Saturday, October 17, 2009

Wall Street 4.0

Is Wall Street really very smart?

In one sense it is. It knows how to identify risks and rewards and then take advantage of over-priced risks. That takes guts and talents. Former not so rare. Latter si!

However, what if I told you the money with which they used to take risks is mostly risk free meaning a) cost of it is near zero and b) a lot of it is in fact guaranteed by the government, ie you and me?

Guarantee, how? It means if speculation had gone bad, government would compensate them in whole or part. But if it had gone right, Wall Street gets to keep the rewards.

You don't believe me? Read this:

..."Goldman Sachs and its perennial rival Morgan Stanley were allowed to transform themselves into old-fashioned bank holding companies. That switch gave them access to cheap funding from the Federal Reserve, which had been unavailable to them.

Those two banks and others like JPMorgan were also allowed to issue tens of billions of dollars of bonds that are guaranteed by the Federal Deposit Insurance Corporation, which insures bank deposits. With the F.D.I.C. standing behind them, the banks could borrow the money on highly advantageous terms. While some have since issued bonds on their own, they nonetheless enjoy the benefits of their cheap financing."...

The excerpt is from this article here.

OK. You might ask how come given all the Federal (ie our) help extended to the good folks over at Goldman Sachs, Morgan Stanley et al, we didn't get any of the upside of the $$ they made with our money?

Excellent question. You must ask Geithner, Summers and ultimately President Obama why they did not put in that condition when they, as our representatives, were writing multi billion dollar checks to prevent these good folks from going under. That was a real possibility back in late 2008, remember?

So, can you blame Main Street getting mad as hell over this blatantly unfair treatment? After all the Feds did take a major share in GM in that bailout while the bluest chips on Wall Street got special treatment?

You might also remember during the financial crisis, Hank Paulson, ex Goldman Sachs and later Geithner talked to Goldman Sachs more frequently than any other financial institutions.

Yes, of course they must talk to Wall Street honchos to keep their fingers on the pulse, so to speak. It's their job. But no one has yet to explain why Goldman had the ears of our top reps more than others though many do have a theory about that...!

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