Wednesday, March 25, 2009

Goldman Sachs starting to feel the heat

[Updated 3/26/09 - I did some extensive editing to this post. In my haste to post it last night I made a few errors which I've corrected. I've also added some additional material including more links for those with "inquiring minds" that want to know more.]

Ever since "Hank" Paulson, the ex-CEO of Goldman Sachs, got down on his knees to beg Congress for the original $700 million bailout, their has been unwanted attention focused on the role of Goldman Sachs in this justifiably maligned government welfare plan for the Wall St. banks. At every turn it seems that the shadowy figure of GS is lurking. Whether it is ex-GS employees, current GS employees or government officials with strong ties to GS like Tim Geithner.

Due to the secretive nature of the Wall St. financial world in general and of the bailout in particular, there has been much lingering uncertainty about the exact role of GS in this whole process. And that's just the way that GS likes to operate - in the shadows and outside of public scrutiny. In typical GS style, Paulson and Bernanke held secret closed door sessions with members of Congress to frighten and intimidate them into immediately passing the bailout bill. Do you remember the threats of martial law reported by Brad Sherman if the bailout was not passed? According to Senator James Inhofe these threats were issued by none other than "Hank" Paulson himself.

It was these types of bullying tactics that caused Dennis Kucinich to make these remarks in response to questions from Democracy Now's Amy Goodman on September 29, 2008.
I said we’re the Congress of the United States; we’re not the board of Goldman Sachs. Goldman Sachs is struggling to survive. And, you know, their former chief is now the head of the US Treasury. He’s in a position to be able to direct assets in a way that would help enhance his own financial standing. I mean, that’s a clear conflict of interest. And, you know, that’s something that needs to be said. You know, why are we permitting the person who has essentially been in a position where he’s managed assets that—you know, many of which are now in trouble, and he can come back and help clear the books for a lot of his friends? This is wrong. It’s fundamentally wrong. And, you know, it’s one of the things that adds a degree of stench to this.
When all is said and done and the jeweler’s eye is applied to this bill, this bill is about Wall Street. And unfortunately, you know, Goldman Sachs, with their man now as the Secretary of the Treasury, is going to be able to have some of its policies escape scrutiny. And this is probably a way to keep them afloat, I’m sure. Well, you know, I don’t want anybody to go down or out of business, but it seems to me that when the Secretary of the Treasury has massive holdings in Goldman Sachs and he’s going to be in a position of being able to direct investments and buy out bad investments, I think that we could easily conclude what that would do for his former firm.
Now it seems that the revelation of $13 billion in payments which were secretly funneled through AIG to Goldman Sachs has finally motivated Congress to shine a spotlight on the Wall St. bank's past bailout activities. Perhaps some congresspeople have been reading my blog because they are starting to speaka-my-language when it comes to Goldman Sachs.

I recently posted a video of Rep. Maxine Waters (D-CA) confronting Secretary of Treasury Timothy Geithner on some of these issues. And now Rep. Elijah Cummings (D-MD) has stepped up to the plate with a proposal for an investigation which if handled properly could finally shed some light onto the behind-closed-doors wheelings and dealings that GS has been involved in with respect to the bailout.

In a letter full of statements seemingly taken directly from the pages of Future News Today (FNT) El Distinguido Señor Cummings has requested that the Special Investigator General in charge of the TARP, Neil Barofsky, begin an investigation into the AIG payments of TARP funds to its counterparties. And of course we all now know that the "counterparty" that received the biggest payment was my old nemesis Goldman Sachs.

Here is the full contents of Cummings' letter as produced in an article in TPM Muckraker titled "Cummings Wants IG to Investigate Counterparty Payments". (The highlights are mine.)
Keep AIG accountable for every taxpayer dollar
Join a request for an investigation into AIG's counterparty payments

Dear Colleague:

American International Group, Inc. (AIG) has received roughly $180 billion in taxpayer funds since September 2008. Yet it has continued to pay hundreds of millions in bonuses to the same AIG employees that drove the company into insolvency.

As we continue to address the issue of the bonuses, we cannot lose sight of another potential abuse of taxpayer funds - the counterparty payments.

Under intense pressure, AIG finally released a list of transaction counterparties on March 15. These releases showed that the investment banks around the world received billions in taxpayer dollars without apparently being required to take a discount; further, there is little evidence that a concerted strategy guided the payments.

The American people were told that they had to bail out the financial sector because of the great systemic risk from an AIG collapse, and $180 billion later, the people find themselves "involuntary investors."

Further, Goldman Sachs claimed in September that they had no material exposure to AIG; however, after AIG released the counterparty information on March 15, we found out that Goldman Sachs received almost $13 billion in counterparty payments.

The Special Inspector General for the Troubled Assets Relief Program was created to ensure that transparency and accountability stay firmly rooted in the government's efforts to revive and sustain the American economy. This letter proposes that the Special Inspector General examine the nature of the counterparty payments - including the recipients, the process by which they were made whole, and the justification, if any, for that level of payment.

Investment in AIG may be necessary, but it deserves the utmost scrutiny and attention. For more information or to co-sign the letter requesting an investigation into the counterparty payments from AIG (text can be found below), please contact xxxxx at xxxxx, by 3:00 pm, Tuesday, March 24. 
Anyone that has been reading my blog regularly can just imagine how happy and excited I am about this new development. I wonder if any of Rep. Cummings' staff have been visiting my blog to gather information since this is exactly what I have requested in my article titled "SIGTARP is the new sheriff in town". Of course it could just be that Mein Güten Herr Cummings was taking the counsel of Elliot Spitzer (I always want to call him Mark Spitzer for some reason - hmmm). But then Elliot didn't come up with the idea of having the TARP SIG investigate this - that was my idea! Anyway Spitzer should be brought in as an adviser to suggest strategy and questions to be asked of witnesses. There are internet rumors that ex-Gov Spitzer was taken down by powerful Wall St. interests that didn't want him poking around in their backroom deals. Perhaps this could be Spitzer's revenge. And despite what you may have learned in Sunday school, revenge is sweet. I have a feeling that Spitzer would be willing to do this work pro bono publico - literally "for the public good".

When I wrote my first article on Goldman Sachs titled "Goldman Sachs: Wall St. Gangstas", I had no idea what I was getting into. Now I can no longer deny, as I used to, that I have an obsession with all things GS. I'll keep an eye on this story and post articles on my blog of anything that I hear. If any of you happen to hear of any developments please post a comment on any of my articles and I'll follow up on it.

Frank Hope

P.S. I want to give a special shout out to POGO,  the Project On Government Oversight. They have been doing a magnificent job of keeping these and other important issues in the public spotlight. It was an article on their site titled "Keeping an Eye on the (Goldman Sachs) Prize" which directed me to the TPM Muckraker article.

... and I'd like to thank the Academy for ...

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