trades is not GS actual exposure to AIG. The notional value is the dollar value of the underlying assets, i.e. the value of the CDO portfolio GS was insuring when it bought CDS from AIGFP. Their real exposure is the cost of replacing those CDS contracts—or buying more insurance on their CDO portfolio, if you’d prefer—which was significantly less than $14bn (though obviously not a trivial amount and obviously more than $8.4bn, which is why they hedged against AIG’s collapse).

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