Government (Goldman) Sachs

Matt Taibbi of Rolling Stone magazine wrote a scathing article about Goldman Sachs in the newest issue. Taibbi cites Goldman's influence in politics and it's contribution to the internet bubble, housing crisis, gas prices, and the bailout. Disclosure we do own stock in Goldman, and just because a company isn't ethical doesn't mean you shouldn't invest in them. The stock market is about making money not investing ethically. I will try to link if the article is posted online. Here are some of the highlights:

*IPO's were limited to companies 5 years in existence and 3 years of consistent profitability before the internet bubble when investment banks began to let companies that might never earn a profit IPO.
*During the internet bubble they engaged in "laddering" (selling IPO's to investors who promise to buy more at a higher price) and "spinning" (undervaluing IPO's and selling to company executives in exchange for future underwriting business) and earning billions in IPO fees and feeding the bubble.
*Before the housing bust homeowners had to have 10 percent down payment, steady income, and good credit rating. After the internet bubble, Goldman's next bubble was the housing market thanks to Rick Rubin (former Goldman exec and then treasury secretary)who relaxed underwriting standards. The bank began selling CDO's of repackaged mortgages knowing they would fail but still they got high credit ratings because they packaged the mortgages together.
*Then they bought credit default swaps from AIG, which had almost no regulation because of the 2000 Commodity Futures Market Act, and taking short positions against the same investments it was selling. The government would then have to bailout AIG (Hank Paulsen the treasury secretary at the time was also a former Goldman exec) to repay it 13 billion in credit default swap payments owed.
*Next when investors started to worry about the fall of the dollar and the mortgage market Goldman Sachs and the other investment banks moved to the physical commodity markets. Ever since the Depression commodity markets had been designed to help farmers prevent price uncertainty and act as a middleman with traditional speculators.
*In 1991 Goldman Sachs was given an exemption to trade in the commodities market. By 2008, 75% of the activity was speculative. This would not be a problem if speculation was long and short, but the majority of commodity speculation is "long only" which drives up the price of the commodity. At the same time, Goldman Sachs was cheerleading rising oil prices by putting out reports that oil would go higher. *The rise of oil prices also increased food prices that the average person has to pay. While Goldman employees earned on average over $600,000 in bonuses.
*Goldman received 10 billion in TARP funds of taxpayer money plus by changing to a bank holding company they can borrow at discount window of the Federal reserve which is undisclosed. Goldman also benefited from one of it's major rivals Lehman Brothers collapse but AIG was bailed out who owed Goldman Sachs $13 billion.
*Goldman switched to a year end calendar and wrote off the bookss $1.3 billion in losses in December which were not reported because of the switch in calendar. Then it reported $1.8 billion profit in first quarter 2009 mostly due to the taxpayer money from the bailout of AIG. In that first quarter Goldman reported employee compensation and bonuses of $4.7 billion. It also raised $5 billion by issuing new shares of stock after releasing the first quarter results. Essentially borrowing money to pay its employees.
*Despite making a profit of $2 billion in 2008, Goldman only paid $14 million in income tax due to shipping their revenues offshore. In comparison, Goldman paid its CEO in 2008 $43 million.
*What is the next bubble Goldman will exploit? Taibbi's article says it's the new carbon credit market. Goldman employees are a major contributor to the Obama campaign and Goldman alumns are in the Obama administration. The carbon credit market will require companies with greater carbon emissions to buy credits from companies who do not use all their credits and will be very lucrative. The volume of this market would be upward of a trillion of dollars annually and the credits will have a government mandate increase in price every year (unlike commodities it's already rigged in advance). The government would pay Goldman to collect the money and the money would be gauranteed.
*Goldman already has investments in Horizon Wind Energy, BP Solar, Changing World Technologies, and a 10 percent stake in Chicago Climate Exchange, where the carbon credits will be traded, and a minority stake in Blue Source LLC, a company that sells carbon credits of the type that will be in great demand if the bill passes.