ARCHIVES: ‘Government Sachs’ Strikes Gold … Again

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“‘Government Sachs’ Strikes Gold…Again”

By Robert Scheer

“We’ve come full circle, because that is exactly what the Rothschilds or J.P. Morgan the banker were doing in their heyday. What caused an aberration was the Glass-Steagall Act.” — Goldman Sachs CEO Lloyd Blankfein explaining how the repeal of the Glass-Steagall Act by Bill Clinton, following the advice of Robert Rubin (another former chairman of Goldman Sachs and Clinton’s Secretary of the Treasury), contributed to his company’s success.


CONNECT THE DOTS: Goldman Sachs made $3.44 billion in profit this past quarter, while the U.S deficit topped $1 trillion for the first time in the nation’s history and appeared to be headed toward doubling that figure before the budget year is out. Since most of the increase in the federal deficit is due to bailing out the banks and salvaging the greater economy they helped destroy, why is the top investment bank doing so well?

•••

robert-rubin

Hank Paulson (above) and Robert Rubin (left) are two influential Wall Street guys who contributed a great deal to the recent (and immensely costly) implosion of the world economy. Both are well versed in the game of running the US government via their political shills–willing players from either party. Of the two, however, Paulson at least has the personal redeeming feature of being an avid nature lover. He’s done a great deal to defend the environment, the same environment his cronies in the plutocracy continue to devastate.

Well, because that was the plan, as devised by Bush Treasury Secretary Henry Paulson, a former CEO of Goldman Sachs. Remember that Lehman Brothers, Goldman’s competitor, was allowed to go bankrupt. The Paulson crowd wouldn’t let Lehman change its status to that of a bank holding company and thus qualify for federal funds; soon afterward, Goldman was granted just such a deal, worth a quick $10 billion. Much is now made of Goldman paying back part of its bailout money, but forgotten is the $12.9 billion that Goldman got as its cut of the $180 billion AIG payoff. That is money that will not be paid back.

Goldman is considered a very smart bank because it was early in reducing its exposure to the mortgage derivatives that in large part caused the meltdown. However, it had done much to expand the market and continued to sell suspect derivatives to unwary buyers as sound investments, even as Goldman divested. The firm still holds $1.85 billion in real estate and lost $499 million in the previous quarter on bad loans, but made up for it by playing the vulture role and issuing high-interest debt to governments and companies made desperate by the recession that the financial gimmicks of the banks brought on in the first place.

And Goldman was not just another bank. Before Paulson ran the Treasury Department, another former Goldman head, Robert Rubin, pushed through the repeal of the Glass-Steagall controls on banking activity. While some now play down the significance of this radical deregulation, not so Goldman Sachs CEO Lloyd C. Blankfein — at least not back in June 2007, when the markets were still doing well. “If you take an historical perspective,” Blankfein told The New York Times by way of explaining his company’s spectacular success at the time, “we’ve come full circle, because that is exactly what the Rothschilds or J.P. Morgan the banker were doing in their heyday. What caused an aberration was the Glass-Steagall Act.”

That 1933 act was repealed in a law signed by President Bill Clinton at Rubin’s urging, and in the following eight years Goldman Sachs recorded a 265 percent growth in its balance sheet. “Back then,” The Wall Street Journal reports, “Goldman was churning out profits by trading credit derivatives, speculating on currencies and oil and placing big bets [on] the roaring stock market.”

Big bets made in a casino designed by Goldman, which now makes money off loans to the victims. High on the list of victims are state governments that have to turn to Goldman for money because the federal government that saved the banks won’t do the same for the states, which have watched their tax bases shrink because of the banking meltdown. As the WSJ noted, “issuing debt to ailing governments” is now a growth industry for Goldman.

Why didn’t the federal government just lend the money to the states? Why was all the money thrown at Wall Street instead of needy homeowners or struggling school systems? Because the federal government works for Goldman and not for us. Indeed, when it comes to the banking bailout, Goldman Sachs is the government.

So much so that last fall The New York Times ran a story, headlined “The Guys From ‘Government Sachs,’ ” that stated: “Goldman’s presence in the [Treasury] department and around the federal response to the financial bailout is so ubiquitous that other bankers and competitors have given the star-studded firm a new nickname: Government Sachs.”

One of those stars was Stephen Friedman, another former head of Goldman. Friedman was both a director of the company and chairman of the New York Federal Reserve Bank when he helped work out the details of the Wall Street bailout. The president of the N.Y. Fed at the time, Timothy Geithner, now secretary of the treasury, requested a conflict-of-interest waiver that allowed Friedman to buy more Goldman Sachs stock, and Friedman ended up with 98,600 shares. At market close on Tuesday that was worth $14,756,476. That’s nothing – three years ago, the 50 top Goldman execs made $20 million each, and this year could be better.

They’re not hurting.

•••

robertScheer2ROBERT SCHEER is a veteran political and investigative journalist. Scheer formerly wrote a nationally syndicated op-ed column for the San Francisco Chronicle from a liberal perspective. He teaches communications as a professor at the University of Southern California and edits the online magazine Truthdig.

Simulpost with http://www.truthdig.com/report/item/20090714_government_sachs_strikes_gold_again/

Dateline: Truthdig                                                                                       July 14, 2009

One comment on “ARCHIVES: ‘Government Sachs’ Strikes Gold … Again
  1. The strenuous efforts of the American elites to keep capitalism in its previous form going has pretty well been doomed from the early 1980’s on and in fact we are witnessing the slow growth of another type of guided economic hegemony rising amongst the rubble. Rubble because the disintegrating forces of the capitalist decline have become so chaotic that there is little the regime in America can do to salvage much of the original capitalist system. Since their outlook is stifled by their ideologies and the parameters set by the vested interests, they remain unable to look beyond their pre-set horizons. The resulting lameness is being propagandized as ‘recovery’, that is to say a re-establishment of traditional capitalist mandates, which is pure fiction. Speculations of the Wall Street kind whereby productive monies were being manipulated to create profits by stealth have proven to be a visible and harmful dead end for those who invested directly or indirectly into their Ponzi schemes. While the bail-outs like those of the savings and loan industries under Reagan have shifted enormous funds from the public sector into private hands, the new managed economy is fully dependent on these direct disbursements from the public purse into the neo-capitalist system, which in fact is state-protected investment like in the once USSR. Under state protection private industry like banking is promoted as a national enterprise regulated and controlled by a regime which is fully composed of former directors of that banking industry. Nationalization equals control over the basic lifeblood of an economy, namely money and the state with its Wall Street banking branches are one and the same. There is also where its weakness lies because if the state would be taken over by a truly democratic uprising, control over the economy would shift to the public itself, bypassing all the power brokers and lobbyists, now holding their government in bondage. The present neo-capitalists fail like all overseers in history to see that obfuscation tends to grow very thin at the edges where people truly suffer and this rending apart of the intense propaganda for the status quo will spread inexorably to the formerly blind in Gaza. The more centralization of powers is needed to keep the show going, the weaker it gets and with the neo-capitalist‘remedies’, the top heavy state with its many branches in finance and production will be seen as toppable. It may take only a small incident or a large one like the sell-out of health care, only time will tell.

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