Goldman Sachs was not bailed out

[LonghornDave]

There seems to be the mistaken belief here that certain banks received bailouts when they did not. The one that I see referenced most often is Goldman Sachs; however, I believe this also applies at least to JPMorgan Chase, Bank of New York, Morgan Stanley, and State Street. The facts are that these banks were forced to take funds from the treasury and then repaid them as soon as they were allowed to with interest/dividends and with an equity kicker.

On October 13, 2008, Henry Paulson called a meeting with nine large investment and commercial banks. Those nine banks were: 1) Bank of America, 2) Bank of New York, 3) Citigroup, 4) Goldman Sachs, 5) JPMorgan Chase, 6) Morgan Stanley, 7) State Street, 8) Wells Fargo, and 9) Merrill Lynch. Also present at the meeting were Fed Chairman Ben Bernanke, soon to be Treasury Secretary Tim Geithner, and FDIC Chairman Sheila Bair. At this meeting, the banks were told in no uncertain terms that they would not be leaving the room until they agreed to participate in the TARP program. Henry Paulson’s talking points from the meeting were obtained under the Freedom of Information Act and are shown here. (http://www.scribd.com/doc/15402995/Treasury-CEO-Talking-Points)

Through our new TARP authority, Treasury will purchase up to $250 billion of preferred stock of banks … your nine firms will be the initial participants. .. We will state clearly that you are healthy institutions, participating in order to support the US economy. … Your firms need to agree to both. … If a capital infusion is not appealing, you should be aware that your regulator will require it in any circumstance.

Per this (http://www.cnbc.com/id/30745687) supporting article, these initial nine banks were clearly forced to participate.

Documents made public on Wednesday confirm former U.S. Treasury Secretary Henry Paulson gave nine major banks no choice but to allow the government to take equity stakes in them

Now, five of these nine original banks have since repaid the funds: Goldman Sachs, JPMorgan Chase, Bank of New York, Morgan Stanley, and State Street. They were given the following amounts all on 10/28/08 and repaid the in mid-2009.

Bank of New York $3,000,000,000
Goldman Sachs $10,000,000,000
JPMorgan Chase $25,000,000,000
Morgan Stanley $10,000,000,000
State Street $2,000,000,000

Each paid significant interest/dividends on the preferred stock per the TARP terms. For example, Goldman Sachs paid approximately $318 million. Each of the firms was also required to issue the Treasury warrants in a market value amount equal to 15% of the preferred stock investment. Cite (http://www.ustreas.gov/press/releases/reports/document5hp1207.pdf) For Goldman Sachs, who repurchased the warrants today (7/22/09), the amount of the purchase was approximately $1.1 billion. That means that Goldman Sachs was forced to take $10 billion, as soon as they were allowed to repay, did so, and then also paid the government $1.418 billion for the privilege of doing so. They government made a pretty good annualized rate of return of 23% on their investment in Goldman Sachs. Similar rates of return will be experienced on these other banks.

How can anyone in their right mind call that a bailout?

Further, these companies are now being stigmatized for having supposedly received a bailout. For example, JPMorgan is being criticized for not accepting the California IOUs because they took a federal bailout. Cite (http://www.nbcwashington.com/news/business/Banks-Want-No-Part-of-Californias-IOUs.html)

After taking multibillion-dollar bailouts from the federal government, some of the nation's biggest banks are declining to lend a hand with a different financial mess: the California budget stalemate. The banks, including JPMorgan Chase & Co., … are trying to pressure lawmakers to end the impasse by warning that, after Friday, they won't accept IOUs issued by the state. … Government officials and consumer advocates say the banks should be more sympathetic, especially since they've been the direct beneficiaries of taxpayer dollars.

I’ve also seen these banks, particularly Goldman Sachs, lambasted on this board for taking bailouts. Cite (http://boards.straightdope.com/sdmb/showpost.php?p=11363905&postcount=60)

Finally, there are certainly many other banks that were TARP recipients that have since paid back such as U.S. Bank and BB&T. However, the facts are that they at least applied for the funds. They may have been somewhat pressured or coerced to do so, but they nevertheless entered into the agreement voluntarily. I personally don’t think they should be considered bailed out; however, I can see why someone might disagree.

[RitterSport]

However, Goldman was by far the largest beneficiary of the AIG bailout -- if AIG had gone under, it would have cost Goldman billions. Does that count?

Also, you may want to consider that Goldman benefited greatly from the added confidence that the government was behind them (and the whole financial sector). Their net worth on the books is really only as a going concern -- if their counterparties started to worry they couldn't pay and pulled their lines, I doubt GS would have survived the deleveraging process. If the government didn't pump liquidity into the sector, only the very strongest, most liquid banks would have survived the massive deleveraging. The whole system is based on trust and confidence and GS was certainly bailed out of that loss of confidence that the financial sector was reeling from.

[Northern Piper]

I'm curious - what forced the banks to take the money? Did the law passed by Congress that set up TARP give the feds the power to require them to take the money? That's not clear from the linked articles.

In other words, could Goldman have said "no, thanks"?

[jtgain]

I'm curious - what forced the banks to take the money? Did the law passed by Congress that set up TARP give the feds the power to require them to take the money? That's not clear from the linked articles.

In other words, could Goldman have said "no, thanks"?

I'm curious about this as well. If Goldman had said "No", then what happens? The CEO goes to jail? The feds throw stacks of $100 bills through the front door of corporate headquarters?

[SteveG1]

I'm curious about this as well. If Goldman had said "No", then what happens? The CEO goes to jail? The feds throw stacks of $100 bills through the front door of corporate headquarters?

I wonder about that too. If Goldman Sachs didn't want that money, the Feds would have been welcome to throw it at my place.

[LonghornDave]

However, Goldman was by far the largest beneficiary of the AIG bailout -- if AIG had gone under, it would have cost Goldman billions. Does that count?

I think that counts as a bailout to AIG. Goldman was among dozens of large financial institutions (domestic and foreign) to receive contractually owed payments following the AIG bailout. Also, they weren't by far the largest beneficiary. There were several others in the same ballpark including Barclay's Soc Gen, and Deutsche Bank.

Also, you may want to consider that Goldman benefited greatly from the added confidence that the government was behind them (and the whole financial sector). Their net worth on the books is really only as a going concern -- if their counterparties started to worry they couldn't pay and pulled their lines, I doubt GS would have survived the deleveraging process. If the government didn't pump liquidity into the sector, only the very strongest, most liquid banks would have survived the massive deleveraging. The whole system is based on trust and confidence and GS was certainly bailed out of that loss of confidence that the financial sector was reeling from.

I think that there would have been additional confidence if TARP was an application process only. That way healthy financial institutions like Goldman or JPMorgan that did not need the funds would have looked better by not applying for them. That might have added more stigma to the banks that did need the funds, but so what, they were the ones that truly needed a bailout.

[RitterSport]

I think that there would have been additional confidence if TARP was an application process only. That way healthy financial institutions like Goldman or JPMorgan that did not need the funds would have looked better by not applying for them. That might have added more stigma to the banks that did need the funds, but so what, they were the ones that truly needed a bailout.

If there were a stigma associated with accepting bailout money, any bank that applied for it would pretty much experience a run on it, prompting the need for more bailout for that bank. By "encouraging" all the big banks to accept bailout funds, the government may have reduced the total need to bailout money, and it is lending to healthier banks at a high rate. Every bank benefited from the bailout of the financial system.

Regarding AIG, GS was a beneficiary of taxpayer money, the largest of any of AIG's counterparties. They were foolish to have such a large unsecured position with AIG (or any counterparty) and would have lost billions due to that stupidity, if not for the bailout by taxpayers. So what if the bailout money was laundered through AIG -- if the feds hadn't done that, would they have had to bail out GS directly? Likely, if you ask me.

[Fotheringay-Phipps]

I'm curious - what forced the banks to take the money? Did the law passed by Congress that set up TARP give the feds the power to require them to take the money? That's not clear from the linked articles.The first quote says it clearlyIf a capital infusion is not appealing, you should be aware that your regulator will require it in any circumstanceBank regulators have extraordinary power over banks and can force banks to do all sorts of things. (They can actually seize the banks if they think things are dire enough.)

So Paulson was telling these guys either deal with me or your regulators will impose it on you.

The key question is whether Paulson believed these banks were genuinely in trouble and that the regulators would impose it on them because they needed it (& the line about them being "healthy institutions" was just to avoid a run on the banks), or did he want them to take the money to help his broader financial goals (i.e. unfreeze credit markets) and used the regulators as leverage?

[Humble Servant]

How can anyone in their right mind call that a bailout?Because "bailout" isn't a fixed, specifically definable term--it is a vague handy catchall that is being used to describe anyone who took the government's shilling, voluntarily or not.

Anyway, why does this matter? Considering that Rolling Stone just called Goldman Sachs a “great vampire squid wrapped around the face of humanity,” I'd say that "ooooh, Goldman Sachs was bailed out," isn't even going to make them flinch.

[LonghornDave]

I'm curious - what forced the banks to take the money? Did the law passed by Congress that set up TARP give the feds the power to require them to take the money? That's not clear from the linked articles.

In other words, could Goldman have said "no, thanks"?

They were told that if they did not accept it at the meeting that their regulator would require them anyways. Bank regulators have the authority to require the institutions that are under their watch to raise capital.

Also, here (http://www.msnbc.msn.com/id/30750868) is another article talking about how they were forced.

[LonghornDave]

Anyway, why does this matter?

Fighting ignorance is one reason. Also, I think educating about what the government did is important and about the true shape of some of our largest and most important financial institutions.

[LonghornDave]

If there were a stigma associated with accepting bailout money, any bank that applied for it would pretty much experience a run on it, prompting the need for more bailout for that bank. By "encouraging" all the big banks to accept bailout funds, the government may have reduced the total need to bailout money, and it is lending to healthier banks at a high rate. Every bank benefited from the bailout of the financial system.

Increasing the FDIC insurance coverages significantly reduced the risk of runs on banks. That's why there can be zombie banks existing right now that are increasing their deposits. People aren't afraid to put money into well known imminent failures because the funds are insured.

[LonghornDave]

Regarding AIG, GS was a beneficiary of taxpayer money, the largest of any of AIG's counterparties. They were foolish to have such a large unsecured position with AIG (or any counterparty) and would have lost billions due to that stupidity, if not for the bailout by taxpayers. So what if the bailout money was laundered through AIG -- if the feds hadn't done that, would they have had to bail out GS directly? Likely, if you ask me.

The money that AIG paid to their counterparties was primarily for margin calls meaning that it was in order to post collateral once the trades went out of the money. Saying they were stupid to have large unsecured exposures is ill-informed. Once they became large exposures is exactly when the counterparties required collateral. You typically don't require collateral if the trade is not out of the money.

[LonghornDave]

Regarding AIG, GS was a beneficiary of taxpayer money, the largest of any of AIG's counterparties. They were foolish to have such a large unsecured position with AIG (or any counterparty) and would have lost billions due to that stupidity, if not for the bailout by taxpayers. So what if the bailout money was laundered through AIG -- if the feds hadn't done that, would they have had to bail out GS directly? Likely, if you ask me.

Further, according to Goldman Sachs, prior to AIG's insolvency, they had already received $7.5 billion in collateral and had hedged the majority of the remaining exposure with third parties. It is their contention that they had immaterial exposure to AIG.

Link (http://www.nytimes.com/2009/03/21/business/21goldman.html?_r=1&ref=business)

[RitterSport]

The money that AIG paid to their counterparties was primarily for margin calls meaning that it was in order to post collateral once the trades went out of the money. Saying they were stupid to have large unsecured exposures is ill-informed. Once they became large exposures is exactly when the counterparties required collateral. You typically don't require collateral if the trade is not out of the money.

They had wrong way risk to AIG -- if credit markets deteriorated, spreads would widen and AIG would have to post. That's exactly when AIG would have trouble posting. AIG was trading on its rating, but the Street knew that its rating was binary -- AAA or bust. I was frankly shocked that GS had so much single-party exposure.

The other "bailout" for GS was letting them become a bank pretty much instantly, much quicker than it normally happens. That wasn't a monetary bailout, but it was definitely federal assistance for them.

I'm happy as a taxpayer that they are giving back the bailout money, but I think it looks terrible that they are doing that to get past the pay restrictions when they were the beneficiary of the taxpayer bailout of the entire industry. Had the tax payer not stepped in, they would have gone under, along with most of the rest of the industy (and the economy). They are as tone-deaf as the car company execs who flew down in their jets to talk to congress.

They are doing the industry no favors with their behavior. As usual, it's GS for GS, even when the Feds come in to bail out their counterparties and their industry.

[LonghornDave]

They had wrong way risk to AIG -- if credit markets deteriorated, spreads would widen and AIG would have to post. That's exactly when AIG would have trouble posting. AIG was trading on its rating, but the Street knew that its rating was binary -- AAA or bust. I was frankly shocked that GS had so much single-party exposure.

And it's their contention that they had immaterial unsecured exposure due to collateral already posted and hedges.

The other "bailout" for GS was letting them become a bank pretty much instantly, much quicker than it normally happens. That wasn't a monetary bailout, but it was definitely federal assistance for them.

First, I'd like a cite that the process occurred much quicker than normally permitted. Second, how in the world is this a bailout? They would have been permitted to become a bank holding company at any time, not just during a financial crises. Further, in doing so, they subjected themselves to tighter regulations and capital requirements.

I'm happy as a taxpayer that they are giving back the bailout money, but I think it looks terrible that they are doing that to get past the pay restrictions when they were the beneficiary of the taxpayer bailout of the entire industry. Had the tax payer not stepped in, they would have gone under, along with most of the rest of the industy (and the economy). They are as tone-deaf as the car company execs who flew down in their jets to talk to congress.

They never needed the TARP funds to begin with. It was forced on them and they paid it back along with an additional $1.4 billion as quickly as they were permitted. I think the taxpayer got a pretty healthy return from them.

[RitterSport]

And it's their contention that they had immaterial unsecured exposure due to collateral already posted and hedges.



First, I'd like a cite that the process occurred much quicker than normally permitted. Second, how in the world is this a bailout? They would have been permitted to become a bank holding company at any time, not just during a financial crises. Further, in doing so, they subjected themselves to tighter regulations and capital requirements.



They never needed the TARP funds to begin with. It was forced on them and they paid it back along with an additional $1.4 billion as quickly as they were permitted. I think the taxpayer got a pretty healthy return from them.

Here's a cite that they received expedited approval: http://www.reuters.com/article/ousiv/idUSTRE55A5SR20090611?sp=true

From that article:

"Goldman and Morgan Stanley received expedited approval to become bank holding companies as some of their longtime competitors, particularly Lehman Brothers, collapsed or disappeared."

Having that status gives them access to the Federal Reserve window, further boosting confidence in them, another type of federal assistance.

It's easy enough for them to say, now, that they didn't need the bailout and all that, but at the time, their stock price was sinking fast, and no one knew which financial institution would be the next to blow up.

According to AIG, Goldman received $8 billion of the bailout funds it (AIG) received. That amount is not immaterial for GS. Of course, GS continues to benefit from the government backing of AIG.

Can you cite where GS claimed at the time that they didn't need the money? I don't recall that.

Anyway, I'm done for the day, so maybe someone else can take on the mantle of beating up on GS. There should be lots of takers.

[LonghornDave]

Having that status gives them access to the Federal Reserve window, further boosting confidence in them, another type of federal assistance.

But that was available to them at any time. They could have done so 5 years ago if they wanted. Because they were willing to accept the additional regulation and capital requirements of a bank, they had access to the liquidity sources that banks have including the Fed window as well as deposits.

According to AIG, Goldman received $8 billion of the bailout funds it (AIG) received. That amount is not immaterial for GS. Of course, GS continues to benefit from the government backing of AIG.

I'm not saying that Goldman didn't receive material dollar amounts from AIG (it was greater than $8 billion by the way); I'm saying they had immaterial net exposure to AIG. Please read the following interview. ( http://www.reuters.com/article/mergersNews/idUSN1729956620090317?pageNumber=2&virtualBrandChannel=0&sp=true)

QUESTION: If Goldman Sachs was collateralized and hedged on its AIG positions, why did it take $12.9 billion of taxpayer money?

ANSWER: "Goldman Sachs has maintained that its exposure to AIG was collateralized and hedged. The majority of Goldman Sachs' CDS (credit default swap) exposure to AIG Financial Group was collateralized. That means that Goldman Sachs had collateral. To the extent it wasn't collateralized, Goldman Sachs hedged its exposure via the credit default swaps market. If the government had allowed AIG to fail, Goldman Sachs would have received its collateral. A credit event would be triggered, and Goldman Sachs would receive a payout from the credit default swap insurance that it had. This is from other counterparties."

Separating out the money Goldman received due to AIG's securities lending obligations, DuVally said: "AIG was not allowed to fail. So there was no payout from the hedges. Additionally after the bailout there was some additional deterioration in AIG's position. Under the terms of the contracts that Goldman Sachs had with AIG, it was entitled to collateral. We were always fully collateralized and hedged."

Can you cite where GS claimed at the time that they didn't need the money? I don't recall that.

I'm not aware that Goldman did anything other than be a good soldier for the government. It's really a moot point though as they had no ability to turn down the TARP funds. I think the fact that the moment that they were allowed to pay the funds back they did speaks volumes.

[Digital Stimulus]

But that was available to them at any time. They could have done so 5 years ago if they wanted.
Even though I agree with you that Goldman wasn't "bailed out" (at least, not as I understand most people to use the term), the above doesn't address the claim (bolding mine):
The other "bailout" for GS was letting them become a bank pretty much instantly, much quicker than it normally happens.
For which you were given both a Reuter's cite and a specific quote from it in support.

[mswas]

Part of the reason solvent banks took bailout money was so that people wouldn't know which banks were insolvent.

But to say that Goldman and JP Morgan weren't bailed out is kind of ignorant as a lot of things they held stock in were bailed out and they were the primary beneficiaries of the buyouts of insolvent properties.

[Northern Piper]

They were told that if they did not accept it at the meeting that their regulator would require them anyways. Bank regulators have the authority to require the institutions that are under their watch to raise capital.True. But if Goldman Sachs had come up with the capital from some other source, meeting th regulator's standard, would it have had to take money from the feds?

Also, here (http://www.msnbc.msn.com/id/30750868) is another article talking about how they were forced.And that article contains this statement: Paulson also told the bankers it would not be prudent to opt out of the program because doing so "would leave you vulnerable and exposed."
That statement sounds to me like they had the option to opt out, but he was recommending against it.

[LonghornDave]

Even though I agree with you that Goldman wasn't "bailed out" (at least, not as I understand most people to use the term), the above doesn't address the claim (bolding mine):

For which you were given both a Reuter's cite and a specific quote from it in support.

I didn't address it as the quote seemed like a throw away comment in the reuter's article. I tried to find additional information but was unable to do so. I've since gone back and searched and found the following three applicable links.

Bank Holding Company Act (http://www.fdic.gov/regulations/laws/rules/6000-100.html)

Order Approving Formation of Goldman Sachs as Bank Holding Company (http://www.federalreserve.gov/newsevents/press/orders/orders20080922a1.pdf)

Federal Reserve Board Press Release (http://www.federalreserve.gov/newsevents/press/bcreg/20080921a.htm)

As I have learned, the Bank Holding Act requires a notice period (normally 30 days). There is also a provision that provides for expeditious approval if an emergency exists. See Section 3 (b)(1) of the Bank Holding Company Act.

Per the Order Approving the Formation of Goldman Sachs as a Bank Holding Company, the board found that emergency conditions did exist due to the unusual and exigent circumstances affecting the financial markets.

Following all of that, there was a five day statutory waiting period, and the Goldman Sachs approval did wait that period of time.

What we don't know is whether Goldman was pressured by the Treasury to become a bank holding company or whether they pushed for it. I think it's obvious that there were some liquidity benefits to becoming a bank holding company that Goldman Sachs wanted despite the drawbacks in additional regulation. I still would not categorize this as any sort of bailout as there was no way that Goldman would have not received approval. Further, they already owned two banks (one foreign and one domestic), and the Fed window was already available to them.

[LonghornDave]

But if Goldman Sachs had come up with the capital from some other source, meeting th regulator's standard, would it have had to take money from the feds?

They already met the regulator's standard of being a bank, which is why they received approval to become a bank holding company. There are certain capital ratios that banks must meet. Goldman Sachs's ratios were considered "well-capitalized". Also, they did raise capital from other sources recently; they raised $5 billion from a stock offering and another $5 billion from Warren Buffett in September 2008 Cite (http://www2.journalnow.com/content/2008/sep/25/goldman-sachs-starts-capital-raising-drive/business/)

That statement sounds to me like they had the option to opt out, but he was recommending against it.

Read the next statement below the one you quoted.

If a capital infusion is not appealing, you should be aware that your regulator will require it in any circumstance.

That statement makes it clear that it is not an option. If they rejected, the regulators would force it anyways.

[LonghornDave]

Part of the reason solvent banks took bailout money was so that people wouldn't know which banks were insolvent.

Solvent isn't the right word to use. All of the TARP banks were either solvent or too big to fail. The Treasury didn't provide funds to insolvent banks; those were/are allowed to fail.

But to say that Goldman and JP Morgan weren't bailed out is kind of ignorant as a lot of things they held stock in were bailed out and they were the primary beneficiaries of the buyouts of insolvent properties.

So you think that anyone that indirectly benefited from TARP or the stimulus package was bailed out. I think you're definition is so broad that it is useless. Also, I have no idea what you mean by "primary beneficiaries of the buyouts of insolvent properties." What are the "Insolvent properties?"

[LonghornDave]

Of note, prior to the TARP infusion, Goldman's tier 1 risk based capital ratio was 11.6% while 4% is considered adequately capitalized and 6% is considered well capitalized.

[newcomer]

I'm saying they had immaterial net exposure to AIG. Please read the following interview. ( http://www.reuters.com/article/mergersNews/idUSN1729956620090317?pageNumber=2&virtualBrandChannel=0&sp=true) The answer cited is a bit confusing. It is my understanding that GS has invested in a number of mortgage-backed securities and then went to AIG for insurance - CDS classic; i.e. small fee for essentially forking over those MBS-es from their balance sheet over to AIG. Now, once these MBS-es started defaulting (forget about collateral) AIG has to start paying out. As the default rates increase so does the payment. So, yes, I would agree that net position is small but notional amount insured is huge.

Now collateral... when pool of mortgages experiences unusual defaulting rates and on top of that significant decline in the housing market (i.e. you cannot sell the house or, even if you do you get 40 cents on dollar), then talking about collateral is BS.

So, yes, they did benefit from TARP program and AIG rescue.

My 2 cents...

[RitterSport]

Of note, prior to the TARP infusion, Goldman's tier 1 risk based capital ratio was 11.6% while 4% is considered adequately capitalized and 6% is considered well capitalized.

Right, but those capital ratios were probably based on over-inflated values for many of their assets. If they were forced to deleverage (because they didn't have access to the Fed window and/or their counterparties lost confidence in them), they would have been effectively insolvent, as would most large, leveraged institutions.

To address an earlier comment, Citi was probably insolvent, as was Wachovia, WaMu, and Merrill. They weren't allowed to fail -- they were either backed by the gov't (Citi) or helped into a merger/acquisition, with government backing of chunks of their assets.

Anyway, GS greatly benefited from the AIG bailout and the bailout of the financial markets in general. Without the feds stepping in to stabilize it all, they would probably not have survived (JP Morgan, Wells, and maybe B of A probably would have). So, after everything looks like it's settled down, they are now claiming that they didn't need any of the help and getting back to massive bonuses, etc. -- it just looks awful and pisses off the common folk. GS made their share of stupid mistakes (not as much as Bear, Lehman, Wachovia, etc.), but managed to maintain their trader call-option -- socialize the losses, capitalize the gains. They should have the decency to shut the hell up this year and wait until next year to get back to handing out billions.

[Dick Dastardly]

They were given $13 billion+ in welfare via AIG and still haven't bought back their TARP warrant. They've issued over $50 billion in new debt backed by FDIC. As they're now a bank holding company FDIC is their new AIG. And they owe unknown amounts of money to an alphabet soup of other Federal Reserve bailout creations like the TALF and Maiden Lane. We're currently being told that tracking who this money went to is impossible too. They're also making a fortune out of the TARP in that they're one of the few people underwriting TARP lending by other banks. And they're making tons of day-to-day risky bets because they're all now guaranteed by the Fed. So not only were they bailed out from certain bankrupcy, they're making billions in profit from the programs designed to bail the financial system out.

[adhay]

Good ol Goldman Sachs. (http://www.rollingstone.com/politics/story/29127316/the_great_american_bubble_machine)

[LonghornDave]

The answer cited is a bit confusing. It is my understanding that GS has invested in a number of mortgage-backed securities and then went to AIG for insurance - CDS classic; i.e. small fee for essentially forking over those MBS-es from their balance sheet over to AIG. Now, once these MBS-es started defaulting (forget about collateral) AIG has to start paying out. As the default rates increase so does the payment. So, yes, I would agree that net position is small but notional amount insured is huge.

Now collateral... when pool of mortgages experiences unusual defaulting rates and on top of that significant decline in the housing market (i.e. you cannot sell the house or, even if you do you get 40 cents on dollar), then talking about collateral is BS.

So, yes, they did benefit from TARP program and AIG rescue.

My 2 cents...

The collateral was marked down to account for the default rates and decline in value. Also, you're leaving out the CDS on AIG itself (the hedging). Read the following: Link (http://blogs.wsj.com/deals/2009/03/20/live-blogging-the-goldman-sachs-aig-call/)

[LonghornDave]

Good ol Goldman Sachs. (http://www.rollingstone.com/politics/story/29127316/the_great_american_bubble_machine)

Nice pointless post. Does this have anything at all to do with whether or not they were bailed out?

[LonghornDave]

Right, but those capital ratios were probably based on over-inflated values for many of their assets. If they were forced to deleverage (because they didn't have access to the Fed window and/or their counterparties lost confidence in them), they would have been effectively insolvent, as would most large, leveraged institutions.

So you're basically saying that their regulators are liars? You do realize that these assets have to be marked down in they're impaired, right?

To address an earlier comment, Citi was probably insolvent, as was Wachovia, WaMu, and Merrill. They weren't allowed to fail -- they were either backed by the gov't (Citi) or helped into a merger/acquisition, with government backing of chunks of their assets.

WaMu was allowed to fail. I'm sure it's hard to keep up with the news of the biggest bank failure in history though, so it's understandable that you would miss it. Wachovia was acquired by Wells without FDIC assistance. Again, it was sort of a big story.

Anyway, GS greatly benefited from the AIG bailout and the bailout of the financial markets in general.

Would you please read one of the several links I have posted that explains that they did not benefit from the AIG bailout? Either that or refute it with some facts.

[Dick Dastardly]

The collateral was marked down to account for the default rates and decline in value. Also, you're leaving out the CDS on AIG itself (the hedging). Read the following: Link (http://blogs.wsj.com/deals/2009/03/20/live-blogging-the-goldman-sachs-aig-call/)

Mark-to-mark accounting was suspended some time ago. None of the banks are telling the truth about the true value of their assets because they don't legally have to anymore.

[adhay]

Nice pointless post. Does this have anything at all to do with whether or not they were bailed out?

See page 6 of 7. Right to the point.

Let me help you out. Page 6. (http://www.rollingstone.com/politics/story/29127316/the_great_american_bubble_machine/6)

[LonghornDave]

They were given $13 billion+ in welfare via AIG and still haven't bought back their TARP warrant. They've issued over $50 billion in new debt backed by FDIC. As they're now a bank holding company FDIC is their new AIG. And they owe unknown amounts of money to an alphabet soup of other Federal Reserve bailout creations like the TALF and Maiden Lane. We're currently being told that tracking who this money went to is impossible too. They're also making a fortune out of the TARP in that they're one of the few people underwriting TARP lending by other banks. And they're making tons of day-to-day risky bets because they're all now guaranteed by the Fed. So not only were they bailed out from certain bankrupcy, they're making billions in profit from the programs designed to bail the financial system out.

Well, you've clearly not read any of the posts in this thread yet. There is so much wrong here it's hard to know where to start.

[Dick Dastardly]

Well, you've clearly not read any of the posts in this thread yet. There is so much wrong here it's hard to know where to start.

You start, I'll finish.

[LonghornDave]

Mark-to-mark accounting was suspended some time ago. None of the banks are telling the truth about the true value of their assets because they don't legally have to anymore.

Are you trying to be wrong on purpose? Mark to market accounting was eased, not suspended. It occurred in April 2009. It's effective for the most part beginning with the 6/30/09 reporting period. We're talking about Goldman Sachs ratios from October 2008.

[LonghornDave]

You start, I'll finish.

Sure. Here's an easy one for you. Please explain how you are right when you say "still haven't bought back their TARP warrant."

[Dick Dastardly]

Are you trying to be wrong on purpose? Mark to market accounting was eased, not suspended. It occurred in April 2009. It's effective for the most part beginning with the 6/30/09 reporting period. We're talking about Goldman Sachs ratios from October 2008.

It was "eased" to the extent banks no longer have to mark their assets to the market price. They can tweak a computer model to show any value they want for their assets and declare that the value.

[LonghornDave]

See page 6 of 7. Right to the point.

Let me help you out. Page 6. (http://www.rollingstone.com/politics/story/29127316/the_great_american_bubble_machine/6)

This is an utter joke of an article. Explain this part.

In order to qualify for bailout monies, Goldman announced that it would convert from an investment bank to a bankholding company, a move that allows it access not only to $10 billion in TARP funds

They announced the conversion to a bank holding company on 9/21/08. The Capital Purchase Program wasn't even "offered" until 10/13/08. Did Goldman Sachs have a time machine?

[Dick Dastardly]

Sure. Here's an easy one for you. Please explain how you are right when you say "still haven't bought back their TARP warrant."

Five hours ago it was announced they had, but that leaves the money they owe the TALF, the various Maiden Lane vehicles and however much they got from all the money the Fed have lent out that they're refusing to say went where, the money they're making with FDIC guarantees, etc.

[adhay]

Well, you've clearly not read any of the posts in this thread yet. There is so much wrong here it's hard to know where to start.

Look who's talkin'.:)

[LonghornDave]

It was "eased" to the extent banks no longer have to mark their assets to the market price. They can tweak a computer model to show any value they want for their assets and declare that the value.

Have you ever heard of an auditor? Do you have any concept of what they do? Also, nice job in glossing over the fact that it's not effective until 6/30/09 and yet you think it affected ratios from October 2008.

[LonghornDave]

Five hours ago it was announced they had, but that leaves the money they owe the TALF, the various Maiden Lane vehicles and however much they got from all the money the Fed have lent out that they're refusing to say went where, the money they're making with FDIC guarantees, etc.

Wow that's neat. I started this topic 9 hours ago and mentioned it but somehow it was only announced 5 hours ago. How does that work?

[LonghornDave]

Look who's talkin'.:)

What am I wrong about?

[adhay]

Did Goldman Sachs have a time machine?

Evidently. The story continues.

Two more numbers stand out from that stunning first-quarter turnaround. The bank paid out an astonishing $4.7 billion in bonuses and compensation in the first three months of this year, an 18 percent increase over the first quarter of 2008. It also raised $5 billion by issuing new shares almost immediately after releasing its firstquarter results. Taken together, the numbers show that Goldman essentially borrowed a $5 billion salary payout for its executives in the middle of the global economic crisis it helped cause, using halfbaked accounting to reel in investors, just months after receiving billions in a taxpayer bailout.

Even more amazing, Goldman did it all right before the government announced the results of its new "stress test" for banks seeking to repay TARP money — suggesting that Goldman knew exactly what was coming.

[Dick Dastardly]

Have you ever heard of an auditor? Do you have any concept of what they do? Also, nice job in glossing over the fact that it's not effective until 6/30/09 and yet you think it affected ratios from October 2008.

The major banks have been lying about their liabilities since long before mark to market was suspended in April. They could delay marking them to market value from the onset of the crisis to when m to m was suspended because the market for mortgage-backed securities froze up entirely. However by about march this year some of the toxic stuff started trading at about 20c on the dollar. The situation was becoming untenable and they all would have had to declare insolvency had m to m not been suspended soon after the mortgage securities market unfroze.

The whole premise of the thread is nuts. there are hundreds of billions of dollars that the Fed has lent out in various programs that have zero oversight and the Fed refuses to say who has been loaned what. GS are the biggest investment bank, a primary dealer and a major player or the major player in a lot of the various mortgage/credit securities markets. It's inconcievable that they're not in recept of more money than is officially known.

[Dick Dastardly]

Wow that's neat. I started this topic 9 hours ago and mentioned it but somehow it was only announced 5 hours ago. How does that work?

Nine plus hours ago then.

[LonghornDave]

Evidently. The story continues.

Yes, once again the Rolling Stone shines with its journalism. Explain how raising equity is borrowing?

At least Rolling Stone got an expert to help them out:

"They seemed to know everything that they needed to do before the stress test came out, unlike everyone else, who had to wait until after," says Michael Hecht, a managing director of JMP Securities. "The government came out and said, 'To pay back TARP, you have to issue debt of at least five years that is not insured by FDIC — which Goldman Sachs had already done, a week or two before."

Okay, in what world is common stock equivalent to issuing debt? Also, please show me where the government said that to pay back TARP, you have to issue debt?

[LonghornDave]

The major banks have been lying about their liabilities since long before mark to market was suspended in April. They could delay marking them to market value from the onset of the crisis to when m to m was suspended because the market for mortgage-backed securities froze up entirely. However by about march this year some of the toxic stuff started trading at about 20c on the dollar. The situation was becoming untenable and they all would have had to declare insolvency had m to m not been suspended soon after the mortgage securities market unfroze.

The whole premise of the thread is nuts. there are hundreds of billions of dollars that the Fed has lent out in various programs that have zero oversight and the Fed refuses to say who has been loaned what. GS are the biggest investment bank, a primary dealer and a major player or the major player in a lot of the various mortgage/credit securities markets. It's inconcievable that they're not in recept of more money than is officially known.

You can't even get a single sentence out without showing your complete lack of understanding. We're talking about marking to market of assets not liabilities, genius?

[Dick Dastardly]

You can't even get a single sentence out without showing your complete lack of understanding. We're talking about marking to market of assets not liabilities, genius?

And some of those assets are liabilities!

You're just nitpicking at my choice of words now, not actually answering anything.

[AdmiralCrunch]

Further, according to Goldman Sachs, prior to AIG's insolvency, they had already received $7.5 billion in collateral and had hedged the majority of the remaining exposure with third parties. It is their contention that they had immaterial exposure to AIG.

Link (http://www.nytimes.com/2009/03/21/business/21goldman.html?_r=1&ref=business)

This just in: Publicly traded-company says its finances are great! Just trust them on this one, because they didn't report earnings for December 2008 when they transitioned to a different reporting calendar, the time period covering the AIG payments and exposures.

The idea that poor little Goldman Sachs got pushed around by the big bad government is a fucking joke. If someone knows how to read a contract and cheat the rules it's GS. If they were in good shape a regulator couldn't touch them, especially before they applied to become a bank holding company specifically to get TARP funds. They paid back the stigma-causing TARP funds but still issued billions of government backstopped debt, accepted billions in cash from AIG, and directly benefited from the de-facto guarantee of big banks that restored confidence in the financial sector that led the stock rally while Goldman called for more cash from the public. Bail-out isn't the correct term because at this point it's just a polemic bit of nonsense. Bottom line is GS is tens of billions of dollars richer because the govt. stopped the economy from imploding, and all we got was one bonus-restricted pay period.

Call it what you want, but you still haven't shown anything other than two links to "talking points" from Paulson's meeting, and a bunch of statements from banks saying they have plenty of money. Regulators can't close investment banks for no reason. If Goldman didn't want money they had the power to refuse it. Instead they get to pretend like they didn't want it and rake in the money.

[LonghornDave]

And some of those assets are liabilities!

You're just nitpicking at my choice of words now, not actually answering anything.

No, I'm pretty sure that the assets are not liabilities. You mean to say that they are debt instruments. Welcome to the wonderful world of a bank's balance sheet. It's pretty crazy; loans are their assets and deposits are their liabilities.

It's not at all nitpicking. It's a pretty fundamental point of the topic.

[LonghornDave]

This just in: Publicly traded-company says its finances are great! Just trust them on this one, because they didn't report earnings for December 2008 when they transitioned to a different reporting calendar, the time period covering the AIG payments and exposures.

12/1/07 - 11/28/08 (http://www.sec.gov/Archives/edgar/data/886982/000095012309001278/y74032e10vk.htm)

11/29/08 - 3/27/09 (http://www.sec.gov/Archives/edgar/data/886982/000095012309008055/y76709e10vq.htm)

You were saying?

[Dick Dastardly]

No, I'm pretty sure that the assets are not liabilities. You mean to say that they are debt instruments. Welcome to the wonderful world of a bank's balance sheet. It's pretty crazy; loans are their assets and deposits are their liabilities.

It's not at all nitpicking. It's a pretty fundamental point of the topic.

Originally I posted :

The major banks have been lying about their liabilities since long before mark to market was suspended in April.

And those liabilities are things they are currently, due to the m to m suspension, still allowed to call assets. I think this is pretty clear to anybody and I'm sure you only picked up on it because you didn't want to deal with the rest of the post.

Anyway, now we've cleared that up, you can answer the rest of the post.

[LonghornDave]

they applied to become a bank holding company specifically to get TARP funds.

I realize you're not the only uneducated person who has stated this. Please explain how it works that they became a bank holding company specifically to get TARP funds when at the time they became a bank holding company, the CPP did not exist.

[LonghornDave]

Originally I posted :

The major banks have been lying about their liabilities since long before mark to market was suspended in April.

And those liabilities are things they are currently, due to the m to m suspension, still allowed to call assets. I think this is pretty clear to anybody and I'm sure you only picked up on it because you didn't want to deal with the rest of the post.

Anyway, now we've cleared that up, you can answer the rest of the post.

How many times do I have to state it? MTM easing isn't effective until the 6/30/09 reporting period? With that in mind, I have no idea what you are trying to say. Please provide me with an example of an instrument that anybody is reporting as an asset that is really a liability due to MTM rules changes. Pick any company in the universe of companies.

[Dick Dastardly]

How many times do I have to state it? MTM easing isn't effective until the 6/30/09 reporting period? With that in mind, I have no idea what you are trying to say. Please provide me with an example of an instrument that anybody is reporting as an asset that is really a liability due to MTM rules changes. Pick any company in the universe of companies.

M to m was suspended last April.

http://online.wsj.com/article/SB123867739560682309.html

And amazingly I don't know of any asset any bank is putting a bs price on because no bank is publicly saying well, we're claiming it's worth this much but actually it isn't.

Now then, answer some of the questions you keep dodging :

What about the money Goldman has been given from the TALF, the various Maiden Lane vehicles etc? Doesn't that count as a bailout?

Since the Fed has made hundreds of billions of dollars in loans that they won't disclose, and seeing how Goldman are a major/main player in all the markets that trade the toxic securities, isn't it a fair assumption that some of the secret bailout funds are bailing out GS?

[jtgain]

I think that if Goldman really didn't want the money, then they could have went to the media and said that they didn't need the money but that Paulson was strong arming them to try and force them to take it.

The ensuing firestorm would have been enormous. Especially since TARP was sold to Congress and the public as a plan to guarantee the toxic loans that the banks were holding, not to own equity in them. That was a shake and bake that Paulson was getting hit hard for at the time, and an accusation of banks being FORCED to sell this equity would have caused his head to be on a pike.

[LonghornDave]

M to m was suspended last April.

http://online.wsj.com/article/SB123867739560682309.html

And amazingly I don't know of any asset any bank is putting a bs price on because no bank is publicly saying well, we're claiming it's worth this much but actually it isn't.

Look, why don't you just admit you are wrong about this? You first stated that MTM was suspended "some time ago" as if we can't trust historical financial statements. Now you've gone completely full circle and are acting like this will be a problem in the future because it was just enacted thus essentially negating every single prior post you've made on the subject. Also, I don't need a history lesson on when the new interpretation was enacted as I'm the one who originally corrected you on the date. Finally, quit saying MTM was suspended when that is clearly not the case. Companies will have MTM gains and losses for the 6/30/09 reporting period and beyond. MTM has been eased; it's a big difference.

Now then, answer some of the questions you keep dodging :

I'm not dodging anything. I like to respond to a point at a time, and when you throw out 15 random points that are not connected in any meaningful way in a single post, I'm not going to respond to all of them simultaneously.

What about the money Goldman has been given from the TALF, the various Maiden Lane vehicles etc? Doesn't that count as a bailout?

Since the Fed has made hundreds of billions of dollars in loans that they won't disclose, and seeing how Goldman are a major/main player in all the markets that trade the toxic securities, isn't it a fair assumption that some of the secret bailout funds are bailing out GS?

How about we start with TALF. I see no way that TALF is a bailout for a firm like Goldman Sachs considering how they are participating in it. If anything, you could say that the federal government is subsidizing firms like Goldman in bailing out of other companies.

To expound on this, my understanding of TALF is that the Fed is providing high advance rate loans at relatively cheap rates to firms that will buy collateralized debt obligations to bring back demand in that market. The purpose would be to get the loans off of the originiating company's balance sheet and hopefully spur more lending to things like the auto industry, student loans, SBA loans, etc. These loans are non-recourse. Why would you call that a bailout? If TALF wasn't created, Goldman and others would probably just not buy the securities given the state of the market. I can see why you might call that a subsidy as TALF has essentially created a very low risk way of making good returns. I can't for the life of me figure out why you would call it a bailout.

[LonghornDave]

I think that if Goldman really didn't want the money, then they could have went to the media and said that they didn't need the money but that Paulson was strong arming them to try and force them to take it.

The ensuing firestorm would have been enormous. Especially since TARP was sold to Congress and the public as a plan to guarantee the toxic loans that the banks were holding, not to own equity in them. That was a shake and bake that Paulson was getting hit hard for at the time, and an accusation of banks being FORCED to sell this equity would have caused his head to be on a pike.

Wells Fargo was about as adamantly opposed to the CPP as any bank (U.S. Bank and BB&T were also pretty opposed) including going to the media. They still ended up having to take the funds.

Also, I'm not saying that Goldman Sachs was so adamantly opposed to taking the funds that they were willing to take an antagonistic approach with the Federal Government. That's usually not a very smart thing to do. They certainly played a good soldier and did what the government told them to do. I'm saying that they didn't need the money, if it was voluntary they would probably not have taken it, and that they took the first chance to pay it back that they could. Add all of that up and they weren't bailed out. Citibank was bailed out. AIG was bailed out. JPMorgan, State Street, Goldman Sachs, Morgan Stanley, and Bank of New York were not bailed out.

[kaylasdad99]

Longhorn Dave, just to satisfy my curiosity, could you tell me what it was that inspired this thread, particularly the title?

Thanks.

[Dick Dastardly]

Look, why don't you just admit you are wrong about this? You first stated that MTM was suspended "some time ago" as if we can't trust historical financial statements. Now you've gone completely full circle and are acting like this will be a problem in the future because it was just enacted thus essentially negating every single prior post you've made on the subject. Also, I don't need a history lesson on when the new interpretation was enacted as I'm the one who originally corrected you on the date. Finally, quit saying MTM was suspended when that is clearly not the case. Companies will have MTM gains and losses for the 6/30/09 reporting period and beyond. MTM has been eased; it's a big difference.

Instead why don't you admit you're wrong about this. Here it is in black and white :

FASB rejected requests from banks to let them apply the fair-value change to their year-end financial statements for 2008. While the new standard takes effect for earnings reports filed at the end of June, FASB said companies could apply it to their first-quarter financial statements.

http://www.bloomberg.com/apps/news?pid=20601087&sid=agfrKseJ94jc

Now I guess you're going to nitpick over whether "suspend" is the same as "ease", but the bottom line is that m to m isn't currently applicable and hasn't been since the start of this year.



I'm not dodging anything. I like to respond to a point at a time, and when you throw out 15 random points that are not connected in any meaningful way in a single post, I'm not going to respond to all of them simultaneously.



How about we start with TALF. I see no way that TALF is a bailout for a firm like Goldman Sachs considering how they are participating in it. If anything, you could say that the federal government is subsidizing firms like Goldman in bailing out of other companies.

To expound on this, my understanding of TALF is that the Fed is providing high advance rate loans at relatively cheap rates to firms that will buy collateralized debt obligations to bring back demand in that market. The purpose would be to get the loans off of the originiating company's balance sheet and hopefully spur more lending to things like the auto industry, student loans, SBA loans, etc. These loans are non-recourse. Why would you call that a bailout? If TALF wasn't created, Goldman and others would probably just not buy the securities given the state of the market. I can see why you might call that a subsidy as TALF has essentially created a very low risk way of making good returns. I can't for the life of me figure out why you would call it a bailout.

The Federal Reserve have paid out hundreds of billions in bailouts that they're refusing to talk about publicly. Here's fed topper Ben Bernanke talking about it in Senate testimony, under oath :


Senator Sanders: "Will you tell the American people to whom you lent $2.2 trillion of their dollars?"

Bernanke: "No"

Now the Senator wasn't claiming that the whole Fed balance sheet is unnaccounted for, but there is a great big multihundred billion hole we know nothing about.



Now maybe that money hasn't been lent through the TALF, maybe the Fed have created a bunch of double secret bailout programs we don't know about. But the TALF, Maiden Lane etc. are the ones most likely to be doing the bailing out.

The bottom line is that however they're doing it, via the TALF and other existing bailout mechanisms or by double secret ones, the Fed is bailing effectively half a dozen major players out to the tune of hundreds of billions of literally unnaccounted dollars. And as one of those major players, isn't it a fair assumption that GS is being bailed out for at least some of that money?

Try not to turn this into more nitpicking or start to criticise my spelling or whatever. I'm not asking you 15 different things, I'm basically asking you one thing, so don't keep going off at tangents. let's deal with the substantive issue here.

[LonghornDave]

Longhorn Dave, just to satisfy my curiosity, could you tell me what it was that inspired this thread, particularly the title?

Thanks.

Sure. I was inspired to write it when I saw this (http://boards.straightdope.com/sdmb/showpost.php?p=11363905&postcount=60) post the day before. It wasn't the first time that I have seen it, but that is what caused me to pull the trigger. I also have a relationship with JPMorgan and have seen them similarly talked about. I initially was going to make the post about both JPMorgan and Goldman but decided to keep it just Goldman at the last minute.

I have absolutely no love for Goldman Sachs, by the way. As evidence of this, my one and only other post on them on this message board was accusing them of oil price manipulation.

[kaylasdad99]

Again, thank you. It comes off as much less apropos-of-nothing-in-particular, now.

Of course, had it been I bringing up the subject, I might have thought to post a link to my OP in that thread.

:)

[LonghornDave]

Instead why don't you admit you're wrong about this. Here it is in black and white :

FASB rejected requests from banks to let them apply the fair-value change to their year-end financial statements for 2008. While the new standard takes effect for earnings reports filed at the end of June, FASB said companies could apply it to their first-quarter financial statements.

http://www.bloomberg.com/apps/news?pid=20601087&sid=agfrKseJ94jc

Now I guess you're going to nitpick over whether "suspend" is the same as "ease", but the bottom line is that m to m isn't currently applicable and hasn't been since the start of this year.


Do we even live on the same planet? Your cite 100% supports exactly what I have been saying this entire thread and 100% refutes what you have been saying. Either you are trying to make a joke or your reading comprehension skills are abismal.

Point 1) Not suspended, but eased. This is what I have been stating the entire time and the opposite of what you have been saying.
Point 2) Not effective until 6/30/09 except for early adoption. Exactly as I have said and exactly opposite of what you have said.

Your summary bottom line is absolutely false and you proved it with your own link.

Finally, in case you really are not joking and think that MTM currently isn't applicable, I will bet any amount of money that I can name you 25 companies at the 6/30/09 reporting period that will report unrealized gains or losses resulting from marking to market their assets.

[LonghornDave]

The Federal Reserve have paid out hundreds of billions in bailouts that they're refusing to talk about publicly. Here's fed topper Ben Bernanke talking about it in Senate testimony, under oath :


Senator Sanders: "Will you tell the American people to whom you lent $2.2 trillion of their dollars?"

Bernanke: "No"

Now the Senator wasn't claiming that the whole Fed balance sheet is unnaccounted for, but there is a great big multihundred billion hole we know nothing about.



Now maybe that money hasn't been lent through the TALF, maybe the Fed have created a bunch of double secret bailout programs we don't know about. But the TALF, Maiden Lane etc. are the ones most likely to be doing the bailing out.

The bottom line is that however they're doing it, via the TALF and other existing bailout mechanisms or by double secret ones, the Fed is bailing effectively half a dozen major players out to the tune of hundreds of billions of literally unnaccounted dollars. And as one of those major players, isn't it a fair assumption that GS is being bailed out for at least some of that money?

Try not to turn this into more nitpicking or start to criticise my spelling or whatever. I'm not asking you 15 different things, I'm basically asking you one thing, so don't keep going off at tangents. let's deal with the substantive issue here.

So are you going to completely ignore my post on TALF? First, it's exactly on point to what you posted. Second, once we get past TALF we can move on to your other boogeyman, Maidan Lane.

[Dick Dastardly]

Do we even live on the same planet? Your cite 100% supports exactly what I have been saying this entire thread and 100% refutes what you have been saying. Either you are trying to make a joke or your reading comprehension skills are abismal.

Point 1) Not suspended, but eased. This is what I have been stating the entire time and the opposite of what you have been saying.
Point 2) Not effective until 6/30/09 except for early adoption. Exactly as I have said and exactly opposite of what you have said.

Your summary bottom line is absolutely false and you proved it with your own link.

Finally, in case you really are not joking and think that MTM currently isn't applicable, I will bet any amount of money that I can name you 25 companies at the 6/30/09 reporting period that will report unrealized gains or losses resulting from marking to market their assets.

Here's what you said a few posts ago :

How many times do I have to state it? MTM easing isn't effective until the 6/30/09 reporting period?

And Bloomberg tells us :

While the new standard takes effect for earnings reports filed at the end of June, FASB said companies could apply it to their first-quarter financial statements.

and of couse you're nitpicking over "easing" versus "suspending".

I'm happy to let our fellow forumers read this and decide which of us knows what he's talking about and which of us is a clueless buffoon.


And you're dodging the main issue, which is :

The bottom line is that however they're doing it, via the TALF and other existing bailout mechanisms or by double secret ones, the Fed is bailing effectively half a dozen major players out to the tune of hundreds of billions of literally unnaccounted dollars. And as one of those major players, isn't it a fair assumption that GS is being bailed out for at least some of that money?

[Dick Dastardly]

So are you going to completely ignore my post on TALF? First, it's exactly on point to what you posted. Second, once we get past TALF we can move on to your other boogeyman, Maidan Lane.

1. The TALF is meant to provide liquidity in the Asset-backed securities market to any company – hedge fund, foreign-owned U.S. subsidiary, mutual fund, private equity fund.

2. The TALF covers AAA assets with a maturity under 5 years for credit card and auto loans.

3. The TALF is non-recourse, meaning the government can seize the toxic assets if the borrower doesn’t repay, but the government has no other claim on the assets of the debtor. That means you can get a loan from the government in return for toxic assets, but if you do not pay the loan back, no penalty is exacted except seizure of the assets. This is very much like a mortgage agreement.


4. Seized toxic assets will be put into a Special Purpose Vehicle controlled by the U.S. government. Translation: please dump your toxic assets with us. We will take them off your hands and have no recourse to any other assets you own.

That's how the TALF works, that we know about anyway. It's a huge bailout for anybody wanting to dump their toxic paper onto the Fed at the value they want and get shiny new dollars in return, which they may or may not then loan (and the numbers show they're not doing a lot of loaning.)

But this is just you going off at a tangent again. Here's the question you keep refusing to answer :

The bottom line is that however they're doing it, via the TALF and other existing bailout mechanisms or by double secret ones, the Fed is bailing effectively half a dozen major players out to the tune of hundreds of billions of literally unnaccounted dollars. And as one of those major players, isn't it a fair assumption that GS is being bailed out for at least some of that money?

[LonghornDave]

Here's what you said a few posts ago :

How many times do I have to state it? MTM easing isn't effective until the 6/30/09 reporting period?

And Bloomberg tells us :

While the new standard takes effect for earnings reports filed at the end of June, FASB said companies could apply it to their first-quarter financial statements.

and of couse you're nitpicking over "easing" versus "suspending".

I'm happy to let our fellow forumers read this and decide which of us knows what he's talking about and which of us is a clueless buffoon.


You are hopeless. As you see clearly from my first post (http://boards.straightdope.com/sdmb/showpost.php?p=11368300&postcount=37) on the subject, I know that early adoption is possible.

It's effective for the most part beginning with the 6/30/09 reporting period.

Now, you claim it was effective at the beginning of the year.

the bottom line is that m to m isn't currently applicable and hasn't been since the start of this year

Finally, how in the world is it nitpicking to say it wasn't suspended, when it clearly wasn't. Do you not think that suspended implies that MTM accounting is no longer in effect? That is clearly not the case. The existing MTM rules have been eased. Once again, I have used the word "eased" since the beginning while you continuously incorrectly use "suspended". I corrected you on my very first post on the subject.

[Dick Dastardly]

You are hopeless. As you see clearly from my first post (http://boards.straightdope.com/sdmb/showpost.php?p=11368300&postcount=37) on the subject, I know that early adoption is possible.



Now, you claim it was effective at the beginning of the year.



Finally, how in the world is it nitpicking to say it wasn't suspended, when it clearly wasn't. Do you not think that suspended implies that MTM accounting is no longer in effect? That is clearly not the case. The existing MTM rules have been eased. Once again, I have used the word "eased" since the beginning while you continuously incorrectly use "suspended". I corrected you on my very first post on the subject.

I'm happy to let our fellow forumers look at what we both wrote and decide which of us knows what he's talking about.

[LonghornDave]

1. The TALF is meant to provide liquidity in the Asset-backed securities market to any company – hedge fund, foreign-owned U.S. subsidiary, mutual fund, private equity fund.

2. The TALF covers AAA assets with a maturity under 5 years for credit card and auto loans.

3. The TALF is non-recourse, meaning the government can seize the toxic assets if the borrower doesn’t repay, but the government has no other claim on the assets of the debtor. That means you can get a loan from the government in return for toxic assets, but if you do not pay the loan back, no penalty is exacted except seizure of the assets. This is very much like a mortgage agreement.


4. Seized toxic assets will be put into a Special Purpose Vehicle controlled by the U.S. government. Translation: please dump your toxic assets with us. We will take them off your hands and have no recourse to any other assets you own.

That's how the TALF works, that we know about anyway. It's a huge bailout for anybody wanting to dump their toxic paper onto the Fed at the value they want and get shiny new dollars in return, which they may or may not then loan (and the numbers show they're not doing a lot of loaning.)

No shit. I know all of that. Explain why it would be a bailout for someone like Goldman Sachs who is the one providing the loan to purchase someone else's toxic assets.

But this is just you going off at a tangent again. Here's the question you keep refusing to answer :

The bottom line is that however they're doing it, via the TALF and other existing bailout mechanisms or by double secret ones, the Fed is bailing effectively half a dozen major players out to the tune of hundreds of billions of literally unnaccounted dollars. And as one of those major players, isn't it a fair assumption that GS is being bailed out for at least some of that money?

What I am trying to do is act in a logical way, which is to systematically go through the various ways that you think they were bailed out. You mentioned TALF and I am trying to get that out of the way before I move on to the next supposed bailout.

Now are you seriously stating that you want me to prove that they were not bailed out by some secret government program that nobody knows about? Fine, I admit that I can not prove they weren't bailed out by that or magic either for that matter. I can prove that they were bailed out by the non-double secret ways.

Also, no it is not a fair assumption that GS is being bailed out in some double secret way that nobody knows about. That is called a lunatic conspiracy theory.

[LonghornDave]

I'm happy to let our fellow forumers look at what we both wrote and decide which of us knows what he's talking about.

Sounds great.

[newcomer]

No shit. I know all of that. Explain why it would be a bailout for someone like Goldman Sachs who is the one providing the loan to purchase someone else's toxic assets. Huh!?

With all due respect, but seems to me you're not familiar with how investment firm like GS operates, the core business model consisting of being reliant on short-term money market liquidity (i.e. ability to short sell and buy securities). Someone who is at the edge of leverage capacity cannot be considered to be loan originator - they just don't have the capital.

Now, the reason Lehman collapsed is due to that exact market being frozen all the while their due payment coming up. In other words, the size of debt due over matched their ability to raise capital; therefore, fail.

It is also a fact that GS converted into a holding bank for several reasons two of them important for survival: one, instantly becoming part of the bailout qualifying club (including the chained and netting transactions) and two, balance sheet undergoes certain changes where certain assets change class thus getting a different GAAP and reporting treatment (details on this are a bit murky due to lack of disclosure).

And finally, without a safety net (US Government stepping in), those closest to the edge of the cliff (GS) have most to lose. However, once the safety net is established, exactly those who risked most, gain the most.

[Dick Dastardly]

No shit. I know all of that. Explain why it would be a bailout for someone like Goldman Sachs who is the one providing the loan to purchase someone else's toxic assets.



What I am trying to do is act in a logical way, which is to systematically go through the various ways that you think they were bailed out. You mentioned TALF and I am trying to get that out of the way before I move on to the next supposed bailout.

Now are you seriously stating that you want me to prove that they were not bailed out by some secret government program that nobody knows about? Fine, I admit that I can not prove they weren't bailed out by that or magic either for that matter. I can prove that they were bailed out by the non-double secret ways.

Also, no it is not a fair assumption that GS is being bailed out in some double secret way that nobody knows about. That is called a lunatic conspiracy theory.

GS have the ability to dump as much of their toxic assets into the TALF as they want. How much they have done with this or other programs we don't know as the Fed won't release the numbers*.

I'm not asking you to prove that GS is being bailed out or how they're being bailed out. You're just going off on tangents again, trying to dodge the question. What I'm saying is that the Fed has lent out hundreds of billions of dollars that they won't disclose. That's a matter of public record. Now given that hundreds of billions of dollars in secret bailouts is a fact, and given that GS is a major/main player in the markets that went toxic and caused the need for the bailouts, isn't it a reasonable assumption that GS got some of those hundreds of billions?

*Don't nitpick this either. Yes, they've released TALF numbers but they're either releasing bs numbers for these programs to hide where the hundreds of billions went or they're lending the money through progams we don't know about. just answer the question and not tangentially. Here it is again :

given that hundreds of billions of dollars in secret bailouts is a fact, and given that GS is a major/main player in the markets that went toxic and caused the need for the bailouts, isn't it a reasonable assumption that GS got some of those hundreds of billions?

[LonghornDave]

Huh!?

With all due respect, but seems to me you're not familiar with how investment firm like GS operates, the core business model consisting of being reliant on short-term money market liquidity (i.e. ability to short sell and buy securities). Someone who is at the edge of leverage capacity cannot be considered to be loan originator - they just don't have the capital.

I misstated it. I realized a few minutes after I posted but haven't had the chance to correct until now. I said Goldman is making the loans. I meant to say Goldman is receiving the loans to buy the toxic assets. This is clear if you compare to my original post on the subject. My mistake.

[LonghornDave]

GS have the ability to dump as much of their toxic assets into the TALF as they want. How much they have done with this or other programs we don't know as the Fed won't release the numbers*.

I'm not asking you to prove that GS is being bailed out or how they're being bailed out. You're just going off on tangents again, trying to dodge the question. What I'm saying is that the Fed has lent out hundreds of billions of dollars that they won't disclose. That's a matter of public record. Now given that hundreds of billions of dollars in secret bailouts is a fact, and given that GS is a major/main player in the markets that went toxic and caused the need for the bailouts, isn't it a reasonable assumption that GS got some of those hundreds of billions?

*Don't nitpick this either. Yes, they've released TALF numbers but they're either releasing bs numbers for these programs to hide where the hundreds of billions went or they're lending the money through progams we don't know about. just answer the question and not tangentially. Here it is again :

given that hundreds of billions of dollars in secret bailouts is a fact, and given that GS is a major/main player in the markets that went toxic and caused the need for the bailouts, isn't it a reasonable assumption that GS got some of those hundreds of billions?

I'm no longer responding to your posts on this subject as I believe you have left the realm of rational thought and are simply a conspiracy theorist.

[LonghornDave]

It is also a fact that GS converted into a holding bank for several reasons two of them important for survival: one, instantly becoming part of the bailout qualifying club (including the chained and netting transactions) and two, balance sheet undergoes certain changes where certain assets change class thus getting a different GAAP and reporting treatment (details on this are a bit murky due to lack of disclosure).

I've covered this multiple times in this thread. First, Goldman converted to a bank holding company before the CPP existed, so it is illogical to say they did so in order to be eligible for bailout funds. Second, you're leaving out one of the most important reasons why they became a bank holding company: for the stability in funding through the ability to raise deposits and borrow at the Fed window (although the loosely had these abilities before hand). Third, it's not a bailout to allow them to become a bank holding company since they could have done so at any time prior to this (within reason). They could have changed there status in any random year such as 2002, 2004, 2006, 2007, and they chose to in 2008. They did so and now must operate under the regulations and capital requirements of a bank. How is that a bailout?

[LonghornDave]

Huh!?

With all due respect, but seems to me you're not familiar with how investment firm like GS operates, the core business model consisting of being reliant on short-term money market liquidity (i.e. ability to short sell and buy securities). Someone who is at the edge of leverage capacity cannot be considered to be loan originator - they just don't have the capital.



Also, you're way overstating this. Goldman certainly has the ability to make loans. They have a significant portfolio on their balance sheet. It's not their core line of business or anything, but they along with the other investments banks did make commercial loans.

[Dick Dastardly]

I'm no longer responding to your posts on this subject as I believe you have left the realm of rational thought and are simply a conspiracy theorist.

I think we've hit the edge of your ignorance.

It's a matter of public record that the Fed has lent out hundreds of billions, won't disclose who to or what they took as collateral. Here's a Texas newspaper article pointing this out :

The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral.

Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would comply with congressional demands for transparency in a $700 billion bailout of the banking system. Two months later, as the Fed lends far more than that in separate rescue programs that didn’t require approval by Congress, Americans have no idea where their money is going or what securities the banks are pledging in return.

“The collateral is not being adequately disclosed, and that’s a big problem,” said Dan Fuss, vice chairman of Boston-based Loomis Sayles & Co., where he co-manages $17 billion in bonds. “In a liquid market, this wouldn’t matter, but we’re not. The market is very nervous and very thin.”

Bloomberg News has requested details of the Fed lending under the U.S. Freedom of Information Act and filed a federal lawsuit Nov. 7 seeking to force disclosure.

The Fed made the loans under terms of 11 programs, eight of them created in the past 15 months, in the midst of the biggest financial crisis since the Great Depression.

“It’s your money; it’s not the Fed’s money,” said billionaire Ted Forstmann, senior partner of Forstmann Little & Co. in New York. “Of course there should be transparency.”

Federal Reserve spokeswoman Michelle Smith declined to comment on the loans or the Bloomberg lawsuit. Treasury spokeswoman Michele Davis didn’t respond to a phone call and an e-mail seeking comment.

http://www.chron.com/disp/story.mpl/headline/biz/6104541.html

Are the people and institutions quoted in this story all wacky conspiracy theorists too?


And in congressional testimony today Bernanke just refused to say which banks he'd given half a trillion dollars to in dollar swaps. You can watch that here :

http://www.youtube.com/watch?v=n0NYBTkE1yQ&feature=player_embedded


So I think our fellow forumers can look at the evidence and work out whether you've actually got a case that I'm some nutty conspiracy theorist or whether you have to run away from the argument making ridiculous claims to try and cover up the fact that you don't know what you're talking about.

Surprised to see a Texan wave the white flag of surrender so easily. Surely you could have continued to bs and obfuscate a while longer? And what "relationship" do you have with JP Morgan? Are you the janitor there?

[adhay]

I'm sure i'm going to regret throwing in another 2c but maybe, technically, GS wasn't bailed out but the AIG bailout made in good part necessary by GS and engineered by GS alumni sure profited GS. Give GS' history of financial skulduggery, one instance being the gas bubble deplored above by the OPer himself, it certainly would be reasonable to think that one way or another, Gs has positioned itself for a good chunk of the unaccounted for billions.

As to LHD's position at Morgan ... gotta be a lawyer.

[LonghornDave]

I'm sure i'm going to regret throwing in another 2c but maybe, technically, GS wasn't bailed out but the AIG bailout made in good part necessary by GS and engineered by GS alumni sure profited GS. Give GS' history of financial skulduggery, one instance being the gas bubble deplored above by the OPer himself, it certainly would be reasonable to think that one way or another, Gs has positioned itself for a good chunk of the unaccounted for billions.

As to LHD's position at Morgan ... gotta be a lawyer.

I don't totally disagree with this although statements from Goldman say that they would have profited more if AIG had not essentially failed. This is because they were forced to unwind and/or hedge exposure at an expense.

I'm not saying that Goldman hasn't benefited from the government's actions. I'm just saying that they weren't bailed out. To me, being bailed out comes with a significantly different stigma than Goldman deserves. I think they are a manipulator of markets and have contributed to bubbles. I think they have an unhealthy relationship with the government. I don't think that the government saved them from failure. They weren't an insolvent company that needed the government to come in and rescue them.

[newcomer]

First, Goldman converted to a bank holding company before the CPP existed, so it is illogical to say they did so in order to be eligible for bailout funds. Well, if you think that "what" we know and "when" we know via mass media is what & when "they" knew, then yeah, it is illogical.

However, I think you should review the timeline of this crisis, specifically two events - when Bernanke announced that "subprime mess is contained" (Q2-07) and when TAF, the first support program by Feds started (Q3-07). Or, when the ABS paper market froze.

Even myself, who is on the periphery of risk analysis knew that the sh** has hit the fan. Then, I'd conclude that executives at GS essentially entertained any idea that would have them survive from the very early on; even though, they might as well collapsed just like Bear Stearns or Lehman. I also happen to think that it is naive to suggest that GS converted to holding bank for anything but survival.

On the opposite side of the coin, I just don't see how differently GS would structure the deals to avoid failure; in other words, their investment model based on structured finance is the reason they needed a bailout (via cascade effect).

And a note - let's be a little bit careful about collateral because in structured finance world, a collateral derives itself from the deal structure and since each deal has a different structure without details t is very difficult to discuss viability of the collateral.

[adhay]

I don't totally disagree with this although statements from Goldman say that they would have profited more if AIG had not essentially failed. This is because they were forced to unwind and/or hedge exposure at an expense.

Gee. If only they'd had a hint that the housing market was going to collapse. Are you a lawyer?

[newcomer]

They weren't an insolvent company that needed the government to come in and rescue them. They were very close. Actually, when the credit market froze, the only way to raise capital was from Feds. Since they were investment bank that door was closed. What to do? Well, apply to become a holding bank. Then, get the capital. Saved from insolvency. Bailed out by Feds. By US taxpayer.

[LonghornDave]

Once again, I believe that Goldman has borrowed funds under the TALF program. I believe that they bought ABS using funds borrowed under TALF. I believe that these funds were borrowed under favorable terms. However, I do not believe that this constitutes a bailout; if you want to attach some sort of critical word to Goldman for these actions, then I believe subsidy is more appropriate.

I also believe that Goldman has also taken advantage of TLGP as has effectively every financial institution in some form or fashion. Again, I think this is a sweetheart deal for Goldman and could in some ways be called a subsidy. However, I do not think it qualifies as a bailout as Goldman has clearly demonstrated the capability to access the capital markets before and after TARP was initiated. Further, they pay a fee to participate in the program.

There are likely other government programs that Goldman has participated in. They likely benefited by participating in these programs. Until someone provides evidence to the contrary, I'll continue to believe that none of the funds bailed out Goldman as nothing in their public filings indicates that they need to be bailed out. They have exceptional capital ratios and have not shown any difficulty in maintaining adequate liquidity. I think there is a world of difference between profiting from participating in a government program and being bailed out by the government.

[LonghornDave]

Well, if you think that "what" we know and "when" we know via mass media is what & when "they" knew, then yeah, it is illogical.

I think that it is clear that the banks had no idea what they were being called for during the 10/13/08 meeting when they were told that they would be participating in the newly created and yet to be announced CPP program.

I also happen to think that it is naive to suggest that GS converted to holding bank for anything but survival.

I never suggested that they didn't convert to a bank holding company to help insure their survival. What I am saying is that they did not convert to a bank holding company so that they could participate in the CPP. I think they converted to a bank holding company so that they could have access to more stable funding sources than would be available to an investment bank. This is clearly not a bailout to me because it was available to any qualifying financial institution (and Goldman would have qualified under nearly any circumstances) at any time. If they converted in 2004 would you have called it a bailout? To me it is analogous to going public. They went public in order to access additional capital. This required approval from federal authorities. Were they bailed out in 1999?

[LonghornDave]

Gee. If only they'd had a hint that the housing market was going to collapse. Are you a lawyer?

No, I'm a janitor.

Also, there is sort of a difference between a bursting of a housing bubble and a complete collapse of the capital markets.

[LonghornDave]

They were very close. Actually, when the credit market froze, the only way to raise capital was from Feds. Since they were investment bank that door was closed. What to do? Well, apply to become a holding bank. Then, get the capital. Saved from insolvency. Bailed out by Feds. By US taxpayer.

Let me get this straight, are you saying that Goldman Sachs had no way of raising capital following the freezing of the credit markets and before the infusion of funds from the CPP? Is that the window of time that you are talking about when you say the only way to do so was through the Fed? That seems oddly in violation of the actual facts since Goldman raised $5 billion in an equity raise and another $5 billion in preferred stock from Warren Buffett just a few weeks prior to the initial TARP CPP meeting. Further, the stock offering was over-subscribed. Not to be out done, Morgan Stanley and JPMorgan also raised funds within a two week period. Care to explain this inconsistency?