Goldman Sachs And The Republicans

I testified yesterday to the Senate Banking Committee hearing on the “Volcker Rules” (full pdf version; summary).  My view is that while the principles behind these proposed rules are exactly on target – limiting the size of our largest banks and preventing any financial institution backed by the government, implicitly or explicitly, from taking big risks – the specific rule changes would need to be much tougher if they are to have any effect.

Wall Street is strongly opposed to the Volcker Rules (link to the written testimony; webcast) and the discussion elicited some classic Goldman Sachs moments.  Gerry Corrigan, a senior executive at Goldman and former head of the New York Fed, suggested that Goldman Sachs has an impeccable approach to risk management and seemed to imply that the firm was not in trouble in fall 2008.  When pressed on why Goldman requested and was granted a banking license – and access to the Fed’s discount window – in September 2008, he fell back slightly, “There is no question whatsoever that when you look at totality of the steps that were taken by central banks and government, particularly in 2008, that Goldman Sachs was a beneficiary of this.”

The public record is clear – Goldman Sachs would have failed in September 2008, were it not for the support provided by the government. The fact that some of this support did not involve direct use of taxpayer money speaks to the ingenuity of the people involved, but it should not distract us from the substance.  Goldman Sachs was failing and it was saved.

Why is this so hard for Goldman to admit?

Goldman Sachs was too big to fail in fall 2008, with assets over $1 trillion.  It is still too big to fail, with assets closer to $800 billion.  Everyone now says that “too big to fail” is a terrible problem and must be addressed.

But none of the ideas currently on the legislative table would have any real effect – in the sense that next time you will be able to let Goldman fail.

  • The Republicans (and Goldman Sachs) want a “resolution authority” that would give the government greater power to take big banks through bankruptcy. But even assuming there were sufficient political will to use such power, as Mr Corrigan and John Reed conceded at yesterday’s hearing, because this would be only US-centric (and there is no prospect of a G20 or other international agreement anytime soon) it simply would not work for huge cross-border firms.  When such a firm fails – and Mr Corrigan made a point of emphasizing that half of Goldman’s meteoric growth since 1997 has been “global” – a resolution authority will do you no good at all.
  • The Federal Reserve leans towards “stronger regulation”.  But every regulator sent to control big banks over the past 30 years has ended up completely captured – most recently the people who allowed Goldman to keep its bank license while retaining its full range of risky activities.  You can add to the powers of the Fed or take them away completely but this will not change.
  • The administration prefers a bipartisan approach – avoiding confrontation on the true nature of “too big to fail” or even explaining how much worse our problems became during the Bush years – but that just can’t work when the other side refuses to cooperate.  Given Republican relationships with big banks, there will be no serious attempt to cut financial institutions down to a size at which they could be allowed to fail – no meaningful version of the Volcker Rules will make it into law.

Goldman and the other big Wall Street firms have already won big on this round.  They will plow even more money into defeating political candidates who have opposed them – for example, on credit card legislation.  The Republicans see this coming and are rubbing their hands with glee.

With their incentive structure intact – they get the upside and regular folk get the downside – and their closest friends on their way back to power, Big Finance is ready to roll into the next great global boom-bust cycle.

By Simon Johnson

115 thoughts on “Goldman Sachs And The Republicans

  1. It seems we are witnessing the end game of the chess match started in the 80’s by Ronald Reagan and his minions. His spectral presence hovers around this like stink on s**t. The “left”, liberals, Democrats, whichever you choose to use, have been outmaneuvered (or complicit) in every political and economic move of the last 30 years that has brought us to the edge of this precipice.

    I almost have to give Goldman a tip of the hat. They were hours, if not minutes, from going the way of the dodo, and yet, 16 months later they are rolling in ill-gotten gains, denying ever having been in trouble, consolidating power, and flipping the bird to anyone who bothers to raise the subject. Chutzpah? Cojones? Sociopathic behavior? It probably doesn’t matter at this point. The predator class seems to hold all the cards, those being: recalcitrance, obfuscation, entitlement… When you have money, power, and are unwilling to “play well with others”, it is quite easy to dig in your heels, threaten to shut off the money supply to incumbent politicians, and sit back and watch your dreams (our nightmares) come true. It really is hard to see a way in which the political and economic institutions involved will either manage or be allowed to address the issues this society faces.

  2. A repeating nightmare. How much will the next bailout be? What will that do to the value of the dollar? If it is rejected and failure begins, same question. Is this the end of dollar based contracts? Is this the way it ends? Will those with large dollar reserves allow it?

  3. I’m starting to wonder if the problem for democracy is not just the size of the TBTF banks … but the size of large corporations in general. The annual revenue of very large corporations can exceed the annual revenues of small countries. So there is an asymmetry of power at an individual level (eg, credit card usury) and sometimes at a national level.

  4. As a digression … but related to the power of corporations and democracy … it seems to be if a country is unwilling to fund public education properly there is an erosion in democracy because literacy (and numeracy)is related to the exercise of franchise

  5. Use this one:

    As a digression … but related to the power of corporations and democracy … it seems to me if a country is unwilling to fund public education properly there is an erosion in democracy because literacy (and numeracy) is related to enfranchisement

  6. Tippy, large corporations have long been de facto autonomous nations. They are mirage nations. They have no commitment to any particular geographic location. They come in, they buy the government, they loot, and they leave. Ask any of our fellow banana republics.

    Boundaries are an important phenomena, which is being ignored. I might add that double-entry book-keeping is boundary science. We ought to consider going back into it in a serious way in order to re-stake our boundaries. After all, it is our own geography that is at stake.

  7. Other than the regular FDIC wrap up of smaller banks does anyone believe that any credible (oxymoron?) politician will vote for a bailout of any so called TBTF financial institution from now on? The more pressing issue is sovereign bailouts, for example, in the EU. Incidentally it seems perverse that much gambling (CDS) on the probabilities of impending default is being carried out (tax free and totally unregulated) by both the bailed out banks and, of course, the shadow banking sector (IBs, hedge funds, etc.). Deja vu all over again?

  8. The President needs to take to the bully pulpit and really put it on the big banks. There is no room for playing it safe with a “half in and half out” approach to regulatory reform. Democrats will be the recipients of some big-time protest votes in November if they don’t change their ways quickly. Ir is tough to have any sympathy for those who refuse to save themselves from getting stomped in the political arena. Unfortunately, not only will the Democrats suffer if they don’t change their ways, all of us will suffer as well. If things keep going the way they have been, we really will see a viable third-party emerge on the national scene.

  9. The Federal Reserve leans towards “stronger regulation”. But every regulator sent to control big banks over the past 30 years has ended up completely captured – most recently the people who allowed Goldman to keep its bank license while retaining its full range of risky activities. You can add to the powers of the Fed or take them away completely but this will not change.

    Yes, according to what I’ve read Corrigan himself is a textbook example. (Although by now he sounds not so much “captured” as corrupted plain and simple.)

    You can’t regulate gangland rackets. If you allow them to exist at all, they’re going to run amok, looting and vandalizing.

    So there’s only two options. So far America keeps choosing the wrong one.

  10. There are, now, only three paths this society can take to overcome the power of the TBTF entites.

    Revolution, Martial Law, and societal meltdown.

    Since the Amschel Rothschild dictum reigns today as it did in the 18th century we have no viable political/judicial alternatives for controlling TBTF.
    Amschel said,

    “Give me the power to issue and control a nations currency and I care not what laws it makes.”

    Since so few in the body politic really care about or understand the issue of TBTF, revolution is out.

    With a POTUS captured by the TBTF syndications, martial law is not imminent from those quarters.

    The most likely controller will be societal melt down. Following the mathematical law for Ponzi schemes, and the economic law of diminishing returns, TBTF succumbs in the presence of a vaccum.

    That is precisely what happened to the Roman Empire. When there were no more supports for the process of taxation; removing from the population its economic surpluses supporting the TBTF empire.

  11. The answer to the Too Big To Fail dilemma is to remove the taxpayer subsidy all TBTF firms enjoy as a result of their lower funding costs. By one calculation it’s $34 billion per year. Forget about the temporary Obama bank tax. TBTF banks should, in perpetuity, pay back the Treasury every year for this subsidy. Now, if they choose to reorganize and become not TBTF then the payment goes away. How simple is that?

    Cornelius Hurley

  12. This has been years in the making – as anyone who has followed the growth of corporate welfare has seen. That it reached critical mass with the financial industry just proves the gods have a twisted sense of humor. For all those who have groused since the Chicago School became ascendant that we don’t have a “free market”, but a rigged one, vindication is bittersweet. From farm subsidies to TARP, it’s all of a piece. And the death of public education plays a role, as well. Living as I do in the “New South”, I have seen how the same plantation mentality that ruled here in 1736, went through the years of textile mills, and then the banking and insurance industry,the attitude among the haves is that they are deserving and the riff-raff stays poor and ignorant because that is what they ARE, and -unless they play basketball – are destined to remain in the permanent pool of cheap labor the Big Dogs feed off of.

  13. I agree that, at least partly, why the Dems have been seeming to lose face this year is that they haven’t been willing to go to battle for anything. At least the Repubs in their stubborn obstructionism are being *percieved* as being willing to stand for something. Even if their positions, on even mild inspection, reveal that they’re only trying to block any Democratic accomplishments, neither the mass media nor the public in general tend to look even that deeply. They tend to simply admire their discipline and fighting spirit.

  14. We could try:

    1) All campaign funds and other money for congress to go through a blind trust. They individually still get the money, but no one could prove where it came from. Blind. This satisfies the crazy “freedom of speech for money” issue. Congress should accept money from only those who can vote.

    2) All lobbying must be done in a public forum. On the record. No closed door meetings.

  15. Thomas Jefferson addressed the same issue:

    “If the American people ever allow private banks to control the issue of their currency, first by inflation then by deflation, the banks and the corporations will grow up around them, will deprive the people of all property until their children wake up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”

    “I believe that banking institutions are more dangerous to our liberties than standing armies.”

  16. Thank you Simon

    and.. i would love to take on Mr. Corrigan on his “impeccable risk management”.
    Someone finally please debunk the great myth that our banks risk management is “impeccable”, especially Goldman’s who can safely be pointed to as the vanguard of the ridiculous models that are being used globally today.

  17. I’ve felt that way for many years.

    But I’m a big fan of small-to-medium sized businesses and regional businesses.

    But my world-view was shaped by reading to many end-of-the-world sci-fi novels as a young adult; and I firmly believe that the value of a sustainable regional economy is worth a loss in economies of scale; and such value is rarely calculated.

  18. Fat chance. Went to DC last spring. One lunch was spent listening to a bunch of lobbyists (mining) ply a congressional underling with wine and work him for some unclear gain.

    I’m lobbying when I call my congresskritter, Snowe, and beg her to support a discussion on the floor for health care reform. I’m just doing it for my self, as a citizen, instead of a company.

    But we all know that corporations have the same rights as citizens, now.

  19. “They will plow even more money into defeating political candidates who have opposed them – for example, on credit card legislation. The Republicans see this coming and are rubbing their hands with glee.”

    Thanks to the (Republican) SCOTUS.

    So basically it sounds like we have to hit the wall. We have to let the country go into a real depression, and since we just shot our wad on the mini-depression, it’ll be really bad, and then people will finally learn.

    That’s the only hope of killing these financial zombies that are sucking the life out of our country.

    If I didn’t have a family to worry about, I wouldn’t care as much, but because I do, I’m not looking forward to the next decades. Right now it feels like watching a car accident happening in slow motion.

  20. The simple fact is that the cries about ‘systemic risk’ were a simple prelude to looting on behalf of GS. Nobody has presented a shred of evidence that allowing AIG and Goldman to fail (which simply means bankruptcy reorganization, not extinction) would have made the real economy any worse. Indeed, it most likely would have encouraged the fall in real estate prices which is a necessary precursor to renewed prosperity. The whole thing was bulls**t. As to why GS can’t admit anything, their business is deceipt. Thinking of them as simple predators makes everything crystal clear. The failure we are experiencing is political failure, nothing more, nothing less. All you Obama fans should have saved your internet contributions. He was listening to the big money from day one and he still is.

  21. I like Potomac Oracle’s comment.

    I too believe that a total meltdown is the only thing that may bring about change.

    What I wish in the short term is for there to be a “people’s” leader who would organize massive protests in Washington.

    Is there anyone on the planet that is not outraged about what happens on Wall Street, other than Wall Street?

    It is time for millions to march on Washington and show these idiots that we are not taking this lying down.

  22. Just for the record, a book written to entertain, by a journalist, does not constitute enough “public record” proof to say that GS would have failed in September 2008. I strongly suspect they would have lasted longer than Merrill (without BoA assistance), longer than MS, and longer than most of the UK banks.

  23. “This little piggy had all the roast beef.
    This little piggy had none.” What came next, the wolf at the door?

  24. Even more enlightening is the fact that on their quarterly conference call, just last month, GS said they WOULD NOT give up access to the Fed window (See Q&A below). Given the perception that GS can basically afford to thumb their noses at everyone because they are so successful, I ask: Why would Goldman say this?

    : So while we’re talking hypothetical things, obviously lots of new capital and tax proposals out there. I mean, I’m just wondering, you know, if removing your bank holding company status is an option or something you guys are contemplating in response to some of these various proposals out there?

    : I think it is not any option at all. It’s not something we ever even think about or talk about.

    Is it because Goldman knows they are still too fragile to cut the umbilical cord (i.e.; access to the Fed window)? What other reason could there be? If they’re feeling so put upon, why can’t they just take their ball and go home, UNLESS THEY HAVE NO CHOICE?

  25. zic writes: ” a sustainable regional economy is worth a loss in economies of scale; and such value is rarely calculated.”

    Zic makes a very important point … especially when it comes to protecting regional farming and agricultural land …

    Come to think about it: Protecting regional food production might put some brakes on the so-called epidemic of obesity that apparently is eating ever larger chunks of the health care budget

  26. I think I am correct in saying that Obama had the opportunity at the height of the crisis to “save” the banks by having the Treasury become the dominant shareholder, taking managerial power, firing the top looters, firing the lobbyists, ending payoffs and expectation of future payoffs to congressmen and other govt. officials, and instituting real reform from the inside and outside of the banks, so that the Treasury could sell its holding off in several years when things had stabilized.

    Obviously, he didn;t do it. The upside? Is there’s another crisis coming along in 5, 10, 15 years, lay the groundwork for doing it then.

  27. To do that, you have to stop corporate interests from feeding money to Congressmen, and other govt. officials. That problem has apparently been made worse by the recent Supreme Court decision.

    Twenty-first century “Rome” – vested interests are crippling our ability to deal with problems.

  28. Don’t bankruptcy proceedings essentially make a corporation’s affairs run through a bankruptcy judge’s rulings? Inother words, activity halts or slows to a creep. That is, no flow of money, which is what the problem was.

  29. I would like to see the evidence reviewed again as well now that a little time has passed. Does anyone have a link to any previous reporting regarding the evidence that GS, etc. had to be saved? I know that’s what Paulsen told congress in September 2008, “If you don’t do this, you won’t have an economy on Monday.”
    Maybe we would have eventually been better off if we had let them all die. TBTF would not now be a problem, and maybe the boom-bubble-bust-bailout cycle would have been broken at least for a few decades.
    Maybe it would have been a disaster, maybe I would now be unemployed. But, at least I’d have time to go hike tha Appalachian Trail (the real one, not the Argentine one).

  30. Not so many years ago I would have scoffed at what I am about to write. I believe that this country is in a period of decline. If unchecked we will surely go the way of the Romans. The possible scenerios for our future are infinite but include rebellion, total government control (see Orwell’s 1984), invasion by a forgein power, civil war, anarchy and so on. The status will not be quo. Something will give with catastrophic result. The best thing that could happen would be an eruption of the Yellowstone mega-volcano. Those left would be forced to cooperate to survive and all of this political nonsense would be indefinately put on hold.

  31. Not sure I understand why a “resolution authority” based on the FDIC model wouldn’t work? Doesn’t FDIC insure deposits held by US depositors in global banks?

  32. Well written. I lean towards the Demo’s being complicit than being outmaneuvered. Since Congress and the Senate are for all intents and purposes up for auction, I would suggest they get coin slots installed, just to dispel the illusion they have the People’s best interest at heart…

  33. Well said.

    I have yet to see a “road map” outlining exactly how the world would have collapsed if we had not bailed out the banksters.

    We should have taken the hit – and avoided all the moral hazards. “Phantom wealth” would have been destroyed, but wealth would not have been redistributed in a such a disgusting fashion. Instead the looting continues; what little wealth remains is drained from the have-nots to the haves.

    We are in a depression. It will get worse. It will last a long time given all the resistance to “feeling the pain” and moving on. If it is not addressed (and I don’t expect it will be), civil unrest will mount, the political system will change dramatically (towards a more totalitarian model), the stock market will ceast to exist.

  34. Wow. I’m somewhat surprised to read your comment. Not because I don’t agree with it, but because that has been obvious to me for decades. It’s always eye-opening for me to realize how far my thinking is outside the norm.

    I repeat my basic observation about Capitalism:

    The goal of Capitalism is to create value: the best goods and services for the best price.

    The mechanisms for doing that are two-fold, and at odds with each other (a dynamic):
    (1) The profit motive.
    (2) Competition in the marketplace.

    Both are absolutely necessary for Capitalism to work.

    The profit motive exists at the individual level. This leads some individuals and business entities to drive towards monopoly (i.e. to work towards minimizing competition) because that is where profits, barring regulation, are maximized. (Note: Once a company reaches a “tipping point” in size, the more monopolistic it becomes. However, a company does not have to be big to be monopolistic.)

    The primary economic role of government in a Capitalistic economy is to ensure competition – the other side of the equation for Captitalism to work.

    In my mind, this happens through tough and enforced anti-trust laws, progressive taxation, an educated populace, well underwritten loans to small business, etc.

  35. Another Volcker type person who is being consistently ignored is Mr. John McCain. His campaign contribution bill concept is an important begining and it has to be debated and improved extensively in the academic arena for the real democracy to survive. Otherwise, autocratic rule of China will say that it’s autocratic rule is a better solution than democracy! For any type of political administration to be successful, the people at the top should have nobel qualities (not only etiquette) and should be able to provide fair justice to majority of the people while enacting laws rather than acting on behalf of special interests..

  36. Yeah, right. We’re going to have a revolution. Sure bet.

    I don’t see it as likely. The people in this country are nowhere close to being actually hard up. They are also, in general, almost totally politically and economically ignorant, ie, they have no idea what’s going on and they’re too lazy to find out. They are as likely, if not more, to be manipulated by right-wing propagandists using buzzwords such as “freedom”, “independence”, and “socialism” into giving up what remains of their protections as they are to revolt, even at the ballot box, against the machinations of the multinational corporations and the banks.

  37. That’s what I’m thinking too. Can someone tell us why that would not have been practical to do, besides for political reasons. The fact that we didn’t do that is what all the hand-wringing’s about today, IMO.

  38. How about if we revolt, starting now? Not literally, as in Fr, Am Rus Revolutions, but as in a Reagan revolution, in reverse. Organize our efforts. That’s the key. The RR happened (and continue to) because folks (corporations and they’re flunkies) have had their you-know-what together. We need to do the same. Then see what happens.

    As I said above, a more literal revolution ain’t gonna happen, IMO, but a Reverse-Reagan-Revolution, …We can do eeiitt!

  39. …But I don’t know what our platform or whatever will be. I’m way too poorly educated. We need some intellectual leadership focused toward change (but what change, again? Can’t be that vague, Clinton-Obama campaign slogan crud).

  40. The problem is not the size of the corporations per se. The problem is the implicit and now explicit promise of taxpayers will backstop all of the risk.

    If corporations did not get taxpayer subsidies and bailouts, and had to accept all the risk on their own, their size would be naturally limited. Shareholders would only accept the amount of risk they could reasonably sustain in the case of failure.

    There would be a whole lot less ‘failure’ as well.

  41. I like the blind election fund. You’d also have limit the elected offical to monthly statements, not individual contributions. Otherwise you’d get some donors saying “if you see an amount of $123,456.78 arrive in your fund… that could be from us.”

  42. “Another Volcker type person who is being consistently ignored is Mr. John McCain.”

    AH, HA! ON which day? Which campaign? Who is he talking to? McCain is the most inconsistant opportunist in the senate at the moment, which is like being the fattest kid at fat camp.

  43. “Goldman Sachs was failing and it was saved.

    “Why is this so hard for Goldman to admit?”

    Because heads did not roll. Had the resignations of top brass been a precondition for getting a bailout, the new CEO would probably have admitted the failings of the previous CEO. And the old CEO would probably have, as well. It’s amazing how serious social consequences can lead to repentance.

  44. Whatever you think about Lenin, some of his writings are very revealing, but theory and reality do not often complement each other. “The abuse of the currency brings the collapse of capitalism.” Very freely translated. If you follow the current FED policies, they are very liberally printing money to give to the “too big to fail” institutions and then earn money from other country’s interest. The beast is eating itself and does not know that.

  45. we are all witness to the neoliberal movement started by reagan…the destruction of labor unions caused many dems to go to the corporate trough for their money as the unions where no longer able to fund the opposition against the elite;the republicans and blue dog dems are corporatists doing the bidding of their masters. we are witnessing the death of democracy in Amerika Inc.

  46. If only the clock could be turned back over 30 years past when bankers,traders and execs had THEIR money on the line for their risky takes in the market. That is when there was accountability. However they all became public corps allowing the risks to be borne by shareholders and creditors and the rest is history…wake up America!! corruption and fraud and greed are the American way whether on Wall St or Congress.

  47. Maybe from the South. Like Huey Long and George Wallace and Andy Jackson. With less industrialization and an ethic of fierce independence, the South can produce politicians who are not afraid to take on moneyed interests. They know that if they are successful, money will come to them. They will not have to grovel to get it.

  48. Tippy Golden: “I’m starting to wonder if the problem for democracy is not just the size of the TBTF banks … but the size of large corporations in general.”

    May the ghost of Jay Gould shine his countenance upon you, darlin’. You have seen the light!

  49. Tippy Golden: “it seems to be if a country is unwilling to fund public education properly there is an erosion in democracy because literacy (and numeracy)is related to the exercise of franchise”

    More wisdom. :)

    Viddy this, if you haven’t already:

    “We are in danger of producing an educated proletariat. That’s dynamite! We have to be selective about who we allow to through higher education. If not, we will have a large number of highly trained and unemployed people.” — Roger Freeman, aide to then Governor Ronald Reagan

  50. That would work but who will lead? Who will follow? Remember how upset everyone (well, almost everyone) was when the gas prices really hiked a few years ago. People were talking about boycoting the pumps. “Don’t buy gas!” they said. “The gas stocks will pile up, tankers will be sitting off the coasts waiting to unload” they said. What happened? Nothing. Why? We have become a land of sheep. We follow. Mostly we follow money. You are correct. There will be no revolution.

  51. All right !! An English economist Lord Robbins in the 1920s wisely said the capitalists get what they want and workers get what is given to them. Some things stay universal over time.

  52. The fact is clear, on Tuesday, Senator Dodd and the elite gave the kill signal for the “Volker Rule”. It is a a very sad day in American history when the arrogance still thinks they can put the taxpayers second.

    It was interesting seeing while “The Volker Rule” was trying to be knocked off, the Goldman Sachs, Wells Fargo, JP Morgan Chase, Morgan Stanely, Bank of New York, Bank of Mellon, Citigroup, and the rest of the Financial & Banking Sector seemed still be making their gains and going up in value as also tracked by the XLF.

    David Weidner of the Wall Street Journal had tried in his article, in this writers opinion, to utter, “a grave shot has been shot over the bow of Americas Ship exposing the markets around the world to serious corrections greater than 35%”.

    This could also mean serious thoughts to the continued bleeding of jobs around the world and potential for economic collapses if the Central Banks don’t get it right the first time around with extending the stimulus as suggested by Nobel Economist, Professor Joseph Stiglitz.

    An article opinion written by William Pesek resonates clear resolve the markets are in real trouble ahead. The article stated the following as I quote,

    ” China’s currency reserves grew by more than the gross domestic product of Norway in 2009. Its $2.4 trillion of reserves is a bubble all its own, one growing before our eyes with nary a peep out of those searching for the next big one.

    The reserve bubble is actually an Asia-wide phenomenon. And we should stop viewing this monetary arms race as a source of strength. Here are three reasons why it’s fast becoming a bigger liability than policy makers say publicly.

    One, it’s a massive and growing pyramid scheme. The issue has reached new levels of absurdity with traders buzzing about crisis-plagued Greece seeking a Chinese bailout. After all, if economies were for sale, China could use the $453 billion of reserves it amassed last year to buy Greece and Vietnam and have enough left over for Mongolia.

    Countries such as the U.S. used to woo the Bill Gross’s of the world to buy their debt. Now they are wooing governments. Gross, who runs the world’s biggest mutual fund at Pacific Investment Management Co., is still plenty important to officials in Washington. He’s just not as vital as the continued patronage of state asset managers in places like Beijing. The stakes are rising fast. The risks in Asia are skewed firmly in the direction of inflation. The focus is now on central banks to see if they will pull liquidity out of economies with higher interest rates. More attention should be on how reserve management is working at odds with that goal.

    Central banks face a difficult task. They must withdraw excess liquidity without devastating their economies and running afoul of politicians. Only now is Asia finding out how some of its economic-protection tactics are amplifying the challenge.

    Asia has been holding down currencies to support exports for more than a decade. It’s silly to ignore the side effects of that strategy for the region’s economies.

    Think about how Dubai shook the global economy, or how the mere hint that Chinese growth may dip below 8 percent inspires panic. These disappointments pale in comparison with the turbulence that may come from Asia’s biggest bubble popping” (William Pesek,

    It seems the Volker plan was being used as a public campaign by the Banks and the inside Washington elite like a political side show being waged against the Taxpayer and Voter to quickly get amnesia of what are vote can do when it comes to the power of a vote.

    This writer is making these concerns known, as it seems Volker is being portrayed as absent with true form for his rules was presented to our Congress. Call it the “senile campaign card” of Volker. The banks and the Elite want all to believe that only Larry Summers and Timothy Geithner can sell the reforms needed to move all the world to safety. For now real reforms or laws are dead on arrival including “The Volker Rule”.

    It has become a serious call for the voice of many taxpayers who can use this tool of their voters rights to gain a voice of long lasting reforms.

    These votes and voices starts the eventual changes needed to make (TBTJ or TBTF) never the case again. These efforts can gain traction in efforts made from the grass-root spreading the word from one end of the country to the other.

  53. Well, first question will be, how will they take anyone on with unlimited corporate money toward “issue ads”?

    Second, I’m afraid we (and I do mean WE) have built a system that doesn’t support human life. That is, the political system is designed in such a way that anyone who would actually be good as a politician gets filtered out and only leaves people who “simulate” humanity (what I would call “sociopaths”).

    I’d like to blame that on the “ruling class”, but I think we’re all guilty. Most of us when faced with the human foible of even our preferred candidates will tear at them like sharks. Howard Dean lets out a stupid yell, a very human stupid yell, and he’s done. A great liberal says something vaguely sexist and we pillar them.

    The fact is we demand that they not be human and subsequently they provide us with exactly that.

  54. The flow of money to loans for businesses would have slowed because of bankruptcy. The loans slowed anyway without bankruptcy, but at least at the end the looting execs would have been replaced.

  55. No corporations do not have the same rights of an individual citizen. They have millions of dollars of more rights than you or I.

  56. Because politics was everything at the time. Remember the denunciation of President Obama as being a socialist out to take away our democracy by taking over the economy. Perhaps this could be seen as a preventive attack to stop any such nonsense as to applying moral hazzard to the top banksters in order to take away their personal cookie jars.

    It is the american way to let the individual take responsibility, the mantra since Reagan, but hardly the way to treat corporations and their executives.

  57. Isn’t Glenn Beck from the “South”.
    All I hear from the south is the FAKE Grassroots crackpots.
    All the time complaining about “the government”, while the Business Community Runs this Country into the Ground.

    What’s going to happen to Glen Beck when his horde of followers finds out he’s a Saudi Collaborator?

  58. Public education IS heavily funded, and is part of the problem, not the solution to crony capitalism that “privatizes” the profits and “socializes” the losses. See “Underground History of American Education” for some illumination on these points.

  59. FDIC does not have the necessary legal provisions, or the manpower, to deal with systemic risk. They try to do their deal over a weekend. Unwinding a systemically important BHC/FHC, like Citigroup, would take much longer – years are more likely than months.

    Has the FDIC ever had to work with just about every country on the globe to do one of their weekend resolutions?

  60. Per Bill Clinton’s words: He is a good person, but does not know how to run a good campaign.. May be he did not get proper (corporate) backing due to his controversial views.. Whatever type of person he is, his “campaign finance reform” initiative was a good one.. Obviously it did not gather steam due to vested corporate interests.. The root cause is the campaign finance.. Clean it up and hopefully the politics may improve..

  61. The corporations represent only a minute portion of the population.. Any fair goverment policy should favor majority of the people, not any corporation representing miniscule portion of the people.. Also, goverment is by the people, not by the corporations.. People who vote are citizens of a country whereas a corporation can have affiliation to many countries..

  62. “They are also, in general, almost totally politically and economically ignorant, ie, they have no idea what’s going on and they’re too lazy to find out.”

    Judging from the rest of your buzzword-laden post, this is a manifestly self-referential statement. One wonders who your manipulators are.

  63. What’s astonishing is that B.O.’s supporters ever imagined that a product of “The Chicago Way” would do anything other than shill for the “privatize the profit”/”socialize the losses” crowd. Why turn one’s back on the way of life that gets you to the top?

  64. ‘Still seems pol’s would “get the message”, know what they “have to do”, pretty much as they do now.

  65. It does seem that enough people are angry, but my question is does the power really reside with the vote any longer. There was a massive internet petition to email congressman not to support the TARP bailout when it originated, and nothing happened, not even a flinch. Nothing ever happens, except what is out of our hands. Sure you’ll hear of Senator’s like Grayson, Volcker, or Paul attempting to change things, but if they truly were to gain traction like Kennedy’s conversion to a Silver standard, well, we all know how that ended. Individual senators are not enough, hell even a group of them is ineffective. I once heard Perry Ferrell of all people say that capitalism is the best system in the world because participants vote with their dollars, well that is what I say people begin to do. If enough people declared themselves EXEMPT and paid 0$ taxes until this system was reformed, simply for the reasons, highlighted in this blog, what would the government do, jail us? I am not a believer in all of Ayn Rand’s ideas put forth in Atlas Shrugged, but it seems that the American public is complicit in their own enslavement by acceptance of their rules, and that we must float the bill for this ridiculousness. It has been mentioned several times that these mega corporation are the problem, and to that I don’t agree. The rules are the problem, and it’s the rules that are in place that allow corporations to influence so much policy in Washington. Think of our tax code, lol. At the end of the day it’s you and me that allow them do so by supporting the government with our tax money.

  66. Uh, sorry if there’s too many cliches for you to take me seriously. Maybe you’re just offended at my harsh tone. I guess I’m too lazy or don’t have time to edit better, but I assure you, I’m sincere. I’ve spent my whole life among the “common” folk, basically construction and mill workers. Now I’m around a lot of chicken and cow farmers. From what I’ve experienced, there are plenty of hard, dedicated, 7:00-3:30 workers who will kill themselves to get a job done for you. But if we were to pretend that being an informed voting citizen were a “job” I’d have to call them, for the most part, a bunch of useless bums. They don’t know. They don’t care. They use cynicism to cover up their laziness. “What can I do? It’s all corrupt.” They reserve the right to bitch about results. When they do express an opinion it’s completely ill-informed. These are some of my best friends. Again, you may not believe me, but I’m sincere.

    What’s odd to me is the small sub-set of my work buddies and aquaintances that do try to take an interest in politics and the “larger picture” is nearly 100% Reaganist (Is that a word)? I haven’t figured that one out. It seems to me to me they’re violating their own economic interests, but they won’t ever hear of it. They believe in trickle-down economics. I’m the only DFH of the lot.

    Maybe 1 in 40 or 50 takes what I would call “any” interest.

  67. Oh, and it is partly self-referential. I read and read and read the stuff on these blogs despairing that I actually know anything. The only thing I’ve become pretty sure of is that the average person I talk to on the “street” has NO idea what they’re talking about.

    That’s why I ask in other posts was there ever any PRACTICAL opportunity to nationalize the banks or let them go bankrupt. (Is that the same thing)? Some take it for granted that there was, but would that have cost perhaps several times as much or even more than the cost of TARP? Would it have totally collapsed the financial system? Put us at 25% unemployment? Myself, I haven’t a clue. Have you?

  68. Well, we’re all jabbering here… The neoconservatives had some intellectual leaders, from the little I’ve read.

  69. The US has jumped the shark. The most recent Supreme Court ruling that seems to have taken all limits off corporate “giving” just cements the picture in my mind.

  70. I agree. Corporations have used cheap labor from other countries to make profits and then sold the products to the U.S. population. The corporations have become international and are so united, they get to stand. BTW, anyone read “Shock Therapy” by Naomi Klein?
    I have for a long time looked at this from a personal level-which has been how are we supposed to be able to afford to buy anything from these big corps. if we’re not earning enough to buy anything? That was a simplistic way to look at it, but the reason is the multi-national exploitation. The question still remains, how do we fix it?
    Should we get rid of Social Security and Medicare after years of paying into and looking to collect on that? Should we oust all incumbents?
    If the tea partyers would limit there anger to that, they might be taken seriously.
    Oh…and how do we keep China from calling in our debt?

  71. It’s important when it comes to protecting small manufacturers, too. A small to mid-sized company may not be able to produce on the scale necessary to feed a Wal-Mart. (In Maine, my home state, I frequently see this with small producers hoping to sell their Maine-made products to L.L. Bean, but are unable to scale up to meet Beans requirements.)

    When commerce is international, small companies can’t hope to compete without the risk of scaling up too fast. (Isn’t that what happened to Toyota?)

    It’s common in federal contracting, too. You see it when you look at federal agencies attempts to meet their small-business quotas by pressuring direct contractors to subcontract with small companies.

  72. This is why regulation alone will not solve this problem. These institutions must have their corruption exposed and be forced to respond to new competitors that take the deposit base based on ethical principals. The competition are chickens because they play the same game. New competitors are needed.

  73. Collin:

    The apathy card you raise is true. It is the card of apathy that always is the hope by most politicians and crooks bank on. “Pardon the pun” lol…

    The twist and what all need to keep strong is the glimpse brought to the surface by the “Boston Tea Party”.

    Just for a moment, the ability to catch a glimpse of the hidden beast of the Barbarians greed and arrogance exposed.

    It is called the incumbent machine of paid off fat cats by the lobbyist that have already spent their money/budget for the term.

    I suggest that all keep replaying the interview from Bill Moyers as provided below and to keep all your friends and any one with an active voters card to remember to use that vote as President Obama got in his win to hold the current office he is holding.

    Still, I can appreciate your comments and know the hope of many incumbent and lobbyist hope you are correct…

    Far-fetched, not anymore!

  74. “Goldman Sachs was failing and it was saved.
    Why is this so hard for Goldman to admit?”

    Because it’s almost certainly not true and you present no viable evidence.

  75. we can restore Glass Stegal,restore top tax rate to 90% as it was under Eisenhower limit loopholes in tax code.we could and should restore manufacturering of consumer goods and have tariffs like Asia has,if not then logical trade agreements benefit the middle class and the lower middle class. sensible environment policy for the planet that doesn’t rape it. if these steps are not fallowed look for wars, collape of are nation and the rest of the world,environmetal degeradation. maybe one by one or ALL AT ONCE!

  76. Yeah, and maybe we could have new execs. Maybe we could get some that are accountable to us…not to…well you do know who.

  77. TARP was chump change; the real looting was done through the Fed and it continues apace. Perhaps someone can explain the precise systemic difference between Lehman and GS? People cannot resist applying sophisticated analytics, but this was simply grand theft of the kind normally seen in Uganda.

  78. The problem is fascism, which up to know has been friendly in the US except to those who fall off the job train or get sick. Until now, the corporations needed a US consumer market, but they are beginning to lick their chops over China and Peru and feel comfortable letting the US consumer sink. Listen to the bilge coming out of CNBC every day and you will understand that all the talk about jobs is just sentimental slop. It is health of the share markets that corporations need. You will not begin to understand this stuff without a filter applied to ever pronouncement by every politician and corporate executive, all of whom talk nonstop bulls**t.

  79. The Democrats will run on the claim they are not Republicans. It worked for Clinton twice, Obama once. Until these opportunists are defeated in toto they will keep doing the same things.

  80. There is so much talk about regulation of the banks these days. Volcker rules, or any other new regualtions for that matter, will either be defeated in Washington now, or a few years down the line. There’s no way the banks are going to let Washington limit their ability to loan freely.

    We working people need to learn, and I think we are learning, that legislation is not our turf. The rich are going to beat us in every battle, beacuse they can outspend us.

    Where we do have a chance at impossing restrictions on them, it is because of our numbers and militancy.

    When the workers of Argentina were locked out of their life savings by the banks, they organized. Hundreds of thousands of them surrounded their banks, kicked in the windows, and threatened to take their money back by force if their demands weren’t met. Sure enough, they got their money back.

  81. in any gambling, both sides cannot win. wonder whether the remedy lies in ensuring that any such trading cannot be done with limited liability

  82. “Goldman Sachs was failing and it was saved.

    Why is this so hard for Goldman to admit?”

    We should have run them out of business when we had the chance rather than allow them to continue to run the Obama government.

    Why even bother to call this post “GS and the Republicans”?

  83. No, it would have to be a pool. Mixed. Blind. No trace. The donor could not prove anything. Check would be made out to the National Campaign Trust. No records. The money would be transfered to the member without a trace of its origin.

  84. Or, having shorted the RE market–effectively betting against their own clients in the process– they weren’t REALLY failing, but because they were running the US government, they could obfuscate their status and gain access to very profitable Fed benefits.

    They just forget “the story,” now and again.

    But, since they’re still running the US government, WE’LL never know…

  85. Now, though, they may need those Fed benefits. I wouldn’t VOLUNTARILY do business with them, would you?

  86. Speaking of GS, did anyone see that piece-of-crap Hank Paulson on Charlie Rose earlier this week? Not only did his skirt around the question about AIG counterparty payouts, but he came straight out against the Volcker proposed reforms.

    What a massive f’n tool!

  87. Spot on!
    And now, sinc eth SCOTUS has acknowledged their intrinsic “personhood”, the corporation will just run for office(s). Instead of the Congressman/woman and Senator from Goldman Sachs, we’ll have the US Senator, Goldman Sachs Inc.
    What a long, strange trip it’s been to arrive at Orwell’s vision. This jig is just about up. All power flows to the money, and the banks and the insurance companies control the money, and the Fed, the IMF and therefore the governments of the world.
    We threw off the yoke of tyranny only to rebuild the yoke of Gerrymandered capitalism. This would be impossible in a truly free market that valued goods and services more than gambling with other peoples money.

  88. kidkilowatt,

    Kudos kind kid. Keep kippered kith and kin cooked in kelp. Capricious capacity keeps coming,compatriot.

  89. I understand that the problem is: funds from the TBTF entities flowing directly to elected representatives and lobbyists then calling in their ‘debts’.

    Solution: Change the law and allow funds to go only to political parties who then redistribute funds as they determine. This allows funds to move but eliminates personal representative liability to TBTF bribing?

  90. Nationalize Domestic Financials with a consolidated alignement and middleclass federation or confrederation of savings supported by its own central financial co-operative for the money supply. Cut the TBTF off from strangling the domestic economy.

  91. Hello “kidkilowatt”, your comment was one of the “better” posts I’ve recently read.

    Curious, what would you do, as a mere citizen do even the “playing field” between predatory companies and us “little” consumers?

    When you have a great “democracy” like we do (2 party system??), what can us “little guys/gals” do to stop this “Anti-American”, “anti-capitalist”, “anti-freedom” movement that’s been around since after WWII??

    Would like to know your thoughts. Thanks for your time and wish you the best,

  92. It’s pretty unAmerican of you to suggest anyone with an opposing view is unAmerican.

    Drink some more tea, it will comfort you as you contemplate the coming holy war on liberals.

  93. When will the democrats get to be as smart as Goldman and make money for the taxpayer by taxing Goldman products, i.e. derivatives. They are leaving billions on the table while getting nowhere on regulation and looking stupid. Easiest tax ever to collect.

  94. When are you all going to get a clue. I stumbled across this report and could sense it’s left wing bent immediately. I am not a republican….actually I am an Independent and the views you people hold is what is wrong with this country. Goldman Sachs owns the Republicans and the Democrats….don’t you get it? Do research and you’ll see. Good ol’ Robert Rubin, Clinton Sec of Treasury was a GS man, look at how many Obama people have GS ties. Look at the donors to the Obama/McCain election…GS employees donated a quarter million to McCain but close to $1 million to Obama….yes, that is correct….close to $1 MILLION….Obama’s number 2 donor. Wake up people, BOTH partied are corrupt.

  95. None… but they are just going to pay with taxpayer money. And the real question is, how many members of Congress will vote for it?

    The problems with these banks begins with the Fed and our system of debt based money. The Fed serves only the bankers and robs the People. Since we already have a fiat currency, why on earth must we borrow from the Fed at interest? When are we going to recognize the scam the bankers and our politicians are running, all at our expense. People really need to see the video, “The Secret of Oz” and you will begin to see the light.

  96. Let us avoid making this a left versus right fight. Because it is not, both sides have politically captured politicians (the Rubanites on the Left) and both sides have reformers (Ron Paul for example on the right and I believe McCain). Barney Frank has heavily supported many of the organizations that have caused our problems and many Goldman leaders are Dem (Corzine for instance among many).

  97. This isn’t a good reason, but I now why it WON’T pass. And that’s because Obama has sold his soul to Goldman – now that he’s pissed off everyone who used to support him, that’s his moneyline right there.

    Why do you think Tim Geithner (bought and payed for by Goldman) is untouchable? Why do you think Rahm Emmanual (personally collected millions from Goldman) is untouchable? You want to do something about Goldman, you better get rid of Goldman’s #1 lawn jockey Obama.

  98. Simon asks:

    “Why is this so hard for Goldman to admit?”

    Simon answers:

    “With their incentive structure intact – they get the upside and regular folk get the downside”

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