Treasury & Fed take care of their own

It is no coincidence that Treasury Sec. Hank Paulson was Chairman and CEO of Goldman Sachs.  Treasury and the Fed take care of their own on Wall Street.  While little people must be allowed to fail in order to make markets work, the huge investment banks are "too big to be allowed to fail."  Let's remember though how Goldman Sachs reported all-time record profits in 2007, exceeding even their record profits and huge staff bonuses in 2006, when Goldman's income per share exceeded years 2004-2005 combined.  Morgan Stanley also had set a record for its reported profits in 2007.

 

What happened? Why do they need help now, only one year after their best year ever?  And will their executives give back their $ millions in bonuses from the previous years of their irresponsible sub-prime largess?  Hell, no.  That's not how the "free market" works.  In good times, they keep the profits; in bad times, we the taxpayers bail them out.  You gotta love U.S. Third-World capitalism.

 

Administration and Fed Move to Deal With Financial Crisis

September 22, 2008 | Associated Press

 

The Bush administration and the Federal Reserve are moving on multiple fronts in an effort to calm financial markets that have been roiled by the biggest upheavals on Wall Street since the Great Depression.

 

Another seismic shift occurred late Sunday night when Goldman Sachs and Morgan Stanley, the country's last two major investment banks, were granted approval from the Fed to change their status to bank holding companies.

 

That change will allow the two venerable institutions to set up commercial banks that will be able to take deposits, significantly bolstering the resources of both institutions. It will also grant them permanent access to emergency loans supplied by the Fed rather than the temporary loan status they have had since last March when the Fed moved to prop up investment banks following the forced sale of Bear Stearns.

 

Meanwhile, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke kept up their outreach with Congress, holding meetings over the weekend aimed at convincing lawmakers to move quickly to approve a $700 billion package. It would allow the government to buy up a mountain of bad mortgage loans that have been weighing down financial companies since they became engulfed in a severe credit crisis 14 months ago.

 

Congressional leaders have endorsed the plan's main thrust, but said it must be expanded to include help for people on Main Street as well as the big Wall Street financial firms who have lost billions of dollars through their bad investment decisions.

 

"We will simply not hand over a $700 billion blank check to Wall Street and hope for a better outcome," House Speaker Nancy Pelosi said Sunday in a statement. "Democrats believe a responsible solution should include independent oversight, protections for homeowners and constraints on excessive compensation."

 

But Pelosi, concerned about spooking markets with the possibility that the bailout package might not win approval, predicted that Congress would pass the measure this week once Democrats won the changes they are seeking.

 

Making the rounds of four of the five Sunday talks shows, Paulson stressed that time was critical to get the proposal passed because of the urgent need to get global credit markets functioning more normally after they essentially froze up following a number of shocks last week.

 

The surprise Fed announcement announcing approval of the status change for Goldman and Morgan Stanley was yet another indication of how quickly events are moving on Wall Street.

 

The stock of the two companies had come under pressure as investors began to worry about their future following the bankruptcy last week of investment bank Lehman Brothers and the forced sale of another investment bank, Merrill Lynch, to Bank of America.