The Transfer of Risk to Idiot Shareholders...and Then To Taxpayers

Michael Lewis, author of Liar's Poker, explains (ViaMP):

John Gutfreund did violence to the Wall Street social order—and got himself dubbed the King of Wall Street—when he turned Salomon Brothers from a private partnership into Wall Street’s first public corporation. He ignored the outrage of Salomon’s retired partners. (“I was disgusted by his materialism,” William Salomon, the son of the firm’s founder, who had made Gutfreund C.E.O. only after he’d promised never to sell the firm, had told me.)

He lifted a giant middle finger at the moral disapproval of his fellow Wall Street C.E.O.s. And he seized the day. He and the other partners not only made a quick killing; they transferred the ultimate financial risk from themselves to their shareholders. It didn’t, in the end, make a great deal of sense for the shareholders.

But it made fantastic sense for the investment bankers. From that moment, though, the Wall Street firm became a black box. The shareholders who financed the risks had no real understanding of what the risk takers were doing, and as the risk-taking grew ever more complex, their understanding diminished. The moment Salomon Brothers demonstrated the potential gains to be had by the investment bank as public corporation, the psychological foundations of Wall Street shifted from trust to blind faith.

No investment bank owned by its employees would have levered itself 35 to 1 or bought and held $50 billion in mezzanine C.D.O.s. I doubt any partnership would have sought to game the rating agencies or leap into bed with loan sharks or even allow mezzanine C.D.O.s to be sold to its customers. The hoped-for short-term gain would not have justified the long-term hit.

Now I asked Gutfreund about his biggest decision. “Yes,” he said. “They—the heads of the other Wall Street firms—all said what an awful thing it was to go public and how could you do such a thing. But when the temptation arose, they all gave in to it.” He agreed that the main effect of turning a partnership into a corporation was to transfer the financial risk to the shareholders. “When things go wrong, it’s their problem,” he said—and obviously not theirs alone. When a Wall Street investment bank screwed up badly enough, its risks became the problem of the U.S. government . “It’s laissez-faire until you get in deep shit,” he said, with a half chuckle. He was out of the game.

Obviously, the government shouldn't be in the game. The shareholders at Goldman Sachs and Morgan Stanley should have been allowed to fail just like Bear Stearns and Lehman Brothers shareholders. Burned shareholers wouldn't be investing in investment banks again any time soon, and new financially grounded partnerships would rise from the ashes.

Hank Paulson Must Think Water Freezes at 60 Degrees

The latest news from our Treasury Secretary is that the consumer credit markets are frozen. The only problem is that Hank Paulson's idea of frozen is different than yours and mine. This guy is probably the only person lookng, in August, for the ice skating rink in New York's Central Park.

Robert Higgs explains:

Notwithstanding the many developments on the bailout front during the past six weeks, the New York Times, like other media outlets, continues to quote Wall Street insiders who report, as Alex Roever of JPMorgan Chase did recently: "You have a market that is frozen." What planet do these guys live on? It certainly is not the same one to which the Federal Reserve's data apply. I’ve been singing this song for many weeks, but I’m going to keep singing it until somebody in the news media wakes up and realizes that these "frozen credit market" tales are pure hooey. Look at the data, for crissake. By now we should all be ready to move beyond hysteria, get a grip on reality, and begin thinking about how to repeal everything the government has done during the past six weeks...

Memo to NYT: check the data on consumer loans published by the Federal Reserve System. The latest report, dated November 7, says: "Consumer credit increased at an annual rate of 1-1/4 percent in the third quarter. Revolving credit increased at an annual rate of 2-1/2 percent, and nonrevolving credit increased at an annual rate of 1/2 percent. In September, consumer credit increased at an annual rate of 3-1/4 percent." Would you describe this report as indicating a "frozen" credit market? Total consumer credit outstanding in September, $2,588 billion, exceeded the average amount outstanding in any year from 2003 to 2007, the period of the credit bubble.

My gut tells me that in Henry's mind unfreezing this non-frozen market means shipping more billions to the Robert Rubin wing of Goldman Sachs, i.e. Citigroup.

Lazard Rising

Goldman Sachs may have company in running government as a private fiefdom. It appears that former Lazard Freres employees are edging in under the Obama regime.

The latest signal comes from Obama in his announcement yesterday of his transition team. He has put Josh Gotbaum, a Clinton administration veteran and long-time investment banker at Lazard Frere, in charge of reviewing the Treasury.

Lazard has been cutting crony capitalism deals even before Paulson got out of diapers. Their last peak in influence came when Felix "The Fixer" Rohatyn "saved New York City" and ruled the roost at Lazard.

Goldman Chief (With A Straight Face) Says Turmoil Could Be A Boon

FT reports:

The current turmoil in the capital markets is testing Goldman Sachs, but it is also creating historical opportunities for growth, says the bank’s chief executive, Lloyd Blankfein.

Speaking at Merrill Lynch’s annual banking and financial services conference, Mr Blankfein conceded that his firm was not immune from the current downdraft in the markets....

[But] “The most important opportunities in Goldman Sachs’ history came in times of stress,” he said. “Our culture has given us the wherewithal to embrace change.”

Embrace change? Especially when your man, Paulson, is at the Treasury making the change. FT again:

In the past 12 months, as the competitive landscape on Wall Street changed, Mr Blankfein said Goldman Sachs had gained more than 100 new clients that had either been involved in billion-dollar deals or raised more than $500m in funds.

No kidding? Paulson blows away Goldman's competitors, Bear Stearns and Lehman Brothers, and Goldman picks up 100 new clients. Helluva a plan.

The Obama Press Conference: John Maynard Keynes and the Oligarchs Are Alive and Well

John Maynard Keynes and Oligarchs appear to be alive, well and ready for the Obama Administration.

In Barack Obama's first press conference, since winning the presidential election, Obama sounded like a typical big spending Democrat. In opening remarks, he called for a "rescue package" for the middle class, unemployment extensions and other fiscal stimulus. He also said that something had to be done for the automobile industry since it is "the backbone of the country." Somewhere, John Maynard Keynes and Marx are blushing.

Obama did not address how any of these proposals would be paid for.

I took special note of some of the members of his "economic transition advisory team", most of whom stood behind him as he promised to do vasts sums more spending than Imelda Marcos ever did during a good shoe shopping trip to New York City. It was a politically correct mixed crowd that included many women, a Latino and even another African-American, interspersed with oligarchs. Just what you need to fight a downturn in the economy, a politically correct group and oligarchs.

The oligarchs we were told included Warren Buffett (who, golly shucks, usually just represents himself) and Robert Rubin (former Goldman Sachs CEO, now running the Rubin/Citigroup wing of Goldman),but both failed to appear in chorus line fashion behind Obama for the press conference, as did the politically correct and other oligarchs and oligarch representatives.

At the press conference chorus line, the towering Paul Volcker was there, who has been a career long Rockefeller operative. The tiny Robert Reich was there, who was most likely invited as a reward for his regular bashing, on his blog, of Hillary, during the primaries.

An oligarch stepped a bit out of the shadows for the chorus line, Chicago-based Penny Pritzker, who was an early Obama backer, was there. Pritzker served as Obama's National Finance Chair. She and her husband hosted a $28,500 per plate fundraiser for Obama's campaign in Chicago with Warren Buffett and his wife, and Obama advisor Valerie Jarrett. She is also a member of the Council on Foreign Relations. She is 135th richest person on the Forbes 400 list of "America's wealthiest," with an estimated net worth of $2.8 billion US. If one was forced to come up with one name that Obama answers to, Penny Pritzker would not be a bad choice. They are on each others cell phone speed dials, guaranteed.

The Chicago Political Machine was well represented by Mayor Richard Daley's brother William, who also is a member of the executive committee at JP Morgan Chase.

Google's Chairman Eric Schmidt was part of the chorus line.

Much to my surprise, Los Angeles Mayor Antonio Villaraigosa was the token Latino. Readers will recall I had a Q & non-A encounter with the mayor, only a few weeks back.

In short, no one in this group strikes me as the type that understands Say's Law, never mind the business cycle. They all are very good, though, at protecting the very powerful interests that they are aligned with, nothing else. The oligarchs are sleeping very well tonight.

Wall Street's Influence On Barack Obama

Two spheres of influence appear to circle around Barack Obama. Wall Street investment bankers, who have paid, through donations, to sit at the Obama table, and fellow traveling lefties who appear to be kindred spirits with Obama. Here's a breakdown on the Wall Street influence.

Naturally, Goldman Sachs won't miss a beat with the Obama Administration.

Governor Jon Corzine of New Jersey, former CEO of Goldman Sachs is close to Obama, and what I call the Robert Rubin Wing of Goldman Sachs will have a very strong presence in the Obama Administration. Rubin served as Co-Chairman and Co-Senior Partner at Goldman Sachs from 1990 to 1992. He later became Secretary of the Treasury in the Clinton Administration. He is now Director and Senior Counselor of Citigroup, and co-Chairman of the Council on Foreign Relations. In addition to Rubin, himself, being a player in the Obama Administration, many around Rubin appear to have likely roles in an Obama Administration.

Lawrence H. Summers, rumored to be a strong candidate for the position of Treasury Secretary, served under Rubin as Deputy Secretary, when Rubin was Treasury Secretary. He also is an Advisory Council Member of Rubin's very own think tank, The Hamilton Project.

Jason Furman, a senior fellow at The Hamilton Project, is an economic adviser to Obama and is likely to be offered some position in an Obama Administration.

Others from the Rubin Wing of Goldman that may end up with positions in the coming Obama Administration are:

Michael Froman, a top executive at Citigroup, who served as Rubin's chief of staff at Treasury.

Jamie Rubin, the son of the former Treasury secretary.

Kevin Thurm, an executive at Citigroup.

Frank Brosens, who runs Taconic Capital Advisors and is seen as very close to Rubin.

Non-Goldman players close to Obama include:

Jamie Dimon, chairman and CEO of JPMorgan Chase & Co

Robert Wolf, an investment banker and CEO of UBS Americas

Mark Gallogly, a private-equity expert who used to work for Blackstone

Jim Torrey, Hedge fund manager Jim Torrey

Josh Gotbaum, the former chief executive of the September 11 Fund who has worked for the Carter and Clinton administrations and Lazard Freres.

Obama has also relied on the left leaning, pro-tax hikes, senior advisers Warren Buffett and Paul Volcker.

At a recent conference held by the Financial Professionals Association, economist Marty Feldstein told the conference that Buffett and Volcker were being used by Obama as fronts to hide a much more radical left agenda that Obama believes in.

Fed: 'Bailout' Loans Are For Insiders, Not Consumers

The Federal Reserve Board today alerted the public to instances of questionable solicitations directed at consumers. These solicitations promise consumers access to personal loans through a nonexistent Federal Reserve lending program.

Under this fraudulent scheme, targeted individuals are told that that they can work through a broker to access a Federal Reserve program that extends sizable secured loans to consumers. Consumers are encouraged to deposit large sums of money into a bank account, under the guise of a security deposit, in order to receive the purported loan.

The Federal Reserve is advising consumers that it has no involvement in these solicitations and does not directly sponsor consumer lending programs. The matter has been referred to the appropriate authorities for action.

On the other hand, if you are Goldman Sachs, the $10 billion should be in your account shortly.

Goldman Approached Citigroup About Reverse Merger

FT has the details:

Lloyd Blankfein, Goldman Sachs’ chief executive, called Vikram Pandit, his Citigroup counterpart, last month to discuss a merger, in a dramatic example of the secret manoeuvring that preceded the government bail-out of the financial sector.

The call, which was made at the tentative suggestion of the regulatory authorities or at least with their blessing, was made shortly after Goldman had won surprise approval to convert itself from a securities firm into a commercial bank on September 21, according to several people familiar with the events.

They added that the conversation was brief as Mr Pandit rejected the proposal at once.

[Technically, for regulatory reasons]a deal would have been structured as a Citi takeover of Goldman.

Made at the suggestion of regulatory authorities? Hmmm, that would be former Goldman man Hank Paulson.

David Weidner Asks The Big Questions And Makes The Key Points

David Weidner writes:

If [Neel] Kashkari [formerly of Goldman Sachs] is on the job, does anyone think Treasury will be driving a hard bargain with Goldman on its mortgage assets? And while we're on the subject of Goldman, under what criteria did Goldman and Morgan Stanley qualify as two of the nation's nine strongest financial institutions? Just wondering...

It's no wonder that the world is scratching its head. Congress approved a bailout of bad assets and the Treasury Department has used it to buy stakes in preferred banks. Some of those banks, J.P. Morgan Chase & Co. and Bank of New York Mellon, look to be in decent shape. Others, such as Morgan Stanley and Goldman are highly leveraged firms that, regardless of what kind of charters they hold, are not too far from hedge funds...

...to many investors and citizens, Neel Kashkari is just another Wall Street insider who has close ties to the Treasury chief. Kashkari joins Paulson, Josh Bolton, Steve Shafran, Ken Wilson, Dan Jester as former Goldman bankers who now saturate the administration's team handling the crisis...

Kashkari came from humble beginnings, but he studied hard. You can guess the rest of the resume: Wharton Business School, homes on both coasts, he met Paulson and got his job by knowing the right people. He stayed up all night working on the bailout proposal even though the document, at a total of three pages, was politically inept and borderline unconstitutional.... In short, he's really part of the elite that brought you The Biggest Financial Crisis Since The Great Depression.

Big Banks Get $125* Billion Cash Going Away Gift From Paulson and the Bush Administration

Please sit down before you read this. If you have high blood pressure or heart trouble don't even try to read this, find a decent sports page instead, this is not for you.

Approximately half of the first $250 billion tranche of money approved by Congress for the mortgage crisis will end up in the hands of the "healthy" big banks.

"For the good of the American financial system," Treasury Secretary Paulson has told the big banks they must take his $125 billion (Give or take a billion or two) handout, reports NYT.

Citigroup and JPMorgan Chase were told they would each get $25 billion; Bank of America and Wells Fargo, $20 billion each (plus an additional $5 billion for their recent acquisitions); Goldman Sachs and Morgan Stanley, $10 billion each, with Bank of New York Mellon and State Street each receiving $2 to 3 billion. Wells Fargo will get $5 billion for its acquisition of Wachovia, and Bank of America the same for amount for its purchase of Merrill Lynch. So much for bailing out the mortgage market.


Here's the kicker: The shares will not be dilutive to current shareholders, a concern to banking chief executives, because perpetual preferred stock holders are paid a dividend, not a portion of earnings. In other words, all current shareholders are protected, unlike Lehman, Bear Stearns, Fannie Mae and Freddie Mac shareholders.

No matter how they frame this,the truth is this is a roughly $125 Billion going away gift from the Bush Administration to Wall Streets elite.

UPDATE: The exact terms of the funding have been released by Treasury. For the first five years, the dividend on the preferred stock will be only 5%, not 10%. The full terms on the funding can be found here.

*Note I initially put the headline handout number, and number in the story, at $135 billion. The handout number is a bit unclear, so to be conservative I have lowered the total handout estimate to $125 billion

They Are Getting Ready To Divvy Up The Lucre: US Summons Only Super Elite Bankers To A Meeting

The Bush administration summoned executives from leading banks to a meeting in Washington Monday afternoon to work out details of the $700 billion plan.

And, as they say in Chicago, "If you are not at the table, you are on the menu."

For the record those expected at the table are:

Goldman Sachs CEO Lloyd Blankfein, Morgan Stanley CEO John Mack, Citigroup CEO Vikram Pandit, JPMorgan Chase & Co. CEO Jamie Dimon, and Bank of America Corp. CEO Kenneth Lewis were all asked to attend. There was some speculation that Paulson might have expanded the invitation to at least three other CEOs from various regional banks, people said.

The FDIC directly examines and supervises about 5,250 banks and savings banks, and Paulosn invites at most 8 bankers to discuss how to divvy up $700 billion?

"It was expected that whatever comes out of the meeting will be used to put the finishing touches on the plan," AP reported its sources as saying.

Tape Blows Cover On True Treasury Intentions

The new kid at the Treasury hasn't quite learned you really can't talk in public about what you are really up to at Treasury. New Interim Assitant Secretary of the Office of Stability, Neel Kashkari, has been caught on tape providing the true details of what Treasury is up to. This will get him muzzled pretty fast, but it provides us the opportunity to see the scheming going on at Treasury.

Kashkari's statements were posted on YouTube, and now appear to have been removed.

WSJ reviewed the tapes and reports first on the fact that Kashkari considers the executive pay caps demanded by Congress a joke:

As the biggest market intervention in U.S. history made its way through Congress, Neel Kashkari, the Treasury official named this week to run the program, offered assurances to 800 financial-industry players.

Attempts by Congress to make beneficiaries pay for their mistakes, such as placing caps on executive pay, were "quite reasonable" and "a pretty modest hindrance to you," he told them, according to a recording of the Sept. 28 conference call made public on video-sharing Web site YouTube.

Kashkari told participants in the call that lawmakers' interest in limiting executive compensation was "emotional" and "probably the most difficult part of the negotiation" with Congress.

When one industry participant said the caps might discourage participation, Kashkari noted their limited scope, which he called "a pretty modest hindrance to you coming into the program," WSJ reports.

WSJ also reports that the conference call took place the night before the House rejected the rescue plan, on September 28. The plan passed days later on October 3.

The dates are important because Kashkari, according to WSJ, also reported to the financial insiders that, "Our preference would be to try to help healthy banks become even healthier." (My emphasis.)

Remember, the entire focus, at the time, was on buying up bad mortgages and there was no news out publicly about Treasury helping "healthy banks"?

Indeed, I just did a search of the New York Times database and the first time the words "healthy bank" come up in a search is on October 9, where NYT reports that as Part of a NEW "Plan B" that Treasury may take positions in banks, even healthy ones.

This is how NYT reported the story (My emphasis):

Having tried without success to unlock frozen credit markets, the Treasury Department is considering taking ownership stakes in many United States banks to try to restore confidence in the financial system, according to government officials...

The American recapitalization plan, officials say, has emerged as one of the most favored new options being discussed in Washington and on Wall Street. The appeal is that it would directly address the worries that banks have about lending to one another and to other customers.

Treasury officials say the just-passed $700 billion bailout bill gives them the authority to inject cash directly into banks that request it...including healthy ones.

This new interest in direct investment in banks comes after yet another tumultuous day in which the Federal Reserve and five other central banks marshaled their combined firepower to cut interest rates but failed to stanch the global financial panic.

As Bob Murphy has pointed out, they haven't even bought one mortgage yet, so how could they have failed at attempting to unlock the supposed frozen market?

"New interest"? "New options" "After yet another tumultuous day"? Then why was Kashkari talking about these details to the securities industry, even BEFORE the first House vote?

A database search of WSJ pretty much shows the same thing, the first time "healthy bank" is used with regard to the takeover of banks is October 10. The only other relevant search that comes up is an Op-Ed piece on 9-26 by John Paulson , a respected Wall Street investment manager--not the Treasury Secretary--, who discusses the Treasury's plan to buy mortgages from all banks. And he would certainly be shocked to hear that two days after his Op-Ed that Kashkari said the Treasury's preference was to help healthy banks, given that John Paulson wrote in his Op-Ed:

By allowing all banks to sell their worst assets to Treasury at inflated prices, taxpayers would be subsidizing healthy banks which have access to private capital (Goldman Sachs, J.P. Morgan, Wells Fargo, and Bank of America, for example) as well as banks that don't have a private alternative. But under a Preferred plan, only banks that don't have a private alternative will be given federal assistance. This would reduce the outlay otherwise required to solve the crisis.

Folks, we have a smoking gun here, you would have to be blind not to see that the Bernanke-induced crisis is being used by Paulson to funnel money to Goldman Sachs and his other crony favorites. The plan all along was to help out "healthy banks". It's on tape from the interim Assistant Secretary of Stability. Yeah, crisis and fear alright. Every time they utter those words, they move more of the $700 billion closer towards Goldman Sachs' vault.

UPDATE: There is a poor quality audio tape of the conference call on YouTube. Here is Part 3 where at the 9:00 minute mark the mention is made that healthy banks will be preferred. Thanks, Anthony.

Is "Bailout" Money Headed To Goldman Sachs?

I wonder if even the current bought and paid for Congress could have passed the Paulson Plan, if it was made clear some of the money would be heading to Goldman Sachs and Morgan Stanley?

Bloomberg is speculating that "Morgan Stanley and Goldman Sachs Group Inc., the biggest independent U.S. investment banks, may reap cash infusions as part of Treasury Secretary Henry Paulson's plan to buy stakes in financial institutions, investors said." Remember, Paulosn of late has been suggesting that "bailout" money will also head to "healthy" banks.

In the ultimate twist of the current situation that even George Orwell would appreciate, Bloomberg quotes Benjamin Wallace, an analyst at Grimes & Co. who said because Goldman and Morgan are now commercial banks, "Whatever solution they come up with for the banking industry as a whole will apply to them, because they're no longer special."

Morgan Stanley and Goldman were among the most profitable firms in Wall Street history and paid out $36.7 billion in compensation and benefits to employees for 2007.Both investment banks stayed profitable through the first three quarters of this year.

About That Goldman Sachs Downgrade Watch

Moody's assigned a negative outlook to the 'Aa3' long-term ratings of Goldman Sachs and its subsidiaries, reflecting expectations of an extended downturn in capital market activity, which will reduce the investment banking firm's revenue and profit potential in 2009.

The negative outlook also reflects the challenges presented by the vulnerabilities to the investment banking business model exposed in the current market environment, Moody's said. (My emphasis)

This should come as no surprise to long-term EPJ readers, as I wrote in August:

Given that the mismatched short liabilities/long assets balance sheets of the entire financial industry could result in a liquidity crisis for nearly any financial institution in the United States, isn't it quite curious that the financial institutions that seem to have had, or are having, the most liquidity troubles are those that Treasury Secretary Paulson always wanted to see taken out, i.e. Bear Stearns, Freddie and Fannie?

Goldman has always had the same kind of balance sheet as the rest of the industry.

According to Goldman's last 10Q, for the period ended August 2008, Goldman had $1.081 trillion in assets BUT $1.036 trillion in liabilities. That is an incredibly leveraged balance sheet, in the current financial climate.

Further, it has cash and cash equivalents of roughly $100 billion. They also have billions in receivables due from customers, counterparties and other brokers. But who really knows what part of those receivables are sound in this market?

On the short term liability side, Goldman appears to owe roughly $400 billion. So who really knows if they can meet all their obligations, if their financing sources dried up like they did for Lehman and Bear Stearns. (Note: These are all very rough approximations given to the lack of detail in the page filed at the SEC that I am reviewing, I could dig through footnotes and perhaps get a more detailed analysis, but I am trying to just get a rough idea and not make a career out of analyzing Goldman's trillion dollar balance sheet.)

But somehow, Goldman missed having rumors spread about it. As one trader put it, "I'd short Goldman, but they are too connected." Meanwhile, the rumors on Bear Stearns and Lehman, rumors that many believe were spread by Goldman, have buried those two firms.

Moody's put Goldman on downgrade watch for CYA reasons. They are scared because they don't know how low this market will drop. But Paulson, Kashkari and Wilson will make sure they have Goldman's back. Goldman isn't going bankrupt.

The Clueless New York Times Expands Into Clueless Blog Posting

Last week I pointed out how ELEVEN NYT reporters missed the heart of the financial crisis:

NYT put 11 reporters on this story and they all missed the mismatched balance sheets of the institutions in trouble, they failed to point out that while Bernanke is begging for $700 billion, the Fed can print $700 billion everyday if it wants to, and they failed to point out the immediate cause of the crisis--Bernanke's crashing of the money supply over the last four months.

This week an NYT blogger, Tom Kuntz, visits the Wall Street jungle, calls out EPJ and declares Goldman isn't the lion of the jungle and that it is, I guess, a meek kitten and that all this and this is just coincidence.

Go ahead,Tom, pet the pretty kitty.

It's A Goldman Sachs World: Compare and Contrast

Bear Stearns---GONE

Lehaman Brothers---GONE

Morgan Stanley---Trading at $8.00 down from $69.02

Goldman Sachs---Trading at $101.35

Treasury Secretary Paulson---Former Chairman and CEO Goldman Sachs

New "Special Government Employee" to help Paulson with the bank "bailout" Ken Wilson: Coming from Goldman Sachs The temporary post will subject him to less stringent ethics rules than many other high-level officials, according to FT.

Neel Kashkari named Treasury Interim Assistant Secretary for Financial Stability--Former Goldman Sachs man. "Interim" and "Assistant" probably means that he also will be subject "to less stringent ethics rules than many other high-level officials."

Goldman Sachs becomes bank holding company on September 21. On October 6, Treasury Secretary and former Goldman head signs tax rule changes giving huge tax benefits to bank holding companies.

Warren Buffett steps in to buy against the overall market down trend. What does he buy? $5 billion of Goldman Sachs stock.

Largest contributor to Barack Obama's Campaign: GOLDMAN SACHS employees.

Is it time to re-read, Does Goldman Sachs Run the World?

The Survivors Are Getting Bullish

Goldman Sachs employees probably are not going to tell you how positively giddy they are about Paulson's wipeout of most completion, but another survivor is a little less circumspect.

A friend tells us that Credit Suisse CEO Brady Dougan b"agged this week during a webcast at a Merrill Lynch conference in London, that: 'There are fewer market participants. The opportunities for those who remain will be stronger than ever. Credit Suisse will be one of them".

Alert: Interim Assistant Secretary for Financial Stability To Speak

Treasury Interim Assistant Secretary for Financial Stability Neel Kashkari will deliver remarks Monday before the Institute of International Bankers in Washington. He will discuss financial markets and Treasury's progress implementing the Emergency Economic Stability Act.

When
Monday, October 13, 8:00 a.m. EDT

Where
The Four Seasons Hotel
Salon A
2800 Pennsylvania Avenue, NW
Washington, D.C.

Keep in mind that this is another Goldman Sachs man brought over to Treasury by Paulson.

Paulson Names Former Goldman Sachs Man To Head Bailout

What a surprise another Ex-Goldman man in control of government finances.

Treasury Secretary Paulson has appointed Neel Kashkari to oversee the Troubled Assets Relief Program and the newly created Office of Financial Stability.

Kashkari, a former executive at Goldman Sachs, is the assistant Treasury secretary for International Economics and Development. He joined Treasury in July 2006.

Kashkari, prounced Cash Carry, for a crooked $700 billion slush fund? Who comes up with these names, a realtive of the late James Bond author Ian Fleming?

And , oh yeah, as far as hiring asset managers to actually manage the assets. Asset managers and other private-sector agents involved in running it may be hired "through other than full and open competition," the Treasury said in a statement.

The U.S. Government Bought and Paid for By Goldman Sachs

Contributions Made By Goldman Sachs and Its Employees This Year To Date:

Name
Office
Total Contributions

Obama, Barack (D-IL)
Senate
$691,930

Clinton, Hillary (D-NY)
Senate
$468,200

Romney, Mitt (R)
Pres
$229,675

McCain, John (R-AZ)
Senate
$208,395

Himes, Jim (D-CT)
House
$114,748

Giuliani, Rudolph W (R)
Pres
$111,750

Dodd, Christopher J (D-CT)
Senate
$105,400

Edwards, John (D)
Pres
$66,450

Specter, Arlen (R-PA)
Senate
$47,600

Emanuel, Rahm (D-IL)
House
$32,950

Reed, Jack (D-RI)
Senate
$30,100

Sununu, John E (R-NH)
Senate
$29,900

Baucus, Max (D-MT)
Senate
$26,000

Warner, Mark (D-VA)
Senate
$25,900

Harkin, Tom (D-IA)
Senate
$24,580

Lautenberg, Frank R (D-NJ)
Senate
$23,300

Skelly, Michael Peter (D-TX)
House
$22,657

Collins, Susan M (R-ME)
Senate
$21,400

Landrieu, Mary L (D-LA)
Senate
$20,700

Durbin, Dick (D-IL)
Senate
$19,800

McConnell, Mitch (R-KY)
Senate
$17,500

Rangel, Charles B (D-NY)
House
$16,100

Shays, Christopher (R-CT)
House
$15,600

Biden, Joseph R Jr (D-DE)
Senate
$14,800

Gillibrand, Kirsten E (D-NY)
House
$14,500

Cote , Adam (D-ME)
House
$14,000

Rockefeller, Jay (D-WV)
Senate
$13,400

Kirk, Mark (R-IL)
House
$13,200

Pryor, Mark (D-AR)
Senate
$12,600

Hoyer, Steny H (D-MD)
House
$12,500

Cornyn, John (R-TX)
Senate
$12,100

Maloney, Carolyn B (D-NY)
House
$12,100

Boehner, John (R-OH)
House
$12,000

The above is just a partial list. The full list is here.

Tag Teaming Alongside Bob Murphy

Yesterday, Bob announced at his blog, Free Advice, that he has placed CNBC contributor, Patricia Chadwick, right next to CNBC's Jim Cramer, on his never read again list.

The sin that warranted this banishment by Bob, according to Bob was :

I have criticized Chadwick before. But that was nothing. In today's "article," she offers absolutely zero arguments. She simply asserts that the American people are idiots--though understandably so, in Chadwick's condescending pity--for thinking the Paulson Plan a bad deal. And then, in order to placate those readers who maybe
wanted some evidence or something, Chadwick links them to a Tom Friedman (!!) oped on why Americans should support the bailout. You know, noted economist and
successful day trader Tom Friedman?

So I wandered over to CNBC to get a sense for what was going on. And Bob, the only thing I can say is LET ME IN THE RING!

Not only does she not provide any sound argument, but in her appeal to authority she not only uses Tom Friedman ( And Bob, this guy Friedman is an analyst. He writes in his column that he's frightened for the country and it has happened before: "I’ve been frightened for my country only a few times in my life: In 1962, when, even as a boy of 9, I followed the tension of the Cuban missile crisis." The guy was frightened at 9, Bob. Not for himself, but for his country! AT 9! So what were you doing at 9, Bob? I didn't even, independent of Ludwig von Mises, discover the Regression Theorem until I was 11. )

In addition to Friedman, she drags out Pimco's Bill Gross as an expert:

Unfortunately, despite dire warnings from sage and respected investors such as Warren Buffett and Bill Gross...

Oh yeah, the sage and respected Bill Gross. That's the same guy who jumped up and down on CNBC screaming that the government needed to bailout Freddie and Fannie. And we learned only later that the Pimco portfolio he managed was loaded with so much Freddie and Fannie paper that the portfolio increased over a billion dollars after the bailout was announced. And she thinks this Newport Beach hustler can be trusted?

I am only giving her a pass on Buffett because at the time she wrote, Buffett had only pigged out on Goldman Sachs and had not yet feasted at the table of that other insider monster G.E., and, also at the time, it still wasn't clear that Buffett is likely to be the largest beneficiary of Paulson's Plan.

So Bob, I got your back on this one. I think we are ready.

-Robert Wenzel

Warren Buffett As Fear Monger...

Billionaire Warren Buffett said the U.S. economy is ``flat on the floor'' after a cardiac arrest as companies struggle to secure funding and unemployment increases.

``In my adult lifetime I don't think I've ever seen people as fearful, economically, as they are now,'' Buffett said today in an interview with Charlie Rose to be broadcast tonight on PBS. ``The economy is going to be getting worse for a while.''

Yeah, right.

How nervous is Buffett about the economy? Last week he made a $5 billion investment in Goldman Sachs. This week he made a $3 billion investment in General Electric.

As I have pointed out, he will most likely be the largest beneficiary of Paulson's $700 billion Plan.

-Robert Wenzel

Goldman Sachs Stock Down 18.52%

Goldman Sachs stock is trading at 108.73 down $24.77 or 18.52%.

-EPJ Newsdesk

"Private Sector Solution to AIG's Situation Is Dead"

CNBC is reporting that a private sector solution to AIG's situation is dead. It looks like some type of government bailout will occur.

This should come as no surprise. We called it a dead deal when it was announced. However, what should come as a surprise (and alarm)is the Fed even asking Goldman Sachs and J. P. Morgan to attempt to raise $70 to $75 billion for AIG in this market.

This is scary in that it shows the Fed has no sensitivity to the markets at all. We repeat, Bernanke is C-L-U-E-L-E-S-S.

-Robert Wenzel

Goldman Earnings Fall 70%

Goldman Sachs reported net income of $845 million, or $1.81 a share, for the quarter ended Aug. 29, down from $2.85 billion, or $6.13 a share, a year earlier.

Net revenue fell by half to $6.04 billion from $12.3 billion.

Goldman is down $ 6.54 to $128.50.

-EPJ Newsdesk

Tone Deaf Federal Reserve Caused The Last 200 Point Drop In The Dow

A brief lull in market moving news is only now allowing us to catch a breath long enough to point out that the Fed caused the last 200 point drop in the market, yesterday.

The last drop came immediately after the Fed asked Goldman Sachs and J.P. Morgan Chase "to help make $70-$75 billion in loans available to AIG." WTF?

Is the Bernanke Fed totally tone deaf?

Earlier in the day,yesterday, the Fed Funds rate shot up to 6%, as banks were hoarding cash and just didn't want to lend to one another. The Fed had to inject $70 billion to force the Funds rate down to its 2% target. So we have a scenario where banks aren't even lending to one another, there are whispers that even Morgan Stanley and Goldman may not be able to withstand the panic,and the Fed goes out and asks Goldman and MorganChase to find $70 to $75 billion for AIG. I repeat the Fed had to inject funds because banks weren't loaning to one another and, in this crisis environment, the Fed asks Goldman and MorganChase to scratch up $70 to $75 billion for a firm on the brink of failure. C-L-U-E-L-E-S-S.

That's when the market tacked on the last 200 point drop in yesterday's 500 point decline.

-Robert Wenzel

The Morning Ahead

The factors to monitor in the morning are near overwhelming.

To start, we have an FOMC meeting. Will the Fed cut rates?

Henry Paulson is scheduled to testify before Congress in the morning, and later in the day he is scheduled to give a speech at the Brookings Institute about the economy and housing. He is likely to be very cautious at both venues about what he says. Will he by accident trigger more downside action?

Lehman has filed for Chapter 11 and other banks have continued to trade with it. Yet, despite being in Chapter 11, and presumably under court supervision, Lehman continues to push for a shotgun sale of its money management firm, among other assets. How will this activity sit with the bankruptcy judge and other bankers?

The Merrill Lynch acquisition by Bank of America looks shaky. Will the deal still be alive by the end of the day? How tight of an acquisition contract was John Thain able to draw up in such an intense, short term period?

What news will develop from the AIG situation?

How will the markets react to the downgrade of WaMu?

Will the panic in the investment bank arena spread to the two remaining major independent players, Morgan Stanley and, the very well connected, Goldman Sachs? 

How bad will things get overnight in overseas trading?

Have a good nights sleep.

-Robert Wenzel

Brother, Can You Spare $70 to $75 Billion?

The Fed has asked Goldman Sachs and J.P. Morgan Chase "to help make $70-$75 billion in loans available to AIG." according to WSJ.

File under: Not going to happen.

AIG's shares closed down 61% at $4.76 at 4 p.m. Monday. The insurer's stock has lost 90% of its value so far this year.

-Robert Wenzel

Datapoints

The Dow is down 277 points.

The decline in the S&P. financial index is not anywhere near the lows hit in July, while the S.&P. 500 is approaching those levels.

AIG is down $5.31 to $6.83 per share.

Goldman Sachs is down $8.76 to $145.32 per share.

-EPJ Newsdesk.

Ten Banks Commit to $70 Billion Borrowing Facility

Ten of the world's biggest banks on Sunday committed to establish a $70 billion borrowing facility to bolster worldwide liquidity.

Each bank has committed to fund $7 billion for the collateralized facility, and any one of the 10 banks would be permitted to borrow up to one-third of the total facility, the banks said in a joint statement. The financing may grow "as other banks are permitted to join," they said.

The 10 banks are Bank of America Corp, Barclays Plc, Citigroup Inc, Credit Suisse Group, Deutsche Bank AG, Goldman Sachs Group Inc, JPMorgan Chase & Co , Merrill Lynch & Co , Morgan Stanley and UBS AG.

Note: Interesting that Merrill is on the list, since they were just bought/bailed out by B of A.

-Robert Wenzel

If Lehman Liquidates, Wall Street Gets Set to Make a Killing

WSJ's Evan Newmark tells it the way it is:.

Goldman has billions of dollars dedicated to distressed debt situations just like this. It may very well run counter to the interests of Goldman investors and shareholders to subsidize any deal for Lehman.

This is where the Lehman death drama turns into farce. It isn’t a shortage of outside capital that is driving Lehman into bankruptcy. It is the bid-ask spread on its bad assets, or the difference between a buyer’s and seller’s views on price.

Sure, the $53 billion in assets are illiquid, but at some price there is a buyer. Are the assets worth 10 cents on the dollar or 50 cents on the dollar? Dick Fuld was afraid to find out.

Still, there are tens of billions of dollars of Wall Street capital happy to bid for the assets. Goldman, private-equity firms like J.C. Flowers, Kohlberg Kravis Roberts, Carlyle Group, TPG or Blackstone Group, hedge funds, distressed-debt funds and sovereign-wealth funds all have capital. They are just waiting for the clearing prices on Lehman’s assets to get attractive...

but what about the collective well-being of the markets? What about a feared-for financial apocalypse brought about by the unwinding of Lehman’s $600 billion balance sheet?

It may not be pretty, but apparently Wall Street has decided that the price won’t be too steep. Or else, it would have put up the money.

If a Chapter 7 filing is made, Wall Street will move on. In offices and conference rooms not far from the New York Fed, bankers probably are already gathering to prepare for bids on assets they hope to pick up on the cheap in any potential Lehman liquidation.

In the coming weeks, Wall Street’s vultures will pick over Lehman’s still-warm body–and wait for one or two more victims to come their way.

Bottom line: Goldman Sachs, the Carlyle Group and friends come out on top again, and, for Goldman, another competitor bites the dust.

The LTCM Meeting Versus The Lehman Meeting

When Long Term Capital Management was collapsing the New York Fed held an emergency meeting similar to the meeting held yesterday evening regarding Lehman Bros.

The LTCM meeting was held on September 22, 1998. It is instructive to review who was at that meeting, almost 10 years to the day of the emergency Lehman meeting:

Bankers Trust, Barclays, Bear Stearns, Chase, Credit Suisse First Boston, Deutsche Bank, Lehman Brothers, Morgan Stanley, Credit Agricole, Banque Paribas, Salomon Smith Barney, Societe Generale, Merrill Lynch, Goldman Sachs, UBS and JPMorgan

Of this group, Bear Stearns is gone, Lehman will be buried on Sunday and Merrill Lynch is on the edge. The only other independent investment banks still standing are Goldman Sacks and Morgan Stanley.

This needs to be re-stated. If Merrill goes down, the only remaining significant(that the NY Fed calls to emergency meetings) independent investment banks will be Goldman Sachs and Morgan Stanley.

Maybe its time to re-read my Does Goldman Sachs Run The World? column.

-Robert Wenzel

As The World Crashes....

Bear Stearns..Gone.

Fannie Mae...Government hearse has arrived.

Freddie Mac...Government hearse has arrived.

Lehman Brothers....A priest has been called.

Washington Mutual...On life support.

Wachovia...Alarm buzzer in Emergency Room is screeching.

AIG...Being rushed to hospital.

Merrill Lynch...High fever.

Goldman Sachs (Where Henry Paulson was Chairman and CEO before heading the Treasury).....Today's closing price: $153.47 per share.

-Robert Wenzel

Rubbing It In Soros' Face

Street talk has Treasury Secretary Paulson's former firm, Goldman Sachs, taking over Lehman Brothers, which will not be a profitable transaction for George Soros, who has a 9.47 million common stock position in Lehman.

Soros, big time Democrat, behind Barack Obama versus Paulson and a Republican Administraton. Get it?

-Robert Wenzel

Is Goldman Sachs Behind Rumors About Lehman Bros.?

Apparently, Lehman's CEO Richard Fuld Jr. think's so.

Fuld called Treasury Secretary Hank Paulson's old firm in June, according to WSJ:

Mr. Fuld grew increasingly frustrated about chatter over Lehman's future and rumors that counterparties were shying away from trading with the firm. At one point, Mr. Fuld contacted Goldman Sachs Group Inc. CEO Lloyd Blankfein. "You're not going to like this conversation," Mr. Fuld told Mr. Blankfein, accor