You CANNOT be Serious

Not too long ago the US Government (that’s you and me, dear reader) paid billions of dollars to the vampires at Goldman Sachs to ensure that they would be made whole on some exotic financial instruments they were involved in. Seems like the company guaranteeing the value of those instruments (AIG) was going belly up, and wouldn’t be able to completely fulfill their obligations. That meant that Goldman, Citi and others would – GASP – lose money on their investments.

But for some reason, the US Government, Bush was still in power at the time, but Clinton or Obama would’ve done the same, PAID FULL PRICE for these toxic assets. We had to make sure that the contracts which were in place were honored to the letter.

But now, as the Great Liquidation (a nifty little term coined by the Trustafarians at Fortress Investment Group) gets underway, hedge funds are buying impaired assets from banks for pennies on the dollar. One of the biggest classes of financial assets that are being bought are Collateralized Debt Obligations (CDOs) the nasty things that we bailed Goldman out of for FULL VALUE when everyone in the world knew they were worthless.

A couple of points to take from this:

1. Banks sell assets for far less than their book value all the time. It’s a common practice. It’s called getting a hair cut. The Fed didn’t give Goldman and the rest of the gang a hair cut because former Goldman execs ran and run the Fed. Simple conflict of interest. Not a conspiracy.

2. At the time, Goldman and others put up fancy arguments for why they should be paid in full. Never believe that kind of crap. For all the complexity of any given financial instrument or any particular deal, financial markets are wonderfully simple in this respect: the golden rule is in force. The party with the gold makes the rules. Never, EVER, believe a fancy justification. It is always a lie.

3. Wallow in the over arching hypocrisy of Wall Street. They storm around telling everyone that it’s a hard world, and you have to take your losses, but when they are faced with losses, they get made whole. They deserve scorn and contempt.