Could Goldman Sachs Fail?

By Simon Johnson.  This link to MIT Sloan’s website provides a partial transcript and video covering the points made below.

If Goldman Sachs were to hit a hypothetical financial rock, would they be allowed to fail – to go bankrupt as did Lehman – or would they and their creditors be bailed out?

I asked this question on Sunday to four leading experts (Erik Berglof, Claudio Borio, Garry Schinasi, and Andrew Sheng) from various parts of the official sector at the Institute for New Economic Thinking (INET) Conference in Bretton Woods – and to a room full of people who are close to policy thinking both in the United States and in Europe.  In both the public interactions (for which you can review video here) and private conversations later, my interpretation of what was said and not said was unambiguous: Goldman Sachs would be bailed out (again).

This is very bad news – although admittedly not at all surprising. 

Why wouldn’t policymakers allow Goldman Sachs to fail?  The simple answer is that it is too big.  Goldman’s balance sheet fluctuates around $900 billion; about 1 ½ times the size that Lehman was when it failed.  All sensible proposals to reduce the size of firms like Goldman – including the Brown-Kaufman amendment to Dodd-Frank – have been defeated and regulators show no interest in tackling Goldman’s size directly.

The largest financial institution we let go bankrupt post-Lehman was CIT Group, which was about an $80 billion financial institution.  Some people thought CIT should be bailed out; fortunately they did not prevail – and CIT restructured its debts in November-December 2009 without any discernible disruptive effect on the economy.

Supposedly, the Dodd-Frank financial reform legislation expanded the resolution powers of the FDIC so that it could handle the orderly wind-down of a firm like Goldman, imposing losses on creditors as appropriate – without having to go through regular corporate bankruptcy (after more than 2 years and over $1 billion in legal fees, Lehman’s debts are still not fully sorted out). 

Speaking to a press conference at INET on Friday evening – which I attended – Larry Summers, former head of the National Economic Council, emphasized the importance of this resolution authority.

But the resolution authority would not helpful in the case of Goldman Sachs because it is a global bank operating on a massive scale across borders.  Such a case would require a cross-border resolution authority, meaning some form of ex ante commitment between governments.  As this does not exist and will not exist in the foreseeable future, Goldman is as a practical matter essentially exempt from resolution.

For a bank like Goldman there remain the same unappealing options that existed for Lehman in September 2008 – either let them fail outright or provide some form of unsavory bailout.

The market knows this and most people – including everyone I’ve spoken to over the past year or so – regards Goldman and other big banks as implicitly backed by the full faith and credit of the US Treasury.   This lowers their cost of funding, allows them to borrow more, and encourages Goldman executives – as well as the people running JP Morgan, Citigroup, and other large bank holding companies – to become even larger.  No one I talked with at the INET conference even tried to persuade me to the contrary.

Given that this is the case, the only reasonable way forward is to follow the lead of Anat Admati and her colleagues in pressing hard for much higher capital requirements for Goldman and all other big banks.  If they have more capital, they are more able to absorb losses – this would make both their equity and their debt safer.

Professor Admati was also at the same INET conference session (her video is on the same page) and made the case that Basel III does not go far enough in terms of requiring financial institutions to have more capital.

Claudio Borio from the Bank for International Settlements argued strongly that requiring countercyclical capital buffers – that would go up in good time and down in bad times – could help stabilize financial systems.  But when pressed by Admati on the numbers, he fell back on defending the current plans, which look likely to raise capital requirements to no more than 10 percent tier one capital (a measure of banks’ equity and other loss-absorbing liabilities relative to risk-weighted assets). 

Given that US financial institutions lost 7 percent of risk-weighted assets during this cycle – and next time could be even worse – the Basel III numbers are in no way reassuring.  Tier one capital at the level proposed by Basel III is simply not sufficient.

Even among smart and dedicated public servants, there is a disconcerting tendency to believe bankers when the latter claim that “equity is expensive” – meaning that higher capital requirements would have a significant negative social cost, like lowering growth.

But the industry’s work on this topic – produced by the Institute of International Finance last summer – has been completely debunked by the Admati team.  

Intellectually speaking, the bankers have no clothes.  Unfortunately, the officials in charge of making policy on this issue are still unwilling to think through the implications; capital requirements need to be much higher.

For more on the discussion at this INET session, see this page.

An edited version of this material appeared this morning on the NYT.com’s Economix blog; it is used here with permission.  If you would like to reproduce the entire post, please contact the New York Times.

85 responses to “Could Goldman Sachs Fail?

  1. Samuel Conner

    If one could arrange the laws in such a way that bailout infusions were necessarily in the form of debt senior to all other debt, that might help to negate the “put” character of TBTF. It might make it more costly for large institutions to borrow.

  2. One looks at the “tussle” between Paul Ryan and Obama
    over fixing America, giving it a future, but nothing,
    in terms of spending cuts, reforms, touch the power of
    a Goldman Sachs to take the country down with its wanton greediness. …..Lady in Red

  3. Let it fail, it would be a benefit to humanity.

  4. Goldman was exposed during the housing bubble. They were short while everyone else was long. Had the market stayed irrational longer than Goldman could stay solvent, there would have been plenty of eager buyers. If after the banking sector has recovered, Goldman were to hit a rock, there would again be willing buyers (if their acquisition were approved). If we had another bubble and Goldman was in the middle of that bubble, and the rest of the banks had failed or were near failure, then no-one would be be able to buy them and a bail-out would be needed.

    Any “systemically important” firm will generally be able to earn enough profit from its importance to be worth buying.
    Lehman and those after failed after the banking system had already had all it could eat.

  5. Heads I win 100s of millions in compensation; tails I might lose my job, but keep all the compensation I’ve already received. Really why wouldn’t any rational, selfish person* just flip the coin until they lose?

    *And since these people are deeply inculcated with the belief that this is the best model of human behavior, it seems likely to be a reasonable predictor of THEIR behavior even if it often fails when applied to everybody.

  6. Yes, Mark Zuckerberg will open his checkbook for Goldman Sach & Company.

  7. For a definite answer to whether Goldman could fail, well – this video is quite the revelation!!! It’s a MUST SEE lesson for sure… http://www.vimeo.com/22218240

  8. jeff simpson

    The stage is set for another failure in the next 5-20 years, depending on when the world no longer decides it will take dollars for stuff that’s worth something.

    Domestic austerity will cause the jingoistic war machine to switch to high gear, as Fox news listeners search for foreigners to blame and punish.

    I wish that I could do more to starve the big banks of my retirement savings contributions.

  9. Mark Bondurant

    Nationalize it. Break it up. Fire the leadership with no golden parachutes. Simply do what any responsible 1st world non-banana republic would do. But we won’t will we? We’ll bail them out, a pittance will be recycled back as bribes to their little Igors and Renfields in government, and we will continue to sink.

  10. The U.S. of A. is following in lockstep the japanese playbook of financial/banking collapse of the ’80s. Same scenario, fraudulent financial instruments, banks heavily invested in same. Problemo came with serial bank bailouts to THIS sorry day. Japan is more than broke$$. We must follow any populist progressive ticket that offers itself up to us. Obama derailed any meaningful reform Dodd-Frank wanted.

  11. Question: Could Goldman Sachs Fail? Answer: No. If you mean fail as in receiving a “sternly worded letter” that may be a question that could be taken as a factual statement. Otherwise, it never was intended to be a factual statement now, was it?

  12. iutgsierjkg q:sdjkflkqjetd klqzejtrklqzdjfq kdjgqkljrt qkldjfq

  13. If we let Goldman fail, who’d front-run the fed in QE bond purchases? Who’d massively inflate the costs of food and fuel?

    Oh yeah..the other 19 Primary Dealers. my bad.

  14. Bill Simpson

    Are you kidding me? After what happened after Lehman! And Goldman people have WAY too much influence inside the US Government to be denied another bail out.

  15. winstongator

    USG is providing a type of insurance for TBTF banks, Goldman included. Right now there is no charge for this insurance. I’m considering this differently from FDIC insurance, as FDIC resolutions and what happened with AIG are extremely different.

    Why not just start charging for the insurance being provided? So what if they don’t hold capital. We’ll effectively hold the rainy-day capital for them, but we’ll have to be sure to change management & ownership structures if they need to tap the bailout funds.

  16. The real question here is whether the Fed should bail out the corporation or the investors–these are two very different things. Bailing out the corporation allows it to stay in place and encourages it to continue overleveraging itself since there is no regulatory control whatsoever over big banks. However, if the Fed were to allow the corporation to fall and use FDIC insurance policies to cover investors, everyone wins: we lose a major player in the bankster fraud community, send a warning to the other big banks that the bailouts are stopping, and save investors, which is the whole reason for this TBTG notion in the first place. Also, the FDIC payout should be pre-taxed, same as a lottery winning, and not allow exemptions or changes on individual tax returns.

  17. Burt Goldberg

    This is a false premise, Goldman did fail, and the American tax payer bailed them out. They have continuously acted with complete contempt for their clients, the American people and the rule of law. They are the post child for how Eric Holder has not done his job. Where are the criminal cases?

  18. This conversation is nothing more than an intellectual exercise. The Goldman Sachs will, along with their bureau palls, ride the system hard tell it literally dies under them. There is no typical market mechanism (failure due to bad capital allocation) to contain them because their ex employees can print more and more money. In a pure non-government run and now financed system a banker, like a good insurance man, would know how much float to keep. Calculating default probability on specific loans is not particularly hard given a knowledge of the borrower and the industry the capital is moving to. Everyone keeps forgetting these sub prime loans were a product of bad legislation during the Clinton era that forced bankers to lend to subprime. This along with expanded powers given to Fannie and Freddie and the post 911 slashing of interest rates and suddenly everyone could borrow cheaply no matter their personal default risk. Easy to see in retrospect I suppose…

  19. Why should they fail ? They are doing Gods Job

  20. Tim Kirkpatrick

    My compliments to Simon Johnson for including the link to the INET session. The presentations are relatively short and mostly understandable even for intellectually challenged non-economists such as me. I would also like to thank the HP for providing this type of important commentary (like Mr. Johnson’s) that is sadly missing in other newspaper/news blogs.

  21. Lavrenti Beria

    @Burt Goldburg

    The Goldman/Eric Holder axis is simply testament to the latter day truth of Josef Stalin’s axiom expressed years ago that, “It is enough that the people know there was an election. The people who cast the votes decide nothing. The people who count the votes decide everything.”

  22. I’m perfectly happy to see Goldman bailed out — with _very_ strict terms: the arrest and imprisonment of all of the top 20 executives, including of course Lloyd Blankfein; the forfeiture of a significant portion of Goldman’s future assets; the forfeiture of a significant portion of present or future assets of all Goldman investors with net worth over $10 million; and . . . a ban on the hire of Harvard Business School and Econ Dept grads. The Andrei Shleiffer School of Legalized Corruption has to be stopped.

  23. On a more serious note: There is actually an opportunity here.

    One of the recurring themes of international relations is the paucity of international enforcement authorities (for state security, environmental treaties, etc.). Goldman and the Tera-Banks (get it, tera-, terra-, terror- ?!) present the opportunity. The problem, of course, is the political power of the oligarchs. But if the power of American and European oligarchs can be overcome, the opportunity exists for an international authority to manage the wind-down of these international criminal organizations.

    The irony is that the US has “hyper-externalized” the risks of irresponsible behavior. When they should have created policy to internalize the risks of Wall Street crimes, Bush and Obama did _exactly_ the opposite — guaranteeing future and greater risk-taking.

    It’s comical. Perhaps Simon Johnson can answer this: Do elite business schools have special invitation-only courses on how to capitalize on the monstrous organizational failures of governments to regulate the financial sector? Or are things perfectly out in the open, well-kept, public secret?

  24. You might as well try to reform and regulate Nazis.

  25. What do we mean by fail, AIG and Citi wiped the common stockholders out essentially (80%+ dilution). Fannine and Freddie wiped out the common and preferred stockholders out. The the bondholders and other fixed income folks did not wiped out does failure mean wiping them out ala Wa Mu? Clearly the resolution regimen should mean wiping out the supplemental pension program for all execs (those whose pension would be above ERISA limits see proxy statements for details generally a supplemental pension scheme provides for folks whoses salary is such that the ERISA limits would impact their Defined Benefit pension, as well as any deferred income left with the company, and putting the top 25 folks out on their ear as well). So the real question is how to punish the folks who lent or dealt with the affected company?

  26. richard.proudlove@citi.com

    Goldman is still the best-managed firm on Wall Street.

  27. All the decisionmakes in the socalled governmnent and regulatory bodies, and the socalled judicial system are spaniels to the predatorclass and predatorclass oligarchs. Amerika’s socalled leadership worships, supplicates, and advantages the predatorclass and predatorclass oligarchs alone and exclusively. Nooneelse matters! The rest of the population is reduced to a digit, an X or an O.

    Unless, and until the predatorclass domination and total control of the mechanics of our government is altered and abolished, – the people are doomed to a future of high unemployment, wage loss, no bargaining power, and exceedingly challenging costs of living increases, such as food, fuel, healthcare (and many of walk this nations abandoned streets with no healthcare) even water prices! – and radical reductions in entitlements and the government safteynets that allowed for a prosperous and industrious middleclass.

    The people need, deserve, – and are by the way gauranteed in that thing they call the Constitution, – what bushtheidiot referred to as “…a goddamn piece of paper” – representation and voice in the process of the government. It is the definition of democracy, and imbedded into the structure of the Constitution. Now we, the people, are deprived our Constitutional rights, freedoms, protection, and have absolutely ZERO say, or influence in the conduct of the government. Billionaires, and megacorps own the government and everysingle politician in our government, – accept for Dennis Kucinich, and Ron Paul.

    A day of reckoning is coming for the den of vipers and thieves in Goldman Sachs, JP Morgan, Citi, Credit Suisse, BofA, and all the predatorclass olirachs. There will be a reckoning and a balancing, and it won’t be won through the purchased courts, or the purchased government.

    When the youth in Amerika realize that they have no future, – no jobs, no equity in housing, no entitlements, no assistance from the government, no rightes, freedoms, or protections, – and they will be forced to absorb radical increases in core costofliving outlays, policestate intrusion into their lives – and withness an expanding oceanic divide between thehaves and thehavenots – they’re going to be pissed. Egypt is the model. All the kings horses, and all the kings men, – cannot put Amerika back together again.

  28. “This conversation is nothing more than an intellectual exercise. The Goldman Sachs will, along with their bureau palls, ride the system hard tell it literally dies under them.”

    Exactly. And eventually they will destroy the US government, which will have been entirely complicit in its own destruction.

  29. Herbert Wetherby

    A day of reckoning is coming for the den of vipers and thieves in Goldman Sachs, JP Morgan, Citi, Credit Suisse, BofA, and all the predatorclass olirachs. There will be a reckoning and a balancing, and it won’t be won through the purchased courts, or the purchased government.
    When the youth in Amerika realize that they have no future.

    I believe that day has already arrived, and been responded to in the form of a tax payer bailout. As for the youth realizing no future, that is why they are called youth, they can’t really see the future so how do they realize they have none?

  30. Good piece. One quibble. They’d let GS fail because it is relatively small vs other TBTF banks. Bear and Lehman got shot because they were relative small fry, financially and politically. Like any herd, you don’t want to be slowest or smallest in the group, because the wolves target you more than the bigger animals.

  31. If a firm the size of Goldman Sachs ‘failed’. would it be possible to charge losses against shareholder’s funds and then when these are exhausted the enterprise is the property of the dismantling authority?

    Next step to sell off the foreign pieces with recoveries applied to losses?

    Then with a company now US only, proceed with local sell off.

    Why is this too big to fail?

  32. Thank you Simon. I’ve started to view your link. This man sounds spot on.

  33. Andrew Sheng says it is not a regulatory problem it is a “political problem” and that why Roosevelt got it right. If there were a complete free market there would be four or five financial institutions which would exceed total GDP dwarfing all national economies. I like what he says about the solution to excess consumption.

  34. edit required above, should read:

    exceed total global GDP

  35. For “GOD’s” sake its an “Investment (GS) Bank” that lives and dies off risk and rewards, period! If it fails, it’s gone…if it wins, it stays and lives another day. It’s as simple as that folks!
    Has any one mentioned Morgan (MS) Stanley the other behemoth [?] Investment House of Wall Street? These two (GS & MS) Investment-Houses are private, and for wealthy risk-taker’s, last time I checked. Is the general public a wealthy entity…a whole lot of “Filthy Rich”, risk-taker’s, ready and willing to bet the ranch (if you answered yes, your halfway correct [?-$$$])?
    Bottom line is that these “Two (GS & MS) Joker’s” should be weened off (thrown-out immediately!) the “Federal Reserve Banking System & US Treasurys’ Holding Company” status, ie. status-quo, pronto!
    You can’t call a donkey a horse? I certainly don’t think the public is that naive or ignorant not to know the difference, nor would you bet on the donkey to win a horse race with that horse. So please, let us not confuse a bank (stallion) with a casino (ass),…?

    Thankyou Simon and James :-)

  36. So maybe Marx was right. True revolution cannot happen until capitalism has become so efficient that eveyone’s basic needs are met. Then when people realize that they are being being exploited by the system (that a select few have been gambling with their money), will they rise.

  37. Ask not, Will the government allow GS to fail? but rather, How long will GS allow the government to exist? Most of it has already been bought and paid for by the financial oligarchy; the privatization of government is almost complete. Just a few small things to finish up: the takeover of military, policing, judicial, and tax collection functions. And then the Republic will be officially dead, the only question being, will the plutocracy erase all traces of it, or permit it to survive as a figurehead?

  38. OK, the US is at the mercy of banks, and GS implicitly, due to regulatory capture, local culture, etc. However, why would the rest of the world feel compelled to fall for the same masters? Are they greedy, ignorant, or the idea of sovereignty is nowhere in sight… If so, what happened to sovereignty?

  39. Herbert Wetherby

    @ trouserman: One small detail you overlooked was the 14th amendment, which states that no individual or group can hold the country hostage for money. So why don’t these same rules apply to GS or any private entity. Business already controls congress and much of the administration today and we can see the results of that.

  40. The story of Fraulein Basel’s Chocolate Cake

    There was once a family where the mother and the father, the elder brothers and sisters and, of course, the grandparents, all lovingly cared for the wellbeing of the youngest family member, little Bob. For instance, they always informed little Bob about the risks they perceived existed in park AAA when compared to those present in the riskier park BBB. But, that said, they were also very careful of not producing any undue temerity in little Bob, since, besides wanting him grow up and become a daring man and not remain a frightened boy, they also knew he needed to go and play in park BBB quite often, because that was where he could get the best exercise that would make him strong. All in all, little Bob was growing up nicely.

    Unfortunately, one day the family hired a governess to watch out over young Bob, Fraulein Basel. She, scared stiff she would be blamed for anything bad that could happen to little Bob, promised him a whole chocolate cake, every day, if he would only go and play in the super-safe park AAA. Little Bob, as any healthy young boy, was naturally thrilled with the idea, and thereafter visited only park AAA. But, eating a whole cake every day, little Bob grew so obese that one day, when in park AAA, suddenly, out of the blue, a very slow but very venomous snake appeared, he could not run away, and so “little” obese Bob tragically died.

    And that my friend is what happened to our banks when we placed them in the not so loving hands of Fraulein Basel Committee.

    But now, more than three years into a crisis that has caused so much misery around the world, we have yet to hear the World Bank and the IMF or anyone else for that matter commenting on the role of Fraulein Basel’s stupid chocolate cake.

    And our banks are still in Fraulein Basel hands even though we know she has not abandoned the stupid idea of the chocolate cake, and thinks it is only a matter of a better chocolate cake, Basel III; which she will soon present to another little Bob… or Hans… or Pedro… since her reach is global.

    PS. If you want to see the detailed recipe of the Basel II chocolate cake you can find it in:
    http://bit.ly/gX9nWz

  41. CBS from the West

    @Per Kurowski

    Except that little Bob didn’t die of the snake bite. He came very close, but remains in intensive care in a comatose zombie-like state. The medical bills are bankrupting his family now.

  42. “The U.S. of A. is following in lockstep the japanese playbook of financial/banking collapse of the ’80s.”

    Remember all those Japanese bank presidents getting assasinated in their driveways when they tried to call in just a few of their bad Yakuza loans? Suddenly it became more beneficial to just carry the loans and deny the banks were, in all actuality, completely insolvent.

  43. just watched inside job

    Wall Street is running Washington. Hard to see how higher capital requirements can happen.

  44. Professor Simon Johnson, and Professor Anat Admati were spot-on with their critique, period! Bravo!!!
    What I (remember this is my interpretation, so show some mercy) got, or better said, had taken away from listening to the other four guest speakers (forget the moderator, time, time, etc.?) was of no real interest (JMHO) other than impotent foreplay!
    I’d like to sum each up with these various famous quotes:

    Mr. Erik Berglof – Chief Economist and Special Advisor to the European Bank
    “Osborne (1929-?)”- Look back in Anger (Act II, Scene I)___”They spend their time mostly looking forward to the past”

    Mr. Claudio Borio – Bank of Int’l Settlements (BIS)
    Subject Matter – Counter Cyclical Capital Buffers
    “Joseph Addison (1672-1719)___’Prologue to The Drummer’…”Round-heads and Wooden-shoes are standing jokes” (27)
    ‘The Campaign’___”And those who paint`em truest praise`em most” (476)

    Mr. Gary Schinasi – Fellow at Bruegel
    Subject Matter – Must internalize their externalities.(?)
    Oscar Wilde (1854-1900)__’The Critic as Artist’ [Part I/ Intentions]___”A little sincerity is a dangerous thing, and a great deal of it is absolutely fatal” (31)
    ‘The Ballad of Reading Gaol {(1898)(Theocritus)}’___”Art never expresses anything, but itself” (17)

    Mr. Andrew Sheng – Chief China Banking Regulator
    Subject Matter – Global Blame is a National Blame [?]
    ‘Shakespeare – The Taming of the Shrew’ (1564-1616)___ @ Miranda (The Tempest)
    “Our revels now are ended. These our actors,
    As I foretold you, were all spirits and
    Are melted into air, into thin air:
    And, like the baseless fabric of this vision,
    The cloud capp`d towers, the gorgeous palaces,
    The solemn temples, the great *globe* itself,
    Yea, all which it inherits, shall dissolve
    And like this insubstantial pageant faded,
    Leave not a rack behind. We are such stuff
    As dreams are made on, and our little life
    I rounded with a sleep” (148)
    ‘Walter Carruthers Seller and Robert Julian Yeatman’ (1898-?)___Title of Book – “Contemporary”
    “The National Debt is a very good thing and it would be dangerous to pay it off for fear of Political Economy” {Chapter 38 / (15)}

    Finally, not to bore anyone – there is a song from the 60′s by “Traffic”, called…”The Low Spark of High-Heeled Boys” Quote…living beyond their means…(this line is from the 60′s folks!)

    Thankyou Simon and James

  45. CBS from the West “The medical bills are bankrupting his family now.”

    You are absolutely right! They should only have had to pay for the funeral… or presented to Fraulien Basel that bill too.

  46. Banksters in orange jumpsuits doing the perp walk. That’s what we need to restore “confidence.”

  47. Lavrenti Beria

    @lambert strether,

    By any measure, these filth, together with their political enablers, are moving headlong toward a peoples’ justice. You’ll know when we get there by the mass detentions and the public trials held in outdoor sports stadiums.

  48. Just watched “The Singing Revolution” – the *true* story of how “….the people of Estonia gave life to a grassroots movement for change by staging passionate rallies and singing forbidden patriotic songs…”

    Constitutional Convention and BURN THE PATRIOT ACT.

  49. But we miss Andrew Sheng’s point. Our governments are already captured. All world governments would have to act simultaneously to diminish the financial sector, simultaneously reducing their ability to grow through debt financing. Any subgroup acting independently would be instantly destroyed as capital flowed elsewhere. Is the solution therefore extra-legal?

  50. @oregano

    Tobin tax!

    He says Europe has basically decided to tax financial transactions and this is the direction Sheng recommends for Asia. He says America is the hold out on a Tobin tax.

    Anat Admati is calling for 30% (?) capital reserves.

    Not an extra-legal solution.

    Sheng mentions that awful word “political economy” (others economist prefer equations). Sheng says Roosevelt got it right. The problem is a political one that cannot be solved with QE-XXX. Insolvency cannot be solved by taking on more debt.

    Wow. Never took an economics course in my life. I hope this makes some sense.

  51. @per kurowski

    So what do you think of Anat Admati’s solution: 30% capital reserve for casino banking.

  52. Come to think of it. If a bank wants to play casino on the markets (assuming they are truly free markets) with other people’s money and no skin in the game, make it 51% capital reserve. I’d throw in 1% more over 50 for a touch of prudence. Hah!

  53. Bruce E. Woych

    SCREW Goldman Sachs: WE need jobs now! Goldman should be split, downsized and restructured to serve capital demands back into the real domestic economy.

    http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=6621
    Obama Accepts Debt a Bigger Threat than Recession
    Bob Pollin: Obama debt speech avoids recession and need for massive jobs growth
    Go to story | Go to homepage
    Real News Network:
    http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=6621
    Robert Pollin is Professor of Economics and founding Co-Director of the Political Economy Research Institute (PERI) at the University of Massachusetts, Amherst. His research centers on macroeconomics, conditions for low-wage workers in the U.S. and globally…

  54. Simon, good post. however the problem is not the bailout of the financial institution. in the great depression, we already learnt that financial institutions are too interconnected so you cannot let them fail. Apparently Paulson had no clue about history when he made his decision regarding Lehman.
    The issue is that there’s no need to do a bailout for free. if you save the institution and depositors, but you clean out bondholders, equity holders and management, that’s enough for bankers to behave more responsibly. trust me, nobody wants to end up like ex-Bear’s CEO.

  55. “The Bank of International Settlements (BIS)” – Ninth BIS Annual Conference (24-25 June 2010)

    Ref: “The Future of Central Banking under post-crisis Mandates” [Monetary and Economic Policy - Jan/2011]
    http://www.bis.org/publ./bppdf/bispap55.pdf

    Noteworthy: Concluding Remarks #1 – #4 regarding “Globalization” (the new world order on steroids?)

    PS. Where’s Elizabeth? Has anyone found Waldo, yet,…

  56. Herbert Wetherby

    The BIS is a tricky one, I liken it to England and the second coming. All nations were required to completely bury their precious metals by the end of the 50′s because that was when he was schudaled to arrive. And the story was that he would take everything you had, and some if you let him, and so if you didn’t take care of business by then, they assumed if given the option he would gladly take that too.

    Well our family had some disputes with his logic and ways of handling finances so we did our best to hide wealth so he could not confiscate it too. Well England had no dog in the fight but still wanted complete financial and legal control of such wealth and made laws so they could leverage and then confiscate others wealth in the name of their idea of democracy. So we fight intellectual battles and watch him squirm to keep his ways in tact. Their latest endevors include the Trumpster and his band of merry others, so this will be an interesting cast of characters falling back to Earth.

  57. GS is nothing else but a rotting appendage of a diseased, terminal empire, one that has kept itself going with the slaughter of millions of innocent poor people around the globe. This putrefaction is thankfully nearing an end, and several nations are giving a righteous stiff arm, and telling the USA to get lost.

    Wayne Madsen, an independent reporter now living in DC, has written an article about the BRICS nations pulling away, and saying no to the tyrannical impositions of the IMF and World Bank.

    Our good man Simon, having been a honcho with the IMF, may have some special thoughts on this….

    The article by Wayne Madsen, haunted by the government for being a truth-teller ( VERY BAD in times of felonious, universal deceit and unspeakable horrors) may be linked here:

    http://www.strategic-culture.org/news/2011/04/18/brics-poised-pieces-from-the-rubble-of-america-collapsed.html

  58. Herbert Wetherby

    I need not read the article to know a trade war is developing, unfortunitly ( and I say that spareingly), the US has some advantages currently in the form of food. Most of the rest of the planet has a food shortage until this seasons harvest, giving America some 3 seasons advantage in this important catagory. But we are woofully short of reserves should there be a bad season setting up here. But with hyperinflation in full gear with the bank of Japan calling in dollars and the Chinese printing note for note with the fed and tresuary, prices can and will flutuate toward the greed for money. So no matter who you I would prepare for very bad times ahead.

  59. Herbie, yes, unlike me, it’s won’t be pretty.

  60. Bruce E. Woych

    It is ludicrous to state that Goldman Sachs is TOO BIG TO FAIL…
    BUT THAT:
    The ENTIRE US domestic economy is NOT too big to fail…and therefore, the economic / financial bunglers who benefited from threatening it should not “bail THE ECONOMY out” by paying fair taxes “back” into the system, by paying a self-limited banking transaction fee until the debt and death trap they created is totally healed over…AND ADDITIONALLY, by tracking the money they have stashed offshore that is supposed to have been re-invested and credited BACK into the economy of living wage production.

  61. Bruce E. Woych

    @ WOOP AND FRIENDS:
    Some interesting details concerning the Lone Ranger and Tonto team running this TBTF cover story to the Hellicopter drop and SHOCK treatment / coup d’etat of our country’s resources and democracy.

    Geithner was born in Brooklyn, New York, but spent most of his childhood in other countries, including present-day Zimbabwe, Zambia, India, and Thailand where he completed high school at the International School Bangkok

    http://en.wikipedia.org/wiki/Timothy_Geithner

    His father, Peter F. Geithner, was the director of the Asia program at the Ford Foundation in New York in the 1990s. During the early 1980s, Peter Geithner oversaw the Ford Foundation’s microfinance programs in Indonesia being developed by Ann Dunham Soetoro,
    President Barack Obama’s mother, and they met in person at least once..

    Geithner’s maternal grandfather, Charles F. Moore, was an adviser to President Dwight D. Eisenhower and served as Vice President of Public Relations from 1952-1964 for Ford Motor Company.

    Geithner worked for Kissinger Associates in Washington for three years and then joined the International Affairs division of the U.S. Treasury Department in 1988. He went on to serve as an attaché at the Embassy of the United States in Tokyo. He was deputy assistant secretary for international monetary and financial policy (1995–1996), senior deputy assistant secretary for international affairs

    (1996–1997), assistant secretary for international affairs (1997–1998).

    He was Under Secretary of the Treasury for International Affairs (1998–2001) under Treasury

    Secretaries Robert Rubin and Lawrence Summers. Summers was his mentor, but other sources call him a Rubin protégé.

    In 2002 he left the Treasury to join the Council on Foreign Relations as a Senior Fellow in the International Economics department. He was director of the Policy Development and Review Department (2001–2003) at the International Monetary Fund.

  62. Bruce E. Woych

    @ WOOP:
    WAYNE MADSEN’S VIEWS ON OBAMA:
    (I believe it is also available if you search the strategic culture site as well):

    http://redactednews.blogspot.com/2010/08/obamas-cia-pedigree.html

    The truth shall set you free…

  63. Tony Foresta

    The grim reality is that the predatorclass, and the finance oligarchs and their spaniels in the socalled goverment are in fact ruthless heartless enemies of the people. The own the government and the judicial system are immune from any responsibility or accountability for their grotesque failures, criminal activities, and wanton profiteering. The people on theotherhand, are now subjected to policestate tactics and brutal suppression of the former rights, freedoms, and protections that formally defined America. This conflict is brutally real and pervasive, and there will be no end, no balm in Gilead, unless and until the predatorclass and the oligarchs are put back in the keep. A storm is brewing and it is huge, and fed by the very real angst, pain, deprivation, suffering, and hopeless of an everexpanding swath of the population. The end is inevitable.

    I quote these words from July 4th 1776 authored by real leaders, because it is a relevant and legitimate today as it was in those tumultuous days.

    “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness. That to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed. That whenever any form of government becomes destructive to these ends, it is the right of the people to alter or to abolish it, and to institute new government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their safety and happiness.”

    In a world where there are no laws, there are no laws for anyone predatorclass biiiiiaaaatches.

    There will be a balancing and a reckoning.

  64. Bruce E. Woych

    You have to read “both” articles and splice the data into the ostentatious pattern that appears to emerge. I believe it was the Nazi propaganda machine that instructed us as to how to run the operations: they stated: ostensible diversity obscures and conceals the actual uniformity…

    The disconnect in the data is bridged by Madsen: The “Ford Foundation” (note that even MacNamara first spent time at Ford itself) was often utilized by covert communities. Much of this was WWII (…our fathers…) patriotism. But the money and power was easily corrupted by the pathology encouraged by the secrecy necessitated by the rules of engagement; ultimately overcoming any original premise of self defense and becoming the menace itself. The “pattern” or strategic deployment that emerged suggests that the same coup d’etat and succession planning (classified under chaos meaning among inner circles,…not having control over the leadership in progress) eventually becomes deployed right here at home: AKA: Kennedy is no different than any other leader in the world that is in the way of this power perversion. The question raised about Geithner is how closely he actually parallels Obama’s profile; linked to the Ford Foundation (conduit to overt action finance early on…) where Obama’s Mother…and and Geithner’s Father are operatives under the same exact apparatus.
    In fact, it seems that many of Obama’s “odd” couplings are linked to previous connections which show up in his very shady history of contacts and operational profiles.
    I was personally shocked to find out that Geithner’s background (see the link) is not blue blood wall street but entirely in line with a second generation (maybe third) CIA / covert global finance lineage (Madsen = “pedigree”)…as well.

    The question is so bizarre that you end up questioning your own sanity in the process of seeing things that are right in front of your eyes but simply “can’t” be true according to our “nationalized” narratives. Even when you simply place the facts in front of people you observe the completeness of this obfuscation and universal denial. It is ritualized history and rationalized reality for the sake of a conformity that only mimics sanity. If you don’t believe that statement, think hard about the carnage in the world going on at this very moment even as we see the world as a working rational system…and how much is due to covert policy applications of power that is totally and insanely irrational succession

  65. A bit off, but on the periphery?
    Obama is a “War President, and has no intentions of pulling troops out of Iraq, nor Afghanistan!
    Goldman Sachs and others are TBTF as Timmy, Bernanke, and Bush’s cronies “All” carried-traded [?] over in wholesale…are now permanent fixtures of the “Obama Team”!
    We are now a country in, and at permanent, perpetual “War and Campaigning”?
    Obama campaigned for two plus years, and now he is campaigning approx. two plus years again…why? He isn’t focused on the countries problems one iota! How can this man direct our country going forward when he is in constant perpetual campaign mode, how?
    His health care program has given more exemptions to big business and anyone with a $100 contribution. He should be ashamed, or better said, put on furlough notice…a replacement should be considered immediately, or an independent candidate will split the vote with the “GOP” pulling an upset in the 2012 Presidential Race!
    I have never in my life felt such distrust for a sitting president as Obama. JMHO
    The ($86bn.) $38bn.[?] budget cut was a shame. The CBO’s analysis shows initial spending cuts less than expected, which they estimated at approx. $352 Million! Ref:
    http://www.washingtonpost.com/politics/deal-includes-86b-in-cuts-that-likely-would-never-have-been-spent/2011/04/12/AFFbG4bD_story.html
    PS. What’s Obama going to do with Elizabeth Warren…keep her in a permanent puzzled play where he holds the corner piece tangling in front of Timmy?

  66. Bruce E. Woych

    Well Earle,Florida…they wouldn’t let me post what I wanted but check out the “coincidence” of happenings in the Americas while Rome burns in the Near and Middle East…and tell me it isn’t all about Too big To Nail:

    (1)
    http://www.strategic-culture.org/news/2011/04/16/brics-and-the-mission-of-reconfiguring-the-world.html
    (2)
    http://www.strategic-culture.org/news/2011/04/16/scenario-where-the-brics-challenge-the-united-states.html

  67. Bruce E. Woych

    On the other hand it seems that our hypocritical current affairs are on par with all the dirty tricks we have pulled in the Americas ourselves, setting our Southern neighbors up as a reluctant perpetual false flag of violent based counterinsurgency:

    (4)
    http://www.strategic-culture.org/tags/cia.html
    (5)
    http://www.strategic-culture.org/search.html?cx=012666694964052429512%3Afy7ux7qhjjq&cof=FORID%3A10&ie=UTF-8&q=US+military+site+in+Columbia#1698

    With friends and neighbors like that who needs enemies: (and incidently…what exactly are we now doing in setting up positions in columbia…)?

  68. Bruce E. Woych
  69. @ Bruce, interesting article on the “rebel” central bank coming on line, in the middle of mayhem, destruction, and violence, in Libya.

    The above paradigm suggests the intelligence arms of Britain, USA, and a crackpot middle eastern regime.

    Now, potable water in an arid region, growing even warmer and drier with time, is another sought after “wealth” issue. At the end of the day, what better “enabler” than organized thugs with the latest technology, a black operating budget, and no accountability from host governments? These are the same guys who will kill 38 civilians to get the one “bad” guy in the house.

    We know now that a percentage of the “rebels” are employed by CIA as their Arab legions, fighting imperial proxy wars, or “AL QAEDA”, that computer data-”base” of individuals available for hire. Make no mistake about it, because this is it, as sure as the day is long.

    The rip-off continues, and Homeland Insecurity is watching you, despite the tyrannical grievances listed in sharp and focused detail in the Declaration of Independence.

    As Tony says, a reckoning is sure to happen….stay tuned.

    As others have mentioned here, rejecting a stinking fiat “currency” is a first measure in weakening these psychotic bast*rds, who must think they’re in control.

    Thanks, Bruce, for all your efforts, too.

  70. Herbert Wetherby

    My hats off to you Bruce, good link.

  71. Herbert Wetherby

    At the end of the day, what better “enabler” than organized thugs with the latest technology, a black operating budget, and no accountability from host governments? These are the same guys who will kill 38 civilians to get the one “bad” guy in the house.

    That is an interesting statement there woop, examined abit closer and modified you can see the future. But for now its just make believe, take the hot springs area of the southern midwest and God. Approaching the 200th anniversary of the event the area is a combination of underground lava and seeping sea water. The combination of the 2 is basicly a steamer that has to vent itself either slowly or quickly depending on the pressures in that area, and it is a large area. Now enter God, (again this is make believe) who has an invisible finger applying downward pressure on a lid to keep it from bursting.

    Years go by, the country grows and should a similar event occur today the USA could be split in half without a major transportation hub (all types of industries down for the count). No money or organization will lead to local economys trading barter style and possibly just trying to survive. This is the big one some people fear So before you so before you go after the bad guy just hope its not you above that pressure cooker.

  72. Playing Risk, are we? So easily distracted from hard thinking…every “civilization”

    And what about the entire continent of Africa?

    And how is Brazil going to be king of South America when they are the odd man out with language?

    And none of the BRICS include one-half of the human species in their intelligence pool – the women.

    There will always be HUGE differences – say we all go back to swinging through the trees after the day of the monkey brain “reckoning”

    USA will do it first – we’ll string up zip lining commuter transport to the corner office – wheeeeeeee!
    and offer drinks and ear buds at the change lines stations.

    Blue eyes are just crazier than everyone else – always were and always will be…we insist on making it “fun”…

    wheeeeee….!

  73. @ Bruce E. Woych

    Nice research…very nice:-)
    Ellen Brown is somewhat outdated on Central Bank Consolidation?
    I’ve been smelling this putrid, rancid diabolical trail for a long time, and the numbers have been whittled down exponentially since “911″!
    There are only four [4] nations (countries) in the known universe outside of the grimy hands of the “Bank of International Settlements (BIS)” {ie. the personal bank of the Rothschild’s, and lesser Rockefeller’s} and those are in alphabetical order below:
    Cuba*
    North Korea
    Iran
    Sudan
    (* once Cuba’s Fidel Castro passes on, brother Ruel will conform to the west)
    PS. Iraq, Afghanistan, and Libya most recent capitulation.

  74. http://www.merrionstreet.ie/index.php/2011/04/commission-of-investigation-into-the-banking-sector/?cat=12

    The sole member of this commission, Mr. Peter Nyberg, said in a interview of the Finnish Broadcasting Company that the best solution to prevent this kind of crisis would be to limit the size of the banks.

    The politicians here in Europe haven’t been any better in renewing regulations or even understanding what has happened but maybe there is still hope.

  75. Mark Vincent Chambers

    @ Annie: Huh, ?

  76. People, people, people, can any of us be surprised that Congress refuses to reduce the size of Goldman Sachs? This financial giant is one of the largest corporate contributors to the Democratic Party. So what you have in Washington is the Republicans who don’t want to regulate anything and the Democrats who are afraid to lose campaign money. We will not have real banking reform until we get Wall Street out of the pockets of Congress! The President should have abandoned his party and called out these Democrats for essentially taking bribes. And, he should call out the Republicans for playing chicken with the American peoples’ livelyhoods just to see him destroyed politically. We needed Roosevelt and we got Clinton.

  77. @ MVChambers – lol – okay, a warranted “huh?”

    I keep forgetting that I have no cultural touchstones with just about everyone who posts here…

    When I was attending a NorthEast USA State College, the board game (like Monopoly) called “Risk” was all the rage because a game could go on for days. “Risk” was simplistic imperialism – every move made based on the chance of the roll the dice, amass an army, go head to head with another army, take over the world and win. Nothing else factored in, of course, since it was a *game*.

    So I read the link that Woych provided – the one where Russia wishes BRICS success – and the simplicity of the idea about how to rule the world struck me that even some legendary games of risk in those college days were more *real* than the plan BRICS assume will work.

    SO I picked out the OBVIOUS flaws – language, culture (none of the BRICS have anything other than a history of have and have-nots – HUGE numbers of have nots)

    and then I realized how different being a Star Trek “Prime Directive” believer (monkey brains on imagination) was compared to torture, drugs, mayhem and kleptocracy…

    I thought they were called “zip lines” – those strong cables strung across the tops of rain forests that tourists like to strap themselves on to and zip around the tree tops – the new age Tarzans :-)

    I am betting the horse the house the farm on the world not ending on 12/21/12 because I reckon its a whole lot of made up crap by a different kind of monkey brains…

    Although one must admit that the Cult of Contempt for human happiness has been around a long time – case in point is the Antikythera Mechanism – sunk with a ship (war? pirates?) and until discovered, it was assumed that some “culture” in the Mediterranean was not capable of such technology 1000 years earlier…

    Many, if not most people, especially after WWII from Europe – West and East – who came to USA

    *BELIEVED*

    that starting fresh here in USA on beautiful land

    by just transplanting what was eternally GOOD about their culture would be enough to keep the degenerate Cult of Contempt that harassed them over there for centuries *contained*

    Enter electronic databases and the Patriot Act and the Cult of Contempt has all monkey brains believing virtual reality *rules*.

    I still believe in the Prime Directive.

    I don’t believe anyone has a chance to get to where they have to be with the gauntlet that has been set up by Iran Contra crap, and worse.

    I will NOT bend my knee to war lords and drug lords.

    And there’s more in the pocket than a “Zip Line”

    Bottom line, without the Patriot Act, DRUG lords could not have rolled the

    MILLIONS

    millions – meditate on that for a moment –

    in 2 years of

    everyone in the MIDDLE CLASS who played by the rules that kept them SAFE as a Middle Class

    to pay off a permanent global mercenary army…

    where is Blackwater Prince living, eh?

  78. @ Annie: In comfort I would hope, near bloomfield with his kids soon to grow up. Doing peoples nails for pay and pleasure, and watchin the Feds pump more cash into a failed QE.

  79. Prince is in a Middle Eastern Play Land

  80. just a short helicopter trip away from the *permanent* mercenary EMBASSY in Iraq – “god’s work”…

  81. Bruce E. Woych

    Maybe Chomsky reads Baseline…?
    APRIL 21, 2011
    http://www.alternet.org/world/150697/
    is_the_world_too_big_to_fail_the_contours_of_global_order/?page=entire

    Is the World Too Big to Fail? The Contours of Global Order
    By Noam Chomsky April 21, 2011

    http://www.alternet.org/world/150697/
    is_the_world_too_big_to_fail_the_contours_of_global_order/?page=entire

  82. Could Goldman Sachs Fail? Hardly likely. Why? because they would be short the GS stock and be long the puts and short the corporate debt…… So when the stock is cratering and their lenders are dumping the debt on the open markets Goldman will be making a killing. LOL LOL. You don’t get it? These guys are the real deal. LOL LOL.

  83. Bruce E. Woych