Truthout, April 20, 2009
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Lloyd Blankfein, the CEO of Goldman Sachs, is very upset with the TARP. Last fall, Mr. Blankfein borrowed $10 billion through the TARP at below market interest rates. Now the government is starting to tie some real condition to this money, for example by limiting what Goldman can pay its executives. Mr. Blankfein argues that such conditions are making it impossible to run his business and is now anxious to return the TARP money.
It is great to see that Goldman is finally prepared to go forward into the market without its government training wheels of TARP aid, but unfortunately Mr. Blankfein isn’t yet confident enough in his business acumen to actually forego government assistance. Goldman Sachs has benefited and continues to benefit enormously from other forms of government aid.
For example, last fall Mr. Blankfein also took advantage of the opportunity to borrow $25 billion with an FDIC guarantee to his creditors. If this government guarantee reduced his borrowing costs by two percentage points, then it means that the taxpayers are handed Goldman $500 million a year in lower interest costs.
Goldman Sachs also has the opportunity to borrow at several of the Federal Reserve Board’s special lending facilities at below market interest rates. We don’t know how much taxpayers have given Mr. Blankfein through this channel because the Fed won’t tell us. Fed Chairman Ben Bernanke’s position is that when the Fed gives money out, the taxpayers just get to write the checks, but we don’t get to know where they went.
Mr. Blankfein also got a big wad of taxpayer money from the AIG bailout. It was the biggest single beneficiary of the government’s largesse, pocketing more than $12 billion. If matters had been left to the market and AIG had gone under, Goldman Sachs likely would have gotten almost none of the money that AIG owed it.
In short, Mr. Blankfein is not at all prepared to go out on his own in the rough and tumble of the market, he just doesn’t like government programs that come with conditions, like the TARP. He would much rather get his government money with no strings attached. And since there are channels through which Goldman can get government money without any strings, it is perfectly understandable that Mr. Blankfein would opt out of a program with strings.
In this sense, Mr. Blankfein’s attitude might be comparable to a mother receiving Temporary Assistance for Needy Families (TANF). To receive their benefits of roughly $500 per month, mothers must meet a variety of work and other requirements and endure lectures on the virtues of being married.
Undoubtedly many mothers find these TANF requirements to be quite annoying. However, unlike Mr. Blankfein, most of the mothers receiving TANF do not have friends in high prices in the administration and Congress. As a result, the mothers receiving TANF will just have to live with the conditions the government imposes on their behavior.
Mr. Blankfein’s whining is reminiscent of the resignation letter of Jack DeSantis, an AIG executive who resigned in response to the public outcry over the huge AIG bonuses. In this letter, which was reprinted in the New York Times, Mr. DeSantis complained that he worked 60 to 70 hour weeks to help in the unwinding of AIG. Of course, unlike the vast majority of people who put in long weeks who earn less than $100,000 a year, Mr. DeSantis felt entitled to a salary of close to $1 million a year.
Furthermore, Mr. DeSantis apparently had a poor understanding of contract law. As a bankrupt company, AIG could not make binding commitments for future payments – it didn’t have the money. At the insistence of the government, hundreds of thousands of autoworkers are now faced with the loss of the retiree health benefits for which they worked decades. Mr. DeSantis thinks that he is deserving of sympathy because the public is angry over his $750,000 bonus.
The basic story is straightforward. The Wall Street crew thinks that they are entitled to pilfer as much as they want from the public and from the government. These people have no interest in a “free market,” they would be scared to death of being forced to work for a living in the absence of a government safety net.
The Wall Street crew has relied on its political power to rig the rules to make them incredibly wealthy. They are relying on this political power to ensure that the rules remained rigged, even though their crooked deck wrecked the economy, costing tens of millions of people their jobs, their homes, and their life savings. So far, it looks like the Wall Street boys are winning.
Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy. He also has a blog on the American Prospect, "Beat the Press," where he discusses the media's coverage of economic issues.