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The Fine Line Between Profits and Theft ( RE: Goldman Sachs )
Seeking Alpha ^ | July 20, 2009 | Karl Denninger

Posted on 07/20/2009 12:01:17 PM PDT by Ernest_at_the_Beach

Let's dispense with this sort of bilge from The Washington Post right here:

Money can't buy love? For proof, look no further than Goldman Sachs. Last week, the firm reported a spectacular quarterly profit -- close to $3.5 billion for the bank and about $385,000 in compensation for each employee for the first half of the year -- and right on cue, the braying began for the heads of the Goldmanites. Earlier this month, Rolling Stone's Matt Taibbi, in a comprehensive exercise in conspiracy mongering, primed the pump of outrage with his article "The Great American Bubble Machine." Now a chorus of supporters has chimed in, shocked that in a recession the evil Goldman could turn such profit.

I know nobody that objects to making a profit.

I know a lot of people who object to theft.

What began as an effort to keep the financial industry from repeating its mistakes has turned into, as at other points in history, an attack on the idea of trading profit. It is no longer enough that the banks should be reformed; the opportunity to make this kind of profit should be eliminated.

That's an outrageously false statement.

Many in the community, myself included, object strenuously to a poker player who has an extra set of aces up his or her sleeve. We also object to a casino capitalist model where the winnings are kept but the losses are forced onto someone else.

And that, dear reader, is what Goldman (GS) and the rest of the big banks have been doing for the last two years.

Over the last several years Goldman Sachs entered into a metric ton worth of credit default swaps with AIG, even though AIG was incapable of paying off on those swaps. They did so as the "brightest people in the room", that is, either knowing that AIG was incapable of covering the bet or simply not caring that AIG could not cover the bet.

These transactions allowed Goldman (and the other banks who engaged in them) to hold "assets" on their books at intentionally-inflated values - that is, at demonstrably more than those "assets" were actually worth in the market, under the rubric that should their value fall Goldman would be able to "recover" under their insurance policies (the CDS.)

But in point of fact these transactions were never any good, because AIG didn't have the money to pay.

When this became evident Goldman (and others) managed to connive the government into "saving" AIG by throwing more than $100 billion dollars of taxpayer money into the firm. About $13 billion of that went directly to Goldman Sachs to "pay off" those contracts. Billions more went to other institutions, including banks in Europe.

In doing this, Goldman and these other banks forced the taxpayer to eat their bad bet - that is, their loss. That $13 billion was in fact unearned - they had no right to it, as AIG was in fact insolvent and they would have collected zero had the firm gone into bankruptcy. Goldman and these other banks were either unable or unwilling to rescue the firm themselves, so through the use of political influence peddling they got the taxpayer to do it for them, thereby collecting on a transaction that they either knew or should have known had no chance of being paid off at the time they entered into it.

Having done this, they placed yet more bets. This time they won those bets, and made a "profit." But they would have never had the capital to place the bets but for the taxpayer bailing them out in the first place, as they would have likely gone under last fall.

The real objection of Taibbi and others is that Goldman, except for one bad quarter at the nadir of the financial crisis, has turned a profit. Big profit.

No, the real objection of Taibbi and others (myself included) is that Goldman managed to steal $13 billion dollars of American Taxpayer money, without which they would not exist today. Having stolen that money through claims of imminent financial collapse made by their former head, Henry Paulson, at their urging, they now have speculated with that taxpayer money and kept the proceeds.

Nobody would object were Goldman to return not only their "TARP" money but also the entirety of the "passthrough" benefits they have received, specifically but not exclusively the $13 billion dollars that was funneled through AIG to them.

But if Goldman had done that, they would have posted a huge loss, and in addition would not have had the money to repay TARP.

Nobody I am aware of cares if a firm is able to turn a legitimate profit through their actions in the market. We object not to profit, but to blatant chiseling of the taxpayer after a company or individual makes a bad bet due to their own incompetence or willful blindness, then demands that the taxpayer cover it, yet when their bets turn out well, they keep the money and hand it to their "associates."

That's robbery, and I and others will continue to point it out until the shills who advocate for same and try to excuse it, along with Goldman themselves, are held to account.


TOPICS: Business/Economy; Editorial
KEYWORDS: 111th; agenda; bho44; denninger; economy; goldmansachs; greedybastards; ticker; wallstreet
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1 posted on 07/20/2009 12:01:18 PM PDT by Ernest_at_the_Beach
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To: All
Related thread:

Is grousing about Goldman reaching critical mass?

2 posted on 07/20/2009 12:06:02 PM PDT by Ernest_at_the_Beach (Support Geert Wilders)
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To: Ernest_at_the_Beach

I have seen the “braying” all day on both sides of this, and was interested to see KD’s take. Hear! Hear!

hh


3 posted on 07/20/2009 12:08:38 PM PDT by hoosier hick (Note to RINOs: We need a choice, not an echo....Barry Goldwater)
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To: hoosier hick

See the link at #2...


4 posted on 07/20/2009 12:09:31 PM PDT by Ernest_at_the_Beach (Support Geert Wilders)
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To: Ernest_at_the_Beach
That's an outrageously false statement.

Many in the community, myself included, object strenuously to a poker player who has an extra set of aces up his or her sleeve. We also object to a casino capitalist model where the winnings are kept but the losses are forced onto someone else.

And that, dear reader, is what Goldman (GS) and the rest of the big banks have been doing for the last two years.

Over the last several years Goldman Sachs entered into a metric ton worth of credit default swaps with AIG, even though AIG was incapable of paying off on those swaps. They did so as the "brightest people in the room", that is, either knowing that AIG was incapable of covering the bet or simply not caring that AIG could not cover the bet.

These transactions allowed Goldman (and the other banks who engaged in them) to hold "assets" on their books at intentionally-inflated values - that is, at demonstrably more than those "assets" were actually worth in the market, under the rubric that should their value fall Goldman would be able to "recover" under their insurance policies (the CDS.)

But in point of fact these transactions were never any good, because AIG didn't have the money to pay.

The truth be told, this whole set if is nothing more than Karl Marx crony capitalism and the people doing it need to be in jail.

5 posted on 07/20/2009 12:10:10 PM PDT by org.whodat (Vote: Chuck De Vore in 2012.)
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To: Ernest_at_the_Beach

“No, the real objection of Taibbi and others (myself included) is that Goldman managed to steal $13 billion dollars of American Taxpayer money, without which they would not exist today. Having stolen that money through claims of imminent financial collapse made by their former head, Henry Paulson, at their urging, they now have speculated with that taxpayer money and kept the proceeds.

Nobody would object were Goldman to return not only their “TARP” money but also the entirety of the “passthrough” benefits they have received, specifically but not exclusively the $13 billion dollars that was funneled through AIG to them.

But if Goldman had done that, they would have posted a huge loss, and in addition would not have had the money to repay TARP.”

WE HAVE BEEN CHEATED AND the obamanation machine knew it would happen..... it was taxpayer money that was used, no given away free to these criminals....


6 posted on 07/20/2009 12:10:48 PM PDT by bareford101
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To: Ernest_at_the_Beach
The theft could be forgiven with full restitution of the trillions stolen and life imprisonment of all parties to the crime, including the elected criminals.

The unmitigated arrogance by all of the above is a capital offense.

7 posted on 07/20/2009 12:15:49 PM PDT by meadsjn
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To: All; hoosier hick
I posted the mentioned article ...:

Resist The Urge To Punish Success ( RE: Goldman Sachs)

8 posted on 07/20/2009 12:23:54 PM PDT by Ernest_at_the_Beach (Support Geert Wilders)
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To: Ernest_at_the_Beach

Denninger is right on this one.


9 posted on 07/20/2009 12:24:27 PM PDT by WashingtonSource
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To: Ernest_at_the_Beach

There is a fine line between taxing the citizenry and theft as well.

Obama and Congress are officially thieves and robbers.


10 posted on 07/20/2009 12:29:09 PM PDT by RatRipper (I HATE tax & spend politicians)
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To: bareford101
WE HAVE BEEN CHEATED AND the obamanation machine knew it would happen..... it was taxpayer money that was used, no given away free to these criminals....

Been sleeping from a head injury are something????? Paulson and jorge bush gave your money to goldman and AIG and etc, etc. Now obamma's tax cheat is adding to it.

11 posted on 07/20/2009 12:37:31 PM PDT by org.whodat (Vote: Chuck De Vore in 2012.)
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To: Ernest_at_the_Beach
When this became evident Goldman (and others) managed to connive the government into "saving" AIG by throwing more than $100 billion dollars of taxpayer money into the firm. About $13 billion of that went directly to Goldman Sachs to "pay off" those contracts.

And that $13 billion amounted to full value of the contracts, that is, 100% of their value. The Goldman traders didn't have to take even a small loss on their ill-advised bets.

It's good to run the government.

12 posted on 07/20/2009 12:38:20 PM PDT by snarks_when_bored
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To: Ernest_at_the_Beach
Sure, sure ... Americans have been fleeced on a world-historical scale by the likes of Goldman.

But it's ridiculous to pin this on Obama specifically. The most recent chapter of the fleecing began under GW Bush's watch, under the direction of his Secretary of Treasury and his appointed Federal Reserve Chairman, and with the approval of the Republican establishment. McCain was so interested in securing Goldman et. al. that he was willing to interrupt his campaign.

The vast majority of conservative Freepers ridiculed the only Republican candidate that warned of this mess before it occurred and resisted the bailout. Conservatives were so pychologically invested in Iraqi and Afghani nation-building that they failed to see the economic and political ruination of America under the Republican President and Congress. Obama is just more of the same, only worse.

13 posted on 07/20/2009 1:05:07 PM PDT by RBroadfoot
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To: Ernest_at_the_Beach
Over the last several years Goldman Sachs entered into a metric ton worth of credit default swaps with AIG, even though AIG was incapable of paying off on those swaps. They did so as the "brightest people in the room", that is, either knowing that AIG was incapable of covering the bet or simply not caring that AIG could not cover the bet.

Except that Goldman at least claims their CDSs were fully collateralized, meaning all of AIG's other counterparties would have suffered had they failed, but Goldman would have still gotten their money. Here's one of the articles that discusses it - basically it sounds like Goldman was just smarter than most of AIG's other creditors, and was the first to recognize AIG was in trouble and demand collateral:

Duh: Goldman Sachs Killed AIG

14 posted on 07/20/2009 1:08:27 PM PDT by Arguendo
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To: org.whodat

yep.... you got me.... sleeping at the wheel again....


15 posted on 07/20/2009 1:18:41 PM PDT by bareford101
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To: Ernest_at_the_Beach

Great rebuttal.

And everyone:

Rolling Stone’s Matt Taibbi’s wonderful article is a MUST read.


16 posted on 07/20/2009 1:23:17 PM PDT by DontTreadOnMe2009 (So stop treading on me already!)
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To: snarks_when_bored

“And that $13 billion amounted to full value of the contracts, that is, 100% of their value. The Goldman traders didn’t have to take even a small loss on their ill-advised bets.

It’s good to run the government. “

BINGO


17 posted on 07/20/2009 1:47:51 PM PDT by stephenjohnbanker (Pray for, and support our troops(heroes) !! And vote out the RINO's!!)
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To: RBroadfoot

The GOP tends to not see a lot when rich folks are involved. I hate to say this, but they are pre-disposed to see the damage welfare bums do, and somehow miss the bankers and financial guys who can take the whole country down. Gas went to $4/barrel and the GOP was blaming supply and demand. Yeah, speculators were demanding a supply of money.

parsy, the conservative democrat


18 posted on 07/20/2009 2:09:38 PM PDT by parsifal ("Knock and ye shall receive!" (The Bible, somewhere.))
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To: Arguendo
Except that Goldman at least claims their CDSs were fully collateralized, meaning all of AIG's other counterparties would have suffered had they failed, but Goldman would have still gotten their money.

From other TARP recipients. It seems to me that without the TARP money, Goldman would just be $13B in the red. Thanks Hank Paulson.

In my book, Goldman or any other Wall Street entity that gave $1M to Obama (who has a habit of making his political friends' affairs come out on their side, e. g. the unions), lobbies for Crap and Trade, and is preparing to use Crap and Trade to collect a private tax on us before even Uncle Sam can get it, is traitorous.

19 posted on 07/23/2009 12:43:59 PM PDT by ding_dong_daddy_from_dumas (Obama's multi- trillion dollar agenda would be a "man caused disaster")
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To: stephenjohnbanker

See post #19 (just above this one).


20 posted on 07/23/2009 1:34:03 PM PDT by ding_dong_daddy_from_dumas (Obama's multi- trillion dollar agenda would be a "man caused disaster")
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