(The following is from a remarkable PBS News Hour expose’ of how financial firm Goldman Sachs was rescued and enriched by taxpayers.)
Across from the construction site that was once the World Trade Center, Goldman Sachs’ new world headquarters. To help foot the $2-plus billion construction bill, Goldman got New York City and State to bless a $1.65 billion tax-free so-called liberty bond issue, plus another $66 million in job grants, tax exemptions, and energy discounts. And, yet, the same firm just reported the most profitable year in Wall Street history, prompting protests when it channeled most of those profits to pay salaries and bonuses.”
Goldman Sachs received $10 billion in TARP money which they claimed they didn’t need. However, according to Simon Johnson, former International Monetary Fund chief economist: “Goldman Sachs and Morgan Stanley had a problem, which is, they were about to fail, and that everyone felt that this was coming, and they couldn’t borrow easily from the Fed, because they weren’t banks.”
To rescue Goldman Sachs, the government allowed the firm to convert over night to a Bank Holding Company which enabled them to borrow unlimited amounts virtually interest free from the Federal Reserve Bank.
Furthermore as a Bank Holding Company, they received FDIC protection, which meant that for all practical purposes the federal government was guaranteeing Goldman Sachs debt. Thus they could borrow from private sources at interest rates only slightly higher than that paid by the U. S. government. However, if Goldman Sachs fails, it will likely be the U. S. taxpayer that will have to bail them out, as was the case with AIG and General Motors and Chrysler.
AIG was ‘bankrupt’ for all practical purposes and owed Goldman Sachs $12.9 billion dollars. The feds proceeded to fund well over a hundred billion dollars to AIG and AIG in turn paid Goldman Sachs the full $12.9 billion. The Federal Reserve told a Congressional Committee that it was not in a position to obtain discounts from Goldman Sachs concerning the amount of payment it received from AIG because Federal Reserve was not dealing directly with Goldman Sachs. In other words, Goldman Sachs received what probably was a $6.5 billion dollar gift from the tax payers.
Lastly, as a bank holding company, Goldman Sachs could borrow funds at a tenth-of-a-percent to a quarter-of-a-percent from the Federal Reserve and invest the funds in risk free U. S. Treasury securities at 3.5% to 4% yield. This is another windfall at taxpayers’ expense and risk.
With such taxpayer largess, little wonder Goldman Sachs earned so much money and could pay its executives such fabulous bonuses!
Summarizing, David Stockman, former Reagan administration Budget Director, states: “There has never been more of a, you know, easy-money scam that I can remember in modern economic history.”
