Friday, June 19, 2009

A Couple of Viewpoints

Here's one take on the Imperial financial meltdown -- that unconstitutional powers need to be manufactured and assigned to a Thing (the Federal Reserve) that doesn't even have a constitutional existence:
Mr. Geithner tried to knock down any impression that the Federal Reserve would become much more powerful. “Our proposals for the additional authority we’re giving the Fed are actually quite modest and build on their existing authority,” he said.

Moreover, he said, the Fed was not responsible for the current situation, and “it has a greater knowledge and feel for broader market developments than is true for any other entity in that context.”

Mr. Geithner is sure to face more sharp questioning. He was to have appeared Thursday afternoon before the House Financial Services Committee, but the session was postponed because of heavy House business on the floor.

At least twice, Mr. Geithner described the White House plan as “pragmatic” and meant to do what is essential, rather than what would be ideal. “It does not propose reforms that, while desirable, would not move us toward achieving those core objectives and creating a more stable system.”
And then there's Matt Taibbi, providing a blast of fresh air and profanity:
Anyway, I was also struck by this phrase:

…we are proud of the way our firm managed the risk for our clients…

First of all, generally speaking, when one apologizes for having done a bad thing (like for instance destroying the world economy), it is good form to wait at least until the end of the sentence to start bragging again.

Second of all, what is particularly obnoxious about this phrase is that Goldman is bragging about the fact that it actually made money while it was pumping the economy full of explosive leverage. While companies like Lehman and Bear were dumb enough to actually eat their own rat meat, Goldman knew what it was doing and was careful to bet against the same stuff it was selling, which makes its behavior many times worse than that of other banks, not better. I get into this more in a Rolling Stone piece coming out next week, but Goldman’s continual bragging about its mortgage hedges is one of the more obnoxious phenomena in the recent history of Wall Street, given that it was selling this shit by the ton during that same period.

Beyond that, Goldman’s “risk management” also involved buying massive hedges on its mortgage exposure from…drum roll please… AIG. In fact Goldman was AIGFP’s single largest customer; while the bank was busy flooding the world financial system with doomed mortgages, it was also busy piling bets on the back of the insurance behemoth — $20 billion worth, to be exact. And AIG’s death spiral was triggered not so much by its bets going sour, but by companies like Goldman that demanded that AIG put up cash to show its ability to pay. These collateral calls were what killed AIG last September, and Goldman was one of those creditors pulling the trigger: what makes this fact even more obnoxious is that ex-Goldmanite Henry Paulson then stepped in and green-lighted an $80 billion taxpayer bailout. Ultimately another ex-Goldmanite named Ed Liddy was put in charge of AIG, and Goldman ended up getting paid 100 cents on the dollar for its AIG debt.

So basically Goldman helped kill AIG, necessitating a federal bailout, after which time it got paid off handsomely for bets that it certainly would not have been paid off completely for had AIG simply been liquidated. And again, AIG probably does not have a market to sell its CDS insurance to firms like Goldman, if firms like Goldman had not cooked up this insane scheme to underwrite billions upon billions of toxic debt and sell it off to secondary buyers as safe investments. Moreover AIG would not have even had this business of selling CDS insurance had not a bunch of ex-Goldman guys, in particular Bob Rubin, quietly pushed to deregulate the derivatives market back at the end of the Clinton administration.
It's all in how you look at it, I guess. And one thing should be abundantly clear: how you look at it depends not at all on which wing -- elephant or donkey -- of the corporate duopoly you're affiliated with.


lemming said...

Amen to that last sentence.

Anonymous said...

At the risk of sounding like a conspiracy freak, the whole deal was planned and executed according to plan. And it's worked out smashingly for the powers that be. Now Obama just has to finish pounding in a few more nails.