Posts Tagged ‘goldman sachs’

The big banks are still socializing the losses; or, Sympathy for the stockholder

20 October 2011

The original bank bailout may have been repaid in full, but the big banks are still socializing the losses. This time, it’s among their shareholders. Brad DeLong offers some specifics:

‘Investors in Goldman Sachs have lost more than half their money since 2007 . . .

‘Investors in Morgan Stanley have lost more than three-quarters of their money since 2007 . . .

‘Investors in Citigroup have lost 93% of their money since 2007 . . .

‘Investors in Bank of America have lost 85% of their money since 2007 . . .

‘Investors in Bear Stearns, Lehman Brothers, and Merrill Lynch lost more than 90% if their investments as well . . .’

DeLong’s charts (click above link to see them) show that even after bank stocks started to rebound in fall 2009, the losses have still been huge.

One might think this is just a case of the rich getting poorer, but it’s not that simple. In fact, the distributional consequences seem to run the other way. The stockholders, most of whom are middle-class and upper-middle-class folks, are getting hammered. About half of the population owns stock (granted, the wealthy own most of it), so about half of The Other 99% own stock and are seeing their retirement portfolios shrink along with the rest of their savings. (If you own stock at all, you probably own a lot of big bank stock, because they are weighted heavily in index funds, other mutual funds, and pension funds.)

How has the reduced market value of these firms affected the executives and highest-paid employees at the big banks? Not much, apparently. While I don’t have precise data handy, there have been reports all through this Lesser Depression of huge payouts to bankers, including yesterday’s news of Morgan Stanley. It’s happening in England, too.

DeLong’s post includes some excellent comments about how the banks’ poor performance has affected their shareholders and their high-level employees so differently. There’s a technical term for it: looting.

P.S. The Wall Street Journal reports that bank losses have been huge of late. Goldman Sachs lost money in the second quarter of this year, and has had six straight year-over-year quarterly losses. Goldman’s stock is down 39% for the year, and Bank of America’s is down 50%. No mention of how (or whether) bonuses will be affected.

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Warren Buffett defends snake-oil sales

4 May 2010

That’s my interpretation of this column, anyway.  The NYT‘s Andrew Ross Sorkin and all the other apologists for Goldman Sachs take a different view.

Buffett says the institutions who bought the reeking mortgage derivatives from Goldman have only themselves to blame.  They just got outsmarted.

Um, couldn’t we say the same about the lady who bought the kerosene-soaked sugar from the local grocer?

Why was Goldman selling toxic products in the first place?  If they knew they were toxic, isn’t that fraud?  Isn’t that the basis of the lawsuit?

I’d always liked Warren Buffett prior to reading this column, but now it’s hard not to conclude that he’s just like all the rest who would maintain that nobody on Wall Street bears any blame whatsoever for the financial crisis.  Buffett famously said a while back that derivatives were financial weapons of mass destruction.  Caveat emptor — said destruction can only be the buyer’s fault.

UPDATE, 7 May 2010:  Les Leopold, author of The Looting of America, says all this, and more, right here.

Obligatory song link:

Must-read: How Goldman Sachs secretly bet on the housing crash

1 November 2009

. . . while selling $40 billion of mortgage-backed securities that it claimed were safe.  The article, by Greg Gordon of McClatchy Newspapers, is based on a five-month investigation.

Yves Smith at Naked Capitalism has a few words on the matter and on the article, here.