Streams

Tracking Fiscal Policy

Monday, July 27, 2009

Simon Johnson, former chief economist of the IMF and co-founder of The Baseline Scenario, a Web site tracking the ongoing financial crisis, discusses the return of Goldman Sachs, the latest on bank reform, consumer protection, and other fiscal policy.

Guests:

Simon Johnson
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Comments [20]

Andrea Psoras from New York

when they say that we need to bailout a toobigtofail - they're talking economic terrorism. although the financial types also get suckered in while the little guy is left little more than what they throw under the wheels, regardless, that is yet another reason why they were left to get toobigtofail. so that they could abuse power and be able to operate above and around the law, slam regulators as being stupid after regulators probably said their 'books' full of worthless and toxic financial engineering and syndications of worthless financial products were -

Sep. 01 2009 04:47 PM
Michael M Thomas from Brooklyn

Well, on Forbes.com months ago, I floated the idea of an excess profits tax. On the Beast last week, I pointed out something interesting about GS's Washington legacy. But as long as the mainstream media pass off borrowed regurgitations of stuff written non-members of the club as reporting, nothing will get done. Today's WSJ reports that GS and others are saving $24 billion in interest costs thanks to government subsidies. And people wonder at where those bonuses are coming from?

Jul. 27 2009 11:08 AM
Rich from Staten Island

Under this Too Big to Fail discussion, has any analysis been applied to these large financial institutions with regard to Anti-trust laws? With these mergers over the years hasn't the Hart, Scott Rodino act produced a denial of a merger?

Jul. 27 2009 10:40 AM
Francesca Laplaige from Lattingtown, New York

RE GOLDMAN
given the fact that Goldman's profits are substantially predicated on taxpayer relief, and their monopolistic position has been strengthened by the reduced competition, and their ability to fund themselves like a bank, WHY DOESN'T SOMEBODY START FLOATING THE IDEA OF A WINDFALL PROFITS TAX to get a little back for the US taxpayer?
during the bank rescue of the 30's, the re-regulation of the industry was the quid pro quo for the bailout. What did we get this time around?
Also would you guys please continue talking about the Goldman alumni in our gov't and regulatory bodies?
GO BRIAN

Jul. 27 2009 10:39 AM
BrettG from Astoria NY

I support Bair & the DOJ antitrust lead attorney. They've proven their trust to the public. At this point Geithner & Benrnanke are still on probation.

Jul. 27 2009 10:36 AM
J.C. from Minneapolis

I disagree with your guest's assertion that we somehow need arbitration (which is really a privatized judicial system). This push for forcing people who want cell phones, credit cards, etc., into the murky world of private arbitration of all disputes for any amount of money is from companies who don't want to pay up when they do wrong. And, as the MN attorney general pointed out this month, the arbitration industry has ties to business and debt collectors that give it an incentive to never, ever rule for consumers.

If big business has a problem with the court system, then they can 1) change the law and/or 2) actually pony up the tax money to hire more trial court and small-claims court judges to hear cases.

Jul. 27 2009 10:36 AM
Andrea Psoras from New York

we do not need a new 'consumer' protection agency at the federal level.

the Supreme court just ruled that the States and their consumer protection laws cannot be abridged by the self interests of national banks operating in states that are not the home states of the banks, nor override or pre-empt in general state consumer protection laws. he's too big a fan of 'federalism' which often means that which is friendly with abusive power players.

Baer isnt too bad and there is no way the Fed is a responsible regulator,while it is too conflicted,way to cozy with BigBank/Big investment bank/goldman cadre.

Jul. 27 2009 10:35 AM
BrettG from Astoria NY

Please check on both the Cuomo & MN Attorney General stories on the National Arbitration Forum was found to be a subsidiary of a NY hedge fund that also controls one of the largest US debt collectors. This was on NPR & Marketplace.

Jul. 27 2009 10:34 AM
eva

more from NY Mag on whether GS was actually hedged against the AIG CDS contracts:

“Not a single Wall Street executive I spoke with, including several Goldman Sachs alumni, believe those hedges would have survived an overall collapse of the financial system. A large loss would have been inevitable as lending evaporated, and Goldman Sachs would have struggled to shrink the company to a fraction of its size overnight. But the most glaring argument against Goldman is Goldman’s own: If AIG’s biggest and most important bank customer was hedged against losses in AIG, as it claims, why did the government need to pay Goldman Sachs the full $13 billion?

"Lost in the haze of Goldman’s recent record profits is the fact that the firm nearly went under even after the AIG bailout last fall. As the market continued to plunge and Goldman’s stock price nose-dived, people inside the firm “were freaking out,” says a former Goldman executive who maintains close ties to the company.

"Many of the partners had borrowed against their Goldman stock in order to afford Park Avenue apartments, Hamptons vacation homes, and other accoutrements of the Goldman lifestyle. Margin calls were hitting staffers up and down the offices. The panic was so intense that when the stock dipped to $47 in intraday trading, Blankfein and Gary Cohn, the chief operating officer, came out of the executive suite to hover over traders on the floor, shocking people who’d rarely seen them there. They didn’t want staffers cashing out of their stock holdings and further destroying the share price. (Even so, many did, with $700 million in employee stock liquidated in the first nine months of the crisis.)"

Jul. 27 2009 10:30 AM
Andrea Psoras from New York

the Fed traders would know who got the money. all these flows are tracked. so bernanke was dishonest

also banks have been lending to Private equity companies doing leveraged buyouts - as a result private equity players who are customers of the bigbanks and goldman, morgan stanley, and other major investment banks are receiving the money to buy out managemetns of companies the PE companies are buying.

Jul. 27 2009 10:29 AM
hjs from 11211

what would the effect on the economy be if americans elected another know no thing president like sarah palin?

Jul. 27 2009 10:29 AM
eva

from NY Mag:

Of the $52 billion paid to AIG’s counterparties, Goldman Sachs was the biggest recipient: $13 billion, the entire balance of its claim. The amount was surprising: Banks like Merrill Lynch that had bought credit-default swaps from failed insurers other than AIG were paid 13 cents on the dollar in deals moderated by New York’s insurance regulator. Eric Dinallo, the former New York State insurance commissioner, who was at the AIG meetings, characterizes the decision this way: AIG’s counterparties, Goldman being the most prominent, “got to collect on an insurance policy without having the loss.”...

"Both Rogers and Paulson (who’s publishing a book this fall that will presumably attempt to justify his decisions and save his damaged legacy) have argued that the AIG decision was about saving the system as a whole, not Goldman in particular. Specifically, they say that buffering the foreign banks was more important because their dissolution threatened the economies of entire countries. “There was an immediate misunderstanding of what was involved in it,” says Rogers.

They also argue, in a bit of circular logic, that the government couldn’t have saved Goldman Sachs because Goldman Sachs didn’t actually need saving."

Jul. 27 2009 10:29 AM
Andrea Psoras from New York

also repeal commodities modernization act of 2000 that will eliminate legality of all of the worthless financial engineering. also separate the power of financial companies from originating mortgages and also being able to themselves securitize their own mortgages they originate- because there hasnt been sufficient checks and balances or arm's length 3rd parties to police the quality of the mortgages underwritten.

fire bernanke, charm offensive or otherwise. if the is a 'lost' half trillion' it is in the pockets of parties that knew when to take their money out of the markets. that information can only come from being connected and on the inside.

Jul. 27 2009 10:25 AM
Andrea Psoras from New York

Eliminate power of Fed to control bank mergers. Break up the banks that exist under the TooBigto Fail rubric. Have the FDIC and the Congress take away bank holding company charters from Goldman and Morgan Stanley which also then blocks them from feeding from the Fed Discount window which is only for banks. Also repeal Gramm leach bliley to restore Glass Steagall, do whatever possible to eliminate concentrations of abusive power. also perhaps repeal Federal Reserve Act; banks would have to exist with more capital and abstain from more risky activities. The fed is not administered nor answerable to the people, ie congress. Prevent it from having power over the financial system as it has aided and abetted the insider heist that has been spun to us as a collapse as a result of regulatory break down. they were held atbay on purpose while the fed has been part of the conflicted party in bed with BigBank/Investment Bank management.

Jul. 27 2009 10:23 AM
Ed from westchester

there is already a name for the high frequency trading strategy. its called front running. knowing what the client is going to do and getting ahead of his trade. its stealing and the exchanges should be hammered for charging a fee to allow it.

Jul. 27 2009 10:22 AM
eva

Hugh,

Of the 180 billion AIG received, it used fifty-three billion to close out CDS contracts - Goldman got the largest share, which was 12.9 billion.

As for the FDIC loans provided to Goldman after Goldman became a bank holding company, I believe it's at least 27 billion dollars, per the WSJ.

Taher - Forget the Taibbi article in RS - New York Mag has a good article this week on Goldman - criticism of Goldman from Hank Greenberg and

http://nymag.com/news/business/58094/


Jul. 27 2009 10:21 AM
Tony from San Jose, CA

China has been giving us goods in exchange for pieces of paper. The ultimate free lunch.

As for automatic trading, they know that they'll be bailed out.

Jul. 27 2009 10:21 AM
Taher from Croton on Hudson

Folks read this onRolling Stone's Mag. web site.
Get the real facts.
www.rollingstone.com/politics/story/29127316/the_great_american_bubble_machine

Jul. 27 2009 10:14 AM
Hugh from Brooklyn, NY

Regarding Goldman Sachs:

1. Since AIG insured a lot of Goldman's risks, we have to ask how much of the $180 billion gifted to AIG was funneled through to Goldman.

2. Change in accounting rules. The executive branch has allowed laxer accounting rules (particularly regarding mark to market). We don't know how Goldman has used these changes to finagle its balance sheet.

3. Program trading. This is substantively equivalent to insider trading -- getting info before it is publicly available.

Jul. 27 2009 10:10 AM
George from Bay Ridge

Is it possible for the US to default on loans and end up in a NYC-style 1975 fiscal crisis? Would China demand trillions of dollars from the Treasury?

How will the lingering recession hurt state finances?

Jul. 27 2009 01:17 AM

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