"Suck on Our Yachts": Goldman Sachs Issues Non-Apology for Destroying the World Economy

By Matt Taibbi, True/Slant. Posted June 22, 2009.

Any way you slice it, Goldman was responsible for putting tens of billions of toxic mortgages on the market, resulting in mass foreclosures, mass depletion of retirement funds, and a monstrously over-leveraged financial system that we will now all be bailing out for the next half-century or so. All of this so that Goldman could make a few billion bucks acting as the middleman in all of these deadly transactions.

Anyway, I was also struck by this phrase:

...we are proud of the way our firm managed the risk for our clients...

First of all, generally speaking, when one apologizes for having done a bad thing (like for instance destroying the world economy), it is good form to wait at least until the end of the sentence to start bragging again.

Second of all, what is particularly obnoxious about this phrase is that Goldman is bragging about the fact that it actually made money while it was pumping the economy full of explosive leverage. While companies like Lehman and Bear were dumb enough to actually eat their own rat meat, Goldman knew what it was doing and was careful to bet against the same stuff it was selling, which makes its behavior many times worse than that of other banks, not better. I get into this more in a Rolling Stone piece coming out next week, but Goldman's continual bragging about its mortgage hedges is one of the more obnoxious phenomena in the recent history of Wall Street, given that it was selling this shit by the ton during that same period.

Beyond that, Goldman's "risk management" also involved buying massive hedges on its mortgage exposure from...drum roll please... AIG. In fact Goldman was AIGFP's single largest customer; while the bank was busy flooding the world financial system with doomed mortgages, it was also busy piling bets on the back of the insurance behemoth -- $20 billion worth, to be exact. And AIG's death spiral was triggered not so much by its bets going sour, but by companies like Goldman that demanded that AIG put up cash to show its ability to pay. These collateral calls were what killed AIG last September, and Goldman was one of those creditors pulling the trigger: what makes this fact even more obnoxious is that ex-Goldmanite Henry Paulson then stepped in and green-lighted an $80 billion taxpayer bailout. Ultimately another ex-Goldmanite named Ed Liddy was put in charge of AIG, and Goldman ended up getting paid 100 cents on the dollar for its AIG debt.

So basically Goldman helped kill AIG, necessitating a federal bailout, after which time it got paid off handsomely for bets that it certainly would not have been paid off completely for had AIG simply been liquidated. And again, AIG probably does not have a market to sell its CDS insurance to firms like Goldman, if firms like Goldman had not cooked up this insane scheme to underwrite billions upon billions of toxic debt and sell it off to secondary buyers as safe investments. Moreover AIG would not have even had this business of selling CDS insurance had not a bunch of ex-Goldman guys, in particular Bob Rubin, quietly pushed to deregulate the derivatives market back at the end of the Clinton administration.

So when Goldman says it is proud that it "managed the risk" for its clients, what it's really saying is, "We're proud that we kept the extreme crapness of our mortgage securities secret from everyone but our clients, and fobbed off the nightmare leverage they created on dumbass AIG and all the pensioners and teachers and other idiots who bought this stuff. Go fuck yourselves and suck on our yachts."

There's a much larger story about all of this coming out in the magazine next week, but in the meantime... hey, Lloyd, thanks for the apology. It makes us all feel a lot better.

See more stories tagged with: economy, taibbi, unions, mortgages, recession, financial crisis, aig, goldman sachs, mortgage securities

Matt Taibbi is a writer for Rolling Stone.

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