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3a. If fail, have taxpayer pay for it That's the most disturbing part of all this: profits are kept private, but losses are socialized. It's the equivalent of

3a. If fail, have taxpayer pay for it That's the most disturbing part of all this: profits are kept private, but losses are socialized. It's the equivalent of "heads, I win; tails, you lose".

prosa 17y ago
That is true in many aspects of the crisis, sadly. However, in this case, there is no public loss to speak of from the transaction itself. Rather, it served to further inflate the bubble that ultimately triggered the crisis.
- pak 17y ago
  Goldman did receive TARP funds, and used those funds to correct losses from maneuvers like this one. Regardless of whether or not Goldman Sachs considers that it paid back all of its TARP loans with interest, having the government prop up the company with a bottomless loan made of taxpayer money for any period of time is a public loss. It practically sponsors bad behavior on the part of Goldman and other large financial firms, because there is now a precedent for the government saving them from bearing the consequences of massively horrific choices as long as they would also cause horrific potential damage to the entire economy. The moral hazard incurred by these sort of transactions in light of the government's response is a significant and unresolved risk.
  - billybob 17y ago
    Yes. This renews my fury about the bank bailouts. You know what's REALLY too big to fail? Capitalism. And rewarding market failure is the surest way to take it down.
  - brezina 17y ago
    Exactly! We should file suit against the US Treasury for propping up Goldman and others with our tax money. They defrauded us by forcing us bankroll the bailout while providing limited upside for the massive risk we took.
  - dmillar 17y ago
    You should read some of the actual accounts of how/why GS took the tarp funds. Paulson basically told them to take it, or the government would suck up all of their oxygen.
    - wdewind 17y ago
      Please share them, I'd love to.
    - ZachPruckowski 17y ago
      Goldman received aid from the taxpayer through the AIG bailout. AIG was responsible for the insurance and CDSes that covered any bad assets at Goldman. Had AIG gone under, Goldman would not have gotten paid for those CDSes that were on derivatives of bad mortgages, and would have had a few billion in losses in 2008-2009. Maybe not lethal damage, but it's on the back of the taxpayer that Goldman has been profitable these last 2 years.
    - ericd 17y ago
      Gotta second this. I know more than a couple people at Goldman, and they weren't happy about being made to take the funds, and were especially unhappy that they've been vilified for it, when they didn't want it. It's kind of annoying reading all the uninformed mob anger directed at them. The media has made them into a scapegoat out of them in particular, and for some reason, everyone is following along.
- stretchwithme 17y ago
  I think the real loss to the public occurred when AIG was bailed out and GS got paid over $10 billion they would not have gotten if AIG had been allowed to fail. And it should have been allowed to fail in my opinion. There would have been a lot of pain and other failures, but those are the risks of playing these games. If you protect people from all of the ultimate costs of doing things that are rewarding in the short term most of the time, but incredibly risky overall, they will keep doing them! And we will all pay a huge price for these parasites eventually if we don't wake up and stop subsidizing them.
  - ericd 17y ago
    Letting a massive insurance company fail, and then letting dependant, blameless companies explode in a wave of secondary explosions throughout the economy as a result is not good national-level policy. There's a reason the govt. didn't let that happen, and it's not that they wanted to bail out their buddies. I'm for criminal charges for those that committed fraud, investigations, more regulation, and so forth, but this "We should have let them crash and burn, damn the consequences" idea was not likely the best course of action, though it seems to be a pretty common attitude for some reason.
    - stretchwithme 17y ago
      Its not about blame. Its about taking risks and suffering the consequences. When you pick a vendor, a bank or insurance company, there's a chance that entity will fail. You're the one who has to judge that. It's not the government's job to protect you from failing to do that, especially when others took the time to assess the vendor and decided to use a more stable, smarter company. And its certainly not the job of government to take the consequences from those that misjudged their bank or insurance company and assign those consequences to others that had nothing to do with the decision. I am not "damning the consequences". The consequences are unavoidable. Its just a question of who should pay for them. Do we leave the consequences with those making the decisions that led to them? Or do we dump them off on everybody else?
      - 17y ago
gaius 17y ago
You'd think banks paid no tax. When banks profit, society gets its share of those profits. Taxes, spending by the organization, spending by employees, their taxes. The government bailed out Detroit, why's this any different?
- grandalf 17y ago
  Not sure why you inferred that anyone above supported the auto company bailouts (or the airline bailouts, etc.). Taxes are not paid in exchange for bailouts... at least if they are tell that to all the other companies that have failed over the years and not had the government swoop in to help.
  - gaius 17y ago
    That's true, but the assertion that that there's no contribution to the economy and society from bank profits is a false one.
    - Psyonic 17y ago
      I don't disagree with that, but simply asserting they pay taxes doesn't prove anything. If they more or less stole the money, paying back 20% is hardly contributing. Not saying they did, the verdict is still out there, but just pointing out that taxes alone don't say much.
    - metamemetics 17y ago
      There really isn't that big of one. A bank is an entity that uses an unsustainable business plan, fractional reserve banking, and has to rely on a federal subsidy (FDIC insurance) to make it work. They are getting a subsidy to mindlessly arbitrage the yield curve and profit by making riskier loans than they would normally be capable of making. Fractional Reserve lending is NOT necessary for a financial intermediary to function. Look at hedge funds or VC firms. They are investing the amount of money they have received from investors and are not allowed to invest 10X they amount they have without raising that extra amount from somewhere. Banks are not doing anything intelligent that adds significant value, the majority of their profits come from mindlessly arbitraging the yield curve due to a federal subsidy.
potatolicious 17y ago
"Corporation, (Noun). An ingenious device for obtaining individual profit without individual responsibility." - Ambrose Bierce
- deleted 17y ago
  [deleted]
olliesaunders 17y ago
Except for corporation and income tax.

3a. If fail, have taxpayer pay for it That's the most disturbing part of all this: profits are kept private, but losses are socialized. It's the equivalent of "heads, I win; tails, you lose".

prosa 17y ago

That is true in many aspects of the crisis, sadly. However, in this case, there is no public loss to speak of from the transaction itself. Rather, it served to further inflate the bubble that ultimately triggered the crisis.

pak 17y ago
Goldman did receive TARP funds, and used those funds to correct losses from maneuvers like this one. Regardless of whether or not Goldman Sachs considers that it paid back all of its TARP loans with interest, having the government prop up the company with a bottomless loan made of taxpayer money for any period of time is a public loss. It practically sponsors bad behavior on the part of Goldman and other large financial firms, because there is now a precedent for the government saving them from bearing the consequences of massively horrific choices as long as they would also cause horrific potential damage to the entire economy. The moral hazard incurred by these sort of transactions in light of the government's response is a significant and unresolved risk.
- billybob 17y ago
  Yes. This renews my fury about the bank bailouts. You know what's REALLY too big to fail? Capitalism. And rewarding market failure is the surest way to take it down.
- brezina 17y ago
  Exactly! We should file suit against the US Treasury for propping up Goldman and others with our tax money. They defrauded us by forcing us bankroll the bailout while providing limited upside for the massive risk we took.
- dmillar 17y ago
  You should read some of the actual accounts of how/why GS took the tarp funds. Paulson basically told them to take it, or the government would suck up all of their oxygen.
  - wdewind 17y ago
    Please share them, I'd love to.
  - ZachPruckowski 17y ago
    Goldman received aid from the taxpayer through the AIG bailout. AIG was responsible for the insurance and CDSes that covered any bad assets at Goldman. Had AIG gone under, Goldman would not have gotten paid for those CDSes that were on derivatives of bad mortgages, and would have had a few billion in losses in 2008-2009. Maybe not lethal damage, but it's on the back of the taxpayer that Goldman has been profitable these last 2 years.
  - ericd 17y ago
    Gotta second this. I know more than a couple people at Goldman, and they weren't happy about being made to take the funds, and were especially unhappy that they've been vilified for it, when they didn't want it. It's kind of annoying reading all the uninformed mob anger directed at them. The media has made them into a scapegoat out of them in particular, and for some reason, everyone is following along.
stretchwithme 17y ago
I think the real loss to the public occurred when AIG was bailed out and GS got paid over $10 billion they would not have gotten if AIG had been allowed to fail. And it should have been allowed to fail in my opinion. There would have been a lot of pain and other failures, but those are the risks of playing these games. If you protect people from all of the ultimate costs of doing things that are rewarding in the short term most of the time, but incredibly risky overall, they will keep doing them! And we will all pay a huge price for these parasites eventually if we don't wake up and stop subsidizing them.
- ericd 17y ago
  Letting a massive insurance company fail, and then letting dependant, blameless companies explode in a wave of secondary explosions throughout the economy as a result is not good national-level policy. There's a reason the govt. didn't let that happen, and it's not that they wanted to bail out their buddies. I'm for criminal charges for those that committed fraud, investigations, more regulation, and so forth, but this "We should have let them crash and burn, damn the consequences" idea was not likely the best course of action, though it seems to be a pretty common attitude for some reason.
  - stretchwithme 17y ago
    Its not about blame. Its about taking risks and suffering the consequences. When you pick a vendor, a bank or insurance company, there's a chance that entity will fail. You're the one who has to judge that. It's not the government's job to protect you from failing to do that, especially when others took the time to assess the vendor and decided to use a more stable, smarter company. And its certainly not the job of government to take the consequences from those that misjudged their bank or insurance company and assign those consequences to others that had nothing to do with the decision. I am not "damning the consequences". The consequences are unavoidable. Its just a question of who should pay for them. Do we leave the consequences with those making the decisions that led to them? Or do we dump them off on everybody else?
    - 17y ago

gaius 17y ago

You'd think banks paid no tax. When banks profit, society gets its share of those profits. Taxes, spending by the organization, spending by employees, their taxes. The government bailed out Detroit, why's this any different?

grandalf 17y ago
Not sure why you inferred that anyone above supported the auto company bailouts (or the airline bailouts, etc.). Taxes are not paid in exchange for bailouts... at least if they are tell that to all the other companies that have failed over the years and not had the government swoop in to help.
- gaius 17y ago
  That's true, but the assertion that that there's no contribution to the economy and society from bank profits is a false one.
  - Psyonic 17y ago
    I don't disagree with that, but simply asserting they pay taxes doesn't prove anything. If they more or less stole the money, paying back 20% is hardly contributing. Not saying they did, the verdict is still out there, but just pointing out that taxes alone don't say much.
  - metamemetics 17y ago
    There really isn't that big of one. A bank is an entity that uses an unsustainable business plan, fractional reserve banking, and has to rely on a federal subsidy (FDIC insurance) to make it work. They are getting a subsidy to mindlessly arbitrage the yield curve and profit by making riskier loans than they would normally be capable of making. Fractional Reserve lending is NOT necessary for a financial intermediary to function. Look at hedge funds or VC firms. They are investing the amount of money they have received from investors and are not allowed to invest 10X they amount they have without raising that extra amount from somewhere. Banks are not doing anything intelligent that adds significant value, the majority of their profits come from mindlessly arbitraging the yield curve due to a federal subsidy.

potatolicious 17y ago

"Corporation, (Noun). An ingenious device for obtaining individual profit without individual responsibility." - Ambrose Bierce

deleted 17y ago
[deleted]

olliesaunders 17y ago

Except for corporation and income tax.