Goldman Booms, While Jobs and Housing Crash
U.S. employers cut a larger-than-expected 467,000 jobs in June and the unemployment rate climbed to a 26-year high of 9.5 percent. Workers also saw weekly wages fall, suggesting Americans will have little appetite to spend and the economy's road to recovery will be bumpy.
Wages are falling, but gas prices rose by 30% and food prices rose by 15% during April-June 2009.
And more bad news...
Mortgage applications fell last week by the most since February, defying efforts by President Obama's administration to revive the housing market.The Mortgage Bankers Association's index of applications to purchase a home or refinance a loan dropped 19 percent to 444.8 in the week ended June 26, from 548.2 in the prior week. The group's refinancing gauge declined 30 percent to the lowest in seven months, while the index of purchases fell 4.5 percent.
And now for the good news!
Investment bankers at Goldman Sachs are about to "earn" the biggest bonus payouts in the firm's 140-year history!
David Williams, an investment banking analyst at Fox Pitt Kelton, said: "This year is shaping up to be the best year ever for investment banks, or at least those that have emerged relatively unscathed from the credit crisis."These banks are intermediaries in the bond markets where governments and companies are raising billions of pounds of new money. There is also a lack of competition that means they can charge huge sums for doing business."
Last week, the firm predicted that President Barack Obama's government could issue $3.25tn of debt before September, almost four times last year's sum. Goldman, a prime broker of US government bonds, is expected to make hundreds of millions of dollars in profits from selling and dealing in the bonds.
I applaud Obama's heroic efforts on Porkulus, TRAP, fail-outs and impatiently await other progressive initiatives, such as cap/trade tax, healthcare tax and middle-class tax, to name a few.
By now, I finally believe in this change.
July 2, 2009 7:53 PM | Reply | Permalink
Harharharhar!!!
July 2, 2009 8:15 PM | Reply | Permalink
I might have ruined a flood of commentary and rec's to your post. If I did, I'm so very sorry!!
:-)
July 2, 2009 9:20 PM | Reply | Permalink
It was worth it!
There's something dada-esque about "porkulus," and why not?
It's all senselessness, and corruption.
July 3, 2009 12:33 AM | Reply | Permalink
Dada-esque or not, Hope and Change are on the march!
Paul Krugman has began to agitate for Porkulus 2.0:
"O.K., Thursday’s jobs report settles it. We’re going to need a bigger stimulus. But does the president know that?"
http://www.nytimes.com/2009/07/03/opinion/03krugman.html?_r=1
July 3, 2009 10:02 AM | Reply | Permalink
Holy shit, the people running our country are idiots.
July 3, 2009 4:00 PM | Reply | Permalink
No, they are liberals.
July 3, 2009 7:10 PM | Reply | Permalink
Mmm....
July 3, 2009 7:10 PM | Reply | Permalink
Is there a legislative laxative?
July 2, 2009 11:54 PM | Reply | Permalink
And if so, do we want the result? I wonder if gridlock is a better solution. Keep the nitwits tied up and let us figure out the solutions without interference.
July 2, 2009 11:55 PM | Reply | Permalink
Eeek!
I like your second idea better. Seal the Beltway, and turn Washington into a political leper colony.
Make them wear leper-bells!
July 3, 2009 12:44 AM | Reply | Permalink
There's also some weird arithmetic from the Bureau of Labor Statistics...
And still no layoffs at Goldman Sachs...
July 3, 2009 12:55 AM | Reply | Permalink
Check this out.
http://www.rollingstone.com/politics/story/28816321/the_great_american_bubble_machine/print
July 3, 2009 2:53 AM | Reply | Permalink
Yeah, I read Matt Taibbi's article, but I hadn't noticed Goldman's priceless defense...
"We are painfully conscious of the importance in being a force for good."
Harharharhar!!!
As far as I can tell, anything in that article which looks like a wild metaphor is literally true, like...
"If America is circling the drain, Goldman Sachs has found a way to be that drain."
What a metaphor! But...
They were the meltdown! They are the bailout! They ate the world!
July 3, 2009 4:50 AM | Reply | Permalink
Quite.
Our elected officials, and the regulators who they appointed, shared the meal with them. I think they're about to have a case of indigestion.
July 3, 2009 6:55 AM | Reply | Permalink
I have a question. Maybe a bit off topic but in all the states they have real estate tax or property taxes. This is usually payed to the mortgage company - bank or what not. And they pay the state.
Now call me naive but even if the house/land/etc. is now owned by the bank or what not, aren't they still required to pay this tax ??
I get the impression that this is not the case since a good part of the states fiscal problems is no tax money coming in.
After all the houses, land, buildings did not just vanish. Someone holds the deeds.
C
July 3, 2009 9:24 AM | Reply | Permalink
The fraction of revenue that depends on real estate tax varies from state to state, but in general a relatively small increase wouldn't fix many of the state budgets now in default.
California is a special case, because of Prop 13 (1978), but it happens to be the case I'm familiar with, so...
If you look at California's revenue projections here, by scrolling down to the handy 2009-10 Governor's Budget General Fund Revenue Forecast Summary Table, you'll see that out of total revenue of $102 billion, personal income tax, sales and use taxes, and corporate taxes account for $92 billion.
All those revenue streams have dried up with the recession/depression, and although other states raise a larger fraction from real estate taxes, all of them are suffering major losses from the same sources as California.
July 3, 2009 9:58 AM | Reply | Permalink
I thing the fast majority of revenue her in Florida is from real estate tax. The rest is sales tax etc.
No income tax in Fl.
C
July 3, 2009 2:41 PM | Reply | Permalink
> Now call me naive but even if the house/land/etc. is now owned by the bank or what not, aren't they still required to pay this tax ??
Yes, the bank that holds the deed has to pay the property tax no matter what; it's why you can get houses so cheap while they're in foreclosure, because the bank doesn't want to keep paying taxes on it.
July 3, 2009 4:47 PM | Reply | Permalink
This really drives me up the wall. And now they are selling the banks their warrants back at a discount, because... Geithner just can't figure out how to set up an e-trade account and sell them on the open market like a normal person. WTF? They're not even trying to rationalize it. Just blatant corruption.
http://wonkroom.thinkprogress.org/2009/07/01/treasury-tarp-warrants/
The only half-decent news is that the PPIP seems to have been almost neutered. We may now ONLY lose 20 billion on it. HAR!
July 3, 2009 9:34 AM | Reply | Permalink
I think you're right about the low-ball bidding on warrants... It's just another (relatively small) gift to the banks from their best friend Tim Geithner.
But somewhere in the micro-print on all these deals, the federal government is still guaranteeing an amazingly huge amount of complicated financial derivatives that nobody understands now any better than we understood them two years ago.
These things don't show up on bank balance-sheets because the conditions that trigger derivative pay-offs haven't arisen... yet.
This is a $14 trillion disaster still waiting to happen
July 3, 2009 9:46 AM | Reply | Permalink
I still haven't seen an estimate of what it is ultimately going to cost, Rootie. Have you?
I don't know what to think of this 14 T figure. It's underestimating the real extent of guarantees - it ignores the implicit guarantees on all the liabilities of the big four - 8 T in all, and it ignores the implicit guarantee of their net derivative exposure, as the way they are closing the AIG OTC contracts at par shows. Then there is Citi ramping up their prop desk buying of toxic assets as they double down on a V-shaped recession. Also the discussion of Frannie Mac expanding their loan book to riskier mortgages and jumbo loans. Then there is all the corporate bonds that need rolling over before 2013 (in the market they call it the 'cliff') which will need a gov't guarantee to avoid mass bankruptcies .
The full figure on guarantees is somewhere far north of 14 T, but a ball-park figure on actual pay-outs on those guarantees is probably less than that. I think the cost will be whatever the banks want it to be, just short of bankrupting the Treasury. But no one is talking about that, we're all flipping out over one hundred billion a year for half-assed health-care reform. nuts!
July 3, 2009 10:17 AM | Reply | Permalink
I agree with you that my figure of $14 trillion is squishy, but it's probably the most common current estimate of federal exposure, for whatever that may be worth, which is obviously not much.
I also agree about the fantastic disparity between multi-trillion-dollar hand-outs to banks and the relatively miniscule price-tag for national healthcare. The same disproportion was already in play even more blatantly with the immediate no-questions-asked bank bailout which rescued bank bond-holders and and the relatively meager and grudging assistance to automakers, which is forcing the elimination of hundreds of thousands of union jobs.
But I can't quite agree with your belief in the accurate calculation of their own self-interest by the financial services industry or even investment banks like Goldman Sachs, if that's what you mean by "the cost will be whatever the banks want it to be."
I don't claim to follow all the interlocking commitments of financial derivatives involved in notional commitments of more than $500 trillion, according to the Bank of International Settlements, but I also can't believe that the banks themselves entirely understand those commitments now any more than they entirely understood them in September 2009.
July 3, 2009 3:29 PM | Reply | Permalink
I obviously meant "September 2008" in the last sentence of my previous comment, but while I'm correcting that, I might as well also add a little note about "risky mortgages" and the much bigger risks involved in leveraged derivatives of mortgages.
The most common and probably also squishy figure for the leverage of financial derivatives like credit default swaps is around 30 to 1, and without that huge and otherwise unobtainable degree of leverage, the meltdown would have been limited to defaulting mortgages themselves, rather than the much, much larger "values" of financial derivatives (loosely) based on them.
For example, the total value of all sub-prime mortgages in the United States is in the neighborhood of $1.3 trillion, and wouldn't it be lovely if we could buy our way out of this mess for only $1.3 trillion?
July 3, 2009 3:50 PM | Reply | Permalink
I hadn't meant to suggest the banks know what they are doing. Just that they are going to be able to 'socialize' all but about 1 trillion in losses. The rest - whatever it eventually amounts to - will be in the taxpayers' lap.
(also not sure about what you mean by 'leverage' on CDS. Don't think there is any such thing, though there are various contract-specific conditions on posting collateral...)
July 3, 2009 7:20 PM | Reply | Permalink
Your argument runs thus:
"Well run bank rewards its employees."
July 3, 2009 11:52 AM | Reply | Permalink
Goldman is so "well run" that without massive government intervention, they would have been bankrupted by the failure of AIG, and every banker at Goldman Sachs who traded in financial derivatives is guilty of fraudulent misrepresentation of the quality of their so-called "assets."
In a "well run" country, Hank Paulson and everybody at Goldman Sachs except for the secretaries would already be in prison, and it isn't an absolutely sure thing that some form of populist "direct action" may not eventually catch up with Mr. Paulson and his criminal playmates.
Goldman Sachs isn't even "well run" in the same way you could say that other criminal conspiracies like the South American drug cartels are "well run," since as far as I know, the Cali cartel never had to be rescued from its own stupid miscalculation by the government of Colombia.
July 3, 2009 3:01 PM | Reply | Permalink
Goldman Sachs has almost a trillion dollars in assets.
20 billion is a drop in the bucket; the loan has already been repaid, and furthermore the loan was used to strengthen GS's position in the market when it most needed it: while the trading was cheap.
That is a well run institution. The employees should be rewarded.
Your opinions on whether they are "OMG EVIL CORPORATE CONGLOMERATE" are both useless and baseless. GS employs almost 30,000 people, in well paying jobs.
July 3, 2009 3:13 PM | Reply | Permalink
Right-wing commenters and shills for the banks like CMN have a harmless tendency to confuse Goldman's assets with the assets which they manage for other parties.
But the rest of us haven't quite come around to the opinion that assets managed by a bank belong to the bank.
Some of it is still our money, in spite of the ongoing criminal conspiracy of the financial services industry to make the distinction between ours and theirs disappear, in their favor.
July 3, 2009 3:37 PM | Reply | Permalink
You have absolutely no idea what an investment bank is, do you?
http://en.wikipedia.org/wiki/Investment_banking
That'll get you started on the basics.
They don't have any of "our" money anymore, they paid it all back.
July 3, 2009 3:51 PM | Reply | Permalink
CMN is obviously becoming more and more deranged as discussion of Goldman Sachs proceeds.
"There is no distinction between assets under management and assets belonging properly to Goldman Sachs!"
Harharharhar!!!
If CMN's descent into outright insanity stays on course, his next comment should be...
Barkbarkbarkbarjk!&*$%#&@!!!
And how can you answer that?
July 3, 2009 4:06 PM | Reply | Permalink
When you make an investment, there's no guarantee on the return of your investment. The reason GS is so profitable is because even in the midst of a terrible economic situation, they still managed to find a way to make money, which is their job.
Even if they had lost every penny, they would have been robbing nobody. Because they are an investment bank. Investors understand that risk is proportionate to reward.
I really hope that you don't manage your own retirement accounts.
July 3, 2009 4:13 PM | Reply | Permalink
Exactly right... if you call accepting multi-billion-dollar "gifts" from taxpayers (via Hank Paulson) "making money."
But either Goldman failed to understand the catastrophic risks involved with the derivatives they peddled, which makes them stupid, or understood those risks and fraudulently misrepresented them.
I'm sure that unscrupulous shills for Goldman like CMN are happy enough to believe that the criminals who run Goldman Sachs fully comprehend the infinitely complicated web of financial derivatives, and fraudulently peddled their wares to suckers who "deserved to be bankrupted," but for the rest of us, it's isn't quite so clear what the political sequel may be for very unpopular investment banks like Goldman, and even the very opposite of progressive reform could produce some nasty surprises for the weasels whom CNM so uncritically admires.
Far, far over on the religious right, candidates like Mike Huckabee are much more fundamentally anti-corporate than so-called liberals in Congress, and if the economy continues to drift south for the next four years, the criminal conspiracy which operates under the name of Goldman Sachs could find itself swinging at the end of a millenarian rope, instead of shopping for yachts in Monte Carlo.
Neo-con cheerleaders for Goldman would obviously assess the risk of violent right-wing reaction against corporate abuses at zero, but they have been wrong before.
Five years ago, the same "neo-con wisdom" assumed there was zero risk of the kind of meltdown which has already eviscerated the American economy.
July 3, 2009 4:57 PM | Reply | Permalink
Your argument is still "Bank rewards employees for making company lots of money."
> it's isn't quite so clear what the political sequel may be for very unpopular investment banks like Goldman, and even the very opposite of progressive reform could produce some nasty surprises for the weasels whom CNM so uncritically admires.
This delusional conspiracy theory thought process of yours is unfounded. There's no proof anywhere that GS acted illegally. Let me break this paragraph down to the thoughts actually conveyed:
"It isn't quite so clear" "what the political sequel may be for very unpopular investment banks like Goldman," "and even the very opposite of progressive reform could produce some nasty surprises for the weasels whom CNM so uncritically admires. "
> Far, far over on the religious right, candidates like Mike Huckabee are much more fundamentally anti-corporate
Further proof that you have absolutely no idea what you're talking about. Huckabee is a supporter of FairTax, which will actually bring MORE corporations to America. I know this because I was considering voting for him in primaries; instead, I voted in the democrat primaries.
> than so-called liberals in Congress, and if the economy continues to drift south for the next four years, the criminal conspiracy which operates under the name of Goldman Sachs could find itself swinging at the end of a millenarian rope
No, because they're going to keep doing the things that made them rich. Just like you'll keep doing the things that make you have whatever socioeconomic status you want to assign to yourself.
> Five years ago, the same "neo-con wisdom" assumed there was zero risk of the kind of meltdown which has already eviscerated the American economy.
Yup. And we didn't get a liberal congress until 2006; that's 3 years ago, in case you're having trouble doing the math.
Come up with an argument as to why people should not be allowed to willingly risk their own money, or stop crying about it.
July 3, 2009 5:13 PM | Reply | Permalink
Harharharhar!!!
It didn't take much to lure the far-right Republican theocrat CMN into declaring his real "politics."
And after CMN's hero Huckabee finishes amending the Constitution to turn the United States into a truly "godly" nation, with a regressive sales tax funding the entire "fairtax" operation, corporations will flock to American from all over the place... probably even from distant galaxies!
Harharharhar!!!
July 3, 2009 5:38 PM | Reply | Permalink
You still offer no information of value. I don't even think you're actually communicating any ideas.
How can you write so much and say so little?
July 3, 2009 5:40 PM | Reply | Permalink
Sorry, my entire comment last post did not get posted.
> it's isn't quite so clear what the political sequel may be for very unpopular investment banks like Goldman
"It isn't quite so clear" is a qualifying statement that says the proceeding statement is entirely unfounded, and you have no clue what you're talking about, else you would have said "It's clear" and cited facts.
> and even the very opposite of progressive reform could produce some nasty surprises for the weasels whom CNM so uncritically admires.
"Could produce some nasty surprises" The word "Could" here implies that yes, in fact, some things can happen. The Sun can go supernova on us. The nuclear facilities could all melt down at the same time. Fortunately, this is simply the latter half of the first critique that I made, so not only is it disqualified by lack of reason or citation, but also by the fact that you still don't understand what you're talking about. You're really providing no new thought or information.
I think that's it. Remind me if I missed anything, or, like I said, come up with a valid argument. Actually, lets start with conveying an idea that doesn't involve "Could" or "It's not clear."
July 3, 2009 5:24 PM | Reply | Permalink
Y'all are surprised?
Goldman and the rest of Wall Street were Obama's biggest donors. The only thing that was close was the large law firms that depend on Wall Street for their survival. Obama is substantially less likely to "challenge" Wall Street to do anything than Bush was...
He'll certainly provide them with some friendly regulations to protect them from market forces and competition though, because he's a good Democrat!
We sow'd it, now we reaps it.
I voted for him too...
July 3, 2009 1:32 PM | Reply | Permalink
I've been wondering about the banks and the governments strategy of taking control of them. Look at the issue from the perspective of international relations, specifically relations with China.
China has a big cash reserve, and big investments in the US. The banks had become 'too big to fail' and were therefore dangerous in a number of important ways.
Is it possible that the US government saw the size of the banks, and their obligations to their customers, including foreign interests, as an enormous strategic liability? Is it further possible that the US government decided to nationalize them in an effort to remove or decrease the possibility that a large foreign interest such as China might use its economic power to wage a financial attack on the US?
I know that greed and corruption were both involved in the generation of the problems but how much of the response is it possible to ascribe to such vulnerability?
What do you think?
July 3, 2009 3:20 PM | Reply | Permalink
I can't exactly understand your question.
As far as I can tell, the US is still vulnerable to massive withdrawals by China, but the value of Chinese assets in the United States would also collapse if the dollar went down the toilet of runaway inflation, or even outright default on bond obligations.
I can't see an upside here for anybody except bank bondholders and bond-brokers like Goldman Sachs.
July 3, 2009 3:58 PM | Reply | Permalink
What I'm thinking is that perhaps the government move to nationalize the banks was intended to forestall just such a move by China. With the banks independent, it may have been too risky a card game. I know that China and the sovereign wealth funds could still cut the legs off of the dollar, but at least now the bankers are more under government control.
July 3, 2009 9:54 PM | Reply | Permalink
Hmm, is it the Government nationalizing the Banks or the Banks pulling the strings of the Government?
http://www.gata.org/node/5667
The first thing (Lawrence) Lindsey said was that he was a card-carrying member of "the Brotherhood of International Central Bankers," and once a member, always a member ... all for one, and one for all.
He commented that the Fed had turned the humble American home from a place to live into a financial asset that had become a cash cow for homeowners who were using it like an ATM machine. Now we've all heard that before, but coming from him, it was candor I wasn't expecting. He went on to say that once the Fed people noticed how bad the quality of loans was becoming, they were reluctant "to tinker with a boom," so they sat on their hands.
Lindsey's charts went into the collateralized debt obligation problem, the asset-backed commercial paper, mortgage-backed securities .. the lot. He said that it will "force banks et al. to mark these products to market (over time) instead of their current practice of marking to model ... or to myth." He wasn't the least bit worried about how the hedge funds would manage because, as he said, they were very good at looking after themselves.
He appeared delighted that Wall Street had been able to unload hundreds of billions of dollars' worth of (now toxic) CDOs on the rest of the world, saying that "we Americans were very clever" in doing this.
July 3, 2009 4:38 PM | Reply | Permalink
We've lost nearly three million jobs. The President has spent nearly a trillion on the bankers profits and perhaps a fifth of that on stimulating the economy. I sure am glad we elected a Democrat President or else the big boys would get everything and leave the little guys out right? Meet the new boss...
July 3, 2009 6:11 PM | Reply | Permalink