Wall Street's Bailout Hustle | Hacker News Reader

Wall Street's Bailout Hustle

rollingstone.com

36 pointschaostheory47 comments

The sad thing about the banker's bonuses is that if they honestly tried to mark to market all of the bad debt that is still on their books they actually lost money last year.

The only way they can justify the whole profit/bonus story is because they are lying to themselves about their real financial situation. And unfortunately their lies will impact the rest of us as that bad debt turns out to be the garbage that it is.

If Matt Taibbi wrote an article on a stick of poo and mailed it to me, I'd still read every word.

I find the idea of Matt Taibbi writing articles made of poo to be metaphorically appropriate.

It depresses me that these screeds find a place on this website. It should be obvious, by the tone, polemical nature, and carefully arranged blindness of the above article, that no valuable or contextually useful information could be got out of it.

It further puzzles me that it has become trendy to attack the financial market's most successful and profitable large institution. This proto-Marxist sentiment has no place in a free society. The only people forced to trade with Goldman were taxpayers financing the bailouts, and you know what happened to them? They got all their money back plus twenty-three percent interest.

Could you point this blindness out to me?

Actually Matt Taibbi is, apparently, one of the very few members of the press to have the intelligence, motivation, and opportunity to attack Goldman repeatedly. Everyone else is on a 24-hour news cycle, and as far as I can tell, Blankfein taking the $9 million bonus effectively defused the situation, especially after it was leaked that his bonus could be $100 million. Setting this up and getting the press to report the relatively low bonus was a brilliant PR coup, and it appears to have worked.

That being said, I don't have any issue with his efforts at muckraking - I believe in freedom of the press after all.

That makes him a fanatic, but it doesn't say anything about his correctness.

The other thing is that, though I'm sure Goldman's decision was partially PR-motivated, it's what they should be doing anyway.

Pulling back on Loyd's bonus was a substance-less ploy. They received over tens of billion in bailouts, plus loans at 0% on MY dime, plus 100% in payouts on 5.9b on a bankrupt company. Because if this, they posted 13b in profits and paid out 16 billion in bonuses.

Do the math and they should be out of business. Instead our corporate socialist state (fascism) paid those bonuses with my taxes.

The public needs an outlet for it's anger. Hopefully some real reform takes place. If not, then let the dissatisfaction grow.

Reform by itself isn't want people need--the reform has to be good. All you have to do is look at any country dominated by stupid reformers to see the effects of stupid reform. Heck, just look at the history of socialism.

Or the history of reform.

I seem to recall a few years ago all of the smart "capitalists"* were telling us that we should put our SS money in the market. Around 2005-2006, if I recall correctly.

Good thing we didn't do it.

*"capitalists" in scare quotes to the extent that it may describe oligarchists rather than believers in true competition.

That's not "capitalists", that's the financial media.

Most of the people I know who are involved in finance consider the financial media to be pretty stupid.

Finally, the financial media tell you to do all kinds of orthogonal and contradictory things, only some of which was to put all your money in the market. In fact, most advise and would have advised the opposite.

So, I don't see the point of what you are saying.

The financial media and all "capitalists" who've been exposed to the downside of the risks they took. All that talk of individual responsibility and keep the government out of financial markets evaporated real fast, if I recall correctly.

Of course, now it's back again. It's as if 2008-2009 never even happened.

EDIT: My bad, you didn't get my initial reference. In 2005, a bunch of the "capitalists" were saying we should privatize social security and put it in the market. I was saying that would have been dumb. Regardless of how "capitalist" it may have been.

The true capitalistic thing to do would be to let the companies that took stupid risk go out of business. Instead they want socialism. It must be wonderful to profit from big risks and get bailed out when the risks don't pay out. I would take those "risks" too.

Did you read the article? there is some information in there: "Goldman and Morgan Stanley, applied for, and received, federal permission to become bank holding companies." Now they can borrow from the Fed for 0% interest. What did they do with the money - certainly not loan it to real businesses - they bought 10 year T bills that pay 3% to 4%.

That is the quickest scam to explain. But basically these "Investment Banks" are not investing any money in the real economy - they are just making bigger and bigger gambles with the explicit knowledge they are "too big to fail" and we will be on the hook for when their bets don't go the right way for them.

I work in the industry, and I heard about the bank holding thing the hour it was announced. I don't think investment banks should have access to Fed money, but the argument for this is a bit more subtle than Taibbi's article.

Furthermore, the idea of investment banks as giant casinos is wrong. A bank like Goldman does not make a large number of directional bets, and when they do, they win on average. (They've certainly been winning throughout the crisis.) That a large number of banks lost a lot of money because of a government-fueled housing bubble is not Goldman's fault.

I think we probably agree more than disagree. Morgan Stanley and Goldman are not banks so they should not have access to Fed money. And sure, they should be allowed to make whatever bets in whatever size they want - as long as they are small enough to fail. If they are too big to fail them I am on the hook for when their bets go bad.

Any business that is too big to fail is too big. We successfully broke-up Standard Oil and AT&T and we are much better off for it.

I agree with this.

In fact, what scares me the most about the state of finance in the US is that, instead of well-meaning and meaningful reform, we have idiotic and impotent populist rage.

Right. We shouldn't be pissed off we are getting screwed by the people writing your checks. I love it.

"Government-fueled housing bubble"

[citation needed]

Are you gonna cite that law from the 1970s that said banks needed to make mortgages available to poor people and minorities? If so, please explain why no subprime housing bubbles happened between the 1970s and 2005 or so?

Also why requiring the same, not lower, lending standards is somehow a mistake. And why mortgage brokers wrote so many loans that contributed to the problem, when they aren't even affected by the CRA law. (The answer to that is: Wall Street was eager to buy them.)

What we have here is someone who Did Not Do The Research. The housing bubble first began picking up steam in 1997.

Here's a pretty chart: http://1.bp.blogspot.com/_pMscxxELHEg/SfcAHzHg0UI/AAAAAAAAFI...

This time coincides with a remarkable expansion of government-sponsored lending via FNMA and FHLMC, eventually reaching over 2 trillion dollars of liabilities. During that whole time, the executives of those corporations quacked about how safe their loans were and their institutions were, and bemoaned the expansion of sub-prime lending. Well, guess which two mortgage banks have taxpayers on the hook for over $100 billion. Hint: they're not GS and J.P. Morgan.

Well, hey, never blame your industry when you can attempt to tar the government that just bailed your sorry selves out. (and yes, that includes you, even if your bank was not directly involved).

Nice chart. I went to college with Shiller's kid, believe it or not. Anyways, it looks like things pick up more in the early 2000s than 97 to me.

My explanation? Super low federal interest rates that were kept way too low for way too long (for political reasons), and an unappetizing stock market in the early 2000s. Money seeking a return had to go somewhere, and that's where it went.

If you were in the field at the time, you'd probably have a similar memory. It's what my friends in the industry were saying circa 2003. None of them were talking about Fannie and Freddie -- they only adopted that when it became a convienent excuse 5 years later.

Since you're an expert, I'd love to see a citation regarding that "remarkable expansion of govt sponsored lending" by Freddie and Fannie at the time? Specifically, was it driven by an act of government or was it market-driven?

It's pretty nice that you know enough about banking to provide us with an explanation of the financial crisis, yet you think a derivatives exchange is a "bank" and that the crisis somehow put us in danger. 30 seconds on Google Finance would have shown our balance sheet is rock solid and our operating margin is about the same as it was before.

I wouldn't call myself an expert, either. I don't think what I'm saying is obscure or expert knowledge--just paying attention to the facts.

I'm getting tired of responding to so many attacks, so I'm going to leave this in a DH5 on the PG disagree-o-meter.

Your assertion that the housing bubble was quote "government fuelled" is not obscure or expert knowledge -- and it's certainly not a fact, it's an opinion propagated primarily by those with material or ideological incentive to blame the crisis on quote "government".

A systemwide financial meltdown of the sort that we avoided would most likely have put your employer in danger. I don't know your business well enough to say for sure, but I think most people would agree that it's a reasonable assumption.

I could tell by your first response you get paid by the profits of the very cons Taibbi is railing against. Answer these questions:

So you are OK with front running clients? Forget about legal... that's moral?

So you are ok with these banks getting dollars at 0% from the tax payer and lending them back to the taxpayer at 3-30% interest?

You are ok with big banks not loaning to small business and entrepreneurs? Likely becuase those are uncredit worthy loans right? How credit worthy are the big banks who screwed us in the first place?

I'm betting as long as you get paid, you'll be able to justify all kinds of cons.

This is a baseless ad hominem attack.

I work for the Chicago Mercantile Exchange. We are not a lending operation. We do not receive money from the Fed. We do not do front-running or flash ordering. The latter is legal, but we do not do it for ethical reasons. Our response to the Lehamn Brothers crisis was measured in minutes, and the time taken to close all their trades measured in days. Our money comes from being a conservative, sound organization; from traders trusting us to clear their trades, and we cleared every trade on time since I don't even know when. We have not failed to clear a trade in the last 110 years.

This is the "con" from which I make my money, but you could have figured this out yourself by clicking my profile instead of making things up.

I am not justifying "cons". I am defending what I believe. I believe in intelligence over populism, capitalism over socialism, and correctness over incorrectness. What's your excuse? I actually don't want to know what you think; I'm responding only because people are upvoting your comment when they should be downvoting it.

Forgive me for my incomplete understand of the CME's profits. Does the CME clear trades for JPM or any other large bank?

If so you profit indirectly from those institutions. Regardless, too many people who profit directly or indirectly from Wall Street and it's surrounding economies are apologists for the TBTFs actions.

Back to my questions. You agree with Taibbi on front running/flash. 2 more to go.

If you're going to go down the 'indirectly' profiting route, then where do you want to stop? Does the grocery store where he spends his wages also profit? Does the farmer that they but their food from indirectly profit? Does the chemical company that creates the fertilizer they use indirectly profit?

"I believe in intelligence over populism, capitalism over socialism, and correctness over incorrectness."

What's happening in the financial industry at the moment is definitely not capitalism.

I agree with this. But the solution to this problem will not be found in nonsense articles printed in Rolling Stone.

Yes, Taibbi writes screeds and polemics. But he's also a hard-nosed investigative journalist, and while his writing is often darkly entertaining (I will always treasure his image of Goldman as "a great vampire squid wrapped around the face of humanity"), his contribution to public awareness of kleptocracy is invaluable.

Propaganda is rarely valuable, even when correct (which it isn't here).

Like "too big to fail"?

...that doesn't even fall into the category of "propaganda".

Seems like propaganda to me. That is the sound byte I associate with this whole mess. It was repeated quite often.

Usually by the enemies of the banks, though. It's at best propaganda for the other side, if at all.

Well, the banks got what they wanted. A big fat payout and subsidies from the tax payers. We hedged their risks. They don't need any propaganda. Now before the decision was made...

And didn't you say that is not "propaganda"? What is your definition of propaganda? Maybe we can have a rational discussion if you declare what you mean by propaganda.

Calling something propoganda while failing to point out inaccurate statements is propoganda.

Further, you should have a disclaimer in every one of your comments that you are paid by the industries Taibbi is railing about.

Put away your pitchfork and torch. I was responding to the GP's assertion that "screeds" and "polemics" are "valuable". My point isn't really changed by what other people think of the article.

This isn't about TARP money to me, it's about a textbook case a REGULATORY CAPTURE.

Forget about To Big To Fail, we need to start asking who is To Big To Be Indited.

Goldman doesn't seem to be engaged in risk, far from it, they have the power to shape markets to their advantage. Why do so many top level Goldman executives cycle in and out of powerful government positions?

I don't think it's very puzzling that a large, profitable institution can get dragged through the mud. There's a very simple reason: Many people don't accept that "being profitable" and "being worthy of admiration" are the same thing, or that Goldman's success as a business proves that they're a socially positive force.

The Mafia was a successful, profitable large institution for a long time. People still thought they were crooks, because, well, they were.

You can argue that Goldman Sachs is not comprised of a bunch of lying con men who made all of their money by cheating it from gullible rich old ladies. But "look how much money they made!" isn't a convincing reason in that argument. Maybe they're just very good at lying, cheating, and bribing their way to wealth! The people at the top of the pyramid scheme actually do make money, after all; it's everyone at the bottom who loses out.

OK, but Goldman doesn't make money by pushing dope or breaking peoples' kneecaps.

To reiterate: "The only people forced to trade with Goldman were taxpayers financing the bailouts, and you know what happened to them? They got all their money back plus twenty-three percent interest."

No, but they do make a ton of money by frontrunning trades, a practice which is only legal because Congress is too dysfunctional to pass a law against it.

No, but they do it by putting a lot of their alumni into the US Dept of Treasury, which somehow miraculously gets them sweetheart deals from the gov.

It's hard to admire a company that readily takes welfare handouts from the government, while at the same time asking for hands off when it comes to taxes and regulations, especially when mixed shady practices.

GS is made of a lot of clever individuals, that's not questioned. Reputable and admirable? That's another story.

Almost forgot, the banks haven't really paid up.: http://www.zerohedge.com/article/10-ways-say-no-banks-have-n...

There's another article that shows that the Fed Reserve opened up new loans to the banks to replace the 'paid up' TARP loans.

GS is not being questioned for being fabulously profitable, but rather for the way they make their profits. (for eg. selling debt-instruments to clients and then turning back and shorting those same instruments)

"It further puzzles me that it has become trendy to attack the financial market's most successful and profitable large institution. This proto-Marxist sentiment has no place in a free society."

This is not a proto-marxist trend. The people are not questioning the profits of HP, Caterpillar, Exxon, IBM, etc. They are questioning institutions that placed stupid (and arguably fraudulent) bets, got the govt. to bail them out, and then went on to make even more money doing more shady deals (trading in life insurance, etc). These same banks are now resisting regulatory and reform efforts.

"The only people forced to trade with Goldman were taxpayers financing the bailouts"

Hank Paulson, the immediate-past CEO of GS, was the one who "forced" GS and other banks to take the money. Incidentally, he also allowed Lehman (a GS rival) to fail. All these actions might have been coincidental and without alterior motives. But you cannot blame a journalist from taking a deeper look, cos it sure does smell fishy.

Actually, the repayment only includes money that was directly loaned to Goldman. Everyone forgets about AIG, who paid their counterparties (which included GS) 100 cents on the dollar for what are probably worthless assets. Since AIG will likely never repay the full amount of its bailout, we as taxpayers effectively subsidized all the crappy bets taken by the major financial institutions.

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