Home > Main > $100bn for Goldman MBS. No Cash for Illinois?

$100bn for Goldman MBS. No Cash for Illinois?

January 21, 2011

Eric Fry has written what is proving to be the definitive post on Goldman and its massive bailout.  Goldman sold over $100bn of MBS to the Fed.  There is little doubt that the Fed overpaid for these, and no doubt that Goldman would be bankrupt today without this bailout.  Goldman is an excellent trader, so if they thought these MBS were actually worth something, they would still have them.  But they sold them to the Fed, and lied to everyone about their relationship with the government.

Right now, the big news is that the states might have to declare bankruptcy.   I see news and commentary about this everywhere.

Bill Mitchell brings up a great point.

It is clear that the US government quickly found cash and capital for the car firms (GM and Chrysler) and they could obviously do the same for the states.

They also found money very quickly for Banks and the AIG derivative counterparties.  This is an ongoing bailout, and the major banks are clearly bankrupt with any reasonable reading of the robosigning crisis.

Why are we even debating the possibility of a state defaulting, when we have an ongoing bailout out the huge banks?  Note that purchasing MBS or Individual State Debt for inflated prices is just a matter of who you are bailing out and what particular interest rate you are targeting.

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  1. Rufus Blooter
    January 22, 2011 at 10:14 am

    I thought this was an interesting angle on some of the motivations behind defaults. So some big investment banks helped financially ruin a lot of municipal governments, the banks get bailed out, the public sector doesn’t, and now we’re looking at ways of robbing public sector retirees.

    • TC
      January 28, 2011 at 8:10 am

      Exactly, these guys hate unions more than they like prosperity, so they want to create situations that would allow them to crush unions.

      This one sided bailout is the greatest transfer of wealth in human history. We bailed out banks and kept the borrowers insolvent. How in the hell is that fair or even smart?

      In the end, this one sided bailout is going to cause them to lose a ton of wealth. IF they had done it right the first time, they would get support today on the further necessary bailout. Because it is clear that BAC, JPM, and Wells are going to need another huge bailout in the next few months, due to the fallout from the robosigning scandal.

      When housing prices go down another 20%, things will get really bad for them, and they will require a gigantic cash infusion. But because all of the borrowers are still liable for the entire amount of the loan, and we all know people who will be vastly underwater, the politics for a bailout will no longer exist. Geithner cannot go back and ask for another trillion.

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