Home > financial crisis > Buffett tells country, TARP gave over $1 billion to Goldman Sachs

Buffett tells country, TARP gave over $1 billion to Goldman Sachs

March 21, 2011 Leave a comment Go to comments

from Dean Baker

At a time when all the tough guys in Washington are making plans to cut Social Security and Medicare benefits for high-living seniors and to cut Head Start for low-income kids, it was generous of Warren Buffett to point out that we taxpayers gave over $1 billion to Goldman Sachs through TARP. Buffett probably didn’t intend to point out this fact to the country, but it is an unavoidable implication of his $2 billion profit on his loans to Goldman. 

Buffett made his $5 billion loan to Goldman about a week before the Treasury lent $10 billion to Goldman through the TARP program. Buffet got 10 percent interest on his loans, while the Treasury got 5 percent on its loans. In addition, Buffett got a much more generous commitment of stock warrants, which is the basis of the $2 billion in profits that he is now set to pocket.

The Treasury boasted of getting a $1.1 billion profit on its loans to Goldman, but as Mr. Buffet showed, this was far below the market rate of interest on loans to Goldman at the time. The difference between the return received by Buffett and the return received by the Treasury was in effect a gift from taxpayers to the top executives at Goldman and their shareholders. When Treasury Secretary Geithner and other officials claim that the government made money on the TARP loans it is either due to their ignorance of the workings of financial markets or a deliberate effort to deceive the public.

It is also worth noting that the TARP money was only a portion of the extraordinary assistance that the taxpayers have given Goldman’s top executives and shareholders. The FDIC also guaranteed tens of billions of loans to Goldman. Goldman was allowed to borrow tens of billions of dollars from the Fed at below market interest rates. And it was allowed to become a bank holding company, and thereby gain the protection of the Fed and the FDIC, at the peak of the crisis, averting a run that which would almost certainly have been fatal.

In addition, Goldman benefits from the implicit subsidy of its “too big to fail” status, the belief that the government will bail it out if it gets into trouble. This allows it to borrow in credit markets at a lower cost than if it did not have implicit government protection.

  1. Podargus
    March 22, 2011 at 4:04 am
    Reply

    Well,it should be obvious by now that the system is designed to benefit the wealthy and their hangers on.

    Either you suck up and get used to it or you do something about it.You’ve got the firearms.Do I really need to point out how they can be put to good use?

  2. david pidcock
    March 22, 2011 at 11:58 am
    Reply

    For the best solution to the problem look no further than Thomas Jefferson:

    Reform of the Virginia Constitution
    To Samuel Kerchival
    Monticello, July 12, 1816
    [1.a] Sir,—I duly received your favor of June the 13th, with the copy of the letters on the calling a convention, on which you are pleased to ask my opinion. I have not been in the habit of mysterious reserve on any subject, nor of buttoning up my opinions within my own doublet. On the contrary, while in public service especially, I thought the public entitled to frankness, and intimately to know whom they employed. But I am now retired: I resign myself, as a passenger, with confidence to those at present at the helm, and ask but for rest, peace and good will. The question you propose, on equal representation, has become a party one, in which I wish to take no public share. Yet, if it be asked for your own satisfaction only, and not to be quoted before the public, I have no motive to withhold it, and the less from you, as it coincides with your own. At the birth of our republic, I committed that opinion to the world, in the draught of a constitution annexed to the “Notes on Virginia,” in which a provision was inserted for a representation permanently equal. The infancy of the subject at that moment, and our inexperience of self-government, occasioned gross departures in that draught from genuine republican canons. In truth, the abuses of monarchy had so much filled all the space of political contemplation, that we imagined everything republican which was not monarchy. We had not yet penetrated to the mother principle, that “governments are republican only in proportion as they embody the will of their people, and execute it.” Hence, our first constitutions had really no leading principles in them. But experience and reflection have but more and more confirmed me in the particular importance of the equal representation then proposed. On that point, then, I am entirely in sentiment with your letters; and only lament that a copy-right of your pamphlet prevents their appearance in the newspapers, where alone they would be generally read, and produce general effect. The present vacancy too, of other matter, would give them place in every paper, and bring the question home to every man’s conscience.
    But inequality of representation in both Houses of our legislature, is not the only republican heresy in this first essay of our revolutionary patriots at forming a constitution. For let it be agreed that a government is republican in proportion as every member composing it has his equal voice in the direction of its concerns (not indeed in person, which would be impracticable beyond the limits of a city, or small township, but) by representatives chosen by himself, and responsible to him at short periods, and let us bring to the test of this canon every branch of our constitution.
    [2.a] In the legislature, the House of Representatives is chosen by less than half the people, and not at all in proportion to those who do choose. The Senate are still more disproportionate, and for long terms of irresponsibility. In the Executive, the Governor is entirely independent of the choice of the people, and of their control; his Council equally so, and at best but a fifth wheel to a wagon. In the Judiciary, the judges of the highest courts are dependent on none but themselves. In England, where judges were named and removable at the will of an hereditary executive, from which branch most misrule was feared, and has flowed, it was a great point gained, by fixing them for life, to make them independent of that executive. But in a government founded on the public will, this principle operates in an opposite direction, and against that will. There, too, they were still removable on a concurrence of the executive and legislative branches. But we have made them independent of the nation itself. They are irremovable, but by their own body, for any depravities of conduct, and even by their own body for the imbecilities of dotage. The justices of the inferior courts are self-chosen, are for life, and perpetuate their own body in succession forever, so that a faction once possessing themselves of the bench of a county, can never be broken up, but hold their county in chains, forever indissoluble. Yet these justices are the real executive as well as judiciary, in all our minor and most ordinary concerns. They tax us at will; fill the office of sheriff, the most important of all the executive officers of the county; name nearly all our military leaders, which leaders, once named, are removable but by themselves. The juries, our judges of all fact, and of law when they choose it, are not selected by the people, nor amenable to them. They are chosen by an officer named by the court and executive. Chosen, did I say? Picked up by the sheriff from the loungings of the court yard, after everything respectable has retired from it. Where then is our republicanism to be found? Not in our constitution certainly, but merely in the spirit of our people. That would oblige even a despot to govern us republicanly. Owing to this spirit, and to nothing in the form of our constitution, all things have gone well. But this fact, so triumphantly misquoted by the enemies of reformation, is not the fruit of our constitution, but has prevailed in spite of it. Our functionaries have done well, because generally honest men. If any were not so, they feared to show it.
    But it will be said, it is easier to find faults than to amend them. I do not think their amendment so difficult as is pretended. Only lay down true principles, and adhere to them inflexibly. Do not be frightened into their surrender by the alarms of the timid, or the croakings of wealth against the ascendency of the people. If experience be called for, appeal to that of our fifteen or twenty governments for forty years, and show me where the people have done half the mischief in these forty years, that a single despot would have done in a single year; or show half the riots and rebellions, the crimes and the punishments, which have taken place in any single nation, under kingly government, during the same period. The true foundation of republican government is the equal right of every citizen, in his person and property, and in their management. Try by this, as a tally, every provision of our constitution, and see if it hangs directly on the will of the people. Reduce your legislature to a convenient number for full, but orderly discussion.
    [3.a] Let every man who fights or pays, exercise his just and equal right in their election. Submit them to approbation or rejection at short intervals. Let the executive be chosen in the same way, and for the same term, by those whose agent he is to be; and leave no screen of a council behind which to skulk from responsibility. It has been thought that the people are not competent electors of judges learned in the law. But I do not know that this is true, and, if doubtful, we should follow principle. In this, as in many other elections, they would be guided by reputation, which would not err oftener, perhaps, than the present mode of appointment. In one State of the Union, at least, it has long been tried, and with the most satisfactory success. The judges of Connecticut have been chosen by the people every six months, for nearly two centuries, and I believe there has hardly ever been an instance of change; so powerful is the curb of incessant responsibility. If prejudice, however, derived from a monarchical institution, is still to prevail against the vital elective principle of our own, and if the existing example among ourselves of periodical election of judges by the people be still mistrusted, let us at least not adopt the evil, and reject the good, of the English precedent; let us retain amovability on the concurrence of the executive and legislative branches, and nomination by the executive alone. Nomination to office is an executive function. To give it to the legislature, as we do, is a violation of the principle of the separation of powers. It swerves the members from correctness, by temptations to intrigue for office themselves, and to a corrupt barter of votes; and destroys responsibility by dividing it among a multitude. By leaving nomination in its proper place, among executive functions, the principle of the distribution of power is preserved, and responsibility weighs with its heaviest force on a single head.
    [4.a] The organization of our county administrations may be thought more difficult. But follow principle, and the knot unties itself. Divide the counties into wards of such size as that every citizen can attend, when called on, and act in person. Ascribe to them the government of their wards in all things relating to themselves exclusively. A justice, chosen by themselves, in each, a constable, a military company, a patrol, a school, the care of their own poor, their own portion of the public roads, the choice of one or more jurors to serve in some court, and the delivery, within their own wards, of their own votes for all elective officers of higher sphere, will relieve the county administration of nearly all its business, will have it better done, and by making every citizen an acting member of the government, and in the offices nearest and most interesting to him, will attach him by his strongest feelings to the independence of his country, and its republican constitution. The justices thus chosen by every ward, would constitute the county court, would do its judiciary business, direct roads and bridges, levy county and poor rates, and administer all the matters of common interest to the whole country. These wards, called townships in New England, are the vital principle of their governments, and have proved themselves the wisest invention ever devised by the wit of man for the perfect exercise of self-government, and for its preservation. We should thus marshal our government into, 1, the general federal republic, for all concerns foreign and federal; 2, that of the State, for what relates to our own citizens exclusively; 3, the county republics, for the duties and concerns of the county; and 4, the ward republics, for the small, and yet numerous and interesting concerns of the neighborhood; and in government, as well as in every other business of life, it is by division and subdivision of duties alone, that all matters, great and small, can be managed to perfection. And the whole is cemented by giving to every citizen, personally, a part in the administration of the public affairs.
    The sum of these amendments is, 1. General Suffrage. 2. Equal representation in the legislature. 3. An executive chosen by the people. 4. Judges elective or amovable. 5. Justices, jurors, and sheriffs elective. 6. Ward divisions. And 7. Periodical amendments of the constitution.
    I have thrown out these as loose heads of amendment, for consideration and correction; and their object is to secure self-government by the republicanism of our constitution, as well as by the spirit of the people; and to nourish and perpetuate that spirit. I am not among those who fear the people. They, and not the rich, are our dependence for continued freedom. And to preserve their independence, we must not let our rulers load us with perpetual debt. We must make our election between economy and liberty, or profusion and servitude. If we run into such debts, as that we must be taxed in our meat and in our drink, in our necessaries and our comforts, in our labors and our amusements, for our callings and our creeds, as the people of England are, our people, like them, must come to labor sixteen hours in the twenty-four, give the earnings of fifteen of these to the government for their debts and daily expenses; and the sixteenth being insufficient to afford us bread, we must live, as they now do, on oatmeal and potatoes; have no time to think, no means of calling the mismanagers to account; but be glad to obtain subsistence by hiring ourselves to rivet their chains on the necks of our fellow-sufferers. Our landholders, too, like theirs, retaining indeed the title and stewardship of estates called theirs, but held really in trust for the treasury, must wander, like theirs, in foreign countries, and be contented with penury, obscurity, exile, and the glory of the nation. This example reads to us the salutary lesson, that private fortunes are destroyed by public as well as by private extravagance. And this is the tendency of all human governments. A departure from principle in one instance becomes a precedent for a second; that second for a third; and so on, till the bulk of the society is reduced to be mere automatons of misery, and to have no sensibilities left but for sinning and suffering. Then begins, indeed, the bellum omnium in omnia, which some philosophers observing to be so general in this world, have mistaken it for the natural, instead of the abusive state of man. And the fore horse of this frightful team is public debt. Taxation follows that, and in its train wretchedness and oppression…”

  3. Steve Roth
    March 25, 2011 at 2:11 pm
    Reply

    How about doing a little spreadsheet of all those gifts combined?

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