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"It Is What's Known in Business as the Invisible Government Scaffolding of the Free Market"

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The real information in that clip from Thursday's "Daily Show"? Jon Stewart -- or someone in his office -- read Matt Taibbi's blog post explaining the basis for the $3.4 billion Goldman Sachs made during the second quarter. And so should you. That basis, after all, is your money. And it's not just Goldman. J.P. Morgan made $2.7 billion in profits. Bank of America -- remember when it almost collapsed? -- reported $2.4 billion.

You should, of course, be celebrating. We're back to "normal." It's a recessionary normal, but a form of normal nonetheless. The only problem is that it feels like hell. No one wants a normal where Wall Street took hundreds of billions in emergency taxpayer dollars and went back to pocketing billions for themselves. And it's not just the billions we gave them but the trillions they took: The crash was in no small part their fault. But though the rest of us remain trapped in recession, they're back to triumphant quarterly reports.

Economic policy these days is like the old hypothetical where you had to decide whether you'd crush the skull of a little girl if it would save a preschool full of children. It's good that the economy didn't collapse. But the way we went about saving it sure doesn't feel good, and the welfare kings on Wall Street aren't doing much to make it feel better.

Taibbi's righteous anger -- and it is decidedly, undeniably righteous -- doesn't have a lot of room for counterfactuals: I don't know whether we could have saved the economy without massively subsidizing the financial sector. Nor am I convinced that a policy of revenge and retribution on top earners would do a lot of good for median wages. But you know what would do a lot of good for the working class? Health-care reform. And one of the options for paying for health-care reform is a 5.4 percent surtax on income beyond $1 million a year. There's a lot of opposition to that, of course. It's that dirtiest of words: redistribution! But given the flow of funds over the past few years, and given what the finance class has taken from the working class, it's also something else: re-redistribution.

By Ezra Klein  |  July 17, 2009; 11:41 AM ET
Categories:  Financial Crisis , Solutions , Taxes  
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Righteous, true, but I knew nothing specific about how GS made its money before I read his post and now I don't know anything more after having read it.

Posted by: ostap666 | July 17, 2009 12:12 PM | Report abuse

Reading his post, you also wouldn't know that GS paid its government money back with interest.

The full story is that GS and other banks who wer always indisputably healthy (like JP Morgan) never needed government funds. The government asked them to join the program so that it would appear universal, rather than just a welfare system for the sickest banks. GS went along with it to the government's benefit, and now Ezra is demagoguing them for doing so. Great politics, but untethered to the actual facts of the matter.

Posted by: tomtildrum | July 17, 2009 12:22 PM | Report abuse

Ezra, I'm sorry, but Chicago girl that I am, but I'm smelling something fishy in Goldman's tale of the tape.

Last fall, ex-Goldman CEO Henry Paulson came to Congress and said that if we did not bail out the regulated and shadow banking system, we would not have an economy on the following Monday.

That's quite a crisis.

Now we are to believe that (TBTF) firms who received billions in federal support and who benefited when the feds allowed their competitors to fail and who sat in on the meetings discussing the disposition of AIG (and received additional billions from the AIG unwind) are hugely profitable this quarter only because of their fabulous and extraordinary business acumen.

Does not ring remotely true.

I'm not saying we shouldn't have bailed out the financial sector. However, since we've made the decision to socialize loss for these firms, it's time to socialize the profits as well.

Start by writing to your rep and senators in Congress. Yes, yes, we know Dick Durbin said the banks own Congress – but these are people who do not want to lose the next election.

Let your elected officials know of your ire and recommend strongly that they implement a bailout tax on the extraordinary profits and an income tax on the bonuses paid to anyone who works at a firm whose losses have been socialized. Perhaps then these people will understand that yes, Lloyd, there is a downside to risk.

Know that if you remain silent, you are complicit in the sale of Congress to the banks.

LOVED that Stewart clip! Spot on!

Posted by: anne3 | July 17, 2009 12:23 PM | Report abuse

Perhaps we should have just made the terms of the "loan" that we (the government) would get a set percent of any firm's profit for a certain time after the loan was made. That would not place an undue burden on firms that have trouble returning to normalcy while ensuring that those firms who benefit the most from the loan repay it in proportion to their benefit.

Posted by: bluegrass1 | July 17, 2009 12:28 PM | Report abuse

Goldman Sachs and 90% of US corporations pay effectively 0 income tax.

Posted by: NealB1 | July 17, 2009 12:41 PM | Report abuse

Reading his post, you also wouldn't know that GS paid its government money back with interest.

You would if you read it: "Much discussed, no need to really review here. Goldman got its $10 billion. It paid off its $10 billion. Good for them."

Ezra, I don't think Taibbi would really say that some sort of financial rescue was never necessary. What he is saying is a bailout which is obviously designed to favor a couple companies and give them massive handouts--which they then promptly give back to themselves--is outrageous, and probably setting us up for another disaster in the sort term.

We should have destroyed these companies, or at least carved out the top leadership with a melon baller. But no.

Posted by: Russell_A | July 17, 2009 12:43 PM | Report abuse

These companies: Chase, Bank of America, etc. appear to be cutting off consumer credit (via credit cards) by selecting large groups that aren't as profitable. These folks aren't profitable because they pay there bills on time and keep their balances low. They negotiate the best rate and go with a competitor when there is a better deal. Anecdotally I've heard a lot of people getting their rates changed or accounts closed. Now with the economy being tougher, those cards are more frequently needed, to get through until unemployment kicks in, or make it through while working at a new job at lower pay. Having the credit cut off is probably contributing to their profits, but it is just another side of their getting bailed out and turning around and sticking it to us.

Additionally it seems this is driven by the passing of the Credit CARD bill of rights. It seems these companies are doing what they want to now ahead of the law changing to protect consumers.

Posted by: bellwether | July 17, 2009 1:10 PM | Report abuse

And Ezra, can you explain how an economy with an unemployment rate pushing toward 10 percent, an underemployment rate that's at 16.5 percent, a massively slumped housing market, multiple industries facing bankruptcy (airline, auto, newspaper, banks, construction), we're not in a meltdown right now?

If people were not so concerned about their jobs, income, ability to pay for college and retire, no one would care at all about the bonuses paid to the Wall Street guys. The disparity in their (federally financed) success and what's happening in the rest of the country is at the heart of the matter.

Posted by: anne3 | July 17, 2009 1:11 PM | Report abuse

You can also point to the BushCo tax cuts if you're looking for redistribution to redistribute. Or you can talk about the relative stagnation of income share for the bottom 99% of Americans over the last 30 years. There's no shortage of reasons why re-redistribution is a reasonable way to fund health care reform.

Posted by: eRobin1 | July 17, 2009 1:22 PM | Report abuse

Tomtildrum, they paid back the TARP funds, which had strings attached, but they didn't pay back the Fed funds. And the most important source of profit to GS has been its Credit Default Swaps with AIG, which have been paid entirely out of taxpayer rescue funds. Think of AIG as a toilet and GS as a septic tank, and that's where your money got flushed down.

See Dean Baker,

"The $3.44 billion in profits that Goldman Sachs reported for the 2nd quarter indicates that their bets with taxpayer dollars paid off. In addition to the $10 billion that Goldman borrowed through the TARP, it also borrowed $28 billion that was guaranteed by the FDIC. In addition, it likely borrowed substantial amounts of taxpayer dollars from the Fed's special lending facilities, although the Fed will not disclose how much Goldman borrowed. And, Goldman was given more than 12 billion taxpayer dollars through AIG."

Posted by: Bloix | July 17, 2009 2:45 PM | Report abuse

Unwinding the CDO market was the whole point of the AIG bailout. It's a little late to be arguing against it now.

Fed money is not taxpayer money. That's just wrong. The Fed is self-funded, almost by definition.

If the FDIC is on the hook for a $28 billion guarantee, you'd better hope that GS makes money, so that the guarantee never gets invoked.

More broadly, if GS is now too big to fail, we'd all better hope it succeeds.

Posted by: tomtildrum | July 17, 2009 5:24 PM | Report abuse

Goldman Sachs will be eternally grateful to Obama for staying out of its way. Goldman has an uncommon grasp of the joystick.

This could be its letter of appreciation, ----

Posted by: JamesRaider | July 18, 2009 4:11 AM | Report abuse

That's not captitalism. That is socialism. That is what happens when the Government intervenes in the economy. They distort competition to favor politically connected interests. Goldman Sachs is a very politically connected interest. Why is this byproduct of socialist logic being portrayed as a critique of capitalism?

Where is the populist anger over the fruits of Union political connections? The perks they get from the Government have nearly destroyed the States where they have sway and no one seems to care. Shouldn't this populist rage be directed more broadly at Government intervention in the economy in all of its destructive forms? This is an argument for a less political and more capitalist oriented economy.

Posted by: fallsmeadjc | July 18, 2009 4:10 PM | Report abuse

*Why is this byproduct of socialist logic being portrayed as a critique of capitalism?*

fallsmeadjc's post should be printed on the forehead of every man, women and child in the US. When are we going to learn that intervention by the giant well meaning middleman is the root, stem and flower of most of the problems the nation faces?

Jobs are outsourced to avoid intervening governments! Unions keep companies from hiring and maintaining a healthy business. And look what the welfare state did for minorities. Over 90% of our prison population comes from single parent government subsidized families. Now we learn that large financial conglomerates are essentially receiving government subsidized bonuses from the same middleman.

Posted by: tonym1 | July 19, 2009 10:35 AM | Report abuse

"Socialist logic"? I think not. Socialism redistributes wealth downward, not upward. Laissez-faire capitalism distributes it upward, socializing costs and privatizing profits. See my section on "Data on Income & Tax Distributions" on how effectively income has been distributed upward (google "Wealth Happens" "systems thinking" to find it).

Corporations offshore jobs to increase profits and executive pay, with the collusion of government as they control government. Net Exports reduce GDP when negative. Thanks to what's called "free trade", the U.S. has experienced nearly 3 decades of major anti-stimulus "trade" deficits. From 1980 through 2008, the cumulative "trade deficit", the "trade debt", has totaled over $7 trillion, with $5.1 trillion of that from 2000 through 2008. Can it be any surprise the U.S. economy is collapsing?

The problem is not unions, either. Unions are necessary because the Fed has always assured more people than jobs to promote worker insecurity and depress wages ... another way wages are distributed to the top. Google "There's no 'free market' for Labor".

Posted by: scubafox1 | July 19, 2009 2:08 PM | Report abuse

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