Why Goldman Sachs is Not A Job Creator

Republicans will argue that corporations must get tax breaks and cuts because they are the job creators. The media should ask these same Republicans what they think about Goldman Sachs' upcoming layoffs.

Goldman Sachs (GS: 132.53, +3.27, +2.53%) may lay off as many as 230 employees, according to a filing with the New York State Department of Labor.

The filing dated June 29 cites economic reasons for the potential layoffs, which could begin in late September and extend through March 31, 2012.

State law requires that businesses with 50 or more employees notify the Labor Department when significant layoffs are planned. In the filing, the job losses are described as a “plant layoff.”

Goldman Sachs report 90 percent increase in profits in 2010. The Securities and Exchange Commission charged Goldman Sachs with $1 billion in defrauding investors last year. 953 Goldman Sachs employees received $1 million or more bonuses after receiving bailout money. I am willing to bet those Goldman Sachs employees that received huge bonuses will not get laid off.

Why Geither & Obama Econ Policies Aren't Progressive

Neil Barofsky was the inspector general of the Troubled Asset Relief Program from 2008 until March 30, 2011. Barofsky declared TARP a "failure." Barofsky accused Sec. of Treasury Tim Geithner of refusing to protect homeowners and reform financial institutions. These accusations are coming from someone who was in charge of oversight of TARP.

Treasury Secretary Timothy Geithner has acknowledged that the program "won't come close" to fulfilling its original expectations, that its incentives are not "powerful enough" and that the mortgage servicers are "still doing a terribly inadequate job." But Treasury officials refuse to address these shortfalls. Instead they continue to stubbornly maintain that the program is a success and needs no material change, effectively assuring that Treasury's most specific Main Street promise will not be honored.

The "Main Street" promise is to keep Americans from losing their homes. Geithner and President Obama won't lift a finger to help homeowners. They will support the Federal Reserve buy toxic mortgages from banks. Americans are being forced into homelessness by banks setting up rocket docket courts around the country.

Geithner has also allowed banks to repay meney owed to TARP by tapping into the small bussiness fund. Banks are repaying money owed with taxpayer money meant to be used to give loans to small businesses. Small businesses end up not getting the loans they desperately need.

The Obama administration is a DINO administration. Americans are suffering and their only priority is protecting financial institutions responsible for the 2008 crash.

NoQuarterUSA Obama Bashing

I had an anonymous commenter linking to a post by Larry Doyle. I wrote how TARP was making a profit and major financial institutions were repaying their loans. Doyle wrote a post that dramatically claimed "The TARP Has a $159 Billion Loss !!" Apparently, one exclamation point wasn't enough. Doyle pounded on a single point in the Congressional Budget Office report. The CBO revised their numbers because Sec. Tim Geithner has lowered subsidy rates from 45 percent to 36 percent.. Lowering the interest on loans is always a good sign.

From the CBO Report.

By the CBO's estimates, actions taken through June 17, 2009, have an overall cost for the TARP of $159 billion and a subsidy rate of 36 percent. That rate is lower than the 45 percent recorded in CBO's March baseline, which reflected actions undertaken by the Treasury as of February 27, 2009. The decrease in subsidy costs assigned for existing programs reflects an improvement in market conditions and the earlier-than-expected repurchase of preferred stock, partly offset by higher subsidy costs in new transactions.

The most notable decrease in subsidy rates stems from capital purchases. In CBO's March baseline the estimated subsidy rate for those transactions was 35 percent, a figure that has since fallen to 18 percent. Reductions of similiar magnitude have been recorded for investments made through the TIP and for AIG. Furthermore, the repurchase of preferred stock before the five-year mark lowered the estimated subsidy rates for those transactions because they were outstanding only for a short time. In contrast, the addition of funding for the Administration's foreclosure mitigation plan, a 100 percent subsidy, raises the average subsidy rate for TARP activities.

Contrary to Doyle's claims, THE CBO report states $159 billion is the cost of TARP. The lowering of subsidy rates is good news. Loss and cost are two entirely different things. Doyle worked Bear Stearns as a mortgage trader and was the National Sales Manager for Securitized Products at JP Morgan. Doyle is a hard right conservative with a lack of economic understanding. Doyle is best known for blogging at NoQuarterUSA. The top blog post, on Google, is Larry Johnson's "Michelle Obama and Louis Farrakhan Take On Whitey."

I learned over the weekend why the Republicans who have seen the tape of Michelle Obama ranting about “whitey” describe it as “STUNNING.” I have not seen it but I have heard from five separate sources who have spoken directly with people who have seen the tape. It features Michelle Obama and Louis Farrakhan. They are sitting on a panel at Jeremiah Wright’s Church when Michelle makes her intemperate remarks. Whoops!! When that image comes out it will enter the politcal ads hall of fame. It will be right up there with the little girl plucking daisy petals in the famous 1964 ad LBJ used against Barry Goldwater.

Johnson did a great deal of flip flopping and the tape of Mrs. Obama and Farrakhan never materialized. Johnson also wrote a piece how America is more likely to face a nuclear than terrorist attack. You won't be surprised to learn Johnson once worked in the CIA.

How much credibility do you want to give Larry Doyle's misinformed piece? NoQuarterUSA is a stomping ground for Obama bashing and birther conspirary theories.

TARP Making Profit: True

This is bound to drive Republicans using the "Obama is a socialist" attack. Politifact checked President Obama's statement that the federal government made a profit off the loan money being repaid by banks.

"Several financial institutions are set to pay back $68 billion to taxpayers," he said. "And while we know that we will not escape the worst financial crisis in decades without some losses to taxpayers, it's worth noting that in the first round of repayments from these companies the government has actually turned a profit."

Politifact found the answer to be completely true.



The ten major companiesd are repaying the Treasury Department $1.8 billion in paid dividends from prefered stocks.The short answer is the Treasury became a shareholder and the companies are now repaying with profits from shares. 600 companies have paticipated in stocks and the federal government has received $4.5 billion.

The treasury borrowed money for the TARP loans at a low interest. The loans were less than the returning dividend payments. Simple math equates that to a profit. The federal government has warrants to by stocks as these companies start to rebound. The government would get in as the stock goes up. The Fed would buy enough stocks to boost the price and makes the stocks desirable for investors. The Fed gets out when the stock peaks. More potential profit.

I love how the Heritage Foundation attempts to spin this against Obama.

David John, a senior research fellow at the conservative Heritage Foundation, said that while it's accurate to say the government is turning a profit on these specific transactions, it was so costly to create the TARP that "you can't say the overall program is a money-maker."

John recently wrote a paper at the Heritage Foundation calling for "Allowing American workers to save and invest a portion of their income in accounts." That is the 2005 DOA Bush plan to have people invest money that would be going into Social Security, instead, into the stock market. Conservatives have been trying to kill Social Security by defunding the program.

Other experts disagree with John's economic on TARP. Short answer: the federal government will make a profit.

Still, the public too often tagged TARP as a bailout, said John Hall, a spokesman for the American Bankers Association.

"It's as if people thought money was handed out to banks," Hall said. "It wasn't. And it drove us nuts. The government has turned a profit. It made money plus some."

Bank analyst Bert Ely said while the government may end up losing money on investments in some financial firms, it's likely the entirety of the bank portion of the TARP will ultimately turn a profit.

The 5 percent paid in dividends on preferred stock purchased by the Treasury will certainly outpace the interest rate on money borrowed to finance the program, he said. And the warrants could also prove profitable.

What are conservative going to call Obama if the TARP plan succeeds? Successful Socialist has a nice ring but not a lot of political punch.

TARP Money Being Repayed

Derek Thompson is correct. President Obama should get credit for the TARP gamble.

Half a year ago, our financial system was in catastrophe, and the debate was over how much money it would take to bail them out, or even take them over. Today, the biggest banks are -- or at least appear to be -- on stable footing, and the debate is over how much TARP money they will be allowed to give back. To be clear, this is a statement of confidence from the banks, not evidence that they will be OK in four or six months. But it is still a remarkable turn of events, one we can credit to the Obama administration's overall strategy of ... what again?

The New York Times reports Morgan Stanley, Northern Trust, JPMorgan Chase, Goldman Sachs, American Express, Bank of New York Mellon, the BB&T Corporation, Capital One Financial, State Street Corporation and US Bancorp will start repaying TARP funds. Obama said the taxpayer "actually turned a profit."

“I also want to say: the return of these funds does not provide forgiveness for past excesses or permission for future misdeeds,” Mr. Obama said. “It is critical that as our country emerges from this period of crisis, that we learn its lessons; that those who seek reward do not take reckless risk; that short-term gains are not pursued without regard for long-term consequences.”

The conservative stimulus plan: Rush Limbaugh and Hugh Hewitt are calling on Americans to boycott General Motors. Limbaugh's and Hewitt's plan is to bankrupt an American company, put American workers out of jobs and have the taxpayers lose money for attempting to bail GM out. Limbaugh and Hewitt showed they don't care about fiscal discipline kick-starting the economy. They just want to see Obama fail.

The Tim Geithner Capital Hill Show

Tresury Sec. Tim Geithner told the House Appropriations subcommittee money lending institutions pay back to the Treasury Department will be used to bail out other companies.

"We're still in a very challenging economic and financial situation," Geithner said.

Geithner sends a message to Governors, such as Mark Sanford, whom want to use TARP money to pay down their state deficits.

Treasury Secretary Timothy Geithner said the U.S.’s $700 billion financial rescue package can’t be used to aid cities and states facing budget crises.

The law “does not appear to us to provide a viable way of responding to that challenge,” Geithner told a House Appropriations subcommittee in Washington today. Among the hurdles: Money from the Troubled Asset Relief Program is reserved for financial companies, he said.

Geithner left open the possibility of a federal response to California's deficit.

The Treasury Sec. told the Senate Banking Committee lending institutions are getting stronger.

“There are important indications that our financial system is starting to heal,” Mr. Geithner told lawmakers, though he cautioned that it was still too early to talk about an “exit strategy” for the government.

I have several questions. When will the lending institutions be financially solvent enough to stand on their own? How much money being repaid to the Treasury Department? Is the Obama administration willing to reform banks are does it want to maintain the status quo? This is a lot of money we are dealing with and Geithner does not project confidence. Overly-dramatic hand gentures don't count.

ABC News reports consumer confidence dropped 3 points this week. The national unemployment rate in April increased to 8.9 percent. The unemployment numbers are effecting the stock market. The Republican response of tax cuts and spending freeze are not backed by economists. Talking points aren't the answer. Geithner needs to explain what that answer is.

Pay to Play

The Pay For Performance Act passed in the House of Representatives. The bill only covers companies that have received TARP money. Fox News Neil Cavuto went nuts trying to get Alan Grayson to define how much a bonus would be unjust. Cavato asked if a secretary could be denied a bonus. Grayson doesn't say what amount would be deemed inappropriate. The bill states any employee is subject to the Pay For Performance Act.

‘(1) PROHIBITION- No financial institution that has received or receives a direct capital investment under the Troubled Assets Relief Program under this title, or with respect to the Federal National Mortgage Association, the Federal Home Loan Montrtgage Corporation, or a Federal home loan bank, under the amendments made by section 1117 of the Housing and Economic Recovery Act of 2008, may, while that capital investment remains outstanding, make a compensation payment, other than a longevity bonus or a payment in the form of restricted stock, to any executive or employee under any pre-existing compensation arrangement, or enter into a new compensation payment arrangement, if such compensation payment or compensation payment arrangement--

Sec. of Treasury Tim Geithner will decide what bonuses are excessive.

‘(B) PERFORMANCE-BASED STANDARDS- Standards for performance-based measures that a financial institution must apply when determining whether it may provide a bonus or retention payment under paragraph (1)(B). Such performance measures shall include--

‘(i) the stability of the financial institution and its ability to repay or begin repaying the United States for any capital investment received under this title;

‘(ii) the performance of the individual executive or employee to whom the payment relates;

‘(iii) adherence by executives and employees to appropriate risk management requirements; and

‘(iv) other standards which provide greater accountability to shareholders and taxpayers.

Geithner admitted the Treasury Department had conversations with Chris Dodd's about the bonus loophole. Dodd said the Treasury Department wanted a bonus loophole for TARP recipient. Geithner claims ignorance to these conversations.

"I would have preferred that we kept my language, as it left the Senate unanimously," Dodd added. "In fact there were objections when I wrote the language even before it left the Senate. ... The administration expressed reservations with the amendment. They came to us and asked for modifications in the amendment. The alternative was, of course, losing the amendment entirely, which was a possibility. I didn't want to see that happen. I suspect we would be having a conversation tonight why we didn't include some language in here to deal with bonuses, golden parachutes and the like. ... I don't believe anyone had any idea, I certainly didn't, that a month and a half later from February we would be talking about AIG and the bonuses they are receiving for their retentions, these $165 million. So that was never a part of the consideration."

Grayson's bill is too vague and counts on Geithner to due diligent oversight over bonuses. Geithner already had one chance to curb excessive bonuses and passed. This bill is so bad that I find myself agreeing with Cavuto.

Side note: I doubt much arm twisting was needed to have Dodd write the loophole.

Politically, Democrats can say they went after greedy companies and label Republicans out of touch. From a policy perspective: the bill won't make much of a difference.

The Plan for what, exactly?

[Since this post is rather critical of the president, let me preface this with "Speaking only for myself" - tas]

From the Treasury Department:

To address the challenge of legacy assets, Treasury – in conjunction with the Federal Deposit Insurance Corporation and the Federal Reserve – is announcing the Public-Private Investment Program as part of its efforts to repair balance sheets throughout our financial system and ensure that credit is available to the households and businesses, large and small, that will help drive us toward recovery.

The italics are mine. Let me translate this: Nobody in their right mind will invest in banks with their own money right now because the banks are broke. But the country needs banks to start lending again if we expect our economy to get better.

With that in mind, here's the jist of Geithner's plan: The Government begs private investors to front a minimal amount of capital to bid on toxic mortgage assets by saying, "Hey, we'll pay you $6 for every $1 you spend on mortgage debt." This takes bad debt off bank balance sheets, investors are then willing to place more money in banks again because they'll be able to start making loans again.

Theoretically. Unfortunately, this plan raises a lot more questions than it answers.

Wall Street loves it, as evidenced by stocks shooting up today. And why shouldn't they? The Obama administration just told them, "Hey guys, great news! We don't intend to break apart the huge mega banks that got us into this mess, and we're going to give you billions -- possibly a trillion -- in taxpayer dollars!" This people are all for preserving status quo since it makes them rich, and no matter how hard they fuck us they won't be reprimanded.

But the plan might not even work. Currently, it's slated to purchase $500 billion in toxic assets; possibly rising to $1 trillion. This is supposed to clear bad debt off banks' balance sheets, thus allowing investors to place money in banks again since they'll be solvent, thus allowing banks to make loans, etc. But as I've mentioned here before, just with Fannie Mae and Freddie Mac we see, at most, $5.4 trillion in bad mortgage debt. So does the plan address this debt or just the debt from banks that the government didn't have to gobble up, like Citibank and Bank of America? If the plan doesn't address the Fannie/Freddie debt, what will? Additionally, discounting the Fannie/Freddie debt, just how much toxic mortgage debt are we looking at with Citibank and Bank of America?

To give you an idea of the scope of that last question, as of December 2008, Bank of America's total liabilities were over $1.6 trillion; and Citibank's liabilities are almost $1.8 trillion. Will $1 trillion from the Fed/FDIC -- much less $500 billion -- be enough to convince investors to place money in these institutions again? It would certainly be great to know just how much of that $3.4 trillion in liabilities is bad.

The part of this plan that I really find galling, though, is that the government is willing to fork over hundreds of billions to Wall Street to get them to purchase mortgage debt. This is our money, and essentially our money is being used to pay off mortgages -- but by giving it to investors who can afford to put up a few million to pay for them. These investors can then turn around and ask home owners to pay up on mortgages that their tax dollars just bought.

If this is the case (and I could be reading the plan wrong, but...), what's with the middle man? If the government intends to pay for these mortgages, why not just forgive them? Why not just give banks 85% of what the mortgages are worth -- which they should very well be happy with -- and everyone goes on their merry way?

While some will rightly point out that people would get free houses under such a scenario, which they certainly don't deserve, under this plan the business school rejects who placed the economy in hot water are now being rewarded by having the government give money to banks to pay off these mortgages, and turning around to give these mortgages to the business school rejects with instructions to squeeze as much profit out of it as they can. In short, the business school rejects have the potential to reap huge profits off home owners since they paid $1 for every $6 the Obama administration would give them to buy their mortgage.

And you know, I don't think these assholes deserve the money.

The more I think about it, the more unsure I am of exactly what this plan is supposed to accomplish. Do Obama and Geithner (shamefully) intend to give Wall Street what's maybe the biggest bonus in history? But if so, how can this plan deliver such when it may not accurately address all the bad debt that exists? In the former scenario, normal Americans -- you and I -- bend over and take it; but in the latter the plan just doesn't work.

Here's an idea for a plan that could work: restructure the mortgages so their value reflects the median value of a home based on its value from 2005 to the present; adjust interest rates so they are lower; then spend enough money on job creation (like infrastructure repairs) which give people jobs, kickstarting the economy and giving everyone money to pay down their debt. But that plan doesn't give Wall Street a big fat check, now does it?

Makes me wonder what's really important to the Obama administration right now.

Bailout 2.0

John Marshall interviews Nobel prize-winning economist John Stiglitz explains Barack Obama's bailout plan. Stiglitz wants greater oversight and punishment to the bankers for not playing by the rules.

Stiglitz calls the government owners of bailout banks with "no control." It is a foolish policy to give billions to banks and then not have a say on how that money is spent. A perfect example is lending institutions using bailout money to lobby for more bailout money. I would laugh if the economic situation wasn't so dire.

Sec of Treasury Tim Geithner unveiled the Financial Stability Plan.

The core program elements include:

A new Capital Assistance Program to help ensure that our banking institutions have sufficient capital to withstand the challenges ahead, paired with a supervisory process to produce a more consistent and forward-looking assessment of the risks on banks' balance sheets and their potential capital needs.
A new Public-Private Investment Fund on an initial scale of up to $500 billion, with the potential to expand up to $1 trillion, to catalyze the removal of legacy assets from the balance sheets of financial institutions. This fund will combine public and private capital with government financing to help free up capital to support new lending.
A new Treasury and Federal Reserve initiative to dramatically expand – up to $1 trillion – the existing Term Asset-Backed Securities Lending Facility (TALF) in order to reduce credit spreads and restart the securitized credit markets that in recent years supported a substantial portion of lending to households, students, small businesses, and others.
An extension of the FDIC's Temporary Liquidity Guarantee Program to October 31, 2009.
A new framework of governance and oversight to help ensure that banks receiving funds are held responsible for appropriate use of those funds through stronger conditions on lending, dividends and executive compensation along with enhanced reporting to the public.

"Legacy assets" translates into garbage assets. I am curious how the Term Asset-Backed Securities Lending Facility will jump start lending. Banks do not want to lend and the White House needs to get credit moving. Immovable object meets the unstoppable force. The White House and banks are in for a fight.

Private capital could later replace federal government capital. What Geithner is addressing is stocks. The idea of the Treasury Department on the hook for an Enron-like company is frightening.

Our expectation is that the capital provided under the CAP will be in the form of a preferred security that is convertible into common equity, with a dividend rate to be specified and a conversion price set at a modest discount from the prevailing level of the institution's stock price up to February 9th, 2009. This security would serve as a source of "contingent" common equity, convertible solely at the issuer's option for an extended period of time.

The instrument will be designed to give banks the incentive to replace USG-provided capital with private capital or to redeem the USG capital when conditions permit. In addition, with supervisory approval, banks will be allowed to apply to exchange the existing CPP preferred stock for the new CAP instrument.

The Public-Private Investment Fund will aqquire garbage real estate assets. This is allow companies to reduce bad assets. The federal government may end up buy many forclosed homes. There could be a return when the real estate market rebounds.

The Term Asset-Backed Securities Lending Facility will provide loans for small businesses and college students. I am rather uneasy about TALF getting into credit cards. We want credit moving. Not more people in debt.

The Financial Stability Plan will have inspector general and Congressional oversight.

Going forward, the Financial Stability Plan will call for a new level of transparency, accountability and conditionality with tougher standards for firms receiving exceptional assistance. These stronger conditions were informed by recommendations made by formal oversight groups – the Congressional Oversight Panel, the Special Inspector General, and the Government Accountability Office -- as well as Congressional banking oversight leaders.

Use of government-provided capital and impact on lending

Recipients of capital provided under the CAP will be required to submit a plan for how they intend to use this capital to preserve and strengthen their lending capacity – specifically, they will commit to increase lending activities above levels relative to what would have been possible without government support. This plan will be submitted during the application process, and the Treasury Department will make these plans public upon distribution of the capital investment to the firm.

These firms must submit to Treasury monthly or quarterly reports on their lending by category. This report will also include a comparison to estimates of what their lending would have been in the absence of government support. For public companies, similar reports will be filed on an 8K simultaneous with the filing of their 10Q and 10K reports. All these reports will be put on the Treasury website.

The oversight is good. The risk is great. I'm trying to figure this out and economics is my beat. Paul Krugman doesn't know what to think. Wow.