07/16/2009 05:11:54 AM EST

What Would Happen if Goldman Went Under? (AOL Poll)

posted by Cenk

So, we read now that Goldman Sachs is backing to making record profits ($2.7 billion in the last quarter alone) by taking higher risks (AP reports that Goldman has returned to "high-risk trading"). Great, the economy must be fixed. Or maybe it's the exact opposite - it's a company taking advantage of a system they know is broken.

Here is what I mean. Goldman Sachs knows that they are too big too fail. And they already know what the government does when a financial company is too big to fail. They bail them out - no matter what.

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What if Goldman took too many risks in making the absurd amount of money they're making now (while we're told that the banks don't have any money to lend)? What if they crashed right now? What do you think would happen?

Everyone in the world knows that we would bail them out. The idea that Tim Geithner would let Goldman go under is so laughable that it makes me sick. Does anyone trust that guy's impartiality (other than Obama)? Does anyone believe there is even a 1% chance that Geithner and Summers would let Goldman go down?  

So, if you knew that no matter what level risk you took the government would always come riding to the rescue - and that more risk equals more money in the short term - wouldn't you take more risk? Of course you would.

Now, that might be short term thinking and you might get yourself into a lot of trouble in the long term. Well, if you were worried about what might happen in the long term, what would you do next? Right, take out as much money from the company as you possibly could and put it into your own pocket. And guess what Goldman is doing right now? They are setting aside $18 billion to pay their employees this year.

That's called looting the store. They're taking most of the money the company made and giving it to themselves. Who cares about the long term health of the company? The employees don't own it anymore. If they can take most of the money for themselves before it gets to the shareholders and do long term damage to the company, why not do it? What do they have to lose? It's not their company, but the check they take home is their money to keep.

William K. Black wrote an excellent book called "Best Way to Rob a Bank is to Own One." That about sums it up. But these days the bank robbers have one additional advantage - when the bank runs out of money, the government comes and fills it up again. Then, they invite them to rob it one more time.

So, who's convinced we have this financial problem under control? Who's convinced we have any idea what to do if Goldman went under? Who's convinced they have any incentive not to take more risk to make more money? Who's convinced that we have done enough to rein in banks that are too big to fail?

No, we still have the same problem we did before. I disagreed with the bailouts. I think we gave the banks an enormous amount of money with almost no strings attached. I understood the urgency of bailing out the financial industry, but if we were going to do that, we could have at least made sure that we took steps to make sure this never, ever happened again. Now, who's convinced we've done that? No one, outside of a couple of suckers who are about to get their pocket picked again.

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Update: AOL Poll on this question now. You can vote here.

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What Would Happen if Goldman Went Under? (AOL Poll) | 8 comments (8 topical, 0 hidden)
Economic Terrorism (none / 1)
Goldman Sachs traders have been the ultimate insiders. The system is not broken, the system has been manipulated by insiders in the same manor a pyramid scheme is run. In fact, using the same MO that has made Goldman what it is today.

Not only have they been first in and first out of all these “innovative” investment vehicles. Once out they used the massive increase in leveraging allowed under the new investment bank rules to short sell their competitors into oblivion, triggering additional credit default swaps along the way. I would not be surprised if they also lobbied for the changes in “mark to market” that caused the bank runs last fall, and additional CDS payouts.

As far as the question goes, you know what happens when you give into terrorist demands........ So, by giving in we have sealed out fait. How the fuck are they giving out bonuses with 650 trillion dollars in CDS and derivates still unresolved? Let alone with the foreclosure rate accelerating and the unemployment in the double digits.

If you don’t understand why we need to bring back the 90% tax bracket by now, you never will.

by sisco66 on 07/16/2009 06:35:16 AM EST

Your last sentence nailed it (none / 0)

A great way to discourage all kinds of unethical, illegal and outright disastrous behavior is to bring back the top marginal tax rate to 91% (or at least 71%).

Under Republican Eisenhower, people were taxed at a lower rate on their first 3 million (in today's dollars) and then at 91% on every dollar after that. Creativity and hard work were NOT stifled. The only thing that stopped was depressions and huge bubbles and crashes and bank failures.

It's beyond obvious at this point, and it would do what so many failed, half-assed and non-existent regulations haven't done.

by Tom Hanc on 07/16/2009 12:40:02 PM EST

[ Parent ]
Wow (none / 0)

Goldman Sachs seems to be the winner in the big financial casino that crashed last year. They made the right bets one way or another, and literally busted the bank. To what extent they did or did not play by the rules should determine the extent of our outrage over their record profits. At least they have been profitable altogether and payed back all government money they directly recieved.

However, if they indeed are going to pay their employees $ 16 billion this year, one has to wonder where that incredible amount of money is coming from. A quarterly profit of $ 2.7 billion doesn't really explain it; projecting that it will be sustained over the next nine months (which is even doubted in the NYT article) it would "only" amount to a profit of $ 10.8 billion over a year. What about the other $ 5.2 billion they will give away to employees? It really looks like Goldman executives were giving away a substantial part of the company's capital to put it into their own pockets.

Whether the government would once again bail them out if needed can be reasonably doubted. This whole "too big to fail" line is wearing off; even a dimwit would see that saving them over and over again wouldn't make any sense whatsoever. The government already put a lot of their political capital into preserving the financial industry, and - nevermind Geithner - would probably not want to make a big political mistake in repeating such action within the next eight years. Everybody knows how the public opinion would percieve such pointless generosity.

 

by OldGerman on 07/16/2009 07:15:18 AM EST

where it came from (none / 0)
It ain't hard to make money when you are making all the rules as well as have unlimited leverage, not to mention changing them along the way. There are 650 trillion dollars left of unresolved bets, that were legalized under Goldman's proxies. Given that the world GDP is about 50 trillion how can they be profitable, or even allowed to still exist. There is no way to create that amount of money, nor back it.

Let me put it in to some perspective. Goldman Sachs burned a city to the ground in order to cook a few hot dogs over an open fire. That is a proportional representation of the risk reward to world for the depression error gambling that GS and a few other major players helped revive through billions in lobbying.


GS short sold Lehman, Behr Sterns and AIG into neverland, collecting on side bets all the way up and all the way down. The 14 billion paid out after we bought AIG was just a drop in the bucket. AIG sold 500 billion in cds market, and that was only  a fraction of their business,  yet the payouts from the bad bets wiped out the company to the point of needing 200 billion in tax payer dollars to stay afloat. Let alone Fed money.

Goldman Sachs was the architect of the disater, and the second biggest winner.


by sisco66 on 07/16/2009 10:18:10 PM EST

[ Parent ]
Every Kingdom Falls. (none / 0)
I've come to agree with Cenks analysis and i think that may be the case. I almost feel like betting on the fact that they will fall. If goldman falls i wonder if they will be bailed out again. I don't think the general populace would have that but, at the same time it would make the Obama administration look like fools. If its in the habit of goldman employee's to fail how would people view the Obama administrations staff members that are former goldman employee's?

It would be an excellent conservative talking point that Obama is a failure on economic matters and i would have to say that would be a convincing talking point in targeting Obama's staff members making the leader look incompetent.

by xhectorx on 07/16/2009 10:52:06 AM EST

No Strings Attached (none / 0)

Cenk, you are absolutely right. In bailing out the banks with no regulatory strings attached, against written law, we have only exacerbated the problem of runaway banks...

...and I don't know if Obama is aware.

I disagree that the bailouts themselves were a bad idea, as heart breaking as they were to our national deficit, as I honestly believe economists were telling officials our economy would hit a depression if that were to happen. Though, I do agree that we missed the mark in not imposing the bailout and regulation changes when banks were vulnerable to collapse. 

In effort to maintain my belief that Obama knows exactly what he's doing and wielding every power he has as President in the current political environment, I will blame Republicans (and soft spined Democrats) in the Congress for not allowing regulations to be put into the bailouts when they were dulled out last autumn. It needed to be done then, but it looks as though it may come about eventually.

From a Huffington Post article:

"Geithner's defense [...] came in the midst of his call for greater government control over the generally unregulated but complex derivatives market, which he said contributed to the financial crisis.

'Establishing a comprehensive framework of oversight is crucial,' Geithner said in his opening remarks to a joint hearing by the House agriculture and financial services committees.

Despite apprehension among Republicans, the effort to add government restrictions to these more freewheeling financial instruments has support within the Democratic-controlled Congress."

This was the first sign that perhaps Geithner wasn't a Goldman Sachs sock puppet strategically placed to keep regulations at a mum. I'm not saying he doesn't have incredible conflict of interest, but I'm hopeful in the end regulations will be put into place to strengthen our economy. In addition, now that we have 60 Senators, there's no excuse not to get it passed.

Back to the question: What would happen if Goldman Sachs threatened collapse again? I'd like to say it crash and burn (I'll bring the marshmallows) but we all know they will bail them out again. It's like watching a Greek tragedy... only you're in it.


by touched on 07/16/2009 11:40:21 AM EST

I voted on the AOL poll (none / 0)
Figures that the first comment was left by some idiotic right winger, as you can see.

by Tom Hanc on 07/16/2009 01:49:08 PM EST

Spell check (none / 0)

by princk on 07/18/2009 07:52:54 AM EST

What Would Happen if Goldman Went Under? (AOL Poll) | 8 comments (8 topical, 0 hidden)
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