As Goldman Sachs Posts Record Profits, Matt Taibbi Probes Role of Investment Giant in US Financial Meltdown
Goldman Sachs, the nation’s most powerful financial company, has reported the richest quarterly profit in its 140-year
history: $3.44 billion between April and June. Goldman’s record profits come just one month after it repaid $10 billion
of TARP money to the US Treasury, freeing itself from restrictions on year-end bonuses. We speak to Matt Taibbi, whose
new Rolling Stone article argues that “Goldman Sachs has engineered every major market manipulation since the Great Depression.”
[includes rush transcript]
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AMY GOODMAN: We turn now to the situation right down the street here, on Wall Street. While the US deficit topped one
trillion dollars for the first time in the nation’s history, the blowout bonuses are back on Wall Street. Well, not all
of Wall Street, just at Goldman Sachs, the nation’s most powerful financial company, which reported the richest
quarterly profit in its 140-year history: $3.44 billion between April and June.
Goldman Sachs announced Tuesday that it would set aside nearly $11.4 billion from its profits to pay bonuses. If Goldman
continues to earn profits at the same level, its employees could each earn, on average, close to $770,000 this year,
with senior executives and bankers being paid much more. The average compensation amount is close to what it was during
the boom in 2007, when Goldman set a Wall Street pay record.
Goldman’s record profits come just one month after it repaid $10 billion of TARP money to the US Treasury, and in so
doing, freed itself from restrictions on year-end bonuses. Last year the firm also received $13 billion as part of the
bailout of the failed insurance giant AIG and $28 billion in low-interest loans.
Well, we’re joined right now by Matt Taibbi. He’s a contributing editor at Rolling Stone and author of the new article “The Great American Bubble Machine.” The article examines Goldman Sachs’s role in the current economic crisis.
So, welcome to Democracy Now!, Matt.
MATT TAIBBI: Thanks for having me back.
AMY GOODMAN: Were you surprised when the profits were just posted yesterday of Goldman Sachs?
MATT TAIBBI: I was a little surprised that the number is a little higher than everybody expected, but I wasn’t surprised
that they made an enormous profit. They had—they were the beneficiaries of massive government subsidies in the last year
or so. And it would be actually kind of a surprise if they didn’t come out with a big number in this quarter, just
because they’ve had such an enormous advantage. Not just this bank, but all the banks on Wall Street have had so much
access to cheap money since the bailouts have started that it would be a surprise if they didn’t start making money.
AMY GOODMAN: So, let’s talk about the bailouts and the bonuses and how this happened for Goldman Sachs. That’s what you
lay out in a remarkable article that you’ve just written.
MATT TAIBBI: Right. Well, one of the things that people have to remember is, how do banks make their money? They have to
pay depositors, normally, to get their money, and then they try to invest that money and make money, make their profits
on the spread between those two costs.
Goldman has access to an enormous amount of cheap money from the government, because they have asked—because they
converted to a bank holding company status last year. That made them eligible for about $28 billion in federally backed
loans, as you—sorry, in federally backed debt, as you mentioned in your intro, which means that they have access to
money that is incredibly cheap, so their cost of capital is incredibly low. And they take that cheap money, and they
lend it back to the economy at higher rates, and they make money on the spread. And because so many of their
competitors, like Lehman Brothers and Bear Stearns, are now no longer in existence, they’re able to dominate the market
in ways that they never were before.
So they’re taking all these advantages, and instead of—you know, the implicit idea last year with the bailouts was that
these banks would take these advantages and that they would use that money to kickstart the economy. Instead, they’ve
just decided to keep all the money and turn it into bonuses. And I think that’s something that everybody has to examine
now.
AMY GOODMAN: Talk about how Goldman Sachs played what you call the key role in the bubble, in the financial bubble.
MATT TAIBBI: Well, in the housing/credit bubble, they played a key role. They may not have played the key role. But they—it’s important to remember that the last, the current—that disaster with housing would not have
taken place had not investment banks like Goldman Sachs found a way to take bad mortgages, subprime mortgages and
non-prime mortgages, dice them up into securities, and sell them off to secondary investors in a process called
securitization. Without that process, there would not have been a market for those bad mortgages. And Goldman Sachs, at
the height of the boom, was underwriting between seven and eight percent of those non-prime mortgages. So they were a
major player in the mortgage market.
And what’s important to remember about Goldman, in particular, is they were alone on Wall Street in appearing to know
that what they were selling was toxic and was bad, because they were betting heavily against this stuff as they were
selling it on the market. And they made an enormous profit, whereas Bear and Lehman thought they had something good, and
they ended up being taken down by their own investments.
AMY GOODMAN: One of the most riveting parts of your article, Matt, are your descriptions of the Goldman Sachs alum and
the role they played in determining the government response to the crisis.
MATT TAIBBI: Right. Well, the number of Goldman Sachs—former Goldman Sachs employees who are in the government is
so—it’s so enormous that it would be impossible to list on this program. But just briefly, you know, there were two
Treasury secretaries who were very important: Bob Rubin during the Clinton administration and Hank Paulson during the
Bush administration. Bush’s Chief of Staff, Josh Bolten, was a former Goldman Sachs banker. The guy who administered
TARP, Neel Kashkari, was a Goldman banker. The current head of the NYSE, the World Bank, the Canadian National Bank, the
number two guy at the Treasury, the head of the Commodity Futures Exchange Commission, which regulates the commodities
market—all these people are ex-Goldman bankers. And because of that, they have access to these, you know, contacts in
government, and they’ve always been able to get whatever they want from government, whenever they want, the key example
being the AIG bailout last year, when they got so much money through that.
AMY GOODMAN: Explain that.
MATT TAIBBI: Well, when—if AIG had been allowed to proceed to an ordinary bankruptcy without government intervention,
Goldman Sachs might actually have gone out of business, because AIG owed Goldman about $20 billion at the time. But what
happened instead, you know, Goldman was able to appeal to its former chief, Hank Paulson in the Treasury, who engineered
an $80 billion taxpayer-funded bailout of AIG, and immediately about 13 billion or 14 billion of those dollars went
directly to Goldman Sachs. So this was really Goldman Sachs bailing out Goldman Sachs in the middle of the bailout.
What’s important to remember is that that same week that the AIG bailout happened, Hank Paulson elected not to rescue
Lehman Brothers. So Goldman Sachs went from facing almost certain disaster to seeing their primary competitor leave the
market and getting $13 billion in money from the taxpayer.
AMY GOODMAN: How much money did Goldman Sachs pay in taxes in 2008?
MATT TAIBBI: They paid $14 million in taxes last year, which is an effective tax rate of about one percent, which means
that they paid in taxes about a third of what CEO Lloyd Blankfein actually made in compensation last year. And that
sounds like an amazing number. And if you—their excuse for why that is is because they had changes in their so-called
geographic earnings mix, which basically means that they moved all their revenues to foreign countries, where the tax
rates were lower. And so, Goldman, which was, again, the beneficiary of massive subsidies during the bailouts, you know,
paid really just a pittance in taxes last year.
AMY GOODMAN: Goldman Sachs’s Lucas van Praag, the global head of Corporate Communications, responded to your article,
said your “bubble case doesn’t stand up to serious scrutiny…[To give just] two examples, even with the worst will in the
world, the blame for creating the internet bubble cannot credibly be laid at our door, and we could hardly be described
as having been a major player in the mortgage market, unlike so many of our current and former competitors.”
MATT TAIBBI: Well, as to the former—I mean, I’m sorry, as to the latter, I mean, again, I mentioned at the height of the
boom they were underwriting seven to eight percent of the non-prime market, which, to me, sounds like a major player.
As to the internet business, they underwrote about one our of every five internet IPOs throughout that entire period,
and they were the single largest underwriter of internet and tech IPOs. So it would be impossible to imagine who would
be a bigger contributor to the internet mess than Goldman Sachs, since they were the major player [inaudible].
AMY GOODMAN: How might Goldman Sachs profit off global warming?
MATT TAIBBI: Well, Goldman Sachs is positioned in a number of different ways. They are a part owner of the Chicago
Climate Exchange, which is where the carbon credits will be traded if this legislation goes through. They’re also
heavily invested in a number of companies that deal in carbon credits. And again, this is another kind of commodities
market, like the oil commodities market, which exploded last summer and is exploding again now. And Goldman and banks
like Morgan Stanley are poised to make an enormous amount of money if these carbon credits end up getting traded.
AMY GOODMAN: Finally, Matt Taibbi, explain the latest news about Stephen Friedman and how he did, one of the former
heads of Goldman Sachs, also a director, chair of the New York Federal Reserve Bank, in which he helped work out the
deal for the Wall Street bailout.
MATT TAIBBI: Well, Stephen Friedman last year was the chairman of the New York Fed when Goldman Sachs converted to bank
holding company status, which again made—when Goldman did that, when they changed their status, it made the New York
Federal Reserve their primary supervisor, which meant that Stephen Friedman would have been regulating Goldman Sachs.
The former head of Goldman Sachs would have been regulating Goldman Sachs. Friedman asked for a waiver to keep his
shares in Goldman Sachs, even as he was regulating Goldman Sachs, and he actually got that waiver, because, again—
AMY GOODMAN: From?
MATT TAIBBI: From—actually, I’m not really sure who it’s from. From the board, I believe. And—
AMY GOODMAN: But didn’t Tim Geithner—
MATT TAIBBI: Right, from Geithner. That’s right. That’s right. It was from Geithner. But then he went out again, and he
bought more shares in Goldman, even after he got that waiver, without permission, and he eventually had to step down
from his role as chairman of the New York Fed. But what’s interesting about that is that the guy who is now the
president of the New York Fed, Dudley, is another former Goldman Sachs banker. So it’s like, you know, you can’t get rid
of these guys.
AMY GOODMAN: Well, Matt Taibbi, I want to thank you very much for being with us, editor at Rolling Stone. His latest piece in Rolling Stone, “The Great American Bubble Machine.”
ENDS