Goldman Sachs (GS) has been able to stay above the fray more than most of its (former) competitors over the last 6 months. Its share price has stayed above single digit-ville and Buffett‘s investment in the company was seen by many as the Omaha Good Housekeeping Seal of Approval.
Now that AIG has been incinerated in the mainstream media, Merrill has hidden itself under B of A’s skirts and the dynamic duo of Lehmanand Bear are no longer here to be kicked around, taxpayer furor is beginning to turn its attention to Goldman, and the blogosphere’s criticism of the once-Teflon firm is reaching a boiling point.
Exhibit A: On April 12th, Karl Denninger of The Market Ticker gave voice to the rumor that GS is about to report the 2nd best quarter in their history, to the tune of $12 billion or so.
The outrageous part, if true:
Gee, you don’t think being paid by the taxpayer through AIG’s “conduit” for losses that didn’t (yet) happen at 100 cents on the dollar might have anything to do with that, do you?
And further (and potentially much worse) there is the repeated statement by Goldman executives that they were “fully hedged” against a potential counter-party default by AIG.
One wonders – was that “hedge” to be short the equity on AIG itself, perhaps?
Why was Goldman made whole on their counter-party risk with AIG? Was this really done only in the service of unwinding the AIG mess cleanly, strictly for the benefit of the taxpayer’s 80% stake in the insurer?
In addition, was Goldman short the equity of AIG as a means to being “fully hedged”? If so, was this kosher and in the spirit of the bailout cash that Goldman received?
Denninger thinks not:
If in fact Goldman (or anyone else) was “hedged” against a possible credit loss from their CDS with AIG and they were able to collect on that hedge (no matter what it was) those payments through AIG need to be clawed back immediately as nobody is entitled to be paid twice for the same risk and reap what amounts to a windfall profit by quite literally engineering a multi-billion dollar transfer of funds from the Taxpayer to the firm!
He goes on to call for congressional investigations:
Someone in Congress needs to look into this now; there are already rumblings of investigation. Those rumblings need to get a lot louder and turn into subpoenas, not “polite inquiries.”
Exhibit B: Goldman doesn’t much like online criticism.
They have stooped to suing blogger Mike Morgan for running a site called GoldmanSachs666.com with the excuse that he is infringing on their trademark or intellectual property. The truth may be that they just don’t like what he’s been saying about their role in the market collapse and subsequent receipt of taxpayer money.
From the Daily Telegraph UK:
The bank has instructed Wall Street law firm Chadbourne & Parke to pursue blogger Mike Morgan, warning him in a recent cease-and-desist letter that he may face legal action if he does not close down his website. Florida-based Mr Morgan began a blog entitled “Facts about Goldman Sachs” – the web address for which is goldmansachs666.com – just a few weeks ago.
Morgan continues to post on his blog and reportedly welcomes his day in court. This is embarrassing for a firm the size of Goldman Sachs and the claim of IP Infringement is clearly an obfuscation of the truth behind why they would go after a blogger.
News of this lawsuit along with the speculation that the AIG bailout was truly a Goldman bailout is spreading around the web as we speak. Questions are also being asked about whether or not then Secretary of the Treasury and former Goldman Sachs CEO Hank Paulson used his influence to package the AIG rescue the way he did, with firms like Goldman getting back 100 cents on the dollar during AIG’s destruction.
Exhibit C: There is, however, some defense being made of Goldman Sachs, but it may not be heard above the din.
Eric Oberg, an excellent commentator on TheStreet.com, took the details of Goldman’s involvement with AIG and the bailout and constructed a soup-to-nuts explanation why this was not a sweetheart deal. He is an ex-Goldman employee, but makes it a point to disclose this. Before shooting off at the mouth (or keyboard), I believe financial bloggers and journalists should read his piece from April 9th, “The AIG Bailout Was Not a Gift to Goldman“. The article may require a subscription to RealMoney Silver, but here’s a quick taste:
As most readers know, I am a proud Goldman alumnus, so I will save the “Goldman taking over the world” conspiracy theorists some time: If you believe in that nonsense, you can stop reading now, though I believe you are doing yourself a disservice by ignoring the actual story.
None of this should be controversial; this was not a gift of money from the taxpayer to the counter-party — in fact, it allowed for the unwind of AIG in an orderly manner, a manner which protected the taxpayer’s 80% stake in AIG. Maybe now we can drop the showboating witch hunt and perhaps focus on issues that have some validity.
This story will likely get bigger and by the time the bus tours to protest in front of Goldman exec’s homes begin, there will be many who have made up their minds, regardless of the facts. To understand the Goldman controversy, I recommend starting with these three articles.