Joined: Sat May 29, 2004 11:46 pm
|Putting Lipstick on an AIG
Hockey moms aren’t the only ones wearing Maybelline. Pigs – as Barack Obama says – come in cherry gloss too.
Like the porkers at Wall Street lining up with their lips in a pucker behind Washington’s plush behind. Having pigged out at the public trough for years, they now want their sticky little trotters washed down in the righteous waters of the Potomac.
Tarting up comes natural to our Wall Street-walkers. Turns out these great big masters of the universe were really, well, girly men who couldn’t balance their check-books and put out more than they took in... like any working girl.
Lipstick is especially right for Goldman Sachs, which likes to cross-dress as a devout public servant in after-hours and has at least one set of heels working the floor of the Treasury department during any crisis. Yep, I’m pretty sure Hank Paulson would look good in high-gloss plum. You see, lip shtick is just what Hank’s good at. He was out on Monday flapping his lips with the kind of plummy platitudes you’d expect from semantically challenged mental health workers, not from a Treasury Secretary. A Treas. Sec., mind you, who was once a Goldman CEO not above inserting carefully chosen knives into the ribs of colleagues.
"We need to put this behind us," quoth Hank. "We must move forward."
"We need to work through this."
"We need to heal."
We, of course, need to do nothing. There is no we here. This is a Wall Street crisis. And the usual suspects on Wall Street need to line up, bend over and get caned for their misdeeds. Barring that, they need to take the market’s medicine like men.
Instead, they were out in full therapeutic mode, pouting and whining for a change of their soggy diapers by dear Nanny Washington.
And Nanny obliged.
First there was Fannie and Freddie, the terrible twins, who were taken lovingly into the conservatorship of the state. Translation: they went belly up and the funeral expenses were billed to the tax-payer, though the estate had been sold at private auction a long time before.
Oh, those twins.
Inhaling the swampy fumes of government but croaking from the terra firma of the market. Owned by individuals, backed by the state. The formula of the managed economy – privatized profits and socialized losses.
Created by Congress to expand home ownership by making finance available to a bigger part of the population, the two companies own (or guarantee) around 40 percent of the $8.5 trillion U.S. residential mortgage market. They are the biggest single borrowers in the US, after the federal government. In 2006 they were hit with a $350 million dollar fine, one of the biggest ever assessed by the SEC, as a penalty for accounting malpractice. Then Fannie even got caught trying to pull Nanny’s strings to discredit the regulator. Which strings were those? We can only guess.
Quote: "Goldman Sachs was one of several institutions actively involved in the accounting fraud, its contribution being earnings manipulation through the creation of MBS’s – mortgage-backed securities – in Fannie’s portfolio, a strategy remarkably similar to Goldman’s actions on behalf of Enron. Of note also is the fact that in 2005, while the investigation was ongoing, Congress placed Fannie directly under the Federal Reserve, raising the specter of a surreptitious government bail-out outside the public eye, at some point."
[That’s from an investment report I did on Goldman Sachs in August 2006. The only thing wrong in it was that the government bail-out took place in full view of the public.]
That is to say, while Hank blubbers on about how we need more regulation, that’s only now, during bust-time. Way back in bubble-time, Hank’s old firm was busy dabbing rouge on the pork in Fannie’s books and playing hopscotch with regulations.
O tempora, O mores.
Why, back in bubble time, even the former Fed chairman, the all-but-sainted Alan Greenspan was more prescient. He noted that failure to smack down the bratty twins could lead to "systemic risk" in the capital markets.
Of course, he said that after first telling Jane Citizen to go forth and borrow. But that’s because, like the monetary philanthropist he was, Greenspan believed in the widespread giving of ARMs.
As public servant Hank today, so public servant Greenspan back then.
Greenspan too liked dabbing rouge on pork. He relished painting market bottoms with the varnish of cheap money. It made them look plumper and rosier than they really were. Eventually the bottoms looked up and turned into booms, he reminded us.
The rouge worked. Books got beautified. Risky turned risqué.
"The image of Fannie Mae as one of the lowest-risk and 'best in class' institutions was a façade," said James B. Lockhart, the acting director of the Office of Federal Housing Enterprise Oversight (OFHEO) when it released its report in May 2006.
In other words Fannie was a pig, even with the lipstick.
Of course, Goldman’s not the only one on Wall Street with a wicked hand for make-up artistry. The ratings agencies haven’t been too bad themselves, with all that triple-A gloss they plastered on gangrenous sub-prime debt. What was that about? A little make-over for the corpse before the public viewing?
Truth be told. Goldman got good at putting lipstick on porkers long before they dabbed it on Fannie and Freddie. They were doing it in 1999 in ole Hank’s CEO days. Goldman helped Enron's "smart guys" conduct massive energy futures trading and its leverage, like Enron's, ballooned. [They had their leverage thang going in those days too.]
Then, in 1993 Goldman invented a special accounting scheme to perk up Enron's books – "Monthly income preferred shares" (or MIPS) they called it. MIPS let Enron sell fifty-year securities through specially created off-shore companies. To the IRS, Enron described the preferred stock as "debt" and claimed tax deductions on the interest payments. To shareholders, Enron called the same stock "equity" and counted it in the company's capital value. Goldman took home massive underwriting fees from the scheme
In one year, Goldman had helped 17 companies besides Enron sell 2.7 billion MIPS. There was an offering every week, each dodging IRS rules with more and more finesse. Average commission and interest rates on MIPS ran much higher than on normal debt – between 1 and 1.2%. Goldman made tens of millions
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"Behind every great fortune lies a great crime."
Honore de Balzac
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That other party, they work for people who don't need help.
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