Tuesday, February 10, 2009

Hail Josh Marshall!

As always, Josh Marshall is astute! He writes:

Cry Me a MF'in River

Chafing under new scrutiny and limits on executive paychecks, many big banks are deciding that they've had quite enough of Uncle Sam and want to give the bailout money back as soon as possible. You get the sense we shouldn't have treated them so badly because if we hadn't they wouldn't be forcing us to take our money back. That's the report here from the New York Times.

The interesting thing though, when you read down into the article is that they don't like the scrutiny and interference and they want to pay the money back to get us off their backs. Only, it's going to be pretty hard to pay the money back because no one else is lending money right now, and certainly no one on as generous terms as the US government is. And if they paid back the money a lot of them might well go out of business.

In other words, they'd love to pay it back, especially if they had the money to pay it back, which they don't. So presumably we won't be hearing any more about this but the whining.

Things are tough all over.

The two named institutions are Goldman Sachs and Morgan Stanley, which, at least as far as I understand these things, are probably the healthiest of the big banks, though it's a pretty low bar. Goldman CFO David Viniar tells the Times: "We just think that operating our business without the government capital would be an easier thing to do. We'd be under less scrutiny, and under less pressure. Not that we'd be out of the public eye; we're still going to be in the public eye."

Now, let's assume for the moment that Goldman and Morgan Stanley really don't need government TARP money or any other direct injection of taxpayer funds. This still doesn't account for all the indirect ways most if not all of these companies are only afloat today because of government rescue and taxpayer dollars. Behind the scenes for something like a year, the Fed and the Treasury have been doing all sorts of guaranteeing debt offerings, loaning money, doing all sorts of things to keep these outfits afloat. That's all in addition to the TARP money.

And take Goldman Sachs. You know that we've spent a hundred billion dollars of so bailing out AIG. Where do you think that $100 billion went? A lot went to pay off various banks and other financial institutions that would have gotten clobbered if AIG went under.

According to this September 2008 article in the Times, an AIG collapse could have led to as much as $20 billion in loses for Goldman, which was AIG's largest trading partner. The simple truth is that none of these outfits can go it on their own. Most are already on their feet today because of government support. And others probably could not have survived without systemic support for the whole industry.

--Josh Marshall

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