On Goldman
Let me just say this about that.
In 2001 through 2002, the country as a whole found out about the massive fraud Enron committed in terms of the profits that it reported to Wall Street. They used two larger components of one system.
First, they used "mark to market" accounting. This allowed them to write down revenue on products, or services, that were going to be released in the near future (read: never). So, God knows how much money they were going to make on it, but they figure a good ball park number would work just as well.
Second, and what really got CFO Andrew Fastow in the deep was the use of shell companies from which they borrowed money. Enron would then take that “borrowed money” – that was actually just a transfer in the books - record it as a profit, or more likely, use it to shore up Enron’s cash position and make the balance sheet look better.
Fast forward only just a few years to where we are now, and marvel as to how Ben Bernanke and the Fed have started many programs to help out these large banks on Wall Street, and yet, have not disclosed who is getting what money.
Goldman made over $3 billion this quarter? How much money is Goldman borrowing from the Fed through its new programs? How has that money figured into their statements? No one knows.
And at the end of the day, you turn on CNBC to hear them proclaim, "Well, they're smart." Um, no, they’re just dicks.
The real problem is that nobody cares because the effect is indirect.
Goldman Sachs did borrow money from the Fed just like almost every other large bank has been doing for the last few months. First, we have to go back to ECON 301 (Banking and Monetary Policy) to remind ourselves that we were taught borrowing from the Fed should be done only as a last resort.
So, when the overnight lending market froze up (something Goldman helped contribute to anyway - I'll get to that), most firms had to search other places to get cash and capital. Or they could tap into their own capital and cash to pay bills for the next day.
Now, as I said, Goldman helped contribute to this in the beginning by putting out collateral calls on AIG, which could not pay them all at once. This helped AIG go under, which further led to the panic, which further led to more collateral calls from other people, and so forth and so on.
But, here is the coup de grace. Goldman is/was not a bank. In order for their butts to be saved, the Fed, IRS, whoever, had to reclassify them as a bank so that they could borrow money from the Fed. So, that should anger some people. I mean, I can't change my personal classification to a bank so I can borrow money from the Fed at its super cheap funds rate.
That said, Goldman not only borrowed from the Fed, but also participated in the special programs that the Fed recently put out to further help these firms. And as I stated previously, no one knows how much the Fed has given to Goldman because the Fed is not required to disclose that information.
In 2001 through 2002, the country as a whole found out about the massive fraud Enron committed in terms of the profits that it reported to Wall Street. They used two larger components of one system.
First, they used "mark to market" accounting. This allowed them to write down revenue on products, or services, that were going to be released in the near future (read: never). So, God knows how much money they were going to make on it, but they figure a good ball park number would work just as well.
Second, and what really got CFO Andrew Fastow in the deep was the use of shell companies from which they borrowed money. Enron would then take that “borrowed money” – that was actually just a transfer in the books - record it as a profit, or more likely, use it to shore up Enron’s cash position and make the balance sheet look better.
Fast forward only just a few years to where we are now, and marvel as to how Ben Bernanke and the Fed have started many programs to help out these large banks on Wall Street, and yet, have not disclosed who is getting what money.
Goldman made over $3 billion this quarter? How much money is Goldman borrowing from the Fed through its new programs? How has that money figured into their statements? No one knows.
And at the end of the day, you turn on CNBC to hear them proclaim, "Well, they're smart." Um, no, they’re just dicks.
The real problem is that nobody cares because the effect is indirect.
Goldman Sachs did borrow money from the Fed just like almost every other large bank has been doing for the last few months. First, we have to go back to ECON 301 (Banking and Monetary Policy) to remind ourselves that we were taught borrowing from the Fed should be done only as a last resort.
So, when the overnight lending market froze up (something Goldman helped contribute to anyway - I'll get to that), most firms had to search other places to get cash and capital. Or they could tap into their own capital and cash to pay bills for the next day.
Now, as I said, Goldman helped contribute to this in the beginning by putting out collateral calls on AIG, which could not pay them all at once. This helped AIG go under, which further led to the panic, which further led to more collateral calls from other people, and so forth and so on.
But, here is the coup de grace. Goldman is/was not a bank. In order for their butts to be saved, the Fed, IRS, whoever, had to reclassify them as a bank so that they could borrow money from the Fed. So, that should anger some people. I mean, I can't change my personal classification to a bank so I can borrow money from the Fed at its super cheap funds rate.
That said, Goldman not only borrowed from the Fed, but also participated in the special programs that the Fed recently put out to further help these firms. And as I stated previously, no one knows how much the Fed has given to Goldman because the Fed is not required to disclose that information.
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