THEIR "OWN TWO FEET"? (Not these rugged individualists)

While at Chico State I had a colleague who made sure everyone knew how unbridled competition and "the market" had made this country great. Rugged individualism combined with hard-nosed decisions had turned America into a prosperous nation. Of course, since this was the mid-1980s, he was also a fan of President Ronald Reagan.

Anyways, one of the things that struck me was how he would speak (brag?) about the job waiting for him in the financial sector when he graduated. He always made it clear that he was ending up at the top of the job food chain because of his studious ways and his great potential. He was winning the Darwinian struggle, and was kind enough to let everyone know it. Evolution was on his side. He probably saw himself like this guy (or perhaps the Marlboro Man?).

As it turned out "Mr. Rugged Individualist" wasn't the person he thought himself to be.

First, I learned that his parents worked in the financial industry in San Francisco. This was critical because his parents had pretty much secured the job for Mr. Rugged Individualist. To be sure, I have no doubt that Mr. Rugged Individualist was smart and had to do well in the interview. He would also have to perform once on the job. But suggesting that he had made his own way in life was a stretch.

This is especially the case because I later learned that Mr. Rugged Individualist didn't have to work or borrow money while going to Chico State. His parents paid his tuition. They also paid the rent. Took care of the food too. As for me ... I had to work and borrow money throughout my years at Chico State (and beyond). So I thought to myself, "How can you be Mr. Rugged Individualist if your link in the human chain has been as a subsidized desk jockey rather than the mythical Hunter & Gatherer?"

Still, none of this disuaded Mr. Rugged Individualist from his line of thinking. According to Mr. Rugged Individualist, he had emerged at the top of our capitalist food chain on "his own." He was standing tall, on his own two feet, as it were.

I bring all of this up because of this article from Bloomberg. In it, Goldman Sachs executives suggested that they weren't really part of the mess that brought down the economy and that they stand "on our own two feet."

I smell another Mr. Rugged Individualist in the making. Here's why.

Apart from the fact that Goldman Sachs was the recipient of about $10 billion in bailout funds, it was the stupidity of former CEO, Hank Paulson, who helped wreck our economy.

As I've pointed out many times, as CEO of Goldman Sachs Mr. Paulson went to the Securities and Exchange Commission (SEC) and was given permission to raise debt levels of his industry from about 8-1 to 40-1. Why is this important? Think about it this way. If you make $10,000 a year would a bank (any bank) lend you $400,000? Let's take this one step further. Would they lend you $400,000 to gamble away in the market? Paulson pushed for - and got - permission to borrow more and more money to invest gamble in the toxic crap we now know as CDOs and CDSs. We all know how those instruments played out.

But it isn't Paulson's SEC-sanctioned stupidity alone that makes Goldman Sachs - and their industry desk jockeys - just like my Rugged Individualist colleague at Chico State. It's the fact that Goldman Sachs spokesman, Lucas van Praag, claimed that Goldman Sachs shouldn't be held to the same post-bailout standards as other financial institutions. Why? According to Mr. Praag Goldman Sachs not only paid back their TARP money but the majority of their money doesn't come from trading financial instruments like CDOs and CDSs (it accounts for about 12% of their income). Instead, Goldman Sachs makes their money from advising clients ... who they also happened to advise to make investments gamble in the CDO and CDS markets.

Got that?

Clients from Goldman Sachs, who might have gone broke were it not for the government bailout, are the primary source of Goldman's income. Not recognizing the irony (or is that hypocrisy?) of this, David Viniar, Goldman Sachs’s chief financial officer, is the one who said in an October conference call that his firm doesn’t benefit from any implicit government guarantee and that:

“We operate as an independent financial institution that stands on our own two feet.”

What are these people smoking? Seriously, this kind of thinking and behavior is sheer nonsense, bordering on the psychotic.

Think about it this way.  Goldman Sachs, who went to the SEC to secure permission to invest gamble recklessly with borrowed money, is now claiming to be an independent player because the majority of their business is with wealthy people.

This might fly except for one fact: The same wealthy people they advise didn't lose their shirts, and avoided financial collapse, only because the government bailed out their investments and saved the financial sector. If their market bets - which Goldman advised them to take - had not paid out they would have lost, big time. Goldman Sachs would've been facing a ton of lawsuits, and probably would've sunk faster than the Titanic.

Let me make this clear. The Troubled Asset Relief Program (TARP) money - which our financial institutions are trying desparately to pay back, so they can pay out record bonuses - are only one component of the $1.5 trillion Bush/Obama bailout program. Another component involves trillions of dollars more in market guarantees from the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Treasury Department. These guarantees are a virtual windfall for Wall Street.

Largely ignored, in part because Joe-Six Pack and the media don't understand it, is how companies like Goldman Sachs are benefitting from the additional trillions of bailout dollars made available by the Federal Reserve and the Treasury Department. These funds weren't voted on in Congress. They were just made available to purchase, absorb, and purify the toxic garbage companies, like those Goldman Sachs invested in and then advised their clients to purchase.

With Neil Barofsky, the special inspector general for TARP, saying that the total cost of the bailout could hit $23.7 trillion, these funds dwarf the TARP funds made available through Congress (again, $1.5 trillion). Without them Golman Sachs would have had gone the way of the Dodo Bird.

At the end of the day, companies like Goldman Sachs can't crow about standing on their own two feet. Not as long as their clients and their industry continue to suckle off of Treasury, FDIC, and Federal Reserve programs. As I pointed out earlier, if these companies want to claim that they stand on their own two feet they (1) need to pay back the TARP money and (2) then ask the federal government to rescind the trillions of dollars that the Federal Reserve, the FDIC, and the Treasury Department have made available to the industry.

Without this, Goldman Sachs and the entire financial sector are no more independent than my "rugged individualist" college friend.

- Mark