Basically, taxpayers are paying those end of year bonuses:
Goldman Sachs collected $2.9 billion from the American International Group as payout on a speculative trade it placed for the benefit of its own account, receiving the bulk of those funds after AIG received an enormous taxpayer rescue, according to the final report of an investigative panel appointed by Congress.
The fact that a significant slice of the proceeds secured by Goldman through the AIG bailout landed in its own account–as opposed to those of its clients or business partners– has not been previously disclosed. These details about the workings of the controversial AIG bailout, which eventually swelled to $182 billion, are among the more eye-catching revelations in the report to be released Thursday by the bipartisan Financial Crisis Inquiry Commission.
Another round of bonuses for everyone!
(via)
cleek
OT: BLOGFIGHT!
sigh
comrade scott's agenda of rage
Again, they’re all Daffy Duck in Ali Baba Bunny:
“Consequences, shmonsequences, as long as I’m rich.”
Svensker
Does anyone really care? Is there any outrage about this in newspaper headlines or the nightly news? Seems to me that “Americans Fucked by Rich Elites” has about the same fascination these days as “Dog Bites Man.” Ho hum.
BGinCHI
This is an easy one:
Fucking Pay Us Back.
The Moar You Know
The most awesome thing is that the money Goldman Sachs will get doesn’t come out of our pockets, it gets put on the national credit card for the young ‘uns, our kids, and their kids to repay.
I’m beginning to understand the rage that drives people to call for a default on the national debt. In fact, I’m starting to think it might not be the worst idea I’ve ever heard.
Morbo
Also, this. So is that why the recovery doesn’t feel much like a recovery?
BGinCHI
The important thing at this point is transparency, isn’t it?
How is it that this kind of thing wasn’t disclosed at the outset? At the risk of sounding naive, what is the motivation for the gov’t allowing any secrecy when it’s OUR money.
That ought to be a condition for any future bailout of any kind.
Gosh, maybe if there had been wikileaks…….
Loneoak
@The Moar You Know:
Right, because there is no way our grandchildren will suffer more than the bankstas on a national default.
eemom
I say I want a revolution.
The Moar You Know
@Loneoak: Believe me, I understand that a national default would turn us into the next Haiti.
Or would it?
Maybe if we quit paying these people, they’ll stop taking the money.
fasteddie9318
@cleek: There’s not much left to say about this beyond “Conor Friedersdorf is a fucking tool,” is there?
cathyx
I’m not going to hold my breath waiting for Holder to hold anyone accountable for violations that were disclosed in the FCIC Report. http://www.fcic.gov/report
fasteddie9318
@comrade scott’s agenda of rage: Does that mean we can start stuffing their asses into giant oyster shells and then clamping them shut?
gex
@Svensker: No they don’t, because addressing it means brown people might get something from the government, not just them.
burnspbesq
Goldman is smart and obsessive about risk management and it has good lawyers. That hasn’t been news for a while.
Goldman does a lot of proprietary trading. That also hasn’t been news for a while.
There is nothing that Goldman got out of AIG that it wasn’t entitled to under contracts that were entered into at arm’s length between unrelated parties. And in case you’ve forgotten, there are things in the Constitution about the states not making laws that impair the obligation of contract and about the Feds not taking private property for public use without just compensation.
Your side lost. If you don’t like it, learn from it, and change the law so it can’t happen in the future.
fasteddie9318
@burnspbesq: Is there anything in the Constitution about former (well, maybe “former”) Goldman execs leveraging a government bailout of AIG so that Goldman could collect what was owed it when, absent said bailout, Goldman would have gotten something closer to zilch?
Calouste
burnspbesq:
I’m surprised it doesn’t hurt when you pull your butt cheeks that far apart.
Zifnab
Had AIG gone under, those agreements would have ended in default. Much like the hundreds of thousands of home loans that have defaulted in the last three years, the banks wouldn’t get magically reimbursed via free market pixies if this gamble had gone south either.
So the idea that Goldman is “entitled” to anything once bailout money starts getting spent is patently absurd. Goldman is lucky it’s last name isn’t Lehman or we’d be talking about it in the past tense.
singfoom
There is no justice here. None. The very idea of accountability is dead in this country. When and where it died is debatable. I have no faith or hope in any of our public institutions or our leaders.
I feel like our entire system is kabuki and that my vote is rendered meaningless (as well as everyone else’s) by the giant piles of cash that drive our political system.
I remain a patriot but from my view the country I have allegiance to only exists in the ether.
sigh
burnspbesq
@fasteddie9318:
Not clear what you mean by Goldman “leveraging” the AIG bailout.
If the government hadn’t bailed out AIG, Goldman still would have been at the front of the line in Bankruptcy Court, because it was a secured creditor. The infamous $13 billion was collateral that AIG was contractually obligated to deliver to Goldman under the credit default swap agreement upon the occurrence of certain specified events, and those events happened.
You can second-guess the wisdom of bailing out AIG if you want, but Goldman was smart enough to maximize its likelihood of getting paid no matter what.
Geeno
Actually, most of the Social Security trust is in US Government securities which would completely evaporate in the event of a federal default. I honestly believe that this is the end-game the cat food salesmen on the right are deliberately pushing for.
Svensker
@burnspbesq:
Which side would that be? An which “side” are you on?
Geeno
@Zifnab: Yeah, it was nifty how they managed to dumper a competitor at the same time, wasn’t it?
freelancer
@cleek:
Time for DougJ to change his handle to just “A writer at Balloon Juice.”
burnspbesq
@Zifnab:
“So the idea that Goldman is “entitled” to anything once bailout money starts getting spent is patently absurd.”
See comment 20, which explains why this is wrong.
Balconesfault
Thank God we’re not at a confiscatory tax rate, so we’re not dissuading Goldman execs from grabbing this much Federal money!
singfoom
@burnspbesq:
Which side was that?
As far as I’m concerned there are no sides. There is systematic fraud and criminal behavior on the corporations that is rewarded by government largesse and funded by the taxpayers.
The socialization of risk continues as the profits are privatized to the rich.
If I could get by in my life without dealing with a bank I would, but that’s not possible these days. Goldman Sachs, JP Morgan and the rest of the crooked fucking megabanks should be destroyed, their CEOs rounded up and charged and held financially/civilly/criminally liable for all of the destruction they have caused.
But that won’t happen, because there is no justice here.
burnspbesq
@Calouste:
I’m sorry, was there a point you wanted to make?
eemom
@burnspbesq:
how can a lump sum be “collateral”? You can have a security interest in money?
Also, even a secured creditor doesn’t recover 100 cents on the dollar.
PeakVT
Defaulting on its debt ranks pretty high on the list of really stupid things the US government could do, right beside invading Russia in the fall.
burnspbesq
@Svensker:
I’m on the side that understands that “amoral” and “illegal” are not synonyms.
JGabriel
@cleek:
I just read that post, and I’m perplexed as to why Friedersdorf thought it was a good idea to post that at Andrew’s site rather than as a response here.
I don’t imagine that Sully’s readers are the least bit interested.
.
Rick Taylor
@burnspbesq:
I have nothing against Goldman making clever bets to protect their holdings. Hell, I have nothing against them taking their money and betting it all on horse races for that matter. I just don’t see why I should personally be responsible for paying their winnings, when they make their bets without making sure the parties they’re dealing with have enough capital to pay them off should they win.
burnspbesq
@eemom:
“You can have a security interest in money?”
Yup. Ever taken a loan from your 401(k) plan? It’s secured by your account balance.
singfoom
@burnspbesq:
Fraud is a crime. GS misrepresented the quality of the loans underlying the CDOs that they were selling by the assload. They knew they were selling toxic shit and got Moody’s and the other rating agencies to say they were AAA when the true rating was pure toxic filth.
See The Big Short / 13 Bankers / All the Devils Are Here
Will you at least admit by not punishing these crimes, you encourage others in the industry to engage in the same illegal AND immoral behavior?
JGabriel
@burnspbesq:
So why did U.S. taxpayers have to pay it? Why bail out AIG? Why not let Goldman Sachs sue AIG’s unbailed defaulted corpse in court?
.
burnspbesq
@Rick Taylor:
You and I are fairly close to being on the same page. I was never convinced of the necessity of bailing out AIG.
Jamie
Well our Galtian Overlords showed that we are all very sophisticated investors. We should probably write them a thank you note.
burnspbesq
@singfoom:
I’ve read two of those books.
There is much in your comment with which I have little or no problem. But that’s a different conversation.
None of those things are relevant to the issue of whether Goldman should or should not have been able to get collateral from AIG when the triggering event under the CDS agreement occurred.
eemom
@JGabriel:
That is such a lovely image. If only it could have happened that way.
Ash Can
You all can say what you will about burnspbesq, but he nails it right here. The prosperity of the 90s lulled everyone into the false sense that the financial markets could regulate themselves. Surprise, surprise. Just this morning the FCIC released its report, which shows in excruciating detail that there’s plenty of blame to go around. Hopefully in two years the Dems will have the House back, and can get to work on legislation that deals with some of the problems listed in the report. I know better than to hold my breath, though.
Svensker
@burnspbesq:
And I’m on the side that would try to figure out how we can keep the taxpayer from having to pay for amoral but not necessarily illegal acts. Heavy regulation sounds good to me.
terraformer
@burnspbesq:
Just last week my CEO said to employees that they will no longer allow us to do that.
Now, what business is it of the company to take this stand? Would it help if I told you that said CEO was on the Catfood Commission?
burnspbesq
@JGabriel:
“So why did U.S. taxpayers have to pay it? Why bail out AIG? Why not let Goldman Sachs sue AIG’s unbailed defaulted corpse in court?”
All very good questions. But once the decision to bail out AIG was made, certain consequences were more or less automatic.
freelancer
@JGabriel:
Also, he’s taking the literal argument, that the perpetrators of Willie Horton and Swiftboat Vets for Truth weren’t pernicious or full of hateful bile because their faces weren’t contorted with rage while they shilled this poison to the country. CF writes:
Maybe, but the audience gets the message. And then the politicians are enthused by the reaction. Whether it’s purple-heart band-aids or heartswells over calling onesself a “Proud Right Wing Terrorist.” They’re complacent and this “they’re not LITERALLY doing it” argument is a false distinction.
burnspbesq
@Svensker:
I don’t think you hear me arguing with you about the need for more effective regulation of the capital markets.
singfoom
@burnspbesq:
Fair enough. However I think one could argue that it is relevant to the discussion of whether Goldman should or should not have been able to get collateral from AIG when the triggering event under the CDS agreement occurred.
If the credit default swaps included in the deal that was part of the contact between GS and AIG were full of fraudulent information in terms of the valuation of the underlying securities, AIG would be one of the victims of the fraud.
burnspbesq
@terraformer:
That’s odd. Nothing in the Internal Revenue Code or ERISA requires plan sponsors to allow participants to borrow against their 401(k) balances. But there are obvious employee morale problems that can ensue if you take a popular benefit away from your workforce.
terraformer
@burnspbesq:
Indeed, true.
I’m just wondering if Corporate recognizes – or, really, cares – about the optics of this. Especially given the recent (and likely historical and ongoing) rubbing-of-elbows with the bankster class, who most certainly does have something to gain (or lose) from this action…
Anyway, your comments on these topics are always tough medicine, but always on the mark.
burnspbesq
@singfoom:
“If the credit default swaps included in the deal that was part of the contact between GS and AIG were full of fraudulent information in terms of the valuation of the underlying securities, AIG would be one of the victims of the fraud.”
Maybe. But as you know from reading “All the Devils Are Here,” AIG stopped doing due diligence on the risks it was insuring by writing CDSs, which doesn’t make it a very sympathetic plaintiff in the eyes of a jury in the Southern District of New York.
fasteddie9318
@burnspbesq:
Not Goldman, its ostensibly former employees who populate the Treasury Department. “Leveraging” as in, “Goldman’s former employees sure do seem to have leveraged their power within the federal government to secure a bailout of AIG that benefited the shit out of their ‘former’ employer.”
Luthe
I think this calls for asiangirlMN’s rusty pitchforks. I’ll bring the torches.
burnspbesq
@fasteddie9318:
“Goldman’s former employees sure do seem to have leveraged their power within the federal government to secure a bailout of AIG that benefited the shit out of their ‘former’ employer.”
You say that as though you believe that Goldman was the only, or the principal, beneficiary of the AIG bailout. That’s simply not true. I’d suggest that you download a pre-bailout AIG 10-K from EDGAR and get a better understanding of the nature and scope of AIG’s business.
burnspbesq
@fasteddie9318:
“ostensibly former?” Sorry, that’s total bullshit.
Zifnab
@burnspbesq:
First in line for nothing still gets you nothing. Maybe Goldman could have picked up a few million for the AIG real estate holdings. I’m sure they wouldn’t have walked away with a big fat goose-egg.
But go talk to the firms standing at the front of the line for their Lehman bankruptcy money, and let me know whether they wouldn’t trade places with Goldman in a New York minute.
If you want to argue the government should have liquidated AIG and doled out Goldman bonuses from that, I won’t argue with you for a second. But Goldman isn’t getting AIG liquidation money. It’s getting tax payer money.
That's Master of Accountancy to You, Pal
@Zifnab:
And you would be wrong. I’ve gone over this is many threads that I know you participated in. Maybe one of these times you’ll actually figure it out. This also goes to burnspbesq’s question of whether we should have bailed out AIG, because he doesn’t seem to understand the implications of Goldman, and other counterparties, taking the collateral.
Basically, AIG would have been wiped out by the seizure of collateral that was considered privileged under the Commodity Futures Modernization Act. You can thank Phil Gramm for slipping in the provision that moved derivatives counterparties ahead not only of unsecured creditors but also all other secured creditors. So long as they made a collateral call before AIG actually filed for bankruptcy, the collateral was not subject to a stay and they get to haul it off.
This would have hammered two sets of AIG’s creditors, neither of which the Feds were in a position to seriously piss off. The first was a bunch of German and French banks. Telling them to take a haircut/get wiped out would have turned it into a foreign policy crisis. The pressure brought to bear by both the German and the French governments was enormous.
The second set of stiffed creditors would have been all of AIG’s policy holders. Anyone who had a whole life policy or an annuity from them would have been wiped out. There would have been a lot of term life policyholders who would have had to go out and find new life insurance at less favorable terms than they had when they got their policies through AIG.
Goldman was already mostly covered. Probably not entirely so, but mostly. They would have gotten their money whether we bailed AIG out or not. Anyone who insists that they were the recipients of the bailout money is mostly incorrect. It was the *rest* of the creditors who got bailed out, by allowing them access to AIG’s assets.
That's Master of Accountancy to You, Pal
@singfoom:
Fraud is both a crime and a colloquial term for an unfair transaction. Those two uses of the term are not synonymous. There are many, many things which fall under the colloquial definition that are not crimes. Most of what I have seen from this episode fall into that category. The DoJ is still investigating some of the transactions to see if that might not be true in some cases.
Simply describing the assets in a security in a way that makes them sound a lot better than they are does not constitute fraud in the legal sense. There have to be very specific, *factual* misrepresentations that were material in nature. Opinions can not constitute fraud, even if they weren’t honestly held. (There are some rare exceptions to this, which really don’t apply here.)
Contractual parties are also required to takes steps to protect themselves from fraud. For most consumer transactions, these are extremely basic, because it is presumed that the merchant selling you something are a lot more sophisticated and knowledgeable about the goods in question than the consumer is. This is not true of a CDS transaction between Goldman Sachs and AIG. AIG is presumed to be pretty damned sophisticated itself, and capable of taking steps to prevent being defrauded. It turns out that they manifestly failed to take any of these steps. They didn’t do any due diligence at all in most cases. One of the consequences of this is that it is much harder to prove that there was fraud in the legal sense.
There are some very good reasons why the fraud statutes are set up that way, even though it comes off as ridiculous here. It is also the case that AIGFP was very careful to keep parts of its operations in foreign jurisdictions where the regulatory regimes were more favorable to them.
As is always the case when someone starts screaming that someone needs to be prosecuted for their part in this mess, I don’t take them seriously unless they can cite specific actions that constitute fraud in the legal sense and lay out some reason to think that there is sufficient proof to make it worth prosecutors’ time to try to bring a case.
fasteddie9318
@burnspbesq:
Right.
Because nobody ever goes into government work and then acts on behalf of the company and/or industry from whence they came.
daverave
Not sure if this has been posted previously but it seems appropriate to this thread… file under Karma’s a Bitch:
http://www.businessinsider.com/allen-stanford-bernie-madoff-jail?
someofparts
Scanned comments so far and didn’t see this link posted by anyone else, so:
http://www.zerohedge.com/article/sarkozy-goes-postal-jamie-dimon-says-bankers-made-world-madhouse
Maybe I’ll make a t-shirt that says Markets or Madhouse?