Government-Financed Gambling
Good piece by Graham Bowley in The New York Times:
It may come as a surprise that one of the most powerful forces driving the resurgence on Wall Street is not the banks but Washington. Many of the steps that policy makers took last year to stabilize the financial system — reducing interest rates to near zero, bolstering big banks with taxpayer money, guaranteeing billions of dollars of financial institutions’ debts — helped set the stage for this new era of Wall Street wealth.
Titans like Goldman Sachs and JPMorgan Chase are making fortunes in hot areas like trading stocks and bonds, rather than in the ho-hum business of lending people money. They also are profiting by taking risks that weaker rivals are unable or unwilling to shoulder — a benefit of less competition after the failure of some investment firms last year.
The Obama administration felt that nationalizing and recapitalizing banks directly would require congress to appropriate far more money than was possible. After all, if you think “bailouts” are unpopular now, just ask what it would look like if Obama wanted hundreds of billions more. Instead, they’ve used regulatory forebearance and other techniques to put banks in a position to recapitalize themselves through trading profits. And that’s what we’re seeing here. It’s an ugly, ugly business. They’re basically gambling on the taxpayers’ dime and operating with an implicit taxpayer guarantee to cover their losses if they blow up.
42 Responses to “Government-Financed Gambling”
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October 17th, 2009 at 5:36 pm
It’s not gambling if you can’t lose.
October 17th, 2009 at 5:39 pm
” They’re basically gambling on the taxpayers’ dime and operating with an implicit taxpayer guarantee to cover their losses if they blow up.”
This was the precise plan that Yglesias was strongly defending six months ago…
October 17th, 2009 at 5:56 pm
Little that has happened subsequently suggests that they’re wrong.
October 17th, 2009 at 6:10 pm
if you cut interest rates for banks to nearly zero then banks make huge profits with traditional lending. that’s what’s going on at JPM and the other ‘recapitalizing’ banks. it was the only politically possible solution.
October 17th, 2009 at 6:22 pm
If they lose the bets, there won’t be another bailout. Congress won’t vote for it. If Bernanke just prints the dough and hands it to them — he’ll be removed from office by Congress.
October 17th, 2009 at 6:41 pm
Shorter Matthew: Obama let the Big Banks levy a Big Tax on the common citizen to make good on their gambling losses because he didn’t want to take the political heat for levying the tax himself.
I mean, just where do you people think the money is coming from?
October 17th, 2009 at 6:48 pm
This fills me with dispair; it’s enough to turn me into a capital ‘L’ Libertarian.
I now think that the banks, etc. should not have been bailed out, they should have been forced into a prepackaged bankruptcy so that these pirates and their enablers (shareholders in financial services firms) couldn’t possibly have profited from their “heads I win, tails the taxpayers lose” games.
And I say this as one who has a substantial 401(k) account whose sole custodian (I think that’s the word) is none other than AIG (didn’t have a choice, the plan sponsor chose the custodian company).
October 17th, 2009 at 6:48 pm
Goldman Sachs is giving its employees an average of $700,000 in bonuses this December. So what are they giving the average citizen who coughed up $2 Trillion to help AIG make good on its contracts with Goldman Sachs — and who was put on the hook for $22 Trillion more?
http://www.nytimes.com/2009/10/16/business/16bonus.html?em
October 17th, 2009 at 6:51 pm
Of course, SOME Americans are sharing in Goldman Sachs good fortune:
http://news.yahoo.com/s/politico/20090928/pl_politico/27643
“Wall Street has showered nearly $11 million on the Senate since the beginning of the year, and more than 15 percent of it has gone to a single senator: Democrat Chuck Schumer of New York.
Schumer’s $1.65 million take from the financial services industry is nearly twice that of any other senator’s — and more than five times what the industry gave to any single Republican senator.
While the industry has scaled back its political spending in the wake of last year’s economic collapse, data from the Center for Responsive Politics show that it’s still investing heavily in the Senate, where it’s likely to have its best shot at stopping — or at least shaping — the crackdown on Wall Street that President Barack Obama has proposed.
And it’s clearly looking to Democrats to do it.
Of the $10.6 million the industry has given to sitting senators this year, more than $7.7 million has gone to Democrats. Schumer got his $1.65 million; his New York colleague Kirsten Gillibrand took in $886,000; Senate Majority Leader Harry Reid of Nevada received $814,000; Senate Banking Committee Chairman Chris Dodd of Connecticut scored $603,000; Colorado freshman Michael Bennet got $401,000; and Agriculture Committee Chairman Blanche Lincoln of Arkansas— who will have a big say on the derivatives portion of regulatory reform — got $336,000.
“Democrats are holding the reins in Washington now with a Democratic-run White House and Congress,” said one financial services lobbyist. “It only makes sense that donors want to put their money into the coffers of those who are driving the agenda.” “
October 17th, 2009 at 6:55 pm
Oops. I missed the best quote from the link in post 9:
“The industry’s giving pattern this year may upend the traditional notion of Republicans as the bagmen for Wall Street. But it also reflects political reality: Democrats hold a commanding if not quite filibuster-proof majority in the upper chamber, and some of them may be willing to side with the financial industry on key aspects of the regulatory reform effort — even if that’s not immediately obvious from the Democrats’ populist rhetoric. ”
————
ha ha ha ha ha
NAH — the smartest, most greedy fucking predators on the planet are throwing $Millions to those Democrats just because they want good government.
October 17th, 2009 at 7:01 pm
<i.if you cut interest rates for banks to nearly zero then banks make huge profits with traditional lending. that’s what’s going on at JPM and the other ‘recapitalizing’ banks. it was the only politically possible solution.
Pft if Democrats weren’t so scared of the own shadows they could of easily nationalize banks; the TARP bill allows Obama to do it; all he has to do is do it. But Demcorats are so scared that the public will perceive them as Liberal that they refuse to do what is mots practical and what works; which leads to them enacting Conservative legislation which fails, and is then used to proclaim that Liberalism is a failure.
When you think about ti Democrats shoot themselves in the foot more the Republicans. Because Republicans are already known to be morons who’se policy fails.
October 17th, 2009 at 7:17 pm
“It’s an ugly, ugly business. They’re basically gambling on the taxpayers’ dime and operating with an implicit taxpayer guarantee to cover their losses if they blow up.”
This is happening because our political system doesn’t give the politicians any other choice. Either do this, on watch the economy nosedive much further than we’ve already seen. Kindof a deal you can’t refuse.
(8) You know the answer, as to what these banks are giving the taxpayers, “the finger”. I wouldn’t even count on them sending us each a fancy $2.50 Christmas card!
October 17th, 2009 at 7:26 pm
They’re basically gambling on the taxpayers’ dime and operating with an implicit taxpayer guarantee to cover their losses if they blow up.
Well if the “average taxpayer” wasn’t also the same person who was after to me “buy a place” back in 2005-2007 I might have some sympathy. Stupid fucking steeple deserve to get it good and hard.
October 17th, 2009 at 7:32 pm
We need a national banking system, Matt. There is no way around it. Even if Wall Street does not blow up again, which seems a highly unlikely scenario, they are not and will not -ever- do main stream America any good. And because of the potential blow-up factor, Wall Street has become, clearly, the United States of America’s GREATEST SECURITY THREAT.
The institutions are available to create a National Banking System that services the people’s interest and the greater good of the country. Not only that, such a system would allow the United States to slowly disentangle itself from the Wild and Psychotic Casino it is symbiotically attached to.
The Fed (which is what, half ours?) capitalizes banks all time. It’s almost like they do it on a whim. They just handed out $1.2 trillion to banks, almost half of that money going to foreign banks, WITHOUT CONGRESSIONAL APPROVAL.
Why can’t we do the same thing with Fanny and Freddie, two banks -BIG ONES- that are government owned? Build out from those two organizations a National Banking System. Capitalize Fanny and Freddie and leverage them MODESTLY and have the BALLS to start loaning money were it is needed most, to the people and businesses of the United States of America.
We must begin the process now or surely we done for, We must begin digging at the country’s debilitating structural issues, like the fact that we are drowning in defaulted mortgages and have $1 trillion in credit card debt and our archaic infrastructure desperately needs to be rebuilt and modernized -AND JOBS.
Et cetera, et cetera, et cetera.
October 17th, 2009 at 7:38 pm
leverage them MODESTLY and have the BALLS to start loaning money were it is needed most
If “the people” didn’t feel entitled to live in a 5,000 sq/ft McMansion 2 hours (on a good day) from their job I might agree with you.
October 17th, 2009 at 7:50 pm
The premise of the article is wrong. GS is not making money from trading per se, but by being a “liquidity provider” to the exchanges. By helping to put Lehman and Bear out of business, GS has made itself indispensable to the exchanges because of the liquidity they offer — for which they get paid.
It’s not trading. It’s not gambling. It’s definitely some kind of scam but the complexity of it keeps it out of the headlines.
October 17th, 2009 at 8:50 pm
It should be understood that the objective of the financial giants bailout, in all its various forms, was the reflation of financial assets. The reflation of stocks, bonds and some derivatives was and is an absolute necessity in order for the world of our elites to continue because their wealth and power are as one with financial asset prices. The only way to reflate those asset prices was through the purveyors of those assets themselves, the Wall Street giants.
So through various means of providing money, liquidity, to the giants the operation has been successful. Stocks and many bonds are back up.
Since the stock market bottomed in March several million jobs have been lost and GDP is a couple of percentage points lower. Have you noticed any sense of panic in the media. Of course not because the medias assets are back up and seemingly safe again. Confidence is restored. At least the confidence of those that matter. The ones who manufacture our consensus. Which was the goal all along. Save the reflation of assets the political system could not maintain because our elites would lose ‘confidence’. After all every policy since 87 has been aimed at inflating their assets and it was good and their share of wealth multiplied and it was good and just and right and no other world will do.
Long ago I made a rather over the top prediction which should not be taken literally. We could have the DOW at 36,000 and millions of homeless wandering the land and there would be no panic. In a very real sense the impoverishment of millions is a necessity in order to keep assets inflated. This is the world you have to accept if you support the bailouts. Take it or leave it.
October 17th, 2009 at 9:07 pm
As I recommended over a year ago –in Sept 2008 — the US government should have used the bailout money to form a National Bank — to continue lending to REAL businesses and to buy up undervalued assets from which the taxpayer could profit. And let the Masters of the Universe in the Financial sector crash and burn as they deserved.
It is always amazing that people still volunteer for the military. The government of this country stabs the common citizen in the back time after time –administration after administration — and the fucking stupid sheep are too stupid to realize it.
October 17th, 2009 at 9:10 pm
and the fucking stupid sheep are too stupid to realize it.
Then why do you have any sympathy for them? Seems to me they deserve the lube free ass raping they regular receive.
October 17th, 2009 at 9:11 pm
Which would have gotten sixty votes in the Senate easy. Especially before the election.
October 17th, 2009 at 9:35 pm
At least 19% of all babies born in Fallujah hospital born with deformities
http://joshfulton.blogspot.com/2…es-born- in.html
October 17th, 2009 at 9:39 pm
Josh,
It’s called cousin marriage – look it up.
October 17th, 2009 at 10:00 pm
17) A lot of truth there, but the dep[endence on asset prices extends well beyond the plutocrats. As a boomer who has consistently been 5-10 percentile from the top, these asset prices matter a lot to me (like can I retire). Millions more have dependencies on various funds -such as there retirement plan -even if they don’t realize it. Under current rules if a retirement plan goes down due to fallen asset prices, it is both the retiree’s (and wouldbe retirees) who get shapfted, the corporation has to start paying -usually when it can least afford to. So in general, the reflation of these assets was important to a much broader part of the population then generally believed.
And to you look at it politically. To have not done this would have been fatal to the administration, and to the future of the presidents party. So the deal on offer truly was/is a deal you can’t refuse.
October 17th, 2009 at 10:06 pm
Re Davis at 20: “Which would have gotten sixty votes in the Senate easy. Especially before the election.”
—————-
If not, then the economy would have crashed and half of the Republican Caucus would be hanging from the lampposts at this point.
I’m kinda having trouble seeing a downside here.
October 17th, 2009 at 10:09 pm
If not, then the economy would have crashed and half of the Republican Caucus would be hanging from the lampposts at this point.
You wildly underestimate how willing the ignorant sheeple would be to side with the republicans. It’s far more likely that the immigrants and minorities would be hung at the behest of the ignorant hordes of whom you are so fond,.
October 17th, 2009 at 10:09 pm
Don, the problem with that is the demand for non financial credit is very low and many of those seeking it are not good credit risk or their projects aren’t. There is no question that the Treasury through the FDIC should have crafted programs to facilitate borrowing in the real economy but don’t pretend this was some sort of solution.
The meta problem was too much credit but to maintain the system there is no choice but continued credit growth. Which suggests the tautology contained in my post 17. The only way to save the system is to re liquefy the dysfunctional one. So around and around we go.
People refuse to understand the meaning of a dilemma. There is no way out of a true dilemma. Everyone is hoping there is a magic solution, and a pony too.
If and more probably more likely when the next financial liquidity problem arises the Treasury and Fed will not be able to step in again and fix it. They have shot their last bullet. Perhaps however the liquidity crisis will not be in the financial market but with the US Treasury itself. In a subtle way many people now understand that GS is a better bet than the Treasury. Think about it.
October 17th, 2009 at 10:23 pm
In a subtle way many people now understand that GS is a better bet than the Treasury. Think about it.
Why own the subsidiary when you can own the parent company?
October 17th, 2009 at 10:24 pm
Re rapier at 26: “The only way to save the system is to re liquefy the dysfunctional one.”
————-
But who cares? Wealth in the USA is held by a small percentage of the population — most people don’t have that much to lose.
The one thing worse that being stuck in deep shit is being stuck in deep shit with some asshole piling $Trillions of debt onto you to be pissed away in non-productive enterprises from which you will get nothing.
Maybe the 50 million or so assholes who voted Bush and the Republicans into control for a decade should suffer through a Great Depression to teach them the price of listening to Rush Limbaugh and Glenn Beck.
But of course Obama has gone out of his way to NOT hold the Republicans accountable for how they fucked this country.
October 17th, 2009 at 10:29 pm
Re rapier at 26: “Perhaps however the liquidity crisis will not be in the financial market but with the US Treasury itself. In a subtle way many people now understand that GS is a better bet than the Treasury. Think about it.”
———-
I have. The fix is a Constitutional Amendment repudiating the $12 Trillion in federal debt.
Let the Rich ask George W to pay it.
October 17th, 2009 at 10:31 pm
I have. The fix is a Constitutional Amendment repudiating the $12 Trillion in federal debt.
And how will Calpers and the Social Security Trust fund pay all those little old ladies?
October 17th, 2009 at 10:35 pm
Maybe the 50 million or so assholes who voted Bush and the Republicans into control for a decade should suffer through a Great Depression to teach them the price of listening to Rush Limbaugh and Glenn Beck.
Why can’t you understand that all those poor ignorant fucks who you weep for are the same ones who voted for “W”. It wasn’t Llyod Blankfein the Democrat who voted in W, it was all those stupid sheeple whom you, for whatever reason, feel sympathy for.
Those sheeple deserve the lube free anal gang rape they are currently receiving.
October 17th, 2009 at 10:50 pm
Re jmo at 30: “And how will Calpers and the Social Security Trust fund pay all those little old ladies?”
—————
Well, if the Congress can come up with:
– $8 Trillion to make up for the Social Security underfunding and
– $32 TRILLION to make up for the Medicare underfunding (er..make that $32.5 TRILLION if Max Baucus and Obama steal another $500 Billion out of Medicare)
Then they can soak the rich to come up with a measly $4 Trillion to cover the Government bonds held by the Social Security/Medicare Trust Funds.
If you have to cut some corners, I STRONGLY suggest you not do it in the Military Retirement Fund which George W and the Republicans also raided. Some ancient Roman Emperors could have explained why that is not a good idea.
October 17th, 2009 at 10:54 pm
Don,
But you still haven’t explained why you have so much sympathy for the ignorant hordes who voted for W et. al. and directly precipitated all this economic dislocation.
October 17th, 2009 at 10:56 pm
As an alternative, we could just tell the old ladies that Social Security/Medicare are fucking Ponzi schemes set up by the Democratic Party that would have embarrassed Bernie Madoff and Jeffery Skilling of Enron.
October 17th, 2009 at 11:01 pm
Re Jmo at 33:
I don’t. i have sympathy for the rabble who did not vote Republican but are getting fucked anyway.
Although it seem voting Democratic doesn’t help either.
The Philly Mob is trying to reconstitute after the disasterous reign of Joey Merlino. Maybe I should check to see if they are taking non-Italians yet. Honest crooks seem like moral giants considering the scum we have in Washington.
October 17th, 2009 at 11:06 pm
i have sympathy for the rabble who did not vote Republican but are getting fucked anyway.
Of all those that I know, liberal and conservative, democrat and republican, nearly all were 100% behind the real estate bubble. I can’t tell you how many people made disparaging comments about my unwillingness to buy an over-priced McMansion.
October 17th, 2009 at 11:12 pm
Don,
Liberal or conservative, democrat or liberal nearly 100% of the voters/taxpayers were 100% behind the universal home ownership goals that got us in the mess in the first place. As far as all tell the bailouts, foreclosures, and job losses are the just results of the freely constituted will of the people.
October 17th, 2009 at 11:23 pm
What is the government? What is the Fed? Does the Fed need 60 votes to capitalize banks? THEY DO NOT.
If the Fed can hand out $1.2 trillion to banks that are either entirely foreign or completely international in their make-up, then why can’t they capitalize a National Bank beholden to the interests of only the United States and its people?
I know what the Republican response is. TREASON is good. TREASON is the most effective economic system. TREASON will benefit America in the long run -if everything goes according plan- and prove not to have been TREASON when we make the final tally. The final tally being drawn, of course, at time as far off in the future as the Big Bang is in the past.
But the Republicans are not in charge, are they. A Democratic administration is the one that found easy ways to fund foreign interests to the tune of $1.2 trillion. But it can do nothing, NOTHING, due to veto points in a system controlled by Democrats, to fund the interests of the United States -in health care, in banking, or in anything else.
October 18th, 2009 at 12:09 am
Corporafornication remains alive and well.
October 18th, 2009 at 9:58 am
Why is anyone talking to JMO? The man is clearly part of the problem, one of these agents who passed out houses like cndy hoping to milk the consumer for whatever he could get before repossessing their house with it’s increased value.
He’s a hack and a shill who works for the banks. He’s scum, and he’s lucky nobody has strung him up in real life. But he’s too stupid to know that, so he comes on here and runs his mouth like a jack ass without realizing that if he tried this shit in your average bar he’d be missing a few teeth.
October 18th, 2009 at 12:41 pm
Soullite,
Do you really think the average bar patron really has all that much sympathy for Joe Douchebag who wildly overextended himself to buy a big house he couldn’t afford? No, they don’t. And when he’s forced from his 4500 sq/ft McMansion into a 1250 sq/ft apartment they will all applaud, as justice has been served.
October 18th, 2009 at 12:42 pm
MY’s and the elite consensus is that the bailouts were the proper policy response. Now there is some carping, finally, about how it has favored the powerful financial interests. Which is an exact parallel to the Iraq war supporters bitching about how it was done. There was no other way, in either case. It was FUBAR on inception.
Milton Freidman’s and now Bernanke’s and every ones view is that the cause of the depression was an inadequate response by the Fed. First of all this is putting the cart before the horse as the financial panic came first, and additionally it was worldwide. In 29 50% of all credit was held by corporations. They were way over leveraged. Mush of that leverage was financial, tied up in trusts which were speculating in stocks and other financial assets.
Now refining the Frieman consensus one can conclude they really mean the severe long term contraction was caused by the Feds non response. That is what they really mean. Now here is the thing most don’t realize. They Fed response they wanted was to have them buy, monetize, the failed debt of the trusts and financial sphere. To buy up the Goldman Sachs trusts cum Ponzi scheme paper, Blue Ridge and Shenandoah Corporation paper, to keep the markets going. That’s what they wanted and that is what we have now.
There’s no crying in bailouts. It’s a nasty ugly business. There is no way to dress it up and make it nice, fair or just.