Tuesday, April 14, 2009

Goldman Sachs A Winner Again!

Wow, how do these guys do it?  Or as a not-so-proud alumnus, I should say, "How do we do it?"  It is absolutely amazing what Goldman Sachs gets away with.  Please read the following.  I don't want to rehash some excellent reporting:
  • The New York Times article by William Cohan
  • Floyd Norris' (also a New York Times reporter) blog

  • I'm not a conspiracy theorist.  I'm a rationalist who believes there's no such thing as coincidence.  Here's a short history:
    • July 3, 2006:  Henry M. Paulson leaves his position as CEO of Goldman Sachs to be sworn in as the US Secretary of the Treasury
    • July 2006-March 2008:  Paulson and bailout-buddy Ben Bernanke downplay the subprime crisis as largely contained in numerous appearances before the Congress and the media
    • November 14, 2007:  John Thain, former COO of Goldman Sachs, leaves his position at the head of NYSE to become the CEO of Merrill Lynch - he changed NYSE from a non-profit board to a publicly traded company, and acquired Euronext NV - his departure comes at a crucial time for NYSE, given that it has still to digest its acquisition
    • March 17, 2008:  The proverbial excrement hits the cooling blades: Paulson lets Bear Stearns collapse - CDOs now have a chance of being priced for real, rather than being marked-to-model
    • September 15, 2008:  Paulson lets Lehman collapse after refusing Richard Fuld, CEO of Lehman, a $45 billion bailout;  Ken Lewis, CEO of Bank of America, agrees to buy Merrill Lynch
    • September 16, 2008:  Paulson takes control of AIG, fearing the systemic risk of a potential collapse, and providing $85 billion in initial bailout monies
    • September 26, 2008: Paulson "taps" ex-Goldman Sachs board member (2003-08) Edward Liddy to replace Robert Willumstad as the CEO of AIG
    • September 28, 2008:  Goldman Sachs says New York Times article by Gretchen Morgensen, detailing a $20 billion exposure to AIG, is seriously flawed - For an analysis, try this.  The right question to ask is not:  "Will Goldman fail if AIG does?"  It is "Will Goldman benefit if AIG does not fail?" 
    • October 6, 2008:  Paulson appoints a Goldman alumnus investment banker Neel Kashkari as Interim Assistant Secretary for Financial Stability, to oversee the administration of TARP
    • October 14, 2008:  Paulson meets with the big bankers and makes them an offer they cannot refuse - "Take the TARP money or else..."  By 6:30pm, all bankers have signed on the dotted line, setting in motion the biggest government intervention in US banking history since the Depression
    • November 10, 2008:  Paulson ups the bailout for AIG to a total of $150 billion, and subsequently, to $173 billion
    • December 17, 2008:  Ken Lewis, CEO of Bank of America, flies to Washington DC to back out of the Merrill Lynch deal.  Paulson and Bernanke stick it to the polite North Carolinian: "Your signature or your brains on that paper please..."
    • January 9, 2009:  Citigroup announces the resignation of its Chairman, Robert Rubin,  ex-Secretary of the Treasury under the Clinton administration
    • January 16, 2009:  Bank of America announces a 4Q2008 loss of $2.4 billion
    • January 17, 2009:  Merrill Lynch announces a 4Q2008 loss of $10 billion
    • January 22, 2009:  John Thain announces his resignation from Bank of America, after Bank of America's digestion of Merrill Lynch sours, taking with him a severance payout valued at $160 million
    • January 27, 2009:  Attorney General of New York, Andrew Cuomo, subpoenas John Thain and Bank of America's Chief Administrative Officer J. Steele Alphin, to investigate the accelerated payout of Merrill Lynch bonuses
    • February 24, 2009:  John Thain ducks out of Attorney General Andrew Cuomo's downtown Manhattan office after handing over the names of the Merrill bonus recipients, who collectively received $3.6 billion
    • March 18, 2009:  Goldman Sachs defends the $12.9 billion it received from AIG
    • March 26, 2009:  Congress demands a probe into AIG use of bailout monies
    • April 13, 2009:  Goldman announces 1Q2009 earnings of $3.39 a share - who could blame them for wanting to forget December 2008?

    • It will be interesting to see how the Obama administration, which has thus far believed in proper accounting, like putting the cost of the Iraq war on the US balance sheet, reacts to Goldman's latest maneuver.  Will they be able to make Goldman explain exactly what it did with the $12.9 billion it received from AIG?  I certainly hope so.

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