Walking with the Lloyd at Goldman Sachs

It used to be that when law enforcement found the bad guys, the bad guys would find the Lord.

But now when Wall Streeters find taxpayers' money, they suddenly find God.

Goldman Sachs' chief executive Lloyd Blankfein tells the Sunday Times of London that bankers are doing "God's work" and they do have a social purpose, statements that come fast on the heels of Barclays Capital CEO John Varley telling a London church congregation that "profit is not satanic."

Doing God's work sure does take a hell of a lot of taxpayer money. 

Roll the Goldman tape. Walk with the Lloyd, as Michael Maiello of Forbes magazine has quipped. Let's see what's at play in the Fields of the Lloyd.

Analysts expect Goldman will pay out a massive $21.9 billion in bonuses for this year, as its $7.4 billion in profits for the first nine months are more than triple the $2.04 billion it posted for all of 2008.

It's minting money with plenty of taxpayer help. Goldman got $10 billion in TARP taxpayer money, which it paid back with dividends.

But Goldman has also cut its borrowing costs dramatically by turning itself into a bank holding company in the fall of 2008, which let it borrow $21.9 billion in debt backed by the Federal Deposit Insurance Corp. The move also lets it borrow cheaply at the Federal Reserve's discount window, usually reserved for banks.

And it got $12.9 billion in the collapse of AIG, where in an unusual move the New York Federal Reserve, run by former Goldman alumnus Stephen Friedman, and at the prodding of Treasury Secretary Timothy Geithner, made Goldman's trades with the failed insurer 100% whole, when Bloomberg reports AIG executives had already negotiated a 40% haircut.

Goldman had about $20 billion in transactions with AIG. It was AIG's largest counterparty, and its trades made up one-third of AIG's approximately $62.1 billion in deals requiring market prices, credit derivatives expert Janet Tavakoli notes.

Goldman demanded more than $5 billion in collateral out of AIG before it collapsed. "It was the key contributor to the systemic risk posed by AIG's near bankruptcy," Tavakoli says. "Calls for billions of dollars in collateral pushed AIG to the edge of disaster."

But why did AIG need to give back Goldman 100% of its investment, when by that time the U.S. government was backing the collapsed insurer's balance sheet, conferring its triple-A rating on AIG?

And what should we make of Goldman telling the world umpteen times that it had hedged any of its potential risk exposures to AIG losses? 

All likely why Lloyd Blankfein told the Times of London that "people are pissed off, mad, and bent out of shape," so much so that the CEO could "slit [his] wrists and people would cheer."

Goldman has also shorted plenty of securities in the markets, and has also taken what some would say directional bets on companies potentially collapsing via credit default swaps, as it did on CIT Group, defending its moves in the process as saying it is merely protecting itself.

Famous short seller David Einhorn has said defending CDSs is like saying asbestos can be safe. 

And Blankfein has also made it known his firm supports and does its bookkeeping in mark to market accounting, which requires the company to price its assets each quarter as if they were to sell them at that moment. Altruistic, no, because Goldman wants to see which assets are dying on the vine at which firms, so it can short those stocks, too.  

Here is an excerpt of the the Sunday Times interview with Blankfein:

Is it possible to make too much money?

“Is it possible to have too much ambition? Is it possible to be too successful?” Blankfein shoots back. “I don’t want people in this firm to think that they have accomplished as much for themselves as they can and go on vacation. As the guardian of the interests of the shareholders and, by the way, for the purposes of society, I’d like them to continue to do what they are doing. I don’t want to put a cap on their ambition. It’s hard for me to argue for a cap on their compensation.”

So, it’s business as usual, then, regardless of whether it makes most people howl at the moon with rage? Goldman Sachs, this pillar of the free market, breeder of super-citizens, object of envy and awe will go on raking it in, getting richer than God? An impish grin spreads across Blankfein’s face. Call him a fat cat who mocks the public. Call him wicked. Call him what you will. He is, he says, just a banker “doing God’s work”

Footnote: Time Magazine’s Justin Fox writes:

In a discussion about morality and markets at St. Paul’s Cathedral in London, Goldman Sachs international vice chairman Brian Griffiths, a former adviser to Margaret Thatcher, described giant paychecks for bankers as an economic necessity. “We have to tolerate the inequality as a way to achieve greater prosperity and opportunity for all,” he said.