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January 21st, 2010
06:30 AM ET

Goldman under fire

By Ronni Berke and Christine Romans

The Wall Street bank Goldman Sachs has come under a firestorm of criticism lately for expected record bonuses this year, after the government bailout. Goldman, like other banks sold those toxic assets that, in part, pulled the country into recession.

Some are asking: just how much of Goldman's profits come on the backs of U.S. taxpayers?

Goldman's worldwide influence is legendary. Due to a long tradition of public service, the firm's alumni often become top players in government and the world's leading financial institutions. So it was no surprise that when the financial industry almost collapsed sixteen months ago, Henry Paulson, a former Goldman Sachs CEO, as Treasury Secretary, helped push through the $700 billion bank bailout, known as the Troubled Asset Relief Program, TARP.

$10 billion of that went to Goldman. And although the firm paid the money back, the money has become a thorn in Goldman's side. CEO Lloyd Blankfein said, "Had I known it was as pregnant with this kind of potential for backlash, then of course I really would not have liked it."

When the government rescued insurance giant AIG from the brink of failing last year - Goldman Sachs received a full payout of what it was owed - $12.9 billion. Some say Goldman and other banks should have taken a haircut.

"Goldman Sachs has figured out how to take advantage of the guarantee that we have given them to internalize the profit and hold onto it," says former New York Governor Eliot Spitzer.

Spitzer faults Goldman Sachs and other banks for not passing along the benefits of billions in government-backed loans they got at nearly zero interest. For Goldman it amounted to a $21 billion dollar security blanket. Critics claim all of these taxpayer-financed programs allowed the firm to reap bigger profits.

After mounting public backlash, Blankfein apologized. "We participated in things that were clearly wrong and have reason to regret," he told a conference in November. But his mea culpa is not enough for Janet Tavakoli, a structured finance expert who wrote a book in 2003 about collateralized debt obligations – CDO's – complicated investments whose value fell with the housing market.

"Goldman was creating securities along with a lot of other people on Wall Street; these were value destroying securitizations spewing out of their financial meth labs. And today they are trying to pretend they weren't responsible for massive systemic risk."

Goldman Sachs disputes that, priding itself in being a top manager of risk. As far back as 2006, it saw trouble ahead and began selling off mortgage-backed securities. But critics say Goldman continued selling those toxic assets to others, at the same time investing in bets that they were going to tank.

"We never knew at any moment if asset prices would deteriorate further or had declined too much and would snap back," Blankfein said in the firm's defense Wednesday.

Filed under: Business
soundoff (10 Responses)
  1. Donna

    This is truely amazing. All of these TARP receipients not only have caused our economy to crash, they aren't doing anything to help clean up the mess they have created. For example, doubling and tripling interests rates on credit cards, bank fees, etc. Not to mention, tightening the credit given to businesses and individuals. While they sit raking in the profits they are making off of the backs of the American people's tax money and earnings they trusted with these greedy lowlifes.

    January 14, 2010 at 10:15 am |
  2. Jim

    Could it be that all the huge bonuses are a sure way to keep the well paid executives from "spilling the beans" about nefarious business practices at Goldman Sachs and others?

    January 14, 2010 at 10:04 am |
  3. Timmy

    By the way CNN the only people saying no to helping out Haiti are the ones not paying income taxes! So if you say you are not helping if you work you are helping! Why would the U.S. grant thousands of Haitians to get temp visas? Do you actually think you can get these people to leave once they are hear? Why am I forced as a tax payer to take care of these people when I cant even see a future for my own son and he is an American citizen! We cant help the rest of the world, when a country like China gives 1 measely million dollars after they have taken trillions from us? It time for the rest of the world to help out, we are tapped out! This will only kill any recovery we might be seeing if we a the major player in this!

    January 14, 2010 at 7:46 am |
  4. Timmy

    I just wander what Katrina would have been had it seen the response that we are seeing in Haiti! Always enough money to help out the rest of the world but not citizens of this country! One other point with all the millions of jobs gone and downsizing continues all in the name of reducing labor costs for what? None of the goods that are now made or produced in Mexico or China has lower prices in fact everything is still costing more so the question is where the money going if its not going to labor costs? Tens of thousands have lost their automotive jobs which for the most part has been outsourced to other countries at a considerable reduction in labor costs but a Chevy still costs the same as it did 2 or 3 years ago, what gives?

    January 14, 2010 at 7:36 am |
  5. Timmy

    i find it very odd that all these banks were in such bad shape they needed tax payer bailouts! Now as the economy struggles on they have made that money back and in most cases has paid the tax payer back( in which I dont believe for a second) so they can give the same people who got them in the mess in the first place outrageous sums of bonuses?????? When these same banks are still practicing the same irresponsible banking like not loaning money, like not being instrumental in bringing jobs back! I say if they can afford to pay these bonuses then we the tax payer should be taxing them these sums of money until the economy is actually back on track!

    January 14, 2010 at 7:28 am |
  6. Dave

    What these big banks are doing now is suing the very people who bailed them out and the courts are looking the other way. Government support extortion to the highest level. What is worse they are writing off debts and yet the judges in local government look the other way and allow them to hire attorneys to sue the taxpayer.

    I love the way the "too big to fail" banks are saying thank you to the American people.

    January 14, 2010 at 6:49 am |
  7. ronald

    Masters of the Universe
    Goldman Sachs is as bad as all of them.
    Do not forget to discuss all the devils and not just this demon

    January 14, 2010 at 6:44 am |
  8. Frank

    Banking executives are pretending that they did it know. We all are aware that they did not want to know. As the old adage goes, what I do not know does not hurt. This is a lame excuse, we all know that they did not know, because they did not want to know. And yet, they are getting huge bonus because given that they were profitable again this year. Profits that they may loose in an instant and wipe a decade worth of gains, however not their bonuses. It is not the bonus payment as much as the lack of accountability and recklessness that is really outraging.

    January 14, 2010 at 6:36 am |
  9. ronald

    Goldman Sachs is actually no more different among the greedy industry which has assisted to destroyed this nation.
    These companies test in what manner? They test by playing the game of greed and got bit.
    A nation is only as good as it treats its citizens. An industry like Goldman Sachs is only as good as it does not screw its society.
    You can have any and all CEO's kiss up to the microphones to congress all you want. They know they destroyed all and tell me that they really care.
    Since this industry has crapped all over America, you think folks will forget? i think not.

    January 14, 2010 at 6:29 am |
  10. Dolores Mize

    I apologize for not commenting on Goldman, but this IS about money. Chris Lawrence reported that two flights leaving Haiti today would require American citizens to sign promissory notes to later pay for their flights. Promissory notes? Isn't this why we pay our taxes each year? Why would our government force a group of already-traumatized people to sign documents about paying for a flight out of Haiti? This is wrong!

    January 14, 2010 at 6:27 am |