Bailed-out financial company to turn huge profit

[Pangloss]

This is good, right? Seems that way to me.

 

One of the financial companies that got a huge bailout is about to report a big profit in the same quarter that it paid back $10 billion in TARP loans from the taxpayer. Apparently they're on track for their most profitable year ever, and their share price is up 73% from where it crashed to. To me this seems to be not only a sign of recovery, but also a sign that our compromise system of governance, neither socialism nor pure capitalism, can continue to drive our society forward.

 

I imagine opposition comments will come in along the lines of "well of course they turned a profit -- they got bailed out". But at the time didn't they tell us that these companies would fail anyway, and that our bailouts would be for naught? Didn't they tell us that it was better to let them fail? Does anybody want Goldman Sachs to fail NOW?

 

Strong trading income and improving equity underwriting markets are expected to bolster the results, offsetting a one-time charge of $425 million related to payback of loans Goldman took from the U.S. Treasury's Troubled Asset Relief Program, or TARP.

 

In a noisy second quarter, Goldman repaid $10 billion in TARP loans, while raising $8.9 billion in equity, debt and asset sales to win its way out of the government program.

 

Analysts polled by Thomson Reuters are expecting Goldman to report net income for common shareholders of $3.54 a share.

 

That is down from a pro-forma $4.58 a year earlier, but would best a surprisingly strong first quarter in which Goldman reported net income of $3.39 per share.

 

http://www.reuters.com/...iv/idUSTRE56969Y20090710

[bascule]

I would really like to see charges brought against Goldman Sachs. It's my belief they have a history of creating unstable markets and cashing in on them when they collapse. It seems like this might actually happen soon, at least from what I gather in this Bloomberg article:

 

http://www.bloomberg.com/apps/news?pid=20601039&sid=aFeyqdzYcizc

 

I also think the government buyout of AIG had an awful lot to do with preventing the demise of Goldman Sachs after Bear Stearns failed.

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I've since discovered that Paulson was at one point CEO of Goldman Sachs... ugh.

[Pangloss]

True, but without Paulson you probably wouldn't have gotten Geitner, or at least not without a fight.

 

It may not be possible to pull people into government service from the financial sector who weren't at least peripherally connected with the various crises that came to the fore in 2007/2008 and still have a good working knowledge of the markets. At least not for a while.

[bascule]

I think the larger issue here is that while Goldman Sachs has repaid the bailout money they received directly, they also received additional money by way of the AIG bailout/buyout which they don't have to pay and is adding directly to their profits.

[Pangloss]

I agree. A full accounting of their latest profit statement might be useful.

[bascule]

Awesome Krugman article on this:

 

http://www.nytimes.com/2009/07/17/opinion/17krugman.html?_r=1&partner=rss&emc=rss

 

First, it tells us that Goldman is very good at what it does. Unfortunately, what it does is bad for America.

 

Second, it shows that Wall Street’s bad habits — above all, the system of compensation that helped cause the financial crisis — have not gone away.

 

Third, it shows that by rescuing the financial system without reforming it, Washington has done nothing to protect us from a new crisis, and, in fact, has made another crisis more likely.

[ecoli]

Glen Beck has a good video on this (Goldman Sachs corruption): http://www.youtube.com/watch?v=_wVQ3_ZaYB4&e

[GutZ]

All I have to say if they go back to the same practices, someone should be persecuted.

[CharonY]

The Krugman article makes sense to me (sadly), Glenn Beck... less so.

[bascule]

The Krugman article makes sense to me (sadly), Glenn Beck... less so.

 

The Glenn Beck video was surprisingly not as bad as I thought it was going to be, his snide remarks about healthcare aside. Although, what's with the red and blue signs? Is that supposed to be "Republicans fault" vs "Democrats fault"? That's what it seemed to correspond to. Whatever.

 

I'm glad to see mostly well-informed indignation against Goldman Sachs coming from a Fox News mouthpiece like Glenn Beck.

[Pangloss]

Interesting. A rare note of agreement between far left and far right. "Krugman and Beck"... maybe for CNN's 10pm slot?

[bascule]

Interesting. A rare note of agreement between far left and far right. "Krugman and Beck"... maybe for CNN's 10pm slot?

 

Where they won't agree is when you ask what should be done, although it was rather strange to see a "libertarian" like Beck talking about the evils of corporate control and influence in government. Libertarians (capital-L intended) are typically rather que sera sera about that sort of thing.

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Of course, Glenn Beck is still a douchebag:

 

http://mediamatters.org/mmtv/200907170034

 

He asks: why did we bail out Wall Street instead of "Main Street"?

 

His answer: the President [Obama] is a Marxist

 

Let's see:

 

1) The bailout happened under Bush, not Obama

2) Obama hates rich people, therefore he bailed out Wall Street instead of Main Street (even though he didn't) durrrrrr.... yeah bailing out Wall Street fat cats is a Marxist, anti-rich sort of move (thanks Bush!)

3) Obama is going against the rich and trying to prevent people from being rich. I think the economy (inherited from Bush) is keeping people from being rich

 

*facepalm*

 

"To Ann Coulter's point..."

 

*stab out eyes*

Edited July 18, 2009 by bascule
Consecutive posts merged.

[Pangloss]

This is maybe more of a different subject, but it seems to me that it's becoming extremely popular for partisan, anti-Obama conservatives to hide behind a libertarian banner, tossing around buzzwords and phrases that they barely understand and had no interest in a year ago. I've seen this happen on two different conservative forums I lurk on, and I have one friend and one relative who have followed this trend themselves.

 

It's common enough that I think it may be an indication of the direction the conservatives are heading, but exactly what that means is unclear. My hope is that they'll learn something useful, settle back from that posturing and rekindle a strong fiscal conservative movement that will bring balance to the shortsighted progressive precipice that Congress seems determined to leap off of at the moment, and that somehow this will happen without awakening the slumbering religious dragon.

 

Or maybe I'm just a hopeless optimist.

[Severian]

Oh dear. I am finding myself agreeing with bascule again. What is wrong with me these days...?

[bascule]

It's common enough that I think it may be an indication of the direction the conservatives are heading, but exactly what that means is unclear. My hope is that they'll learn something useful, settle back from that posturing and rekindle a strong fiscal conservative movement that will bring balance to the shortsighted progressive precipice that Congress seems determined to leap off of at the moment, and that somehow this will happen without awakening the slumbering religious dragon.

 

Or maybe I'm just a hopeless optimist.

 

I see that sort of thing happening among Ron Paul supporters, although he attracts not just conservative libertarians but liberal anarchists. He attracts the latter to the point that one of my Republican "friends" remarked "don't a bunch of liberals like Ron Paul?" (as if that were a bad thing) when I brought him up

[bob000555]

Oh, pish-posh. Goldman Sachs has always been the best of bread for a very long time.

 

Back when investment banking was dominated by White Anglo-Saxon Protestants Goldman was one of the first banks to hire the best and the brightest regardless of background. They where thus able to monopolize Catholic and Jewish talent. This monopoly on some of the most skilled deal makers, traders and brokers allowed Goldman to make massive amounts of money, which allowed Goldman to start the tradition amongst investment banks of luring the top MBA grads every year with the promise of massive paychecks.

 

The formula is simple; they recruit the best and brightest and pay them massive amounts of money, but in the process make them selves massive amounts of money. This is also why you find so many Goldman alumni in high government positions. If you look at any organization consisting of very bright people you will see a lot of it’s alumni in high leval positions. To imply some sort of wrong doing from this is completely illogical. No one believes that Harvard is a massive conspiracy just because a lot of Harvard grads go on to work for the government agencies that hand out research grants and give a lot of that money to Harvard.

 

Honestly Goldman is an example of what is right with America, it gives lower and middle class Americans scholarships to go to business school then come get jobs that make them(and successive generations) fantastically wealthy.

 

Goldman probably didn’t need the TARP money in the first palace as the where the only bank making money as the market imploded by short selling mortgage backed securities. They no longer owe the government anything as they have paid back the TARP money early and repurchased government warrants, so as far as I’m concerned they can pay their employs as much as they want.

 

(full disclosure: I am a Goldman Sachs shareholder.)

[bascule]

Goldman probably didn’t need the TARP money in the first palace as the where the only bank making money as the market imploded by short selling mortgage backed securities. They no longer owe the government anything as they have paid back the TARP money early and repurchased government warrants, so as far as I’m concerned they can pay their employs as much as they want.

 

So you have zero concerns about the $12.9 billion in government money Goldman Sachs received vicariously through AIG, money that will never be repaid to the government? Meanwhile Goldman Sachs is paying out $11.4 billion in bonuses.

 

This is also why you find so many Goldman alumni in high government positions.

 

Yes, like former Goldman Sachs CEO Hank Paulson, who in a completely unrelated and coincidental matter coordinated the $80 billion bailout of AIG.

 

Honestly Goldman is an example of what is right with America

 

*facepalm*

 

Hooray for pocketing billions in government money!

 

(full disclosure: I am a Goldman Sachs shareholder.)

 

Oh really! You don't say.

[Pangloss]

But they did pay back the money they were given directly, and if the government had required them to pay back the AIG money they would have done that instead of paying bonuses. Whether that particular problem rests with the government or Goldman Sachs is an interesting debate, but it doesn't necessarily take anything away from what's been accomplished.

 

Why can't it be both a good example of how a bailout can work, AND an example of the pitfalls and back doors that can occur?

[bascule]

What do you think about Krugman's statement that these sorts of bonuses are one of the things that helped cause the financial crisis in the first place?

[bob000555]

Bonuses may have had something to do with the financial crises but it had much more to do with complicated financial instruments. Most banks have stopped dealing as heavily in sub prime mortgage backed securities. Goldman Sachs was never heavily involved except short selling such interments making a huge among of money as the market collapsed.

 

Large bonuses have been a tradition on Wall Street since long before this whole thing started. They where and are a tool to attract top talent, top talent makes Goldman Sachs money.

[Pangloss]

What do you think about Krugman's statement that these sorts of bonuses are one of the things that helped cause the financial crisis in the first place?

 

What I think is that it's one of the rare times when I see actual wisdom in the writing of Paul Krugman -- a man who has long since sold out his high academic credentials at the altar of progressive social policy.

 

And it's an interesting example of how the worst thing you can do to a political party is to put it in charge of the whole shooting match, forcing it to face very real internal differences in philosophy -- stuff you can't resolve by rallying around a burning effigy of George W. Bush. (On a brighter note, at least Bill Maher has substantive debates on his program now.)

 

But getting back to the point, I don't know if there is a realistic path we could have followed that would have been trouble-free. Perhaps we're just going to have to accept the fact that there was no clean path to success. Just to step back to the bigger picture for a moment, the problem is how to restore the economy to some semblance of its previous stature. But because its previous stature was based on faulty practices, that may not actually be possible.

 

Like a mob boss after his street enforcers are all put in jail -- he hires new ones, and tells them to not be quite so brazenly illegal for a while, and everyone is shocked when they don't bring in as much income as before. It's going to take a while for them to switch from drugs and prostitutes to internet porn and semi-legal gambling houses, right?

 

I suspect that's kinda where we're at right now. Certainly not an entirely fair analogy by any stretch, with most of the economy probably on very sound and ethical footing, but perhaps it works at the level of the 10-20% of the economy that's really hurting, which, given our low tolerance for pain, probably makes it accurate.