WASHINGTON — Irked that Goldman Sachs appears to have reaped a $2.9 billion taxpayer-aided windfall on an investment of a mere $20 million, some experts and watchdogs say the Wall Street giant should return the money to the U.S. Treasury.
"It's a very simple call to make," said Sylvain Raynes, a frequent Goldman critic who's an expert in the kinds of deals in which the investment bank landed an apparent jackpot. "They should never have been given this money, and they should give it back."
The assessment by the Financial Crisis Inquiry Commission also exposed a potentially huge regulatory omission in the rescue of the insurance giant American International Group, which was the conduit for more than $90 billion in tax dollars to U.S. and European banks.
It's now clear that the Federal Reserve Bank of New York, which quarterbacked the hurried, $182 billion bailout of AIG to avoid a meltdown of global financial markets, did little to guard against windfalls for major banks and investment banks.
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The financial crisis panel's final report late last month found that Goldman's $2.9 billion payout came on "proprietary" trades — investments in which the firm used its own money rather than the more typical deals completed on behalf of clients.
The panel, inquiring into a McClatchy report last June, said that Goldman got $1.9 billion of the payoff after the taxpayer bailout of AIG began.
Critics say that in the rush to save AIG and avert systemic collapse of the financial markets, regulators treated Goldman like everyone else. But Goldman was different.
While most banks that got billions of dollars from AIG simply relayed the money to clients they'd insured against losses, Goldman got to collect a more than 100-fold return on a number of securities that soured, because none of its clients were involved.
Steve Ellis, of the government waste watchdog Taxpayers for Common Sense, said that "It's up to the federal government to demand accountability and transparency" regarding Goldman's payout.
"We can't afford to shell out cash without asking hard questions and demanding that the very same actors that got the economy into this mess take some of the burden on themselves," he said.
Congress could try to impose a tax on banks' profits from the bailout or adopt some other legislation to "claw back" the money, but it would be difficult because Goldman received it unconditionally, said Michael Greenberger, a University of Maryland law professor who specializes in complex securities. The New York Fed attached no strings to the money and let AIG decide how much Goldman would get.
Goldman, which paid a whopping $31.6 billion in employee bonuses in the past two years, denies that the trades in question were proprietary, signaling that it has no plans to send more money back to Washington.
In 2009, Goldman was quick to repay a $10 billion loan from a Treasury Department program to bail out banks. Last summer, the firm paid an additional $550 million to settle a related civil fraud suit filed by the Securities and Exchange Commission.
Goldman spokesman Michael DuVally rejected the characterization of the AIG payment as a windfall.
"We used the money we received from AIG to meet our obligations to clients with whom we hedged on the other side of these trades," he said.
The issue, however, goes to the heart of the controversy over whether any of the megabanks that helped cause the crisis got sweetheart deals as part of the bailout.
"In the heat of the moment, the Treasury and the Fed weren't worried about who was participating in the housing bubble . . . or their level of involvement" when they shelled out money, Mason said.