I’m sitting here working and the idiot box is on in the background, and the talking heads keep talking about whether or not the economy has turned and using as evidence that Goldman Sachs and another Bank made a profit.
Has it not occurred to these people that the “profit” these guys made would be non-existent without the AIG bailout and all the money funneled to counterparties? I would love for things to turn around, but given the unemployment numbers, the sales numbers today, and all the other bad news, it just seems insane to think we have bottomed out, especially since we had to spend a trillion or so dollars bailing people out to record this illusory one billion dollar profit.
Am I missing something here? I think things are going to be catastrophic in the short term when the auto industry takes the inevitable big hits in the next few months.
plasticgoat
Thinking and reasoning are not on the menu of the mainstream media. That would be asking too much.
guster
"Am I missing something here?"
No.
Dennis-SGMM
The gov poured in a trillion and the Masters of the Universe "made" a few billion. The talking heads will be touting this as demonstrating the strength of unfettered free markets in three.. two..
r€nato
No you’re not missing something and the upswing in the stock market is bound to be short-lived, for various reasons which I’m not going to go into here.
Rick Taylor
Not so far as I can see. We gave them 12.9 billion dollars through AIG. Our determination to honor credit default swaps without question has been the craziest part of the bailout.
The Grand Panjandrum
Q: How do Wall Street bankers make billions?
A: Have the government give them trillions.
Pretty simple, eh. With those kind of money handling skills we can all sleep better at night knowing that the Big Boys in Long Pants have their hands of the steering wheel of the economy.
toujoursdan
It’s shrilling for the market, plain and simple.
schrodinger's cat
Also the problem of " too big to fail" hasn’t been tackled. No, this crisis is far from over.
** Atanarjuat **
You’re not missing anything at all, John. It looks like the American economy is on life support.
-A
Dennis-SGMM
How do the Masters of the Universe make a small fortune?
They start with a large fortune.
PeakVT
Am I missing something here?
No.
And even when the economy does "turn around" by the standards of the
corporate propagandacable news networks, it won’t get better where it matters – in the employment numbers – for another 8-10 months.JC
Krugman seems to be suggesting that they’re writing off December, in which they suffered $1.3 billion in losses…
http://krugman.blogs.nytimes.com/2009/04/14/bush-budgeting-lives-at-goldman-sachs/
Comrade Dread
The economy is recovering in the same way that a corpse struck by lightning is recovering: lots of twitching, but that sucker ain’t going to stop smelling like death or tap dance with Gene Wilder anytime soon.
passerby
Obama is giving a "state of the economy" speech at Georgetown University this morning at 11: 30 ET, C-Span.
That is all.
J.
Nope. And thought the exact same thing while watching cable news this a.m. Btw, you left out the $10 billion in govt/taxpayer money paid directly to GS.
Walker
There, fixed that for you.
r€nato
Oh, OK, long story short:
Because we tied so much of our economy to housing values and people paying their mortgages, there’s no ‘real’ turnaround until we have some idea of where everyone stands. And nobody is really going to know that until we work through the last wave of shit mortgages, the option-ARMs.
A lot of things will fall into place once investors know how many folks are going to continue paying their mortgages and how many are going to default. That’s when investors will have some real idea of the value of these shitty assets on the banks’ books, and how much exposure AIG and others have to those horrid CDS side bets.
Get a handle on that, and there will be a substantial increase in business confidence. Businesses quit dumping jobs and in time slowly begin hiring again (hiring is always a trailing indicator of economic recovery). People who have jobs finally have some idea whether it’s OK to spend again rather than fearing a layoff. Jobless folks actually have jobs so that they can spend on something other than the necessities/bills.
What’s more, there’s no way we work through a recession as deep as this one in such a ‘short’ time. We’re 12 months into it and really, the worst of it has lasted just six months. IIRC past recessions took 18 to 24 months to work through and turn around, and none of them in our lifetimes have been as harsh as this one.
Svensker
Who’s got the real Atanarjuat? There’s been a Pod hanging around the boards lately pretending to be Ata, but he makes sense, hence obviously not the real thing. What have you done with him?
Evinfuilt
@schrodinger’s cat:
We’re just delaying the inevitable. Sad state of affairs, it seems Obama’s administration believes everything is fine, outside of no one lending.
Well, for only a couple trillion dollars, we got ourselves another year of life-support.
Walker
On related news, Goldman Sachs is planning on a $5 billion dollar public offering so that they can pay the government back the TARP money?
Anyone who buys into that public offering is an idiot.
Brian J
This is likely a problem of confusion over specific business/accounting terms. Remember when that memo by Citigroup was made public a few months ago, before the stock rose from its all time low? A lot of people seemed thrilled that maybe, just maybe, things weren’t as bad as we thought because the company posted an operating profit. But as this blog post from Hussman Funds* so aptly stated, "Citigroup could burst into flames while Vikram Pandit sells lemonade in the parking lot, and Citi would still post an operating profit. Operating profits exclude what happens on the balance sheet."
I don’t know how to analyze this information, but I am trying to learn. Still, to be rather general, it looks like there are some glimmers of hope, but that the problems are still very much with us. Thus, the calls that this or anything like it is a significant step in the right direction seem highly misguided. And the bizarre claim that something like Wells Fargo posting a profit is laughable. As Dean Baker said, he doesn’t know if a "[Time Magazine] piece is meant to be news, commentary, or satire."
*I’m pretty sure this is the original quote, but not absolutely certain. Still, it’s a pretty good statement.
Incertus
@Svensker: I think it’s part of a long con, a spoof of epic proportions, and this is the set-up phase.
Incertus
@Walker:
Which means my 403(b) account director will probably be first in line.
JL
Adding to what JC said, Barry at the Big Picture also has an article about the missing month of December. Goldman Sachs changed their calendar year and now one month is missing.
Shalimar
That was the first thing I thought of too when I heard the news. Paulson gave a fortune to AIG to make sure his old company wouldn’t get hit hard by the fallout and then the Obama treasury people kept on giving. Of course Goldman is doing well as a result. It would be shocking if they weren’t after all that help.
Tim H.
It’s actually worse than you think.
Consumer spending down for March
When GM goes down we’re probably past the point of no return.
peach flavored shampoo
If you gave me a billion dollars, I’d find a way to show a net gain of at least a few million by the end of a quarter, too.
Elvis Elvisberg
What JC said. It’s worse than you think: GS is pretending December didn’t exist.
… um, and what JL said, too. A Krugman commenter said this was a side effect of GS becoming a bank holding company in order to get all this gov’t $ to begin with; no idea if that’s accurate.
Face
Whooooooaaaa……..WTF?
Bulworth
"…economy has turned and using as evidence that Goldman Sachs and another Bank made a profit."
Word.
Somewhere along the line, instead of "what’s good for GM is good for America" it became "what’s good for Goldman Sachs and Citigroup" is good for America".
The Dow has become a proxy for the banking interests. I’m becoming more and more convinced that the Dow isn’t a very good barometer for how the real economy is doing, but the folks at Fox, CNBC and CNN still haven’t figured that out, or at least begun to question it.
MTiffany
A trillion dollar bailout for a billion dollar profit. Wait, so if I remember my math…
Wouldn’t that mean that without the trillion dollar bailout this massively incestuous clusterf*ck of investment banks would have seen a 999 billion dollar loss?
A nine hundred ninety-nine billion dollar loss… How exactly does one make bets totaling nine hundred ninety-nine billion dollars without having to put up some form a collateral?
Oh wait… the collateral was us. Now I get it. The question of who owns your body has finally been answered – corporate America owns your body. And mine. And his, and hers, and hers, and his, and…
Jon H
Lloyd Blankfein is also a giant at baseball, if you define "baseball" as "tee-ball".
Note that he became Goldman’s CEO because of his awesome performance running their fixed-income business, during the easy money Greenspan years when a blind monkey could make a profit on wall street.
Joshua Norton
Let’s see:
1. Banks purchased insurance from AIG to insure their bets on toxic mortgages. When those went belly-up, they filed the insurance claim and got paid for their losses — with a taxpayer bailout to AIG.
2. Banks claimed "poor me, I have all my (insured) reserves in rapidly depreciating, illiquid investments." The taxpayers bailed them out again – thus paying for the same toxic assets twice.
3. Now Geithner wants to buy those toxic assets, again using at least partly taxpayer money. Third payment on the same bad bets.
No wonder Bear Stearns posted record profits last quarter. If they can’t make money charging the taxpayer for the same asset three times, they need to go back to economics 101.
Ah, yes! Happy days are here again! But only if you can consider talking heads grasping at straws as educated analysis.
Bulworth
@Walker:
Yeah, there’s that, too. If we just allow the banks to make even more shit up, then we can go back to partying like it’s 2005 all over again.
gopher2b
I bought Goldman at $75 and hold it still today where it sits now at $125. Am I an idiot?
You guys know a lot of stuff about a lot of things but how banks and investment banks make money is not one of them. I thought you folks would be happy GS was trying to pay back the TARP money.
Just Some Fuckhead
Riffing on Atanarjuat, the economy is Terry Schiavo and the talking heads are Republicans telling us all she’s just fine, gonna wake up from her nap any minute now.
Xenos
All this flurry about GS may be just distraction from some serious inquiries into what could be fraud and insider trading in the tens, if not hundres, of billions of dollars.
Better educated and informed readers than me can consider this.
If I understand the article correctly, GS was brought in to do due diligence on a deal which did not end up going through. Having learned that one of the parties to the deal had a huge short position on oil last summer, GS coordinated an enormous short squeeze that bankrupted that party, and let a GS affiliated firm pick up the short position for billions and billions of easy profit.
Anybody recall oil going from about $120 to $145 a barrel in the course of a few days? Then dropping suddenly to about $110? That was all just a side effect of a few GS insiders getting very, very wealthy.
r€nato
The Dow is a barometer for the real economy in the exact same way that my success or lack of at the casino is a barometer of how well my career is going.
Brian J
@Tim H:
Some seem to be saying it represents a leveling out of sorts. It’s not good that there was a slight decline, but if you look at it over the course of a few months, it’s not getting better by a lot but also not getting worse by a lot. Who knows if that’s really true, but it doesn’t seem to be a ridiculous suggestion.
Tom65
Yay.
So when do we get our money back?
Keith
Yeah, there’s the consumer confidence aspect. Recessions are partly psychological (remember when GHWB tried to end the ’91 recession by stating that the recession was over? Terrible attempt, but that’s what he was aiming for), so if consumers as a whole believe we’ve turned a corner, then they purchase more & inject money into the economy.
Granted, that metric is relatively small compared to things like unemployment and GDP, but it does play a noticeable role in the economy. And of course, while I have a job and *do* think we’ve bottomed out (and thus have been spending more), those out of work aren’t so lucky or optimistic.
El Cid
Nouriel Roubini keeps pointing out how time and time again when there’s a "bear rally" (a minor rally in the stock market within the context of a general ‘bear’ market), the same shill types again and again wrongly declare the slump / decline / bear market over, happy times are here again, and Roubini and others point out the basic fundamentals which show the minor and transitory nature of the recent small rally.
But no matter what the reality is, the market boosters will declare any minor rally a triumphant end to bad times and surely a predecessor showing how we need to cut the capital gains taxes and estate taxes and anything else the super-rich feel like.
Lupin
If I had to use one word and one word only to describe the state of our country now and during the last decade, "delusional" would be it.
Xenos
@Lupin: I would go for ‘hysterical’.
Bill H
There is not just that Goldman Sach took big writeoffs in December and then shitcanned that month from their books by conveniently changing their accounting year, as reported by Paul Krugman, there is also evidence that the profit at Wells Fargo is nothing but Smoke and Mirrors, otherwise known as "Bush accounting."
bob h
From Goldman you will not hear acknowledgement of the fact that it was the government permission to reclassify itself as a bank that enabled it to escape a Lehman-like fate. Before that, their business model was terminal.
El Cid
Nouriel Roubini, last night on PBS’ Nightly Business Report:
Happy days are here again! Where’s Larry Kudlow! Tea party! No taxes! Fair tax! Birth certificate! The stimulus is just too big for us Centrist Democrats! We got to think about the deficit! Let’s cut Social Security and Medicare! We got to lift the burden off of business! Blargedly blargy blar!
DPirate
I think the catastrophe is hoping we get the machine up and running again for another 12-15 years, until the next time the elite decide to pull a fast one. I mean, barring the speculator that cashes out of the bulls and the super-rich that cant be harmed noway nohow, have things been all that great for the last 50 years? Hasn’t just about every measure of civic progress been on the decline since about 1960?
Seems one of the few things that can be said for us is we tend to live longer, but in rather poor health. Does anyone expect their child of today to be able to own their own home (let alone a farm or ranch) outright in their lifetime? Best to call it a game and think up something else, IMO.
smiley
Get your today! Only $129.00 while supplies last!
(ht Glen Beck show?)
Added: BTW, I think that is the new global currency we’ve all heard about.
Joshua Norton
To add insult to injury, it turns out that Geithner and the crew of Wall Street insiders that have exclusive access to the president’s ear, don’t want to reregulate the market. They want to get the same old system working again with voluntary compliance as to "recommended" accounting procedures.
Since it all worked so well last time. Until it didn’t any more.
Olliander
The fake populist outrage over the AIG bonuses was a diversion for the those in control (ie politicians and bankers with no equity stake in their business). Not a word was mentioned in the maintstream media regarding these counterparty transactions between AIG and Goldman Sachs in particular.
Goldman Sachs always lived in an alternate universe when it comes to reporting earnings. Lloyd Blankenfein can crap in a box, wrap it in newspaper and present it as earnings and CNBC would applaud at the ingenuity. Much of the same is happening now.
Wells Fargo reported a "good" quarter last week, sending the market higher. Too bad that NEWS LIKE THIS is released after the fact:
Who knows what they’re really thinking at Treasury. Getihner seems to be an intelligent man, but that doesn’t mean he’s up to the task at hand. What’s going on here is nothing short of a government sponsored Ponzi scheme, a shell game as it were, and guess who gets to hold the bag last?
Zifnab
@Keith: That bullshit pop psychology always bothered me. The idea that people just need to be told, "Hey we’re not in a recession anymore" to end the recession. It’s the epitome of Tinker Bell magical thinking.
This recession wasn’t brought on by a large number of people simply waking up in the morning and saying, "I don’t feel like spending anymore." This was a slow grind, years of rising unemployment, trillions of dollars in overextended credit, and the slow realization that all the money the banks were producing wasn’t actually tied to anything.
This isn’t going to get fixed with a pat on the back and an "It’s ok, economy’s fine now" pep talk.
gex
I can assure you that I would be turning a profit this year if I received millions in direct aid via bailout money and millions more in indirect aid (routed through AIG first). I guess that means I have what it takes to be a CEO of a major financial institution.
Just Some Fuckhead
@Xenos:
I pointed this out AT THE TIME but we had the chicken little lefties giving ’em cover by swearing we were all out of oil. Fools.
Montysano (All Hail Marx & Lennon)
@Joshua Norton:
Got a linky for this? Because, if true, this is my worst fear. "Voluntary compliance" was the cornerstone of Greenspan’s belief system, and he admitted to Congress that he’d been dead wrong.
Montysano (All Hail Marx & Lennon)
@Just Some Fuckhead:
Not "out of oil". No one with any cred is saying that. We’ve passed the Peak. Production is declining. This is now pretty much beyond argument.
Xenos
@Just Some Fuckhead: Well, as one of those lefties, it did look like legitimate demand for oil was spiking. And I tend to mistrust conspiracy theories. But just because conspiracy theories are usually wrong does not mean that there are no conspiracies out there.
Ok, ok, there was probably a lot of confirmation bias in there, too.
What I find shocking about the story is not that such conspiracies exist, but that Goldman Sachs would so openly screw the parties to a deal it had been invited to finance. Who would dare let GS look at their books after this? Maybe the jig was up and the insiders knew they had just a few more weeks to play games before the bottom fell out and GS was made insolvent, so they did not care about killing the firm.
Ash Can
@passerby: Interesting that none of the usual extremist right-wing Catholic suspects are throwing any well-publicized, on-camera hissy fits over this.
Roq
They also don’t seem to question whether or not they would’ve posted a profit without the relaxation of mark-to-market rules. Sigh.
I love how the Market is All-Knowing, until it says something they don’t want to hear. Then, it’s "broken."
Xenos
@Ash Can: The usual extremist right-wing Catholic suspects can’t even be bothered to utter threats against the Jesuits. Those guys really don’t give a shit what anyone else thinks about them.
passerby
@Ash Can:
Heh. Hope ND big wigs and/or whoever joined in the whole catholic outrage (I’m talking about you, Pat) over Obama speaking there, I hope they feel as silly as they sounded now that Georgetown has shown how to graciously welcome the President of the United States onto their campus for a speaking engagement.
gex
@Svensker: If there’s asterisks around his name it means he’s on his meds. ;)
Keith
@Zifnab:
I think equating consumer confidence with the Tinkerbell theory is a bit of a stretch. CC is a legitimate affector of the economy, but it naturally does not exist in a vacuum independent of other (and more significant) factors.
Wile E. Quixote
@JL
That’s pretty sweet, can other people do that too? You know Cole, if you’re reading this, if we don’t count the last three quarters of Superbowl XL the Seahawks win the game by three points over the Steelers.
And if you we remove the years 1995, 1996, 1997, 1998, 1999, 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2007 and 2008 from the calendar the UW Huskies are a completely awesome football team he sobbed uncontrollably
TenguPhule
Who wants to bet they didn’t do this when they filed their taxes for 2008?
Who’d like to double down that they asked the IRS for a refund for "year to date operating losses"?
Joshua Norton
I picked it up on The Young Turks.
The Cat Who Would Be Tunch
@Rick Taylor:
This is one of the things that truly pissed me off about AIG, Congress, the US Treasury, and the populistic rage that bubbled up a month ago.
Why the hell was AIG agreeing to pay out 100 cents on the dollar to all counterparties? Don’t give me that crap about being a nation of laws and needing to honor contracts. Contracts, licensing agreements, and patents are constantly being violated and/or renegotiated between companies, large and small. In this case, the AIG management should’ve tried to renegotiate the contracts. It’s not like the counterparties ha a lot of choices. Afterall, the US government could’ve let AIG go into bankruptcy. Let’s see how well the counterparties would have made off in that scenario.
AIG management wasn’t willing to renegotiate but when the government bailed them out, redoing these contracts should have been a key requirement of the deal. To be fair to the current administration, the bailout was engineered by Paulson. However, when the Obama team took over, this should’ve been top priority for Geithner. Instead, we had the populist rage boiling over when the news of the AIG bonuses came out, which was followed by an idiotic Congressional dog and pony show about said bonuses. Are you freakin’ kidding me? We had hearings about $167 million in bonuses, which comes out to about 50 cents per taxpayer, while ignoring the fact that AIG had already made CDS payouts of $100 billion, or $333 per taxpayer. Here’s a simple IQ test. Going after which of these two things would’ve netted a better result for Americans? Hell, just by getting AIG to make a miniscule change of paying 99.83 cents on the dollar would’ve saved $167 million. Imagine if it were 90 cents or 80 cents? Talk about misguided action. If you really wanted to be pissed about bonuses, ML would’ve been a much better target as they lost $27 billion in ’08 yet still managed to find $4 billion to provide to their ‘hardworking’ employees. But hey! Populists felt so much better that Liddy got a stern talking to and Congress getting all tough, all the while not having a clue that we’re still being royally screwed.
Now, I do realize that this view precludes the possibility that if AIG didn’t pay their CDS contracts in full, it would just destabilize the counterparties and cause further ripples in the global economy. The problem is, I haven’t seen much evidence to support this conjecture.
gopher2b
What is really going to piss you guys off is the reason they want to pay off TARP —- wait for it —- they know that if they still have TARP money they won’t be able to participate in Geitner boondoggle of a plan and they all want to be able to buy the "toxic" debt at firesale prices using government money.