One of the most scandalously delicious ways in which Wall Street cheats taxpayers is through prop trading. This is good stuff, so stick around.
The Federal Reserve loans money to Goldman Sachs at 0.25% interest. That's not a typo. Goldman Sachs borrows money interest free from the Federal Reserve.
Instead of lending that money to small business, Goldman Sachs takes the free money, and makes stock market bets. That's all "prop trading" is. Simple stuff.
If Goldman Sachs makes a losing bet (as it did when it gambled with AIG), then we have the Bailouts.
If Goldman Sachs makes a winning bet, it keeps 100% of the profits. Goldman Sachs, using taxpayer money, made a lot of winning bets in 2009. Thus, in a week or so, it will start distributing $23 billion to bankers. Taxpayers will not share in the profits, even though Goldman Sachs would not exist - let alone be earning record profits - had taxpayers not directly and indirectly bailed out Goldman Sachs.
Why is Goldman Sachs given free money to play the markets? Wouldn't you like some free money to go day trade? That's all they do at Goldman Sachs - day trade. They do it well, but make no mistake: Goldman does not make long-term investments. They make millions of quick bets each day. It's high-frequency day trading.
There is no good reason to give Goldman free money, though there is a reason why the Federal Reserve does. Goldman Sachs owns Congress and the White House. Goldman Sachs proves that might makes right.
After a devastating loss in Massachusetts, Barack Obama and other Democrats realized that Americans are tired of Wall Street winning, and the taxpayers losing. Thus, Obama allegedly is going to prevent Goldman Sachs from taking interest-free loans:
In perhaps his most daring move, he is calling for a modern-day version of the Glass-Steagall Act, which in 1933 separated commercial and investment banking. The new separation would prohibit standard commercial banks from engaging in proprietary trading using funds from their commercial division.
Paul Volcker has been trying for weeks to drum up support — on Wall Street and in Washington — for restrictions similar to those passed in the Glass-Steagall Act in 1933. That law separated commercial banking and investment banking, so that the investment arm could no longer use a depositor’s money to purchase stocks, sometimes drawing money from a savings account, for example, without the depositor’s knowledge.
Make no mistake: Goldman Sachs is not merely gambling with depositor money. Goldman Sachs is gambling with your money. They are not even paying interest on the loan - unless you count 0.25% as interest.
Will Obama actually do anything? I used the word allegedly advisedly.
First, we shouldn't take Obama on his word. Why is he only now stopping the ludicrous practice of enriching Goldman Sachs at taxpayer expense? It's not because he wants to; it's because he has to.
Second, Obama could immediately demand that the Federal Reserve stop giving free money to Goldman Sachs. Chairman Ben Bernanke wants to keep his job. Obama need only say, "Ben, stop giving Goldman Sachs interest free loans." End of story.
Why hasn't Obama done so? How many more months or years will Obama "fight" for reform? Every day Obama "fights" for reform is yet another day Goldman will play the markets with your money.
Take nothing Obama says on honor, as he is not a honorable man. That it took a defeat in a give-away election proves that Obama is a Wall Street shill.
The election loss has proven that Obama is fearful. He and the Democrats want to remain and power, and supporting Wall Street is a threat to their remaining in power.
The President and Congress do not care about you. They care only about themselves - and their re-election campaigns. Make it clear to your Congressperson that you will vote against them unless they pressure Obama to stop giving free money to Goldman Sachs.
Writing a Congressperson is usually a frivolous and self-indulgent activity. Today, however, it matters. They are paying attention.
For the first time since 9/11, the government is not making us afraid, but instead is afraid of us. Keep writing and calling your legislatures. Let them know that free money for Goldman Sachs is bad for America, unacceptable in a democracy, and disastrous to any incumbent's re-election campaign.