The Goldman infallibility myth

Robert,

Back last Autumn (2008), you were busy blogging that immediate steps had to be taken to stop the banking system seizing up and collapsing, which was certainly correct. You painted a picture of no choice, which however was not true.

I commented early on a few of your blog entries back then that it was better to:

Allow the banks to go under last September, letting them go bankrupt and thus defaulting on their debts and letting their UK's foreign creditors lose their money, which may have caused a short-term stop to imports as Britain could not pay its foreign debts, and thus possible short-term riots and a general collapse as the banks were nationalised (allowing them to continue their day to day function unhindered as they defaulted through bankruptcy and wiped out their debts, but not their account balances or day-to-day running which continued unchanged under nationalisation), followed by swift recovery and a strong Britain,

rather than:

A Government takeover of the banks' debts, thus paying off the foreigners in full who held the dodgy bank debt in their billions or possibly trillions (laughing all the way over their good fortune), and thus securing the UK's short-term banking system, whilst indebting the UK taxpayer and his children and grandchildren to foreign interests for twenty to thirty years or more of slave like repayment of the foreign debt incurred.


You enthusiastically continued then only to favour the latter option, and did not do (I believe) your journalistic duty of raising the possibility of the former option.
And so here we are today, with massive debt on every UK citizen to foreign interests, with Britain due to be sold piece by piece to foreign interests, and with slave-high levels of taxes soon to be imposed on every UK taxpayer for decades to repay the money the government has just spent on buying the banks' worthless foreign debts !

If I start a company in 5 years time, say, and make a profit of £100, and have to pay 60% or more Corporation Tax to the Government (as seems likely after the UK's forthcoming IMF bailout) to allow the Government to repay the massive, humungous, terrible foreign debts it has now taken on through its bank underpinning, before any income tax payments, then what was the point of the bank bailout ?

Who benefited, apart from the rich foreigners who got their worthless debt paid in full by the UK taxpayer, and the Government of the time who avoided an immediate crisis ?

And if you would have commented differently then, instead of painting the Government's actions as a fait-accompli, things could have been so different and so much better (although worse in the very short-term) - after all you are in part an opinion maker.

Why didn't you listen ?

Some have accused you of being politically biased, with your father's Labour party membership and the BBC Radio 5 expose of your own current organisation memberships. I am sure though, having read your blog entries, that this is not so. But as an opinion former (not a decision maker, but someone who helps to shape the mass of public and Government opinion, amongst other opinion formers), why didn't you listen ?

So all are equally incompetent! Not sure if that leaves us much hope for the future, or how any regulator would be able to manage a culture that is clearly so focused on high returns that risk is all but ignored.

Robert

Is this not also a compelling argument against the ethos of "big is beautiful", when creating large financial institutions. I fail to see how an adequate risk management policy can be effective for each individual transacted deal, when the total business volumes run into hundreds of billions of dollars etc. And as per the House of Commons inquiry it is clear that the bosses do not always understand some of the complex deals anyway!

Yet again, Barclays emerges as the luckiest show on the road.

It is worth remembering the number of times over the last couple of years - most notably the ABN escape - that the current Barclays management could have sunk the bank.

They are amongst the luckiest people on the planet. Solely because of good fortune, their show is still on the road - for the moment - but can ANYONE have the remotest confidence that their judgement is sound?

Yet these same people continue to make pompous public statements about the folly of their rivals. And twist and turn to negotiate as much of a taxpayer bailout as possible, whilst retaining "independence". And wheel and deal to avoid paying their own tax due.

What a shower.

Lucky, lucky people. Not skilled. Not able. Just lucky. And brass-necked.

And still with bonuses and pensions intact.

But where has all this money gone?

Is it the biggest con job in history? And who are the winners and losers?

Sorry, I know who the losers are (me and you reader).

Bob,

The three separate bailouts of AIG by the American Govt was little more than a further bank bailout as we can clearly form your post.

They still managed to give out $450 million in in bonuses!

"AIG Still Living in Denial"
https://creditcrunchedoutinuk.blogspot.com/

I think you are looking at this from the wrong perspective Robert.

AIG insured deals for the banks.
But they charged too little to do so hence when they had to pay out they were short of cash.

I am worried that Barclays havent had a payout, does this mean that they havent insured their risks adequately and are in much deeper doo doo than the ones that did insure in good faith.

It is prudent to insure your deals, All the banks mentioned did so with a supposedly AAA rated agency, and they did so in good faith expecting AIG to be managing the risks, the ratings agencies said they were.

Now where are Barclays in all this? are they insured with another provider? Is this other provider too big to fail? If not what happens to Barclays when their insurer fails?

Robert,

It is a fact of life that those who get to the top of a big businesses share an arrogance and degree of self belief that does not border on insanity - it is the epitome of insanity. I will not give examples and these people are uniformly litigious and my comment will be moderated out! I also add that we 'require' them to act in this way and that is how we select them! The same is true fro leaders in all fields of life - any scintilla or self-doubt and they are out on their ear. This is a fact of life.

So Goldman's chose AIG and HBOS the mortgage market and dubious businesses and RBS etc... Nothing surprising here at all. In every recession/slump the hollow nature of our 'leaders' becomes more exposed. It is our collective error of belief in their supernatural abilities that is at fault.

Your write about myths and quite rightly so too. However in order for a "recovery" to occur we need myths and belief as it is basis of confidence.

By the way what constitutes a "recovery" and how is it to be achieved?

(My view is on record earlier - that for there to be a recovery money needs to regain a value if we are to continue with capitalism. i.e. real interest rates for both savers and borrowers. No reestablishment of at least 4 to 5 percent interest rates and there can not be a recovery.)

The fact that these banks' insurance policies with AIG paid off is at least some indication that their policies weren't too crazy.

In fact, it is possible to argue that they were being very prudent and sensible - not least if they evaluated the politics correctly:

https://www.knowingandmaking.com/2009/03/prudence-and-counterparty-risk.html

OMG. Every day I despair a little more at the whole shenanigans.

Very interesting. Though it is very difficult in these times to judge which companies have been well managed and which have simply been lucky.

It strikes me that, when a government intervenes, we need a "halfway house" status between an ongoing business and a business in administration (in the UK sense of the term).

Only then can imprudent past decisions be put right in a way that is fair.

Take RBS: The Gvt intervenes but is told (however unreliably) that it cannot re-adjust patently ridiculous pension allocations in the way which it would have been allowed to do if they had simply placed the bank in administration.

Take AIG: Gvt intervenes, but must honour in full risky business taken by rash counterparties.

If it is so important to keep these businesses as independent (non-nationalised) entities, it is surely just as important that justice is seen to be done, and, e.g., Goldman Sachs executives do not keep the bonuses they were expecting on the back of the taxpayer.

When a business is in "critical care" under any Gvt . there must be provision for honouring of existing legal commitments at a discount; i.e. at some percentage in the pound/dollar.

Very interesting stuff Robert. It tends to make you question what's been going-on. It also makes you understand the German and French reluctance to get too deeply in hock as we have.

Thanks for telling us RP. In other words, Lehman did not insure their doo doo with AIG while Goldman S. did. Same applied to RBS and HBOS???? Barclays save their skin by getting AIG insured against their doo doo.

To me the global financial institution are all so tied up with each other that none of them should collapse nor any of them should survive in the opposit end of the argument.

Communism vs capitalism

Let the government controls all financial institutions. Then, at least, investors will not lose all their hard earned money. Of course, corruption might become a problem if run by the mandarin in the Government.

Barclays, SocGen, etc, did put all their eggs in one basket, which as you say may not be that prudent. But how about RBS/AMB Amro? Isn't ABN Amro's toxic assets one of the biggest reasons why RBS is suffering so much? And how about Lehman and other banks that didn't rely on AIG to insure their toxic assets to teh same extent? I guess there are degrees of being prudent, and as such I would say the surviving banks were indeed more prudent that you are giving them credit for!

Hi Robert,

I will ask again would it be possible to list the UK banks which have not been caught up in this mess.

Are have they all been caught up in this.....

and just how much of the money the tax payer has lent has actually gone overseas to prop up business's there....

Are we saying that the system is any more stable than it was or are we lkeft to conclude that the same sytems are in operation albeit with slightly less leverage?

What we now share with our American cousins is a government hell bent on taxing still further whilst sublimly believeing that banks know best.

We may not be doomed but we need to cut the rhetoric and look a damn sight more closely at the facts as you have rightly done.

What I would like to add is that given the disaster present governments, regulators and in some degree central banks have created to date. Do we really think staffing with the same folk who have literally turned the British pound into teh British peso, are the right peole to sort out the mess?

I for one think it is impossible to get a right result whilst having the same personnel in charge. Maybe you might pick up on this at another time.

Throughout this entire crisis - once the flames were visible above the tree tops last Sept - banks have been having their cake and eating it too!!

How have the Big 3 over in New York suddenly become "profitible" again??? A few weeks back they were on deaths door.

Now we have talk with the upcoming G20 of a Global "Bad Bank". Does anyone think this is actually in our (the people) interests.

Max Keiser was on Radio 5 yesterday morning to discuss these very issues. His comments were much interesting - although I'm sure he wouldn't find any agreement with Crash and Darling.

Have a listen for yourselves:
https://creditcrunchedoutinuk.blogspot.com/

I agree with Comment #1: BasaltRocky.

It is time we considered the option of letting banks fail. What Robert's article show is that the bail out was used to pay off Credit Default Swaps - the gambling instruments used to create multi-trillion dollar liabilities, and described by Warren Buffet at "Financial Weapons of Mass Destruction".

The liability on derivatives is so huge not even the US government could possible bail then out if a significant percentage go bad. All they can hope to do is bailout the very tip of the iceberg and hope the rest will go away.

This disclosure by AIG is a step in the right direction, but are they actually trying to wind down their derivatives markets, or are they just continuing on the basis of "heads they win, tails the taxpayer looses"!?

If the banks know that they are to big to fail, and whatever trouble they get into in the future us taxpayers will always bail them out with unlimited ammounts of cash, then where is either the regulation, or the scrutiny by the BBC and other organisations to ensure that the money injected by you and me, and insured by you and me is not going to be used to just inflate prices and create another credit bubble?

I guess we will not know for certain until the banks start lending properly again over the coming weeks, but I for one hope that when they do the media does something ahead of the game for once, and watches them like hawks on our behalf.

Am I alone in thinking that we are staring into an empty stable?

The fact that they were allowed to insure these toxic assets is surely the problem?

So therefore who passed these items for good trading?

Why aren't they being held to account?

I seem to recall making comments about the impact of derivatives on the current economic climate, and how even supposedly hedged derivatives could leave a gaping hole in the financial system in the event of a bankruptcy, around the time of the Lehman's collapse, and the aftermath surrounding their CDOs.

I also remember being shouted down by a number of Bankers who were very adamant that the system was sound, and nothing could possibly go wrong with it.

I wonder how many bankers will be trumpeting the success of the system now. I forsee a few of them coming back with the excuse that AIG is not a bank, but a fair few of them seem to be treating it like one where CDSs are concerned, so that one really won't wash with me.

well done Robert you've managed to read today's Guardian and copy much of what's on p. 25 onto your blog

I'm beginning to wonder if you have another big story in you as a journalist or NR last year was it.........

anyway on Goldman Sachs a morei nterestin angle that you don't mention is the possible motivation of the decision-makers in gov't who were predominantly ex-Goldman Sachs execs

that could explain why they let Lehman Bros (a competitor) go to the wall but rushed to help AIG, who owed vast amounts to Goldman

also very interesting is the payout of huge bonuse to the AIG people here in London today

so overall the US taxpayer is bankrolling a lot of individuals and banks here in the City; as the Grauniad says, this is unlikely to play well with the Americans!

By the look of it, each bank knew that they were suckering AIG on their credit default swaps; they just did not know that the effect of a crowd of banks doing the same made AIG a worthless counterparty. I.e., it never could have happened if the CDS had been dealt on an open exchange or a clearing house. The US taxpayer is paying the bill for their regulators' failure to insist on open dealing.

By insuring their positions, surely their have shown themselves to be managing their liabilty.

I am quite sure, whilst these banks are worried about the state of their insurers, we, the public, should start getting worried about ours, be it pensions, life or property.

Our insurers have invested billions in Commercail propery, which has devalued, which have no tenants to pay the rent or service charge on, so they are forced to pay the maintenance themselves.

They hold investmesnts in blue chip businesses via shareholdings, Banks, Airlines and the like, and have suffered losses.

I know I was viewed an "Oddball" but back in 1992 when Michael Heseltine was "President of the Board of Trade" I suggest that the short termism of Shareholding would destroy companies, being forced to sell assets to boost balance sheets and pay dividends. I suggested that shares should have to be held for 24 months before a dividend is pay to the holder, the dividend for the first two years going to a central shareholders fund.

I also said, anybody holding a share for ten years, should get a bonus in the form a tax allowance of 5% of their holding.

Shares are risky, and people should not put money into them, if it is needed to fund their day to day existance.

Robert,

The bank's corporate centre should be monitoring their exposures to all counterparties and managing the risk accordingly. Who knows how much protection Goldman had bought against AIG defaulting? Done competently, they could have been in-line for an even bigger pay-out on those contracts if AIG had gone down.

on another note, I've noticed that here on a beautiful spring day in Stokie, the road is suddently buzzing with economic activity

builders everywhere, starting work on kitchen extensions and lofts

good news for small builders - whether Polish or British; I have a couple Polish guys in myself at the moment, sprucing up the poop deck and repainting the gun-ports

looks like the middle classes home-owners of this part of N. London are doing more than ok in this recession so far, but have decided to spend their money on fixing up or expanding their houses instead of trying to move

also went out and about on the weekend locally and found all the restaurants and cafes full to bursting; Jan and Feb were dead as the Sargasso Sea

whilst I try to retain a suitably gloomy outlook at all times, in keeping with a Peston blogger, I felt obliged to report on what I'm seeing with my own eyes, no matter how unsettling it might be; to do otherwise would be to behave like Fox News or some other disreputable outfit

I would be interested to know what the net flow of money is likely to be between the UK and USA as a result of the bail-outs.

Is it the case that the British taxpayer has subsidised US losses or vice versa?

I would guess that British banks have been getting more involved in the US property market than the other way around.

I expect that this will lead to protectionism of one form or another as each country assesses whether or not it would be better off not bailing out their banks' foreign liabilities.

Surely this is the most logical course for any country which would otherwise see trillions of their money going overseas for no benefit. However if it is logical you can bet that GB will do the opposite.

Robert,

I don't see how this puts into question GS infallibility!

If anything they realised the assets they were holding were toxic, they probably figured out that insurance was on offer below cost and so they decided to buy.

This is what every prudent bank dealing in risky assets should have done!

This comment was removed because the moderators found it broke the house rules. Explain.

Americans are loosing their homes, but the fed hands $13Bn to Goldmans. What a crock.

I would like to see an answer to post 1, though I doubt that we will get it.

Perhaps we shall have to wait 50 years to get a real answer.

As this mess has unravelled, with 20-20 hindsight, it may well have been better to let the banks collapse, nationalise them, & get on with life. If nothing else it would have solved the bonus problem, and the slow drip drip of bad news as those in power but not in control got it wrong and wrong and wrong again.

[Unsuitable/Broken URL removed by Moderator][Unsuitable/Broken URL removed by Moderator]So Goldman got $13bn from the US Federal Reserve via AIG. But how do you value a stable financial system? Albert Einstein said - No problem can be solved from the same level of consciousness that created it. In other words, to make big changes in the way you do things, you need to change your thinking at higher level. To find out how to make a quantum change in your thinking and to reconnect with your own values and beliefs see [Unsuitable/Broken URL removed by Moderator]

Is this is just another one of those green shoots moments? If we say it loud enough and often enough people will believe it! The fact of the matter is that very few if any of the institutions were left unscathed by firstly the sub prime debacle and then the rapid defilation of the over global financial market.

I fear however that on this occasion it will not matter how loud and how long these institutions people shout they will still have the underlying issue of having toxic debt to deal with if not on their books on the books of the others they deal with. There is also the fact that the financial market was over valued by a considerable factor. I feel that China was alluding to this fact when they raised the issue of their investment in the west and in particular in the US.

The problem is, which if any of the nations globally would be willing to start the ball rolling and devalue their current forecast for their economy over the next four to five years. In reality any number may have their hand forced with regards to this. Such as Ireland, Spain, Greece Etc. who are all on the verge of defaulting not to mention the eastern members of the EU who are already having to be bailed out.

We are in a global recession if not a depression and a redefining of the base line has to take place. People are asking where all the money has gone with the value of shares, Banks Etc being reduced dramatically. They should be asking where did all the money come from in the first place. We lock up individuals who preside over scams; however for the last decade the global financial markets were built on the premise of unsustainable growth. This growth was fuelled by cheap products and services supplied from the developing countries and a debt based culture.

This has lead to its global demise and the start of a return to nationalism which in turn will very quickly turn into protectionism. We have seen this being muted by countries such as France and Germany as well as the US. All of whom want to keep exports flowing but want to stop the level of imports. They also want to see a local return for any stimulus packages that their governments put in place.

The US can not afford to maintain the current levels of imports as can Germany not afford its current levels of exports. The same can be said for the developing / emerging countries as their internal markets where shown to be left wanting when there was the downturn.

So yes the answer is not a palatable one but one that will have to prevail if we as a global entity are not to suffer a prolonged rescission / depression. There has to be a realigning of the global economy, devaluation if you want; to bring expectations and acceptance back into line with reality. If not we will see increasing levels of protectionism in the developed nations which in turn will fuel a continued fall in other markets around the world. This in turn will maintain the momentum of the downward spiral.

So to return to your point, these institutions along with their markets as a whole will never be able to say that they acted prudently and within the boundaries we would expect within reasonable levels of GOVERNANCE, RISK and COMPLIANCE. Unfortunately the same can be said for the governments as they as a whole were happy to turn a blind eye to the regulatory requirements as long as the gravy train was still on the tracks. A gravy train a great number of them still think can be simply put back on the tracks and restarted from where it was derailed.

However the cause of the derailment was not one of simply high a speed but rather that the tracks had not been laid on firm foundations. So unless we address the cause rather than the effect the train will keep on being derailed no matter how quickly we get it back on the tracks

#1 nice.

"Barclays benefited most ..."

Ah yes, Barclays, who, with the AIG bailout scheme in combination with foreign investment, have thus far managed to keep HMG at bay. But why the contortions to avoid HMG becoming more involved ? Seems Vince Cable has just woken up to all this.

Wake up at the back, Vince, this has been known for quite a while now.

This comment was removed because the moderators found it broke the house rules. Explain.

"What that shows is Goldman would have been in the deepest, darkest doo-doo, if AIG hadn't been put on life support."

Does it? Or does it show that they speculated - correctly - on others failing, and have made out like bandits as a result?

The question is surely how much of that $13bn they were relying on as assets. If all of it, they were in trouble; if none, cha-ching, triples all round!

What a tangled web

woven with the coming of the internet

nobody checking

nobody taking responsibility

we trusted

some asked if it was really ok

but all were swept up in the exhillaration of making money

riding the wave

the good life

global warming may be next

the ramifications of our desire for the good life may ruin our planet

lots of people checking

some taking responsibility

we all know its not ok

we can still survive even if the whole financial system goes belly up, though it might not be very nice

but will we may not survive global warming

cometh the hour cometh the man

Is it just me that finds it extraordinary how "lucky Goldman" finds their luck from an administration that has their man at the Treasury.

That's another interesting post Robert, thanks.

It's quite amazing the size of the hole that these bankers have dug, and incredible that they are getting away with their millions/billions, paid for by the US tax payer!

But one question.....

The US tax payer has forced the disclosure of this information (I wonder if Gordon Brown and our government are man enough to do the same..... I somehow doubt it!), so the 'market' is now much better off knowing about how bad Goldmans, Barclays etc etc have messed up.

But rather than do this as a one-off, after the fact, when we are all in deep dudu, why don't we move to a system permanently whereby all these guys (if they want to have a license to operate as banks/deposit takers/in fact any license at all to deal in financial products) have to disclose all these things into the public domain within say a day of entering into these contracts?

If this had been the case, the market would have taken a view on AIG's position years ago, such that they would absolutely have had to adjust it, and not been able to get away hiding such horrors.

The whole model or philosophy of allowing banks/insurance companies/financial outfits to be dark boxes that you try to regulate from the outside simply does not work. We need them all to open themselves up to the clear light of day so we can see what's inside them.

And we need this to be done on a scale that has never been imagined before.

AIGs' business interests extend beyond insuring only banks, bailing out AIG has prevented the mass populace 'rising up in protest'. Lehman Brothers chose to turn down the offer made and suffered the consequence, which turns out to have been the turning point as suddenly all bank directors realised that the end was in sight unless they held their hands up.

So even the so called "prudent banks" are up to their necks in it.

Ummm?

I have a question please Robert. If ALL the banks are drowning in a sea of unservicable debt, why are we trying to save them?

It seems to me the system is completely rotten from root to branch, and its time to get out the chainsaw.

So far all the so called solutions raised by the great and the good , including your esteemed self, have proposed reactionary measures to medicate the system. It seems to me in my infinite stupidity that, and im sorry to harp on about it, THIS WILL NOT WORK, you know, because the system is broken , dead, diseased, corrupt, unworkable, finished, rotten.

Change the system first, then sort out how its going to be paid for.

I know this isnt an original idea, and i claim no credit for raising it yet again, but it seems to me bankers may be a bit thick so im sure that several other of your regular contributors, ( you know who you are), and myself will keep on plugging away until this simple idea may even get through an economists dense and bony skull.

It becomes apparent no why AIG was bailed out. To save the bacon of Goldmans and co.

I hope that the US public is well annoyed by this disasterous use of public funds, which will no doubt line the pockets of the GS employees who masterminded these deals.

Let AIG and their reckless ilk go to the wall. Don't allow the incompetent to take taxpayer money and continue being incompetent. If Goldmans were reckless in their management of risk then they should be allowed to fail, as should BofA and Merrills.

"Myths and free markets"

In your blog on Friday the themes of market intervention/regulation and the free market was a key point.

Have you on purpose followed up with "myths?"

How can a market be transparent, or understandable, never mind being rational, when AIG has made such payments, and then only under duress?

AIG. The rumour was that AIG could not be allowed to fail. It underwrites most pilot insurance in the aviation industry. No AIG and no airplanes flying. That would mess up everyon's economy as 95% of planes would be grounded. Scary stuff.

Robert, missing the point again?
Goldman Sachs fund the Bilderberg meetings and allegedly manage their bank accounts. The US Treasury man in charge of all the US bailout billions is an ex-Goldman partner and they benefit from the handouts nicely. Come on work it out instead of repeating the blather and spin being put out.

if the banks "gambles" were insured, why are we having to keep bailing them out? I insure my house...if it burns down i get paid,If my insurer goes bust i get paid out through the industry scheme. However, if i have no insurance i get nothing...... would the taxpayer build me a new house, i dont think so!

What is increasingly clear is that a large number of people in the financial industries must have known the whole thing was a house of cards. They were not stupid, they were calculating (correctly) that when it fell apart government would have no choice but to rescue AIG and any other big bank. They were managing for maximum personal advantage independent of the collateral damage to society.

The right place for people like that is in jail. It is government's function to ensure there is 'moral hazard' and this kind of calculation results in personal distaster. Moral hazard is essential to capitalism.

This is all a part of a larger agenda. The Central Banking systems are rapidly gaining tighter grip over the world's economy. These 'Depressions'/'Recessions' are carefully calculated to pave the way for mass heists of the little remaining wealth that the general public have left and alos to push people further into debt.

Britain has already broken it's own rules by allowing bigger banks to buy out smaller increasing the monopoly. Where does it end?

The general concesus that is pushed by government is to spend rather than to save. Encouraging people to take credit rather than to live within their means. Look what has happened......

Credit = debt = slavery and the further down this road we travel the worse off we will all be in the future.

Let us not forget that Central Banks such as the Federal Reserve are privately owned companies that are run with little to no interference from government. I for one would feel much more comfortable if these banks were brought back under public control.

The power that these banks hold is unbelieveable and to me is a crazy to allow this to continue. They are able to control interest rates and inflation when ever they deem fit and the only people that ever benefit is the few ruling elite, where is the democracy and fairness of this system?

https://www.freenation.org.uk

Oh how the infallible Goldman Sachs has floundered. The Superman of banking as vulnerable as the rest.

I always suspected that its real strengths were self-publicity and damage limitation. And as we have now seen, it was as feebly run and bonus-led as the rest of the sheep.

How many billions have GS bankers extracted over the years to the benefit of a few hundred staff?? I'd guess in the very high tens of billions.

How much have these same bankers lost as a result of their being bailed out by the US taxpayer? No guess required here. They've lost nothing.

This story once again demonstrates that "bankers" is a typo.

MORE GOOD NEWS FOR PIRATES:

GROG RATIONING DEFEATED

Cap'n Gordy has confirmed that we'll continue having as much grog as we can drink

TEETOTALLERS AND INTERFERING BUSYBODIES MADE TO WALK THE PLANK!

Rumours that the amount of grog consumed might have anything to do with the amount of grog loaded aboard at the last port and the increase of the number of hours per day that the sailors are now given access to the stores (24 hrs a day instead of 12) have been totally rebutted

LONG MAY THE GOLDEN PINT CONTINUE WEAVING AND WOBBLING INTO THE NEW DAWN OF ECONOMIC RECOVERY

99 bottles of beer on the wall, 99 bottles of beer.
Take one down and pass it around, 98 bottles of beer on the wall.

98 bottles of beer on the wall, 98 bottles of beer.
Take one down and pass it around, 97 bottles of beer on the wall.

and so on...........

1 bottle of beer on the wall, 1 bottle of beer.
Take one down and pass it around, no more bottles of beer on the wall.

No more bottles of beer on the wall, no more bottles of beer.
Go to the store and buy some more, 99 bottles of beer on the wall.

WE WILL SPEND AND DRINK OUR WAY OUT OF THE RECESSION!!

For Somali Pirate SP500 (#27)

Sorry to rain on your Spring Parade, but an opposing glimpse of the economic truth was provided this week by my local newspaper, here in Sussex:
"Council overwhelmed by demand for allotments".

Ordinary people see the future, and are digging for victory.

Am I right to be concerned about the Post Office savings as owned by the Bank of Ireland

Following on Number 28. I seem to recall a report last year that all the US Majors put their transactions through London. This allows them to write their losses off against UK tax liabilities over the next decade or so. Which means the US Treasury will not be unhappy as its the Brit Taxpayers who will be propping up the US Majors balance sheets. UK as the US's Muggins again!

In our fast approaching age of new regulation after the horse has bolted, the public should know before they deposit their money in a bank whether one bank is more risky than another. This information should loom large at the front door of the bank.

This would mean that depositors have a choice of depositing their money at Barclays, Soc Gen or the humble, responsible Co-op.

It would be one thing if the reckless banks were going to use depositors money and then split some of the profits but oh no, that would be too much to ask; they only share losses.

Responsible banks will do better than irreponsible ones.

The FSA is full of bankers so this suggestion will be shredded and scattered in the wind.

Very interesting re Goldman Sachs. Now where did Mr. Paulson that famous Treasury Secretary come from???!!! Oh Yes, Goldman Sachs! No wonder they wanted to keep all the info private. A bit like Halliburton, the former Vice President etc. and those Iraq contracts. It more than smells fishy, it stinks!

Any financial institution that is too big to fail should be split up into smaller entities. Then not only will the tax payers avoid the ridiculous cost of bailout they might actually benefit from, dare I say, competition. This might actually encourage financial institutions to offer their customers quality service at a reasonable price and preserve some jobs at the same time.

I'm a little confused here, Robert, because what you are describing is simply systemic failure - financial institutions toppling like dominos - which bailing out AIG was intended to prevent.

One major source of AIG's losses was CDS (Credit Default Swaps) they'd written on Lehman's debt, so it would indeed likely have been better - and cheaper - for the US government to have stopped the rot earlier by avoiding a disorderly failure of Lehman Brothers.

It's totally dumb and negligent to allow counterparty risk to build up in the financial system of the magnitude that has been permitted. Hence the urgent procurement of CDS clearing systems, presumably to limit risk by requiring margins on contracts to be lodged with a central party. I'd really like to know more about these systems, and would much rather my licence-fee was spent on informative comment on those rather than the sort of emotional value-ridden reporting exemplified by your post today.

Does the level of Goldman's exposure to AIG represent a poor risk management decision? Possibly. But in a hurricane even the strongest trees are vulnerable.

Have some decisions that have been taken ensured that Goldman survived the maelstrom? Sure. This is a reflection of the further knock-on damage that would have resulted from the likes of Goldman's failing, and, just perhaps, the level of presence of still loyal Goldman alumni in key government roles - a business strategy lesson there, perhaps!

The financial crisis has long since threatened the strong as well as the weak. The crucial question is not whether Goldman's (or Barclays or whoever) "deserves" to fail (or their shareholders lose their money), it is why did governments and regulators allow ANY large banks to fail?, knowing as they very well did - or should have done - the counterparty and other knock-on risks that have entirely predictably led to a continuing systemic financial crisis.

Numerous bank executives have fallen on their swords. But it was those responsible for regulating the system - as opposed to managing individual institutions - who allowed systemic risks to reach the ludicrous level they did. How many of them have been fired in disgrace, publicly humiliated and had their pensions confiscated?

Robert,..


It seems to me that AIG has become yet another Government funding tap to keep the banks fully bailed, but without applying any control or consequence to the handover of Taxpayers money!..

I mean whose bonus was the AIG bailout really protecting?.. The CEO of AIG (whose pay package was capped on receipt of government money) or the CEO of Goldman Sachs?..

As you rightly point out Goldman would have likely been a historic headline by now without the government support of AIG,..

Was this the reason then, that present at the original bailout meeting, together with members of the Fed and US Treasury, was a representative from the senior board of Goldman Sachs,.. Infact the Goldman man was the only representative from the private sector!..

Oh and I suppose it's no small coincidence that Hank Paulson, the US Secretary to the Treasury was an ex Goldman CEO,..

Where is the outrage?..

This is the perfect example why blanket bailouts have been a total disaster to the detriment of the taxpayer and the gain of the financial elite!..

Best,..

Cpt'n G

bimthedandyandy wrote:

But where has all this money gone?

Is it the biggest con job in history? And who are the winners and losers?

You can add GM to the list of people this question needs to be asked of.

Not only have they received huge bailouts, but they're still going to declare bankruptcy.

So why did the US Govt bail them out when it was inevitable anyway?

AIG is still only the tip of the ice berg as this Huge Downturn rips through Europe, particularly the East over the next six months.

Cash remains King, with some Gold on the side

Robert,
I am amazed that you put all this down to the good fortune of Goldman et al - these people make their own luck they can not afford to rely on good fortune - or had you forgotten that Hank Paulson was the ex CEO of Goldmans prior to taking over as US Secretary to the treasury ? It seems that the previous three treasury secretaries were all ex Goldman chiefs. You will remember that Paulson decided to let Lehman go to the Wall but saved AIG and as a consequence Goldmans.
So what is the moral of this story - it seems if you are going to play in this dangerous game step one is to get your get out of jail free cards in place early.

Not sure that the evidence backs up the implication that Goldman were not careful in controlling risk.
Clearly they understood that CDSs were risky and insured their exposure to them accordingly. I am sure GS clients will be examining the revelations lest it show GS had a different attitude to these securities compared to that they had when selling them on.

That others insured large amounts also indicates a less risk taking and better (though obviously not full) understanding of the risks. Deutsche Bank I recall seemed to own large chunks of repossed US subprime which is presumably where its' large exposure is generated.

That none went the next stage and worked out what the effect on the insurer might be if everything went pop simultaneously as happened says more about AIG than those taking out the insurance (what's the purpose of insuring a large risk knowing that the insurer would be bankrupted by the payout unless you are playing a second hand to deliberately bankrupt the insurer or force Government to cover - could be clever but hardly top hole ethically).
AIG underpricing the risk is clearly demonstrated and obviously misunderstood the linkages and likely domino effect - precisely on what basis it was priced and where the original misunderstanding, fault or fraud originated is yet to be fully exposed, if it ever truly is.

Certainly this all just goes to back up the oft noted fact that financial jiggery pokery such as the CDSs and their toxic relations serve no significantly beneficial purpose to Societe in Generale (sorry couldn't resist).

What seems required is that in future that such financial innovations should require licensing before the fact and not regulation after the fact or not at all. Then the regulators cannot say they were not their remit, or we didn't understand them or any of the varied excuses for inaction whilst this series of disasters was in the making.

If the taxpayers and their descendents are to be regarded as the solution to any financial over exuberance now and in future then people we can hold to account through our 'democratic' processes have to be the ones to permit it with suitable public processes.
Whilst I may be wrong, if someone had asked is it OK if we parcel up these risky mortgages from people with no jobs or equity with a load of standard ones and sell them all as if they were treasury gilts, someone somewhere might have just have said NO. Fact is they never had to ask anyone before putting wider society at risk.

It will be interesting to see later the screams of outrage from the US growing as the amounts going to non US financial groups are added up without thinking about/working out from where the original liabilities came from.

#1. At 09:54am on 16 Mar 2009, BasaltRocky wrote:

"Robert,

Back last Autumn (2008), you were busy blogging...

I commented early on a few of your blog entries back then...

Why didn't you listen ?

...why didn't you listen ?"

This must surely take the prize as the most breath-takingly arrogant post on this forum - and that is saying something.

Surprise Surprise! An ex-Goldmans man prepared to let Lehmans go bust but prepared to rescue AIG. The whole of Financial Sevices (in each country) is full of chums, rivals and loyalties so that:
- everyone knows everyone else and to some extent likes or loathes making objective judgements involving others harder
- auditng and contracts involves talking to close acquaintances - even partners (ie spouses and business) and even thus steering fee income that way
- remuneration commitees confirm the previous point
- this may even extend to Financial journalists (press, radio, TV, internet etc), Spin Doctors and Regulators who previously worked in Financial services
- and not to mention the newspaper moguls and other business leaders

#48, jolo13

Yes if you are HM Queen. Remeber the Windsor fire? If tax payer bailouts are good enough for them, then why not for the closest of friends and advisors to HMG, PotUS et al?

27, Somali_pirate,

Aye Aye captain!

Dad went out for a new suite at the weekend, car park of said establishment FULL! I asked salesman, ‘where’s le crunch’? He said ‘start of Jan was slow, but after that we have never been busier’


Whats going on? I’m confused, should I save or should I spend (on someone else’s money)?

For all those buying shares at what they think is a bottom. Check the options on the dow indu.

$13B US$ to Goldman. But Goldman was A.I.G.F.P.'s main partner in on selling these CDS. Presumably Goldman has paid much or all of this 13B $ to others. who likewise would have been in deep doo doo if Goldman had failed.

The figures released are quite meaningless as a guide to the final home of the monies that the Fed has paid out.

The AIG of reason is over but the thinking of the entitlement lingers on as the last drops of self delusion are extracted from the renAAAisAAAce smokescreen that hid the seven debtly sins under a mountain of unrecoverable loans now being resold to the toothfairies running the central banks.

How long before Goldman Sacks the empire

A respectful request to please check your facts, Mr. Peston. The source of most of the money used to prop up AIG, and as it now appears, the rest of the world, came from the Treasury; in other words, the American taxpayer.

As such, we poor slobs here have been rightfully demanding to know where our money went.

Because, it's our money. Not AIG's money, or Goldman's money, or Paulson's money, or Congress's money.

It's our money. And we've been ripped off.

It is difficult to accurately portray just how deeply angry millions upon millions of us are at this whole episode, and that we have been called upon (at gunpoint) to clean it up with our granchildren's livelihoods.

That was OUR money that came to the rescue. Something to bear in mind next time one of our cousins in the UK decides to opine about what a greedy and self-centered lot we are, etc. etc.

This comment was removed because the moderators found it broke the house rules. Explain.

#1 well said.

I'd add, once the higher taxes come in to pay for all of this, how long will the banks we saved directly and all the other business' we saved indirectly keep paying tax in the UK. Not long i'd wager.

We should rename the UK. How about Mugland.

Surely a simple point comes out of the "too big to be allowed to fail mentality"...

No organisation which can have a major impact on the economy as a whole should be able to exist unless its risk is negligible.

Making overruling competition rules re the HBOS / RBS merger even more dangerous.

I have a pig in a bag for sale.

It's a bona fide pig in a bag as shown by my audited accounts and I've valued it accordingly.

I've been selling pigs in bags for years and can show consistent adherence to pig in a bag accounting policies and procedures that are industry standard.

Consistency has bred confidence and it is possible to insure one of my pigs in a bag should it stream anything other than income.

A pig in a bag is a must have and every name in banking has one.

Sadly my pig in a bag has turned out to be a derivative.

This is something that you get if you confine your pig in the bag for too long and it goes unnoticed. Not only will it leak from the bag, it will also stick to a blanket.

Sadly, a lot of pigs in bags have been carelessly sold, bought, insured and neglected to the extent that we have experienced a product defect recall of immense proportions. We are now up to our necks in derivatives.

However, all is not lost, we are going to plough all the derivatives into the field and grow corn (a cash crop) which thrives on thin air.

Once seasonally adjusted this new cash will smell like roses. Something else that thrives on derivatives.... and stimulates the emotions.

The entire situation is best viewed while spinning.

Makes you wonder what powers Goldman have in the White House...

It all goes back to Northern Rock. It wasn't too big to fail and it should have been allowed to go into administration, with the Government picking up whatever pieces it chose thereafter. That would have put an immediate end to the bonuses, pension pot handouts etc. Nationalization without prior formal insolvency set a disastrous precedent.

Hi Robert

An interesting post.

I for one had thought that Goldman Sachs had become a monopoly for some time particularly when it came to advising this government and so I did not believe their myth. As to them being bailed out by the back door you will be telling me next that the US Treasury Secretary was an ex-chairman of Goldmans!

As to the posting on Barclays I agree they have escaped by the skin of their teeth. But will they run out of luck or does Napoleon's mataphor apply?

Forgot.

The name of the pig in the bag is "Ponzi".

I have a drawing of the pig for anyone interested....

"A Ponzi Schema."

I value the drawing in the Trillions......

Wey hey!....it's all kicking off now!...

'Council pension funds suing RBS!'

https://news.bbc.co.uk/1/hi/business/7946124.stm

This comment was removed because the moderators found it broke the house rules. Explain.

34#

Very well thought out commentary but it will not sit well with a lot of the posters here as no individuals in the UK were accused of causing the failure of the Global financial system.

#20 that what they are trying to do createa mini bubble in time for the next election so that maybe they can call the bluff of the electorate (wit hzero up there sleeve) and
continute for another short while until it really does go band.

we have no economic policy its just about saving ZANU-labour at the polls.

ps and with DC saying he is going to freese the liceince free do not expect any unbiased reporting when the election count down starts and the campaining is up and running

ZANU-labour have now got a new ally in the BBC much like TASS I would guess

You can absolutely be CERTAIN that we are nowhere near the bottom of this stock market crash.
Today the Footsie's up over 100 points.
THERE ARE STILL OPTIMISTS OUT THERE.

Robert why aren't you listening to BasaltRocky ... how many times does he have to tell you that he had an idea before

Admittedly he seems to think you are the one deciding Gov policy rather than reporting on it and his ideas are simplistic.... and is only one of many alternatives (although he seems to think it is the only alternative)

..... buy hey, if he's bothered to type, you should be bothered to jump!

Back on topic - the whole thing stinks to high heaven and if there is one thing we have learnt it is not to trust Banks with our money............. but they know we have no alternative.....

We know the Rocket's upward whizz;
We know the Boom before the Bust.
We know the whistling Wail which is
The Stick returning to the Dust.
We know how much to take on trust
Of any promised Paradise.
We know the Pie -- likewise the Crust.
We know the Bonfire on the Ice.

(Rudyard Kipling, 'The Bonfires')

It's amazing how many "experts" missed the obvious, after all it's not rocket science. One can only surmise that the able saw the crisis coming and decided to make hay while the sun shone.

#68 javaman I dunno but I think I might dig up a chest full of pieces-of-eight and spend them this Spring, on the basis that there will be some bargains around and my pieces-of-eight are liable to decline in value in 2010 and 2011 due to hyper-inflation and other troubles

it goes against the grain, as I usually just nick stuff when I need it, but the shipping channels remain quite empty out here and I need some new rust-resistant cutlasses

on the other hand I'm not convinced about any stock market recovery; suspect it's a couple of dead cat bounces or a suckers' rally; there's plenty more bad news to come before the markets rally properly and even then they will gyrate crazily as we will be reminded of Peak Oil and the dangers of environmental catastrophe; heh the markets are horribly illogical anyway, as we all know, especially now that Robert became the last person on the planet to work it out, just this past Friday!

#54 noninflatable allotments are a jolly good idea whether our economy recovers sooner or later or never; either way, Sussex probably has a way to go before it hits the skids

remember

Genghis Khan pillages but Goldman Sachs

It is a myth the AIG bailout was needed. Most of those CDS were written without any capital behind them. The banks stood to lose nothing but the value they claimed. The bailout turned shadow into substance at the taxpayers' expense.

Further to my previous comment 66. if RBS directors can be gone after and AIG goen bust where would that leave Goldman Sachs patners such as the former Goldman Sachs executive Hank Paulson who was Treasury Secretary at the time of the bailout, was the single largest recipient of funds from AIG with $12.9billion.

oh and one other thing about all those ex-Goldman Sachs guys and their ilk in govt jobs

they don't mind bailing out their friends at the banks

they'll even put up with money going to insurers

and corporate lawyers

and big accountancy firms

because they are all just bankers in disguise

but they are very reluctant to give bail out money to any of those horrible engineers, designers, manufacturers or other business-men; they need to stand on their own two feet! starting with the auto makers........

hmmm another dilemma in the great game of 'picking winners'

the panel of judges are not what you would call independent.........

Re: 1. At 09:54am on 16 Mar 2009, by BasaltRocky

Yes indeed.

I think you are right. I am very pessimistic about the future of UK plc. Even Maggie couldn't sort this mess out this time.

Robert's coverage of an alternaitve to QE being to buy shares/bonds in UK companies below the FTSE seemed more sensible to me despite the numerous negative comments.

#49 tom edinbrough

You are right it really should be that simple as determined by a jury. Is there any doubt what the outcome would be if such a trial came about?

Anybody else who says otherwise must be a lawyer.

Bring back trial by jury for complex financial cases, they may start to behave themselves then if they knew that facing up to 'moral hazard would be a reality for them.

Can you imagine how scared they would be to face 12 normal people whom would way the evidence and pass judgement on them instead of the pontificating between lawyers that happens now.

No doubt they are relying on their lawyers now to argue the case that they broke no laws in the first place.

The lawyers have highjacked justice by turning it into a self serving money making exercise using a legal language which is impenetrable to the common man as protection, developed over many years, not to serve justice, but to serve themselves.

There is nothing complex about the justice surrounding Sir Goodwins pension for example.

He should not have one! Propped up by the taxpayer to the tune of £17M for what service to society exactly?

Jericoa

Robert,
I think you should now start posting about the alternatives, thats if your new organisation lets you ?

We can keep hearing about the above , but nothing will change, what we need is change itself, not for the sake of it

The UK has been bust since WW2 really thats why we have no industry and relied on the smoke and mirrors of the city.

so what part of let the Banks fail dont they comprehend, its all going to go fubar the UK is banqrupt, so lets get it over with and get a new sustainable ethical society going, because, if by some slim miracle they pull the old way off, then I will not be paying inflated taxes whilst all these mega rich people flaunt it with their increasing wealth

Allowing the banks to all simply fail does not strike me as a particularly sensible strategy, however, government underwriting the debts is equally insane. Apart from anything else, it seems to me government has no mandate to do such a thing.

Administration would give banks protection from creditors but undoubtedly lead to liquidation in due course, so a half-way-house status is required. The obvious solution is taking the bank under the BofE umbrella to allow time for the main creditors to negotiate what share of the losses they will bear. In the meantime, the depositors' funds can be separated out and sold to a solvent bank.

The idea that two parties to a bad deal can walk away without any loss, while the taxpayers are left to pick up the tab, is simply unacceptable. How the government has been allowed to get away with this fraud is utterly beyond me.

RP seems to be making the point that Goldman was not clever because they reinsured with other banks who were also counterparties to the AIG saga. Well, Goldman's doesn't really have to ensure it can survive all crises that may envelope financial institutions. All they have to be is last one standing, and then they become the bank that can't be allowed to fail.

Anything else would be wasteful. It would require larger reserves and would make the same or less in profit.

"We should probably be grateful that their ability to do so was never actually put to the test." - Robert Peston

Is that a helpful suggestion? Speak for yourself. They are welcome to your fawning gratitude.

Moderators seemingly on strike since around about the time Robert realised his mistake. Perhaps Barclays et al have been on the phone too.

#8
So true... I knew this bloke called Gordon once... full of himself? I should say so... reckoned he had fixed it so there would be "no more boom and bust"... turned out he believed it himself and loads of people believed him too!!! Some even borrowed 10x their income to buy houses and some even became landlords and bought loads of flats to rent to people who then couldn't afford the crazy prices that happenned as a result. Insane!!! In the end Gordon just stopped talking about it... nobody cared... none of his peers ever really tackled him on it... loads of people just ended up in loads of debt... don't know where he ended up... probably running the country, or saving the world or something now!!!

Re: 81

It may look like everything is kicking off, in reality the markets are now convinced that no financial institutions wll fail, no matter how badly mismanaged, as goverments around the world are falling over themselves to prop them up. Therefore its business as usual - check out The Dow, Footsie,Dax, Cac40 etc

Dunno whats up with the Nasdaq though, I can't see what news is dragging it down?