Broadband: [MediaValue] Goldman’s Gain, America’s Risk

A Benefit for the Few

Yves Smith has written the blog Naked Capitalism since 2006. She has spent more than 25 years in the financial services industry and currently is head of Aurora Advisors, a management consulting firm.

The size of the Goldman bonuses masks a more important issue, namely that the firm was in very dire shape not long ago and was saved from collapse by official intervention, not merely the Troubled Asset Relief Program, but a host of special facilities created by the Fed to direct liquidity to the very markets that firms like Goldman are deeply exposed to and depend upon for their business to be viable, let alone profitable.

Warren Buffet may have gotten a good deal when he pumped capital into Goldman, but the public didn't.

Goldman was in such acute distress that, as The Financial Times reports today, Goldman senior officers sold nearly $700 million of equity from when Lehman failed through April, with the heaviest selling occurring when the firm was on TARP life support and while it was selling stock to the public. Put more bluntly, the executives were being cashed out by outside money.

Lest you have any doubts, the insiders sold far more shares than in the comparable period the year prior, when the firm's stock was priced much higher. Goldman also received a capital injection from Warren Buffet's Berkshire Hathaway shortly prior to the TARP funding. Needless to say, the terms Buffett got were vastly superior to the ones the taxpayer received.

The logic of these programs is that the big capital markets players have become such crucial parts of the economic infrastructure that they cannot be permitted to fail. Yet they continue to enjoy a grossly asymmetric deal, socialized losses versus privatized gains. The stunning magnitude of the Goldman bonuses shows whom this arrangement benefits, not the public at large, but a privileged few.

http://roomfordebate.blogs.nytimes.com/2009/07/14/goldmans-gain-americas-risk/?hp

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