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UNDERNEWS

Undernews is the online report of the Progressive Review, edited by Sam Smith, who covered Washington during all or part of ten of America's presidencies and who has edited alternative journals since 1964. The Review, which has been on the web since 1995, is now published from Freeport, Maine. We get over 5 million article visits a year. See prorev.com for full contents of our site

February 16, 2010

THE BUSINESSMAN OBAMA ADMIRES. . .

Dean Baker, Huffington Post - Last week, when President Obama was asked about the $9 million bonus for Goldman Sachs CEO Lloyd Blankfein, he described Blankfein as a savvy businessman, adding that Americans don't begrudge people being rewarded for success. While the White House later qualified Obama's comment about Blankfein and his fellow bank executives, it's worth examining more closely some of the ways in which Blankfein and the Goldman gang were "savvy."

Perhaps the Goldman gang's best claim to savvy was in buying up hundreds of billions of dollars of mortgages and packaging them into mortgage backed securities, and more complex derivative instruments, and selling them all over the world. Blankfein and Goldman earned tens of billions of dollars on these deals. The great trick was that many of the loans put into these securities were issued by banks filling in phony information so that borrowers could get loans that they would not be able to repay. But this was not Goldman's concern. They made money on the packaging and the selling of the securities.

In fact, Goldman actually recognized that many of these loans would go bad. So they went to the insurance giant AIG and got them to issue credit default swaps against many of the securities it had created. In effect they were betting that their own securities were garbage. Now that is savvy. (It says something else about the highly paid executives at AIG.)


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