“The Legs of a Potential Scandal”

This morning blogger Robert Stacy McCain (The Other McCain) directed his readers to an article in New York magazine by Joe Hagan “about the suspicions surrounding Goldman Sachs, insurance giant AIG, and last fall’s TARP bailout:

” [[The AIG rescue is the incident from which all other Goldman conspiracy theories spring — the original sin, in a sense, of Goldman’s current public tarring. It’s the act that first made the average man on the street sit up and say, “Hey, wait a minute. The secretary of the Treasury [i.e. Henry Paulson], who used to be the Goldman CEO, just spent $85 billion to buy a failing insurance giant that happened to owe his former firm a lot of money. Does that smell right to you?” It also seems to have the legs of a potential scandal, with Neil Barofsky, the inspector general overseeing the Troubled Asset Relief Program, conducting an audit of the buyout.
Then again, if you’ve just posted $3.44 billion in second-quarter profits in an environment where, say, Morgan Stanley just reported a $1.26 billion loss, what does it matter what people say? . . .]]”

McCain writes, “These three facts — (a) Goldman has spectacularly profited, at a time of rising unemployment, foreclosures and bank failures, (b) Goldman was the primary beneficiary of the TARP bailout, and (c) Goldman’s former CEO was the driving force behind TARP — are hard to reconcile in any way that doesn’t raise the suspicion of corruption.”

From the article:

[[…The decision that put Goldman’s reputation in play is now almost a year old. On the weekend of September 12, 2008, as the financial system shuddered and appeared to be on the verge of lurching to a halt, two Goldman Sachs men, former CEO Hank Paulson and current CEO Lloyd Blankfein, huddled with other banking heads at the Federal Reserve Bank of New York to consider how to stave off disaster. Bear Stearns was dead. Merrill Lynch, run by another former Goldman man, John Thain, was in desperate need of a savior. And now Lehman Brothers was on the brink. As secretary of the Treasury, Paulson asked the banks to come up with a private-funding solution for Lehman before it imploded from lack of cash. But all the banks had been scrambling for cash reserves or strategic mergers to buffer against a rapid freeze in lending. No one was able, or willing, to help…]]

Read the entire New York magazine article

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