Hacker News Reader

>It was an ultimatum that was forced

Actually, revelations from the ongoing AIG trial are proving otherwise.

http://www.nakedcapitalism.com/2014/11/aig-bailout-trial-rev...

We maybe digressing a tad, but that link isn't proving much in relation to necessities of accepting TARP.

If one takes into consideration that 4 days after that email was written Goldman announced a $5 billion investment into GS from Warren Buffet. A $5 billion deal does not get conjured overnight, takes days if not weeks of work prior to public announcements.

Regardless, that was over a full month prior to them receiving the TARP funds.

Also if one absolutely must, they could take into consideration that 4 days prior to that email GS, mid-crisis had beat prior earning and profit estimates by a tad over 10%.

Also, GS had not had a single losing quarter since 1999. They did however report a loss mid-December 2008, mostly stemming from being required to mark the value of various assets at currently distressed prices, mostly because their status was recently changed to a regulated bank.

The email you are referring to, an exhibit from the AIG trial:

"FYI, Morgan Stanley called Tim Geithner late last nite and indicated they can not open Monday. Morgan Stanley advised Goldman Sachs of that and Goldman Sachs is now panicked because feel that if Morgan Stanley does not open, then Goldman Sachs is toast. So appears we will definitely need to resolve both entities in one way or another this weekend. Options under active discussion range from sovereign wealth injection to merger with / acquisition by a bank to becoming Bank Holding Companies themselves to government assistance (unlikely). Tim Geithner and PDM team just finished getting first hand report of liquidity situation from Morgan Stanley. Have not heard assessment of that call yet. Baxter only EVP present. Checki expected shortly. Dudley, Rutledge and Krieger on standby at home for likely conf calls."

No, no distress here at all.

> No, no distress here at all

Sarcasm noted. I am not saying that there is no distress. But, all I have tried to do is give light to missing information. There is always some bias and opinions that bleed through.

But everything I have said is verifiable. If I mentioned something that is incorrect I would be happy to accept it and not repeat in the future.

Back to that email. It says "Goldman Sachs is now panicked because feel that if Morgan Stanley does not open", how does that statement in anyway prove that they had an internal reason to worry?

Again not saying that they were not distressed, the inevitable sell-off that would result from MS not opening was huge, and could possibly create a bank run and possibly lead to bankruptcy as all bank runs do.

But it does not indicate that there was a choice for GS/MS to be bank holding company. If anything the email itself notes that the option for them to be a bank holding company was unlikely.

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.

> 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.

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).

They wouldn't have survived? Based on what evidence? They had already liquidated the majority of their bad debt and hedged away more of the risk onto their own clients by the time TARP came around.

goldman bought tons of insurance on bad loans (loans it didnt own). it was gambling they would go bad, but part of that gamble was that the issuer (AIG for example) could pay up. they couldnt, until the government stepped in and made sure that 100 cents to the dollar was paid on those gambling notes. without that, goldman would have failed

The key question is why it was at 100 cents on the dollar - most cases would have required a haircut.

The article is about them becoming bank holding companies which preceded any talk of TARP. They became bank holding companies so they could get access to the discount window and get different accounting treatments.

You're somewhat correct.

They became a bank holding company on Sep 21st, 2008. It was a Sunday; CEOs of all financial companies worth noting were being held in Paulson's office to accept the conditions of TARP.

The TARP funds followed over a month later circa Oct 28th, 2008.

Can't speak for MS, but GS was not going bankrupt, they were the only one's who were making money (a substantial amount) and had already secured funding to buy up distressed assets.

The meeting with Paulson at the Treasury happened after TARP was signed into law (October 3). The book Too Big To Fail does a good job of summarizing the events.

> Can't speak for MS, but GS was not going bankrupt, they were the only one's who were making money...

That's a bit misleading. GS had a huge exposure via AIG. Many people in the industry think that GS was essentially bailed out via AIG.

Absolutely. The financial system is interlinked. If MS, AIG, Citi, etc. would have gone down then GS wouldn't have survived.

Did you read this article, or some other one? There was no mention of TARP.

I read this article. They mention TARP, they just never called it TARP. The whole premise of the article is based on the activities of a regulated bank, which has everything to go with TARP.

> They mention:

- Goldman Sachs became a regulated bank

- Which in turn allowed them to partake in activities that were allowed by the Gramm-Leach-Bliley Act

- Also that they were not a 100% on the validity and asked the Fed's to confirm if they could continue their business

> What the article fails to mention or is unclear about is:

- Goldman and Morgan Stanley were forced to accept the TARP

- A condition of TARP was that they had to immediately become a regulated bank (again not by choice)

- They complied with everything that was clear under TARP immediately and months/years before their counterparts

- They closed off their highest money making departments

- The so called windfall gain/Gift of the crisis/unfair advantage is something that is permitted under another law, which Goldman asked for clarification on

So yeah, read the article, if you did not notice that this was about TARP, it wasn't your fault, this article is constructed very very poorly and leaves a lot out and glosses over the anything else that may cast a doubt on their headline.

Good point; silly me for not noticing that the article is actually about a list of things that it doesn't mention.

I wouldn't say it's poorly written, it's just that isn't not the article you want it to be.

In what sense were Goldman & MS "forced to accept the TARP"? They were both free to choose bankruptcy, were they not?

In the same way that when you are robbed at gunpoint on the street you are free to choose handing over your wallet or being killed.

Umm, no - the two investment banks in question weren't being robbed at gunpoint, they were suffering from their own failures to manage risk, and various other management failures entirely of their own doing.

I agree. But their "choice" to accep TARP or not was not really a choice. They could accept the terms of the bailout, or die (go bankrupt). Whether or not it was their own fault that they were in that situation is irrelevant.

You talk as if these investment banks were poor helpless living creatures or something.

They gambled and they lost, then they had their government cronies bail them out. An analogy would be an idiot gambling away his entire live savings on the slot machine, and then going to the house and complaining: "I deserve all my money back because I didn't win."

Companies choose bankruptcy all the time. They don't like to do it, but sometimes it's their best option. GS clearly thought it was their second-best option.

It's nobody's fault but their own if they faced the possibility of bankruptcy.

shill intransitive verb \ˈshil\ : to talk about or describe someone or something in a favorable way because you are being paid to do it

Why do I get the feeling that you are not being quite as honest as you should be about your affiliations? You have commented on multiple financial article submissions in your past comments [0], including multiple Goldman Sachs articles. It's hard to take your immediate defense seriously, when you attack an article attacking the industry (possibly the company) that you work for.

[0] https://news.ycombinator.com/threads?id=bushido

Nope not in the financial industry. Consult in tech, Marketing Engineer of sorts. Have applied to YC before.

In 2008 however I was very much involved in the financial markets, as an independent options and quant trader(avoiding calling myself a day trader, but that would be accurate too).

Never worked for GS or any of its real competitors. Have worked on a proprietary trading floor(wouldn't call GS a competitor still unless making a pun on how insignificant we were compared to GS) and have worked in retail finance in the past.

Made some decent returns on put options positions on GS between August and November 2008. Hence intimately familiar with the stuff happening around them in that period.

I'm deeply interested in financial services, tech and law. and I will chime in time to time, mostly when there is some misinformation or blatant disregard for the regulatory infrastructure flying around.

Not giving any more information as of now, not because I cannot, not because I am famous (I'm not), not because I have any conflict (I have none), I generally like talking under a small guise of anonymity that HN affords, I'd like to keep that for now.

edit: removed unnecessary information not required in a disclosure.