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You are here: Home / Economics / Free Markets Solve Everything / Well, We Did Do the Nose. And the Hat.

Well, We Did Do the Nose. And the Hat.

by John Cole|  June 30, 201010:26 am| 33 Comments

This post is in: Free Markets Solve Everything, Assholes

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This never gets old:

Reversing its oft-repeated position that it was acting only on behalf of its clients in its exotic dealings with the American International Group, Goldman Sachs now says that it also used its own money to make secret wagers against the U.S. housing market.

A senior Goldman executive disclosed the “bilateral” wagers on subprime mortgages in an interview with McClatchy, marking the first time that the Wall Street titan has conceded that its dealings with troubled insurer AIG went far beyond acting as an “intermediary” responding to its clients’ demands.

The official, who Goldman made available to McClatchy on the condition he remain anonymous, declined to reveal how much money Goldman reaped from its trades with AIG.

However, the wagers were part of a package of deals that had a face value of $3 billion, and in a recent settlement, AIG agreed to pay Goldman between $1.5 billion and $2 billion. AIG’s losses on those deals, for which Goldman is thought to have paid less than $10 million, were ultimately borne by taxpayers as part of the government’s bailout of the insurer.

This is who the Republicans are going to bat for in financial regulation- the people profiting off the destruction of this country.

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33Comments

  1. 1.

    Zifnab

    June 30, 2010 at 10:34 am

    This is who the Republicans are going to bat for in financial regulation- the people profiting off the destruction of this country.

    Hell, a bunch of these Republicans are neck deep in the banking mess themselves. Who knows how many Senate portfolios hinge on Goldman Sachs stock prices?

    Not to mention all the kickbacks and free trips and corporate subsidized lifestyles the various paid-off politicians get to enjoy.

  2. 2.

    Kryptik

    June 30, 2010 at 10:35 am

    This is who the Republicans are going to bat for in financial regulation- the people profiting off the destruction of this country.

    And they’re winning. Never forget that, no matter how depressing and suicide-inducing that thought is.

  3. 3.

    geg6

    June 30, 2010 at 10:37 am

    But, John, it’s ever so much more important to prop up the bankers’ Hamptons real estate values by making sure these guys keep getting richer and richer and richer than it is to make sure the 10% of our population that is unemployed have some sort of cash coming in, or the 10 million or so kids who get free school lunches can get one good meal during the summer, or that homeless veterans get help and housing.

    Really, don’t you pay attention any more?

  4. 4.

    Svensker

    June 30, 2010 at 10:37 am

    Since half the Dems worked for Goldman Sachs I don’t think “our side” is being particularly tough on them either.

  5. 5.

    mr. whipple

    June 30, 2010 at 10:38 am

    BURN THEM!

  6. 6.

    Comrade Javamanphil

    June 30, 2010 at 10:40 am

    @mr. whipple: You can kiss that WaPo job goodbye.

  7. 7.

    S. cerevisiae

    June 30, 2010 at 10:41 am

    I’m going long on pitchfork, torch, and tar futures.

  8. 8.

    General Egali Tarian Stuck

    June 30, 2010 at 10:41 am

    The current number 60 Princess For A Day, Scott Brown. America kneels down, puckers up, and kisses his lily white winger ass for the Gawds of Corporate Profit.

    This is who the Republicans are going to bat for in financial regulation- the people profiting off the destruction of this country.

    The mad wizard gnomes in the AEI basement are busy working on a way the plutocrats can take their booty with them when they go. Meanwhile, back at the front, the country takes another one in the ass.

  9. 9.

    geg6

    June 30, 2010 at 10:41 am

    @mr. whipple:

    Heh. I’m still juvenile enough that any time someone does this, I can’t help but laugh. Even if it’s through tears and I really don’t think it’s such a bad idea for real.

  10. 10.

    Corner Stone

    June 30, 2010 at 10:42 am

    However, the wagers were part of a package of deals that had a face value of $3 billion, and in a recent settlement, AIG agreed to pay Goldman between $1.5 billion and $2 billion. AIG’s losses on those deals, for which Goldman is thought to have paid less than $10 million, were ultimately borne by taxpayers as part of the government’s bailout of the insurer.

    Where is Nick to tell us how much Goldman Sachs HATED these deals?

  11. 11.

    canuckistani

    June 30, 2010 at 10:43 am

    Build a Bridge to Nowhere out of them!

  12. 12.

    flukebucket

    June 30, 2010 at 10:45 am

    @Svensker:

    Ladies and gentlemen we have a winner.

  13. 13.

    arguingwithsignposts

    June 30, 2010 at 10:48 am

    The official, who Goldman made available to McClatchy on the condition he remain anonymous, declined to reveal how much money Goldman reaped from its trades with AIG.

    To tell us what Planet Money had already reported months ago. Seriously, fuck the whole lot of them. Goldman should be broken up. TBTF? Too big to exist.

  14. 14.

    maya

    June 30, 2010 at 11:00 am

    Does each individual senator have to negotiate their own kickback commission with the ‘industry’, or is there a standardized pro-rata percentage-of-the-take formula based upon; seniority + lbs psi handshake x elasticity of jock strap/pantyhose?

    Just asking.

  15. 15.

    Mitch Guthman

    June 30, 2010 at 11:04 am

    You are right and President Obama and the Democrats should be hammering the Republicans on this except for the fact that they too have been in Goldman’s pocket from day one.

  16. 16.

    celticdragonchick

    June 30, 2010 at 11:10 am

    She turned me into a newt!

    Seriously, since we now have SCTUS approved unlimited corporate buying power for their favorite congressional whores, it would be helpful ( as John Stewart suggested) to have congressmen and senators wearing the appropriate logos on their suits of who has bought and paid for them.

  17. 17.

    Brian J

    June 30, 2010 at 11:12 am

    All the usual caveats about me not being an expert in this stuff, or anything close, I’ll say that my first reaction was that while this stuff sucks, it isn’t clear that betting something will happen is wrong. In a general sense, taking a position both ways, to make sure that your ass or your firm’s ass is covered, is smart. So then, is the problem that it tried to have it both ways, or that it tried to have it both ways by using information no other firm had? From these paragraphs, it seems like the latter:

    Sylvain Raynes, an expert on structured securities of the types that AIG insured, said it’s “implausible that Goldman can say ‘I had no idea that AIG was in dire straits or in weak financial condition.'”

    Raynes, a co-author of the newly published book “Elements of Structured Finance” and a former Goldman employee, said that a standard clause in the swaps contracts left open to discussion whether the company writing protection must post collateral. The buyer of coverage typically could demand to see financial information, including the number of similar positions held, he said.

    “If you see the (company) has entered into 150 credit-default swaps totaling $65 billion, and that all of them are the same type as your credit-default swaps, you know that they have taken huge amounts of risk and have very little capital to back that up,” Raynes said.

    “Unless you really want to close your eyes, you have to know what their condition is. If you don’t know, then you’re not doing your job, and I have too much respect for Goldman to say they are not doing their job.”

    Am I looking at this the right way?

  18. 18.

    rumpole

    June 30, 2010 at 11:13 am

    Great title. Spat up on myself.

  19. 19.

    Brian J

    June 30, 2010 at 11:17 am

    @celticdragonchick:

    I can understand why the president doesn’t call people out directly, but why doesn’t some congressman or senator, whose election is pretty much assured, start doing it for both sides?

  20. 20.

    John Arbuthnot Fisher

    June 30, 2010 at 11:27 am

    I actually do not mind so much that Goldman was betting against the housing market through these deals with AIG. They are independent financial entities that are free to make contracts as they see fit, within all applicable rules, regulations and laws.

    However, in my view the caveat to this sort of freedom should be that it is up to the individual shareholders and bondholders of these entities to either reap the profit or absorb the loss. If Goldman doesn’t believe that AIG has the ability to absorb the loss it would take as a result of these contracts, it should not enter into the contract, and if they do anyway, they should realize that they would risk a haircut of some kind via a bankruptcy proceeding. That is it. Make whatever crazy bets and bilaterals you want, but accept the risk. For all the talk of how we need leverage and risk taking in the marketplace to ensure liquidity, these assholes refuse to actually take on risk.

    Bottom line, I do not understand why the taxpayers, in our so-called free market capitalist system, had to bail out Goldman through AIG? The big bad banksters don’t want their all-of-a-sudden sensitive fee fees hurt as a result of their own negligence in assessing counterparty risk? If we have risk in our system (and we must), it also must be a two way street. After all, plenty of homeowners have found that out when these same banks sold them horrendous mortgages. If America’s foreclosed are forced to bite the bullet on the risks they took, why should it not be the same for our financial overlords?

  21. 21.

    Mr Furious

    June 30, 2010 at 11:29 am

    This is who the Republicans are going to bat for in financial regulation- the people profiting off the destruction of this country.

    If only. That’s like blaming the scorpions for stinging us, when it’s the hapless Dems who keep placing them in our boots.

    That these fucking assholes get away with harping about the deficit while simultaneously taking the portion of financial reform legislation paid for by a fee on the goddamn banks who created this shit sandwich and shifting the bill to taxpayers is nothing short of willful complicity from the Dems in my opinion.

  22. 22.

    Paris

    June 30, 2010 at 11:45 am

    As an America hating leftist, I am conflicted about whether I should be celebrating or crying.

  23. 23.

    Ginger Yellow

    June 30, 2010 at 11:49 am

    “If Goldman doesn’t believe that AIG has the ability to absorb the loss it would take as a result of these contracts, it should not enter into the contract, and if they do anyway, they should realize that they would risk a haircut of some kind via a bankruptcy proceeding”

    To be fair on this specific point (and I’m not trying to defend GS in general here) when they entered into the contracts, they did seem to believe they had the ability, given the contractual conditions. Indeed, it was in part GS’s making use of those contractual conditions (namely the collateral calls), once they realised AIG might not have the ability, that led to the bailout.

    Now, like I say, I’m not trying to defend GS as such – they did after all lobby furiously for the bailout, and of course for expedited transition to status that would allow them to access cheap Fed liquidity. But I do think they were more prudent than almost any other investment bank when it comes to counterparty risk. After all, many banks relied heavily on monolines that had no more ability to survive a crisis and didn’t get any collateral rights at all, suffering big losses.

  24. 24.

    mclaren

    June 30, 2010 at 12:02 pm

    “The people profiting off the destruction of this country” are a large and ever-growing group.

    Bankers, hedge fund scammers, monopolistic multinational corporations that outsource jobs overseas, venal senators and congressmen, paid lobbyist shills, corrupt think tank hacks, doctors and hospitals and medical devicemakers who become obscenely wealthy by vampiring sick peoples’ life savings for unnecessary surgeries, the Pentagon, military contractors who build insanely overpriced superweapons that don’t work, mercenaries at KBR and Xe, brutal cops who tase and beat 18-year-old kids protesting against killing whales, broadband duopolies who let America’s internet infrastructure deteriorate while they use the fabulous wealth from their sky-high internet fees to buy giant vertically integrated broadcasting monopolies like NBC, corrupt record companies that spend their time suing college kids for millions of dollars for downloading mp3s, crooked bond rating agencies, criminally negligent accounting firms that wink and giggle when pyramid schemes like Enron cook their books, $100,000-a-year prison guards who beat to death inmates imprisoned for smoking a joint…

    …The list goes on.

  25. 25.

    fucen tarmal

    June 30, 2010 at 12:14 pm

    i keep picturing randolph and mortimer duke as played by bellamy and ameche, in trading places…

    so here is the plan, we steal the orange juice futures report headed to goldman sachs ahead of its release to the general public, we rewrite it to say the opposite of whatever it actually says, then when goldman sachs starts secret betting on trades ahead of the report, we buy up everything they put up,maybe we catch some real insidery people who know randolph and mortimer always have the inside dope….then when the actual report comes out, they see they played the opposite way of how the market will run, they lose everything, we retire to an island with hot ex-hookers.

  26. 26.

    moe99

    June 30, 2010 at 12:32 pm

    Bruce Sterling:

    Large financial centers in certain cities around the planet are certainly going to kill millions of us by destroying our social safety networks in the name of their imaginary financial efficiency. You’re a thousand times more likely to die because of what some urban banker did in 2008 than from what some Afghan-based terrorist did in 2001. Financiers live in small, panicky urban cloisters, severely detached from the rest of mankind. They are living today in rich-guy ghetto cults. They are truly dangerous to our well-being, and they are getting worse and more extremist, not better and more reasonable. You’re not gonna realize this havoc till you see your elderly Mom coughing in an emergency ward, but she’s going there for a reason.

    http://www.boingboing.net/2010/06/14/bruce-sterling-inter-2.html

  27. 27.

    Kevin

    June 30, 2010 at 12:48 pm

    So if I’m reading right, the government paid them out 100 cents on the dollar what AIG owed them (1.5-2 billion) on these deals…even though they only put up 10 million.

    Sanctity of contracts…I guess if the government didn’t pay out the full amount, Goldman and the other banks would have taken their toys and gone home, or to some Libertarian paradise (Somalia?) Good thing those contracts were honored.

  28. 28.

    Comrade Dread

    June 30, 2010 at 12:50 pm

    I’m going long on pitchfork, torch, and tar futures.

    I’m not.

    27% of Americans actively believe in and support the idea that banks and the wealthy can do whatever they want and it’s all for the greater good of free market capitalism. Moreover, I’m convinced that they’d be perfectly happy to engage in their own mobs and fight us to preserve their own serfdom to Wall St.

    The majority of Americans are either too busy or too apathetic to care, as long as they have jobs, television, the internet, and can borrow enough to keep getting by and making their minimum payments, they’re going to be content.

    The small minority who does give a shit are Unserious People.

  29. 29.

    Chris

    June 30, 2010 at 1:53 pm

    There are two ways to make money in finance.

    Method One is to assist in improving the economy, for a fee.

    Method Two is to strip-mine money out of the economy.

    Guess which one makes more money faster.

  30. 30.

    BombIranForChrist

    June 30, 2010 at 2:12 pm

    This is the Republicans going to bat for Goldman Sachs, but we should all vote for it anyway, because this is the best we’ll ever get. We should just be quiet, because who are we going to vote for, Palin? No! So we should all let our betters decide and support what they decide, because it’s hard. And we need to be realists. After all, we don’t want to be accused of being … gasp … firebaggers! *end snark*

    It’s ludicrous to blame this just on the Republicans. Since the Democrats know that a big chunk of their supporters will just get in line behind whatever weak ass shit they come up with, they will always come up with weak ass shit.

    So the next time folks around here are making the argument that making laws is hard and ugly and blah blah blah, and we should just suck it up, you are just as culpable as the Republicans.

    I am no fan of FDL and crowd, but this kind of self-righteous blaming of the GOP is laugh out loud funny.

  31. 31.

    Catsy

    June 30, 2010 at 3:07 pm

    @BombIranForChrist:

    I am no fan of FDL and crowd, but this kind of self-righteous blaming of the GOP is laugh out loud funny.

    And this kind of “pox on both their houses” idiocy is pointless.

    Do the elected Dems share some of the blame for their spinelessness? Absolutely.

    Does that in any way mitigate the fact that it is the GOP that is overwhelmingly in the pocket of big business and currently engaged in a scorched-earth campaign to prevent the Dems from passing anything meaningful, indifferent to the damage they will do to the country in the process? NO.

    In the real world, when you have on the one hand a small number of bought-and-paid-for shills in a group of mostly feckless wimps, and on the other hand a comparably-sized group composed almost entirely of bought-and-paid-for shills, one of those groups really does bear the brunt of the blame for what’s happening.

    I can’t grasp why some people feel compelled to make retarded false equivalencies that don’t even pass the laugh test.

  32. 32.

    elgreeb

    July 1, 2010 at 6:15 am

    I just pissed in my own eye.

  33. 33.

    The Raven

    July 1, 2010 at 10:02 am

    [in passing]

    Barry Ritholtz gives financial regulatory reform a C minus. Well, maybe as the economy gets worse, and it becomes ever harder for people and organizations with less than $100 million to do business, there will be the will to fix it.

    Croak!

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