Post’s Pearlstein Gets It Very Wrong
Much of [yesterday’s Senate] hearing focused on how Goldman went from having billions of dollars of exposure to the subprime mortgage market in the first half of 2006 to posting big profits from the implosion in that same market by the second half of 2007.
The more benign way to look at this dramatic rebound is that it speaks to Goldman’s knack for anticipating the market and its willingness to break from the Wall Street herd. Many of us may be jealous of Goldman’s success or suspicious of exactly how it came, but surely we are all better off than if Goldman had remained long on mortgages, tumbled into insolvency and required a big taxpayer bailout.
–Steven Pearlstein, “Two planets collide for three hearings on Goldman“; The Washington Post(4/28/2010)
Of all the myths and misconceptions about Goldman Sachs’ role in today’s financial crisis, the one perpetuated (above) by the normally astute Mr. Pearlstein is the most infuriating and pernicious.
That’s because society is patently NOT better off because Goldman Sachs profited from the housing bust.
By figuring out how to make money off of “shit” — Goldman Sachs’ word for their mortgage-backed securities, not mine — Goldman stoked demand for . . . . more shit.
That assured that even more oceans of capital would flood into the housing market, driving prices even higher — and making any crash harder.
Ironically, the higher the housing market went, the more potential to “short,” or bet against it, which sucked in even more capital.
Doomsday machine, indeed.
Instead of viewing Goldman’s obscene profits as averting another taxpayer bailout, as Pearlstein does, they need to be viewed in the larger context of causing trillions of dollars of (additional) carnage in the housing market and broader economy.
And Pearlstein is dead wrong that Goldman didn’t get bailed out.
What else do you call pumping $185 billion(!) into AIG; allowing Goldman Sachs to become a bank holding company virtually overnight and borrow for free from The Fed; beggaring savers with zero percent interest rates to resuscitate the banks; using The Fed’s balance sheet as a dumping ground for Goldman (and other banks’) toxic assets.
And on and on . . . .
“Shitty” doesn’t begin to describe it.