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Now that the Financial Crisis seems to be over, after a Government led bailout of major Wall Street banks, one of the main recipients of taxpayer generosity, Goldman Sachs, may be considering buying back its stock from shareholders so that they can operate the company outside of public scrutiny, according to rumors.
Many investors were sitting in Miami, sipping drinks poolside during the Winter of 2008, expecting news headlines to soften, talks of a crisis to blow over and the prices of your financial stocks and real estate to firm up. Whether you were sitting in South Florida, California, Arizona or Las Vegas, Nevada, you were probably horrified to find out that you were right about only one thing. The Press did have it wrong, but they were Understating the issues facing the Global Financial System, not overstating.
The recent banking crisis ultimately saw the failure of such venerable firms as Lehman Brothers, Bear Stearns and Merrill Lynch.
And although many of the surviving banks talk tough about not ever needing government handouts, make no mistake, these companies didn’t Emerge from the crisis, they were Exhumed from the dead.
At the lows, Morgan Stanley’s stock was below $7 per share, Bank of America was $3 and Citibank was $1 per share. Even Goldman Sachs, whose shares traded hands at a low of $47 per share had, at the time, a total market capitalization of $25 billion, which is coincidentally what they owed to the Government and the American taxpayer.
If you were in Las Vegas, you would have benefitted from taking a dollar off of the black or red and putting it on a bank stock. After the government committed to bailing out the remaining companies, their stocks weren’t such a crapshoot. $1 in Citibank would get you $3 today.
All three of the failed investment banks had long histories, but Lehman had the most “experience”, being founded over 150 years ago, back in 1850. All three companies made it through the Great Depression and every other recessionary cycle since, but all of the knowledge gained from the prior boom-bust cycles and navigating each succeeding greed-to-fear vacillation didn’t leave the indelible print of Knowledge and Experience that it might have left on an individual person.
Once again, Wall Street firms took on risk exceeding levels beyond any reasonable measure. These three firms flew too close to the sun. And this time, they got burned.
But what really was the damage done to them? The names of the firms may be gone forever. And with it, the legacy of the founders. But the individuals responsible are still living free, breathing deep and probably using their prior year’s windfall bonuses to buy up real estate, Cheap. While 8 million people lost jobs. And when all is said and done, a similar number will lose their homes.
Why does this happen? What makes the public endure it Cycle after Cycle?
On the corporate side, there are new players brought in constantly. So the new generation of employees may not have experienced the result of their own greed. But the bust of these cycles is NOT a deterrent. They Want to see their greed brought to its logical conclusion. Because when the boom cycle is in full swing, Wall Street gets paid, and when the bust inevitably comes, the people that benefited most, do Not pay the price.
In the United States, incomes aren’t capped (nor should they be), but Wall Street has been left unregulated, so the incentive for abuses has risen dramatically and will continue to do so while companies remain unchecked.
Wall Street firms have enjoyed tremendous benefits by taking advantage of the fact that the public has a short memory. They have taken advantage of the lack of power of individuals to exact any real penalty no matter how outraged they are, and the lack of political will of the Government to do it, even though they have the power.
After watching this week’s hearing on the collapse and rescue of AIG at the House Committee on Oversight and Government Reform, it looks as if the Government is filled with politicians who all want a future job at Goldman Sachs.
All this being said, the evidence seems to suggest that it is the Corporations that need to learn from their mistakes. And I submit to you that, even though the Masses may seem to forget, there are suffering individuals, that are the true victims of this crisis, who will never forget the abuses that took place, nor the effect that they leave on regular People. In some cases the effects of loss of their home, their job, the ruin of their finances and the destruction of their credit, will last a lifetime.
Yet, by the time this country is cleansed of this recent crisis, the corporate abusers, and the shills that helped them get away with it, will all be on the golf course congratulating each other.
The problem is that the greed cycles are getting closer together. I’ve written in the past about the dot-com bust of 2000-2001, where Wall Street firms underwrote stock offerings of companies that had no value. They also employed analysts to publicize a value for the stocks and they paid the brokers to sell them to you. Then the whole industry went belly up.
Many people expected a perp-walk back then. But only Enron executives and an isolated few companies had their leaders publicly disparaged or jailed.
Financial firms that were behind the whole mess, weren’t officially blamed at all.
Back then as it is now, Goldman Sachs was at the controls. Of course they were major beneficiaries of the boom in underwriting fees. But you might remember that Goldman Sachs also underwrote their own stock offering in 1999. That’s right! Goldman had been privately held until 1999. And its partners clearly saw that the market was way overvalued, and that they might never see a better chance to cash in. So they sold stock to the public and took a huge premium for their shares.
That nearly marked the high of the stock market. As we sold off from 2000 into 2003 before the next bull market began.
Now, investors and market analysts are speculating whether Goldman will take the company private again, shortly after the market reached its lows on March 6, 2009. The problem with this speculation is that Goldman has more than tripled off of its lows. It was sitting at $47 on March 6 and today the stock is trading hands at $152 per share which is actually down from its highs above $192 in October 2009.
Maybe the company wasn’t in a position to go private at the market lows. Certainly, the rumor mongers were out in full force, but Goldman Sachs was still holding $25 Billion of government bailout money, the stock was in a freefall, and getting help from private financiers would not have been easy. The price was right, but some market participants believe that they needed to let the smoke clear.
Now that the smoke has cleared, out come the mirrors.
President Obama was very vocal last week about passing new rules preventing bank holding companies from participating in proprietary trading, sponsoring hedge funds, or private equity funds.
According to an article published by Macroaxis.com, those three lines of business contributed nearly 30% of Goldman Sachs’ revenues in 2009. So, it seems possible that Goldman Sachs is considering a move to take the company private.
The taxpayer money has been repaid and the company is being vilified about its $23 billion bonuses paid to employees, so the rumors are alive again. Of course the Capitalists have come out opposing capping salaries, as does the writer of this article. But considering the abuses just unleashed on the American People, and the economic mess that is still unraveling, it just seems wrong for the pay packages to be so large.
Who could blame them, though? There is no recourse where regulators aren’t willing to do anything. We’ve created a system with built in incentives for abuse.
And Goldman Sachs seems to be untouchable. The company has its tendrils everywhere. They seem to send out top managers into the political arena to act like spies and even more, to Influence public policy and government. Former Treasury Secretary Henry Paulson and his cohorts who went into politics had been part of the Money Machine for so long, that they can certainly afford the pay cut to work for the government. And a job is waiting for them at Goldman Sachs when they are done with their tour of duty, doing Service for their country. And with the HUGE bonus packages, they will be richly rewarded when they return.
Perhaps the only thing Merrill Lynch, Bear Stearns, and Lehman Brothers did wrong is that they didn’t garner enough influence. Maybe they too would have been untouchable if they were “too connected to fail”.
As for the rumor about Goldman buying back its stock and going private, it just doesn’t seem to be the right price at this time. At $152 per share the Market Cap would represent an $80 Billion price tag and the company would have to pay a premium for shareholders to tender all of their shares.
The chart that follows, taken from the article on Macroaxis.com, shows clearly that Goldman had been spending billions of dollars to buy shares around March 2009, near the lows in the stock market (isn’t it interesting that their timing was great again). But buying has tailed of dramatically in 2009. And since the market lows, and the stock tripling to $152, recent spending on shares has dropped to Zero.
None of this rules out a complete buyback if the stock trends lower. And if the stock gets near its March 6 lows, the price would drop near $25 Billion and this could get very interesting. I’m not going to propose any conspiracy theories, but let’s just say that if Goldman management is considering going private, the management doesn’t have an incentive to stop a fall in its stock.
Keep in mind Goldman’s management sold their company to the public near the highs of the stock market in 1999. Is it really unfeasible that Now they might buy the shares back near an important market low?
One thing I’m concerned about, is that by the time this country is cleansed of this recent crisis, managers at Goldman Sachs, and the shills that helped Them, might be in Miami sipping drinks by Your poolside on Your Waterfront property that they bought...Cheap!