"I did not run for office to be helping out a bunch of fat cat bankers on Wall Street." --President Barack Obama
On January 1, 2010, the Bureau of Labor Statistics announced the nation's unemployment rate was 10 percent with 85,000 jobs lost in December 2009. Many experts expect the unemployment rate to increase. Additionally, the small business bankruptcy rate continues to rise. On December 22, 2009, the LA Times reported, "The latest data show small-business bankruptcies up 81 percent in the state [California] for the 12 months ended Sept. 30, compared with the previous year. Filings nationwide were up 44 percent, according to the credit analysis firm Equifax Inc. The actual number of small businesses in trouble is probably higher, experts said, because many owners file for personal bankruptcy rather than seek protection for the business." While many Americans are losing jobs and homes, Wall Street insider and then-president of the NY Fed, Tim Geithner, devised a taxpayer bailout plan for politically connected firms like Goldman Sachs, ensuring that such firms would not have to suffer the consequences of their bad investment decisions.
ISSUES OF CONCERN:
Politicized the Economy: In a political economy, politics and government officials, rather than the market, determine which firms succeed and fail. According to a recent study by professors at the University of Michigan, "Banks whose executives served on Federal Reserve boards were more likely to receive government bailout funds." On May 4, 2009, the Wall Street Journal reported, "The Federal Reserve Bank of New York shaped Washington's response to the financial crisis late last year, which buoyed Goldman Sachs Group Inc. and other Wall Street firms. Goldman received speedy approval to become a bank holding company in September and a $10 billion capital injection soon after. During that time, the New York Fed's chairman, Stephen Friedman, sat on Goldman's board and had a large holding in Goldman stock, which because of Goldman's new status as a bank holding company was a violation of Federal Reserve policy. The New York Fed asked for a waiver, which, after about 2½ months, the Fed granted. While it was weighing the request, Mr. Friedman bought 37,300 more Goldman shares in December. They've since risen $1.7 million in value." Additionally, according to columnist Timothy Carney, writing in the Washington Examiner, "For his presidential campaign in which Wall Street regulation was a mantra, Obama's top source of funds was investment bank giant Goldman Sachs, whose employees, partners, and executives gave him $995,000-that's the most any politician has raised from any one company in a single election since the age of ‘soft money' ended."
Cronies Win, Competitors Lose: While Bear Sterns, a Goldman Sachs' competitor, was allowed to fail, Goldman Sachs received massive amounts of government aid. For example, according to the Wall Street Journal, "The initial $85 billion provided to AIG enabled it to pay a portion of $8.1 billion it owed to Goldman, stemming from past trading agreements. By the end of the year, Goldman had gotten all of the $8.1 billion as AIG received more government aid." Bloomberg reported, "[Goldman Sachs] received $10 billion in capital, guarantees on about $30 billion of debt and the ability to borrow cheaply from the Fed. The Fed's bailout of American International Group Inc., and its decision to pay the insurer's counterparties in full, funneled an additional $12.9 billion to Goldman Sachs."
Hid Information from the Public: On March 17, 2009, the Wall Street Journal reported, "After months of government stonewalling...AIG officially acknowledged where most of the taxpayer funds have been going. Since September 16, AIG has sent $120 billion in cash, collateral and other payouts to banks [including Goldman Sachs]..." On November 17, 2009, the Special Inspector General of the TARP (SIGTARP), Neil Barofsky, reported that the Federal Reserve Bank of New York decided to pay AIG's counterparties par value. The report further stated, "[O]fficials recommended to President Geithner that Maiden Lane III transactions go forward without haircuts because it would be impractical to obtain haircuts from all counterparties. Mr. Geithner concurred and it was decided that NY Fed would cease efforts to negotiate haircuts..." Geithner made the decision to pay the counter-parties one hundred cents on the dollar, ensuring that politically connected Wall Street banks incurred no loss for their poor investment decisions. On January 7, 2010, Bloomberg reported, "The Federal Reserve Bank of New York, then led by Timothy Geithner, told American International Group Inc. to withhold details from the public about the bailed-out insurer's payments to banks during the depths of the financial crisis, e-mails between the company and its regulator show."