Taibbi: How Goldman Sachs Profited from the Economic Meltdown

By Amy Goodman, Democracy Now!. Posted July 17, 2009.

Goldman Sachs, the nation’s most powerful financial company, has reported the richest quarterly profit in its 140-year history: $3.44 billion between April and June. Goldman’s record profits come just one month after it repaid $10 billion of TARP money to the US Treasury, freeing itself from restrictions on year-end bonuses. We speak to Matt Taibbi, whose new Rolling Stone article argues that “Goldman Sachs has engineered every major market manipulation since the Great Depression.”

Amy Goodman: We turn now to the situation right down the street here, on Wall Street. While the US deficit topped one trillion dollars for the first time in the nation’s history, the blowout bonuses are back on Wall Street. Well, not all of Wall Street, just at Goldman Sachs, the nation’s most powerful financial company, which reported the richest quarterly profit in its 140-year history: $3.44 billion between April and June.

Goldman Sachs announced Tuesday that it would set aside nearly $11.4 billion from its profits to pay bonuses. If Goldman continues to earn profits at the same level, its employees could each earn, on average, close to $770,000 this year, with senior executives and bankers being paid much more. The average compensation amount is close to what it was during the boom in 2007, when Goldman set a Wall Street pay record.

Goldman’s record profits come just one month after it repaid $10 billion of TARP money to the US Treasury, and in so doing, freed itself from restrictions on year-end bonuses. Last year the firm also received $13 billion as part of the bailout of the failed insurance giant AIG and $28 billion in low-interest loans.

Well, we’re joined right now by Matt Taibbi. He’s a contributing editor at Rolling Stone and author of the new article “The Great American Bubble Machine.” The article examines Goldman Sachs’s role in the current economic crisis.

So, welcome to Democracy Now!, Matt.

Matt Taibbi: Thanks for having me back.

AG: Were you surprised when the profits were posted of Goldman Sachs?

MT: I was a little surprised that the number is a little higher than everybody expected, but I wasn’t surprised that they made an enormous profit. They had—they were the beneficiaries of massive government subsidies in the last year or so. And it would be actually kind of a surprise if they didn’t come out with a big number in this quarter, just because they’ve had such an enormous advantage. Not just this bank, but all the banks on Wall Street have had so much access to cheap money since the bailouts have started that it would be a surprise if they didn’t start making money.

AG: So, let’s talk about the bailouts and the bonuses and how this happened for Goldman Sachs. That’s what you lay out in a remarkable article that you’ve just written.

MT: Right. Well, one of the things that people have to remember is, how do banks make their money? They have to pay depositors, normally, to get their money, and then they try to invest that money and make money, make their profits on the spread between those two costs.

Goldman has access to an enormous amount of cheap money from the government, because they have asked—because they converted to a bank holding company status last year. That made them eligible for about $28 billion in federally backed loans, as you—sorry, in federally backed debt, as you mentioned in your intro, which means that they have access to money that is incredibly cheap, so their cost of capital is incredibly low. And they take that cheap money, and they lend it back to the economy at higher rates, and they make money on the spread. And because so many of their competitors, like Lehman Brothers and Bear Stearns, are now no longer in existence, they’re able to dominate the market in ways that they never were before.

So they’re taking all these advantages, and instead of—you know, the implicit idea last year with the bailouts was that these banks would take these advantages and that they would use that money to kickstart the economy. Instead, they’ve just decided to keep all the money and turn it into bonuses. And I think that’s something that everybody has to examine now.

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Amy Goodman is the host of the nationally syndicated radio news program, Democracy Now!

Matt Taibbi is a writer for Rolling Stone.

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