Last month the Guardian newspaper reported that Goldman Sachs, one of the world’s largest investment banks and securities firms, intended to dole out huge bonuses to its executives. Fearing a backlash, Goldman Sachs immediately denied the report.
|
Meanwhile, the U.S. deficit topped one trillion dollars for the first time in the nation’s history.
How can such huge profits be possible during the worst economic recession the world has seen since the Great Depression, especially for a company that teetered on the brink of bankruptcy and laid off thousands of employees just a few months earlier?
There are several reasons for this “miraculous” turnaround—all flowing from massive taxpayer-funded government financial intervention to save the Wall Street giant.
For one thing, the long tentacles of Goldman Sachs are everywhere. The number of former Goldman Sachs employees currently or formerly holding government positions is quite lengthy.
To name a few key players: Hank Paulson, Treasury secretary during the Bush administration, was the architect of the bailout and a former Goldman Sachs chairman and CEO. Bush’s chief of staff, Josh Bolten, was a top executive at Goldman Sachs. Neel Kashkari, a relatively unknown banker who administered the Troubled Asset Relief Program, also worked for Goldman Sachs.
The heads of the Canadian and Italian national banks are Goldman Sachs alumni, as well as the head of the World Bank, the head of the New York Stock Exchange, the Commodity Futures Exchange Commission, the number-two administrator at the Treasury and the last two heads of the Federal Reserve Bank of New York, which, coincidentally, is now in charge of overseeing Goldman Sachs.
Then there is Goldman Sachs’ access to enormous amounts of cheap money gifted to the failing company by the federal government. At the height of the credit crisis in October, Goldman Sachs announced that it would convert from an investment bank to a bank-holding company, a move that allowed it to access money from the TARP. This highly irregular move was, of course, rubber-stamped by the Treasury Department.
The giant financial institution received $10 billion from TARP, part of a $700 billion federal bailout plan proposed by then-Treasury Secretary Paulson. The mission of TARP was to rescue debt-ridden financial institutions done under by the sub-prime mortgage crisis. Although Goldman Sachs reimbursed the $10 billion of TARP money to the U.S. Treasury, this was not the only funding it received to survive the economic crisis.
It should be noted that by repaying the TARP money, Goldman Sachs freed itself from restrictions on year-end bonuses.
Goldman Sachs’ new status as a bank-holding company made it eligible to receive as much as $28 billion in federally backed inexpensive loans, mostly from the Federal Reserve. After it received the low-cost loans, the financial institution lent the money at higher rates, thus turning a profit it could use to repay the TARP and other loans.
Due to an obscure law allowing the Federal Reserve to block most congressional audits, the additional funding that Goldman Sachs received remains mainly shielded from the public.
And remember AIG, the insurance giant also too big to fail? If they had been allowed to proceed to normal bankruptcy without any government assistance, Goldman Sachs, too, might have gone under. AIG owed Goldman about $20 billion as of last September. Close to $14 billion of the $80 billion bailout money AIG received went directly to Goldman Sachs. In other words, this was a case of Goldman Sachs bailing itself out—all at taxpayer expense.
There’s one final piece to the puzzle. The government eliminated Goldman Sachs’ competition. The same week that the AIG bailout took place, Hank Paulson elected not to rescue Lehman Brothers, one of Goldman Sachs’ main competitors. Lehman Brothers filed for bankruptcy in September, one of the largest bankruptcy filings in U.S. history. Without other financial institutions in their way, Goldman Sachs was able to rake in even more profits.
For the bank bosses: competitors eliminated; cheap money discreetly made readily available; million-dollar bonuses in a time of economic crisis and working-class hardship; and good friends in high places to watch your back and do your bidding. It’s not out of a textbook on the 1920s or some other period of unbridled capitalist robbery. It is happening today. That is the reality of capitalism and the so-called “free market”: state intervention on the orders of the ruling class in a time of massive layoffs and foreclosures, rising costs for people’s needs and large-scale cuts to social services.
