In our previous post we began a report on how the Fed is using its balance sheet to protect TBTF banks and their investors. Now let’s dig a little deeper into data recently pried out of the Fed by CONgress, under pressure from…us.
Here’s another must-read piece, at EconomicPolicyJournal.com, which tracks the bailout of Goldman Sachs:
- Thanks to the Fed’s massive, undisclosed assistance, Goldman Sachs managed to project an image of financial well-being, even while accessing tens of billions of dollars of direct assistance from the Federal Reserve.
- By repaying its TARP loan, for example, Goldman wriggled out from under the nettlesome compensation limits imposed by TARP, while also conveying an image of financial strength. But this “strength” was illusory. Goldman repaid the TARP loans with funds it procured days earlier from the Federal Reserve. Then, over the ensuing months, Goldman recapitalized its balance sheet by selling tens of billions of dollars of mortgage-backed securities to the Fed.
- During the three months following Goldman’s re-payment of its $10 billion TARP loan, the Fed purchased $27 billion of MBS from Goldman. In all, the Fed would purchase more than $100 billion of MBS from Goldman during the 12 months that followed Goldman’s TARP re-payment.
Take some time to get familiar again with the chart here. Move the timeline from left to right with your mouse. Move the mouse up and down into the various colored areas that make up the different zones of the Fed’s balance sheet.
Now watch as the Fed buys over $1 Trillion of mortgage-backed securities from banks; while we know the Fed marked down the value of securities it lent against, we do not to my knowledge know how the Fed valued the securities it bought outright. These securities now rest on the Fed’s balance sheet. Are these the “distressed” and “unwanted paper” that BoE Governor Mervyn King referred to in his Wiki-leaked cable we reported last time? In other words, did Goldman sell $100 Billion of junk securities to the Fed, repay TARP, then pay itself $Billions in bonuses for good performance?
But wait, there’s more! That’s not Goldman’s only source of “profits” from which “performance bonuses” might flow. There’s also this from USNews Chief Business Correspondent Rick Newman:
- Goldman Sachs. Wall Street’s toniest firm got $10 billion in TARP money in October 2008, along with eight other big banks that got government checks. Eight months later, Goldman was the first big bank to pay back its bailout money, with interest. Hooray for them. But Goldman also got a stealth bailout that will never be returned to taxpayers, courtesy of AIG. When the feds propped up AIG last fall, that allowed Goldman to ease its way out of nearly $6 billion worth of deals with AIG that could have been worth pennies on the dollar in a normal bankruptcy case. And later, Goldman got almost $14 billion of bailout money that went to AIG’s trading partners, effectively redeeming Goldman’s trading bets with AIG at 100 percent of their face value.
- Other banks got a 100 percent redemption out of AIG too, but Goldman got the most. And the fact that Henry Paulson, who was treasury secretary during the first four months of the meltdown, had come straight from a stint as CEO of Goldman Sachs raised the awful prospect that billions in taxpayer money was going to favored Wall Street fat cats. Nobody has ever offered a convincing explanation for the delicate treatment Goldman received, which fuels the worst kind of speculation. Please, say it ain’t so.
Watch the growth over time of the “Funds related to the rescue of Bear Stearns and AIG” on the chart here.
- Goldman Sachs released its 2009 annual report today showing it made net revenues of $45.17 billion with net earnings of $13.39 billion. In its shareholder letter, Goldman says it repaid TARP money, but did not mention the massive new taxpayer subsidies it continues to enjoy.
- Goldman reaped windfall profits to replenish its capital, and paid bonuses of over $16 billion to its employees.
- Staff at Goldman Sachs staff can look forward to the biggest bonus payouts in the firm’s 140-year history after a spectacular first half of the year,
People in the U.S. raised such a stink over TARP that a stealth bailout was necessary, due to “systemic insolvency,” as alluded to by BoE Governnor Mervyn King. That stealth bailout appears to have been delivered by the Fed, creating more than a $1.5 Trillion out of thin air. $Billions in bonuses has been paid to bankers at (systemically insolvent?) TBTF banks for “good performance.” The money to pay those bonuses appears to have come directly from the Federal Reserve; it also appears it was created out of thin air by the Fed when the Fed bailed out AIG and bought mortgage-backed securities from TBTF banks.
Can we get a real audit of the Fed now?