Is Taxpayer Money Behind Profits at Goldman Sachs?

by Dual Income No Kids on February 13, 2010 · 6 comments

We wanted to share this short video from PBS NewsHour about how Goldman Sachs has been working the system and milking a profit from tax payers.

They essentially are borrowing money from taxpayers, buying federal reserves, and making a hefty profit. If that isn’t corruption then I don’t know what is. Why don’t more people know about this, and why does our government let this happen?

Check out the video below, but here is part of the transcript that is most incredible:

Paul Solman: So you mean Goldman Sachs borrows money from the Federal Reserve at a tenth of a percent, a quarter of a percent, takes that money, invests in US Treasury securities at 3.5%, 4% //

DAVID STOCKMAN: 3.5%. Exactly.

Paul Solman: And they make the money just…

DAVID STOCKMAN: On the spread.

Paul Solman: and the money is simply being re-circulated from the Fed back to the Treasury?

DAVID STOCKMAN: That’s exactly right.

SIMON JOHNSON: Goldman Sachs recently was borrowing between 100-150 basis points, that’s between one percentage point and 1.5 percentage points above what the government was borrowing. In the aftermath of the greatest financial crisis since World War II that’s incredible! It makes no sense unless Goldman Sachs is almost as good a risk as the US Government, then it makes complete sense and that’s what the market is saying and the market is thinking, and the market is right!

Paul Solman: And so it can borrow at 1.5% interest for short term money, make bets with that money and if they pay off it can make a fortune and pay big bonuses?

SIMON JOHNSON: Yes, absolutely.//Make money, get the bonuses, take the money and do it again, don’t even bother running because nothing’s going to happen to you!

NARR: Or as David Stockman puts it:

DAVID STOCKMAN: There has never been more of a, you know easy money scam that I can remember in modern economic history.

We’d love to hear your comments.

Miel

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{ 6 comments… read them below or add one }

1 Donnie February 13, 2010 at 2:42 pm

Yeah, there is a reason that Taibbi called them "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money."

2 Tim February 14, 2010 at 1:42 am

unfortunately, this has been greatly under reported, although there are reports here and there in the back pages. This is not unique to Goldman either. How do people think all these companies were able to pay back the TARP money so quickly? did money grow on trees that fast whereby all these companies were able to generate enough revenue to pay back TARP so quickly? While everything else was contracting, how in the heck were these companies able to generate revenue on that scale? The answer is pretty clear, that it wasn't through lending, because credit was not being made readily available.

Unfortunately, this is a huge ponzi scheme that is being paid for by the taxpayer, but we should thank china and other countries for paying into our ponzi scheme by buying our debt. The govt gives TARP money in addition to providing fed reserve money from zero to next to zero. In some cases, the govt gives more money by converting borrowed money into a huge stake in the company (can someone say Citi). Where does someone get a great return for no risk? it sure the heck wasn't by lending. it was through hoarding and saving and getting a return from the govt.

there were necessary things the govt did to stabilize the economy; however, we trusted that credit would be issued not hoarded. yes, we got TARP money back, yeah us, but we paid ourselves back the TARP through interest made off of the TARP and free to near free fed money. the money was supposed to be washed by circulating as credit being lent, but these folks opted to wash the money in a quicker and more profitable way.

again, go back to how these folks suddenly made enough revenue without lending money they borrowed in such a quick period of time to pay back borrowed TARP.

3 Dual Income No Kids February 14, 2010 at 1:02 pm

Thanks for your comments. You would think that we'd be smarter than this, but somehow *&$! like this continues to happen. We need to wake up.

Miel

4 Tim February 14, 2010 at 4:01 pm

Yeah, I know we should be smarter, too, but we aren't unfortunately. I don't think I ever heard anyone mention how these companies were able to repay TARP so quickly when everything else in the US and the world was contracting. No one questioned it. Everyone just focused on the companies being able to break free from the weight of TARP to pay bonuses and the fact they paid back TARP monies.

5 Monevator February 20, 2010 at 7:20 am

As Tim says, this is happening with all the banks – to an extent it's a deliberate policy to keep the banks afloat.

We have to go back to when the banks were reeling and we genuinely faced economic gridlock and the system halting.

Various extreme measures were put in place, such as ultra low rates and here in the UK quantitative easing, which has seen the banks here doing the same thing with UK government bonds.

Such measures as Tim says enabled the banks to rebuild their balance sheets etc. It was an ugly reality, but it was considered by policy makers better than the alternative. And I agree.

What ISN'T acceptable is how bank employees have then been awarded huge pay rises and bonuses on the bank of this trivial, state-sponsored trade.

I've been arguing this on my blog for six months, and have been accused of being a wild and crazy conspiracy theorist or else an anti-capitalist. But it's completely clear that's what's been happening. Everyone didn't just become a genius overnight!

It's the reason why bank bonus taxes and similar are completely morally justifiable at the moment, whatever your political persuasion. That easy money should be being kept in the banks to rebuild their capital ratios, and make it less likely we see another crash in the next few years.

Sorry, bit of an essay there!

6 Monevator February 21, 2010 at 6:20 am

Oops, I meant "it's why bank bonuses are completely UNjustifiable", of course.

There goes my 'accurate blog commenting' bonus for 2010 ;)

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