Republicans run the budget like an Abbot and Costello routine.  (Bud Abbott and Lou Costello)

First, they try to “borrow” $50 from you, and when you say you only have $40, they say they’ll take the $40 and then you will “owe” them the other $10.

Then when you ask them for your $40 back, they say “give me the $10 you owe me.”

Then, when they again ask you for $50 and you say you can’t because you only have $30, they blame you for being irresponsible in your personal finances!

    Republicans claim that they are the job creators.  They claim that their policies will create jobs.

    They argue that taxes for energy, and the wealthy need to be cut in order to create jobs.

     The top 5 most profitable corporations in the world are OIL COMPANIES.

     Exxon-Mobil is the MOST profitable corporation in the world, and pays NOTHING in corporate income taxes to the U.S., yet because of a loophole, by paying taxes to foreign tax haven countries, they COLLECTED $46.6 MILLION from the U.S. in tax "rebates" for taxes paid to a DIFFERENT COUNTRY.  Your taxes can't get any lower than ZERO.  Oh, yes they can!  Their taxes are a -$46.6 million!  Instead of Paying taxes, the most profitable corporation in the world collects $46.6 million for doing business in the U.S. in addition to the tens of Billions they get in profits, every quarter.  

     BP is the 5th most profitable corporation in the world.  They are a British Corporation, so they pay little in U.S. Corporate Income taxes, in spite of providing the U.S. 80% of all the oil used for the wars in Afghanistan and Iraq.  And, because of ANOTHER LOOPHOLE, the U.S. tax code is providing $9.9 BILLION in CREDITS to B.P. for the $20 Billion they put up for reparations to the Gulf Oil Spill! The U.S. is hemorrhaging cash for foreign oil, to companies who don't pay U.S. taxes!    

     But Republicans want you to believe that forcing energy corporations to pay "increased taxes" (when they currently AREN'T PAYING ANY TAXES), will hurt job creation.  Over the last decade, oil companies have posted repeated record profits, of tens of Billions of dollars per quarter.  Have you seen them hiring?  No, they just put the profits in their bank accounts and SIT ON THEM.

     And after Bush's two record tax cuts for the wealthy, have you seen any increases in hiring?  (Now Republicans are claiming that the wealthy have to have a lifetime guarantee of permanent tax cuts before they will invest any money in businesses and job creation.  Right.  After 7 YEARS of no job creation under Bush, and "not enough" job creation to keep the voters happy under Obama's first two years, now their excuse is that they have to have guaranteed permanent tax cuts before we can see any results.)  That's like when they said that they weren't going to tell us what they would do BEFORE the elections, and that they were ONLY going to tell us AFTER the elections.  Oh yeah - THAT WORKED FOR THEM!   Silly Voters!  Those Tricks are FOR KIDS!  (Or at least for people who THINK like KIDS.)

Over Bush's two terms, the richest 200 individuals in the United States became $640 BILLION richer.  Real earnings for wage earners went DOWN.  The Stock Market tanked and lost over $18 TRILLION in value, and average workers were expected to give repeated wage and benefit concessions.  The wealthy got wealthier and the middle class is going extinct.  Democrats in Congress managed to finally raise the minimum wage for the first time in THIRTY YEARS.  But Republicans continue to claim that they need more tax breaks, and that the minimum wage needs to be rolled back or eliminated.  Tax breaks during the Bush Administration failed to result in increased jobs, and actually resulted in a net loss of 11.4 MILLION jobs, because job creation didn't even keep up with population growth and the increase in people looking for jobs.  Republicans and the Bush Administration bragged about the 3 million jobs which were "created" over the number at the end of 2000.  But they needed to create 14.4 million jobs just to stay even with the population growth and increase in people joining the workforce, so they actually LOST 11.4 million jobs.

That, in spite of the record two Trillion dollar plus tax cuts, half of which went to the richest 1% in the U.S., which were supposed to create jobs, but instead added over $4 Trillion to our Federal Deficit.  (It was an unfunded mandate which INCREASES our debt by $1.7 Trillion for INTEREST on the $2.3 Trillion in tax cuts.)  Now Republicans want to make that permanent, so that they can increase the Federal Deficit by $4.4 Trillion just out to 2018 alone.  So much for getting rid of the deficit.

Under the William Jefferson Clinton Administration 23 million jobs were created in eight years.

Under the George H.W. Bush Administration only 2.5 million jobs were created in four years.

Under the George W. Bush Administration only 3 million jobs were created in eight years.

Congressman Ryan finding out he can't have it both ways

 KELLY GALLAHER Community for Change | Posted: Wednesday,

 February 24, 2010 9:50 am

The past few weeks have been very exciting for Congressman Paul Ryan, R-Wis. On Jan. 29, the Congressman had the opportunity to spar with President Barack Obama at the televised GOP retreat in Baltimore in front of the national press. The attention continued with the unveiling of his budget plan called "A Roadmap for America's Future 2.0." Ryan's budget was initially regarded as a serious effort to propose a counterpoint to the administration's 2010 budget. That is, until people read it.

Congressman Ryan's limelight became a glaring spotlight when closer examination revealed the Roadmap for America's Future sought to radically dismantle Medicare by replacing the current system with vouchers and replace a traditional safety net with a sweeping effort to privatize Social Security for Americans younger than 55. His plan would undermine the security of these programs for millions of Americans and subject them to the volatility of Wall Street and unabated greed of corporate health care. Nobel Prize economist Paul Krugman called it a "breathtaking act of staggering hypocrisy." GOP members staking their future campaigns on protecting Medicare and Social Security scattered.

Then came the Wall Street Journal that singled out Ryan this past week for his hypocrisy in slamming the stimulus plan, known as the American Recovery and Reinvestment Act of 2009. Ryan called the stimulus a "wasteful spending spree" while requesting these same funds in October from the Department of Labor saying "I support the Energy Center of Wisconsin's grant application for the American Recovery and Reinvestment Act of 2009 Energy Training and Partnership Grants."

He went further in his request to say the grant "would make effective use of the funds they would receive."

How does a program like the stimulus that "misses the mark on all counts" and "hasn't created the jobs" also manage to "propose to develop an industry- driven training and placement agenda that intends to place 1,000 workers in green jobs" as he stated in his stimulus request? Easy, it's called dishonesty. It is dishonest to say the stimulus doesn't create jobs at the same time you ask for stimulus money to create jobs.

In December, Ryan called for the repeal of the Recovery Act even though his own hometown of Janesville had received more than $4 million of stimulus money for jobs and new programs.

Erroneously characterized as a "deficit hawk," Ryan's public profile completely contradicts the way he votes. Ryan voted for record spending, unfunded tax cuts for the wealthiest Americans, the bank bailouts and trillion-dollar wars which created our deficit nightmare.

Also called a policy "wonk," Ryan championed unsustainable expansions of Medicare Advantage, resulting in billions of overpayments while he seeks to create a policy to dismantle Medicare and Social Security for Americans long after he's gone from office.

Democrats are not the only people who have questions about Ryan and his agenda. He has mystified conservatives as well.  In response to his votes in favor of the auto bailout and the AIG confiscatory bonus tax, even conservative pundit Michelle Malkin was moved to scold him to "practice what you preach when it matters. Not after the fact."

Perhaps Wisconsinites could take comfort that his vote was in support of workers. Sadly this was not the case. When questioned about his vote on the auto bailout just last week to Daily Beast writer Benjamin Sarlin, Ryan confessed he was moved to vote for it not to keep autoworkers employed, but because he believed "that a second Depression would threaten capitalism - and rescue Obama's presidency."

Congressman Ryan has been practicing the most cynical kind of political hypocrisy and hoping we would not notice. In this age of internet communication, that kind of pretense is no longer possible, and his constituents must hold him accountable.

Ryan deserves credit for having an idea; not many of his colleagues have shown the same initiative. However, it has also given us the opportunity to look deeper into what the future would look like if many in the GOP had their way.

Ryan perhaps said it best in a recent interview with the New York Times, "I'm worried that if we get the majority back by default, we'll screw up again."

On that, we can both agree.

Kelly Gallaher is a member and coordinator for Community for Change and a Community organizer for Organizing for America.

Posted in Opinion on Wednesday, February 24, 2010 9:50 am Updated: 10:01 am.

and again later...

A deficit of responsibility

Who is responsible for the projected future deficits?

By Thomas Schaller

Center on budget and Policy Priorities

There's been a lot of complaining about the president this week, myself included. But one thing he does not deserve blame for are the projected structural deficits over the next decade.

According to a new report (December 16, 2009) issued by the Center for Budget and Policy Priorities, and based on figures from the Congressional Budget Office, the Bush43 tax cuts and the wars in Afghanistan and Iraq are responsible for a much bigger share of the annual deficit projections than TARP, the stimulus package and even effects of the economic downturn (i.e., lost treasury revenues) combined.

Yes, Tea Party Nation, you read that correctly: All of this big government socialism that has so frightened you is dwarfed by the deficit contributions of those tax cuts for the most wealthly Americans. But please, run out in the streets with your Obama/Joker signs defending those in Jay-Z's tax bracket.  Now, more than ever, they need your help.

Sniping aside, look: You can hold Obama accountable for TARP, since he supported it, and of course the stimulus. Though he hasn't withdrawn fully from Iraq and is ramping up in Afghanistan, you can only proliferate or scale back something somebody else started, so even that is at best a push for GWBush. You could even argue that as we move forward the treasury losses of the downturn gradually become Obama's responsibility.

But the tax cuts? That's all on you, George. (Well, W, his fellow Republicans, and the Dems who voted with them.)

The report--the title of which actually says it all: President Obama Largely Inherited Today’s Huge Deficits: Economic Downturn, Financial Rescues, and Bush-Era Policies Drive the Numbers--summarizes its findings as follows:

The events and policies that have pushed deficits to astronomical levels in the near term, however, were largely outside the new Administration’s control. If not for the tax cuts enacted during the Presidency of George W. Bush that Congress did not pay for, the cost of the wars in Iraq and Afghanistan that began during that period, and the effects of the worst economic slump since the Great Depression (including the cost of steps necessary to combat it), we would not be facing these huge deficits in the near term.

While President Obama inherited a bad fiscal legacy, that does not diminish his responsibility to propose policies to address our fiscal imbalance and put the weight of his office behind them. Although policymakers should not tighten fiscal policy in the near term while the economy remains fragile, they and the nation at large must come to grips with the nation’s deficit problem. But we should all recognize how we got where we are today.

  http://finding-happiness.com/?p=1076
  Source:  Bogle, John C., “Restoring Faith in Financial Markets,”  The Wall Street Journal, January 19, 2010.

 
  *“Too many of our professional money managers have failed to act as vigilant stewards of the money investors entrusted to them.”
 
  We’re talking here about mutual fund investors who had been able to tuck money away for education, emergencies, home improvements, or retirement. We’re talking too about pension beneficiaries who depended on their money managers for sound fiduciary care.

  These are two groups who have been the betrayed.
 
  So too have the taxpayers been betrayed, for they are the ones upon whom the burden of remedy now falls.
 
  But the betrayal wasn’t possible without there having been a revolution. This was a revolution beneath the surface of our vast financial complex, a revolution in which the management of money became so pernicious and greedy a force in the financial markets that it preempted fiduciary responsibility, ethics, and common sense.
 

  In the mid-1950’s, the professional/institutional money managers were responsible for just 10 percent of all U.S. stocks.
  Two decades later, that charge had grown to 35 percent; and then it reached 53 percent a decade ago. But the revolution was not yet over

 
  Today, 70 percent of the shares of U.S. corporations are under the management of institutional investors.
 
 In other words, there are now three major categories of players in the world of financial assets. First, there are the individual owners who hold stocks in their 401(k) plans, their pension programs, or their retirement funds. Second, there are the executives and the management of the companies that are so owned. Third, and this is the revolutionary part, there are also now the institutional investment managers who control the buying and selling of 70 percent of the outstanding shares of those companies.
 
Where there were two major categories of decision-makers, there now are three. Where only two groups could do stupid and reckless and greedy and short-term minded things, there now are three; and the third had a greatest predisposition to these stupid and reckless things. Where there were two backs that had to be scratched; now there is a third.

 
Bogle lists five such stupid, reckless, greedy and short-term minded things these new institutional investors have brought to the big Wall Street casino:
 
Short-term Speculation.
 
Once upon a time, investors bought stock in a company because they believed in it and wanted to be a part of its long-term growth and prosperity. They bought, and they held. This was part of the rock in the foundation of capitalism. Not anymore.
 
Around 1979, stock turnover was about 21 percent, meaning that almost 80 percent of the share owners at the start of the year were still owners at the end of the year.

A decade ago, the turnover number was 78 percent. Today, it’s an incredible 250 percent.
 
If anything demonstrates the crap-table nature of Wall Street, it’s that: the ownership of our companies now changes hands, through financial market transactions, 2.5 times a year.
 
The simple truth is that we have no idea from one minute to the next who really owns America’s corporations.

 
Individual investors didn’t make this happen; institutional investors did it. Yes, there are those “day traders” who go blind at their home-computers looking at charts and graphs and doing trades, and committing suicide; but they are a small factor compared to the institutions.
 
Had these institutional investors been prudent and judicious, had they done what they had promised, the revolution might have been benign; it might even have worked to positive results for both companies and shareholders. But they didn’t; and this was the trust, the faith, that was betrayed.
 
Institutional investors, first of all, represented an extra pocket to fill, extra fees to be paid. Then, when the institutional investors became preoccupied with their own gains rather than those for whom they had fiduciary obligations, the real crap shoot began. From long term investment we went to short term speculation; and 250 percent turnovers.
 
Financial Sector.

In the process a second dynamic hit our economy: The financial sector became a dominant economic force.  Financial institutions no longer were benign allocators of capital and reliable custodians of paper wealth. Financial firms instead went public. They began to trade for their own account. And they had executives who focused primarily on their own compensation and bonuses.
 
Deals became the focus, doing deals, making deals, hostile takeovers, leveraged buyouts, speculating in anything and everything, arbitrage, financial innovations. They did anything that could generate profits for the firm and for their bonuses, regardless of whether it was consistent with their fiduciary charter or not.
 
In the last decade alone, the big stock exchange financial firms saw their revenues climb from $200 to $350 billion.
 

Mutual funds fees and expenses rose from $47 billion to $100 billion. What was left over went to the real investor, the future retiree, the pensioner.
 
 
Innovation.
 
They talked a great deal about mitigating risk, and enhancing liquidity.  They developed computer models. They created funds that took on management roles. They created funds that leveraged, sold short, conducted arbitrage, invested in instruments of any quality. They created funds that invested in funds; and then they created instruments that invested in instruments.
 
Essentially, they gave license to their greed, and they enhanced it with innovative steroids.
 
They created options and contracts that made Las Vegas envious.

Bets on bets on bets; and regulators turned a blind eye. Then they found a way to convert almost any asset into something that was liquid: mortgages, credit card debts, automobile loans.
 
There were a few voices that said this was all too dangerous, that it was getting way out of hand; but no one listened. Asset values were going up, so why interrupt a good thing.

And with each transaction, there was a fee, sometimes a big fee.
 
Worse, with each extra bit of leverage and extra bit of risk there grew the sense that regardless of how big and dangerous this problem might become, it was already too big too fail. Moral suasion was gone. Big bonuses were in; and fiduciary obligation was out. Enron became the caricature of the last decade of the 20^th century.
 
Arthur Andersen, once the symbol of professionalism and responsibility, imploded in its own sewer of ethically dysfunctional behavior. Even Fannie and Freddie, and Countrywide and Washington Mutual and A.I.G., and how many others were all but destroyed totally. Merrill Lynch was sold. Bear Stearns went bankrupt. Morgan Stanley had to re-organize. So much for losing your focus!

 
New Realities.
 
These new revolutionaries, these institutional investors, as it seems to always happen during manic periods of greed and speculation, developed new measures and a virtual new language.

The valid and still relevant truths of old textbooks and investment gurus were tossed away in the frenzy. 

Once upon a time, cash-flow was considered important; no longer.

Once upon a time the ratio of current assets to current debts, and the ratio of long-term debt to equity was important; but no longer.
 

Now it was all about “earnings per share” and those E.P.S. numbers had better be higher and higher each year, or the market would turn against the company’s valuation.
 

Chief executives became frightened of Wall Street and concerned with little else but quarterly E.P.S. They began to “manage” those E.P.S. numbers. Reserves were adjusted.  Mark-to-market numbers were imaginatively recorded. False transactions were accepted as valid. Revenues were recognized prematurely. Special purpose entities were used to manipulate both the accounting for financial health and income.  Auditors winked. Regulators winked. Boards of Directors winked. And Wall Street paid giant bonuses.
 

Executive Compensation.
 
No one cared, it seemed.  Asset valuations were going up. The economy was growing.  And, executive compensation was soaring. It was a grand party.  Everyone playing in the Wall Street casino was a genius, self-proclaimed, self-assured, and totally inflexible in those beliefs.

Of the ten Greatest Net Losses in the history of the DOW, George W. Bush was President for 6 of them, including for number 1 and number 2 ranked greatest net losses in history.

 

Given that the Richest 1% of the U.S. Population owns 40% of all investments in the stock market, they can’t be very happy with Dubya.

 

1 9/29/08  -777.68 George W. Bush Greatest Net Loss in the History of the Stock Market

2 9/17/01  -684.81 George W. Bush 2^nd Greatest Net Loss in the History of the Stock Market  (1^st day Wall Street open after 9/11 attacks)

3 4/14/00  -617.78 Bill Clinton 3^rd Greatest Net Loss in the History of the Stock Market (Tech Bubble Crash after companies stopped spending on IT  Bush and Cheney kept telling people that the economy was tanking, even though economists told them to stop saying it, or they would actually CAUSE IT.)

4 10/27/97 -554.26 Bill Clinton  (triggering event was the Asian Market Meltdown)  Regained lost value in 1 week

5 08/31/98 -512.61 Bill Clinton (triggering event was the devaluation of the Russian ruble and Russia defaulting on a Billion dollar debt)  Regained lost value in 9 weeks.

6 10/19/87 -508.00 Ronald Reagan   Black Monday (see analysis below)

7 9/15/08 -504.48 George W. Bush

8 9/18/08 -449.36 George W. Bush

9 3/12/01 -436.37 George W. Bush

10 2/27/07 -416.02 George W. Bush

 

Of the ten Greatest Percentage Losses in the Dow, Republicans were in control during 8 of them.  Of the Democrats, one was inherited from Republicans (FDR the Great Depression), and the other was during the beginning of the Great War WWI (Woodrow Wilson)

 

1 12/12/14   -24.39 Woodrow Wilson (Democrat)  (First year of The Great War – WWI Started June/July 1914)

2 10/19/87   -22.81 Ronald Reagan (Republican)  Black Monday, the largest 1 day percentage drop in the stock market in History.  That morning 2 U.S. Warships shelled an Iranian oil drilling platform.  Motley Fool has an analysis here:  http://www.fool.com/features/1997/sp971017crashanniversary1987timeline.htm

 

3 10/28/29   -12.82 Herbert Hoover (Republican) (First year of the Great Depression)

4 10/29/29   -11.73 Herbert Hoover    “  (Black Tuesday – Dow plunges 11%)

5 11/06/29     -9.92 Herbert Hoover    “

6 12/18/1899 -8.72 William McKinley (Republican)

7 8/12/32       -8.40  Herbert Hoover   “  

8 3/14/1907   -8.29  Teddy Roosevelt (Republican)  Between September 1906 and March 1907, the stock market slid, losing 7.7% of its capitalization.  Between March 9 and 26, stocks fell another 9.8%.  (This March collapse is sometimes referred to as a "rich man's panic".)^[9] The economy remained volatile through the summer. A number of shocks hit the system: the stock of Union Pacific—among the most common stocks used as collateral—fell 50 points; that June an offering of New York City bonds failed; in July the copper market collapsed; in August the Standard Oil Company was fined $29 million for antitrust violations.^[10] In the first nine months of 1907, stocks were lower by 24.4%.^[11]

 

The above data regarding the top losses in the stock market were changed under George W. Bush's administration, when under his administration, 6 of the top ten biggest losses in history occurred. 

 

The Stock Market had 6 of the Top Ten biggest net losses on record on September 15th, 18th, and 29th, of 2008, in addition to March 12, 2001, September 17, 2001, and February 27, 2007, UNDER GEORGE W. BUSH.  Four of the PREVIOUS TOP TEN stock market losses on record occurred DURING the Great Depression under HOOVER's administration.

 

On July 27, The Commercial & Financial Chronicle noted that "the market keeps unstable ... no sooner are these signs of new life in evidence than something like a suggestion of a new outflow of gold to Paris sends a tremble all through the list, and the gain in values and hope is gone".^[12] Several bank runs occurred outside the US in 1907: in Egypt in April and May; in Japan in May and June; in Hamburg and Chile in early October.^[13] The fall season was always a vulnerable time for the banking system—combined with the roiled stock market, even a small shock could have grave repercussions.^[14]

The Panic of 1907 “the Bankers Panic” started in October when the Stock Market lost 50% from its peak the previous year.  It was caused by the failed attempt to corner the market on stock of the United Copper Co.  When it failed, the banks that lent the money to the schemes, suffered runs that spread to other banks.  The panic may have deepened if JP Morgan hadn’t pledged large sums of his own money and convinced other bankers to do the same to shore up the banking system.  At the time, the United States did not have a central bank system.  The following year, the Federal Reserve system was created.

 

9 10/26/87     -8.04 Ronald Reagan  (Republican)               

10 7/21/33     -7.84 Franklin Delano Roosevelt (Democrat)  (4^th year of the Great Depression, 1^st year of FDR’s term)

 

How Goldman Secretly Bet on the U.S. Housing Crash

By Greg Gordon
November 1, 2009, Washington, DC

Take Action: Tell Congress "Help Main Street NOT Wall Street"

Published by McClatchy Newspapers.

In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting.   

Goldman's sales and its clandestine wagers, completed at the brink of the housing market meltdown, enabled the nation's premier investment bank to pass most of its potential losses to others before a flood of mortgage defaults staggered the U.S. and global economies.

Only later did investors discover that what Goldman had promoted as triple-A rated investments were closer to junk.

Now, pension funds, insurance companies, labor unions and foreign financial institutions that bought those dicey mortgage securities are facing large losses, and a five-month McClatchy investigation has found that Goldman's failure to disclose that it made secret, exotic bets on an imminent housing crash may have violated securities laws.

"The Securities and Exchange Commission should be very interested in any financial company that secretly decides a financial product is a loser and then goes out and actively markets that product or very similar products to unsuspecting customers without disclosing its true opinion," said Laurence Kotlikoff, a Boston University economics professor who's proposed a massive overhaul of the nation's banks. "This is fraud and should be prosecuted."

John Coffee, a Columbia University law professor who served on an advisory committee to the New York Stock Exchange, said that investment banks have wide latitude to manage their assets, and so the legality of Goldman's maneuvers depends on what its executives knew at the time.

"It would look much more damaging," Coffee said, "if it appeared that the firm was dumping these investments because it saw them as toxic waste and virtually worthless."

Lloyd Blankfein, Goldman's chairman and chief executive, declined to be interviewed for this article.

A Goldman spokesman, Michael DuVally, said that the firm decided in December 2006 to reduce its mortgage risks and did so by selling off subprime-related securities and making myriad insurance-like bets, called credit-default swaps, to "hedge" against a housing downturn.

DuVally told McClatchy that Goldman "had no obligation to disclose how it was managing its risk, nor would investors have expected us to do so ... other market participants had access to the same information we did."

For the past year, Goldman has been on the defensive over its Washington connections and the billions in federal bailout funds it received. Scant attention has been paid, however, to how it became the only major Wall Street player to extricate itself from the subprime securities market before the housing bubble burst.

Goldman remains, along with Morgan Stanley, one of two venerable Wall Street investment banks still standing. Their grievously wounded peers Bear Stearns and Merrill Lynch fell into the arms of retail banks, while another, Lehman Brothers, folded.

To piece together Goldman's role in the subprime meltdown, McClatchy reviewed hundreds of documents, SEC filings, copies of secret investment circulars, lawsuits and interviewed numerous people familiar with the firm's activities.

McClatchy's inquiry found that Goldman Sachs:

• Bought and converted into high-yield bonds tens of thousands of mortgages from subprime lenders that became the subjects of FBI investigations into whether they'd misled borrowers or exaggerated applicants' incomes to justify making hefty loans.
• Used offshore tax havens to shuffle its mortgage-backed securities to institutions worldwide, including European and Asian banks, often in secret deals run through the Cayman Islands, a British territory in the Caribbean that companies use to bypass U.S. disclosure requirements.
• Has dispatched lawyers across the country to repossess homes from bankrupt or financially struggling individuals, many of whom lacked sufficient credit or income but got subprime mortgages anyway because Wall Street made it easy for them to qualify.
• Was buoyed last fall by key federal bailout decisions, at least two of which involved then-Treasury Secretary Henry Paulson, a former Goldman chief executive whose staff at Treasury included several other Goldman alumni.

The firm benefited when Paulson elected not to save rival Lehman Brothers from collapse, and when he organized a massive rescue of tottering global insurer American International Group while in constant telephone contact with Goldman chief Blankfein. With the Federal Reserve Board's blessing, AIG later used $12.9 billion in taxpayers' dollars to pay off every penny it owed Goldman.

These decisions preserved billions of dollars in value for Goldman's executives and shareholders. For example, Blankfein held 1.6 million shares in the company in September 2008, and he could have lost more than $150 million if his firm had gone bankrupt.

With the help of more than $23 billion in direct and indirect federal aid, Goldman appears to have emerged intact from the economic implosion, limiting its subprime losses to $1.5 billion. By repaying $10 billion in direct federal bailout money—a 23 percent taxpayer return that exceeded federal officials' demand—the firm has escaped tough federal limits on 2009 bonuses to executives of firms that received bailout money.

Goldman announced record earnings in July, and the firm is on course to surpass $50 billion in revenue in 2009 and to pay its employees more than $20 billion in year-end bonuses.

The Bluest of the Blue Chips

For decades, Goldman, a bastion of Ivy League graduates that was founded in 1869, has cultivated an elite reputation as home to the best and brightest and a tradition of urging its executives to take turns at public service.

As a result, Goldman has operated a virtual jobs conveyor belt to and from Washington: Paulson, as Treasury secretary, sent tens of billions of taxpayers' dollars to rescue Wall Street in 2008, and former Goldman employees populate some of the most demanding and powerful posts in Washington. Savvy federal regulators have migrated from their Washington jobs to Goldman.

On Oct. 16, a Goldman vice president, Adam Storch, was named managing executive of the SEC's enforcement division.

Goldman's financial panache made its sales pitches irresistible to policymakers and investors alike, and may help explain why so few of them questioned the risky securities that Goldman sold off in a 14-month period that ended in February 2007.

Since the collapse of the economy, however, some of those investors have changed their opinions of Goldman.

Several pension funds, including Mississippi's Public Employees' Retirement System, have filed suits, seeking class-action status, alleging that Goldman and other Wall Street firms negligently made "false and misleading" representations of the bonds' true risks.

Mississippi Attorney General Jim Hood, whose state has lost $5 million of the $6 million it invested in Goldman's subprime mortgage-backed bonds in 2006, said the state's funds are likely to lose "hundreds of millions of dollars" on those and similar bonds.

Hood assailed the investment banks "who packaged this junk and sold it to unwary investors."

California's huge public employees' retirement system, known as CALPERS, purchased $64.4 million in subprime mortgage-backed bonds from Goldman on March 1, 2007.

While that represented a tiny percentage of the fund's holdings, in July CALPERS listed the bonds' value at $16.6 million, a drop of nearly 75 percent, according to documents obtained through a state public records request.

In May, without admitting wrongdoing, Goldman became the first firm to settle with the Massachusetts attorney general's office as it investigated Wall Street's subprime dealings. The firm agreed to pay $60 million to the state, most of it to reduce mortgage balances for 714 aggrieved homeowners.

Attorney General Martha Coakley, now a candidate to succeed Edward Kennedy in the U.S. Senate, cited the blight from foreclosed homes in Boston and other Massachusetts cities. She said her office focused on investment banks because they provided a market for loans that mortgage lenders "knew or should have known were destined for failure."

New Orleans' public employees' retirement system, an electrical workers union and the New Jersey carpenters union also are suing Goldman and other Wall Street firms over their losses.

The full extent of the losses from Goldman's mortgage securities isn't known, but data obtained by McClatchy show that insurance companies, whose annuities provide income for many retirees, collectively paid $2 billion for Goldman's risky high-yield bonds.

Among the bigger buyers: Ambac Assurance purchased $923 million of Goldman's bonds; the Teachers Insurance and Annuities Association, $141.5 million; New York Life, $96 million; Prudential, $70 million; and Allstate, $40.5 million, according to the data from the National Association of Insurance Commissioners.

In 2007, as early signs of trouble rippled through the housing market, Goldman paid a discounted price of $8.8 million to repurchase subprime mortgage bonds that Prudential had bought for $12 million.

Nearly all the insurers' purchases were made in 2006 and 2007, after mortgage lenders had lifted most traditional lending criteria in favor of loans that required little or no documentation of borrowers' incomes or assets.

While Goldman was far from the biggest player in the risky mortgage securitization business, neither was it small.

From 2001 to 2007, Goldman hawked at least $135 billion in bonds keyed to risky home loans, according to analyses by McClatchy and the industry newsletter Inside Mortgage Finance.

In addition to selling about $39 billion of its own risky mortgage securities in 2006 and 2007, Goldman marketed at least $17 billion more for others.

It also was the lead firm in marketing about $83 billion in complex securities, many of them backed by subprime mortgages, via the Caymans and other offshore sites, according to an analysis of unpublished industry data by Gary Kopff, a securitization expert.

In at least one of these offshore deals, Goldman exaggerated the quality of more than $75 million of risky securities, describing the underlying mortgages as "prime" or "midprime," although in the U.S. they were marketed with lower grades.

Goldman spokesman DuVally said that Moody's, the bond rating firm, gave them higher grades because the borrowers had high credit scores.

Goldman's securities came in two varieties: those tied to subprime mortgages and those backed by a slightly higher grade of loans known as Alt-A's.

Over time, both types of mortgages required homeowners to pay rapidly rising interest rates. Defaults on subprime loans were responsible for last year's housing meltdown. Interest rates on Alt-A loans, which began to rocket upward this year, are causing a new round of defaults.

Goldman has taken multiple steps to put its subprime dealings behind it, including publicly saying that Wall Street firms regret their mistakes. Last winter, the company cancelled a Las Vegas conference, avoiding any images of employees flashing wads of bonus cash at casinos.

More recently, the firm has launched a public relations campaign to answer the criticism of its huge bonuses, Washington connections and federal bailout. In late October, Blankfein argued that Goldman's activities serve "an important social purpose" by channeling pools of money held by pension funds and others to companies and governments around the world.

Knowing When to Fold Them

For investment banks such as Goldman, the trick was knowing when to exit the high-stakes subprime game before getting burned.

New York hedge fund manager John Paulson was one of the first to anticipate disaster. He told Congress that his researchers discovered by early 2006 that many subprime loans covered the homes' entire value, with no down payments, and so he figured that the bonds "would become worthless."

He soon began placing exotic bets—credit-default swaps—against the housing market. His firm, Paulson & Co., booked a $3.7 billion profit when home prices tanked and subprime defaults soared in 2007 and 2008. (He isn't related to Henry Paulson.)

At least as early as 2005, Goldman similarly began using swaps to limit its exposure to risky mortgages, the first of multiple strategies it would employ to reduce its subprime risk.

The company has closely guarded the details of most of its swaps trades, except for $20 billion in widely publicized contracts it purchased from AIG in 2005 and 2006 to cover mortgage defaults or ratings downgrades on subprime-related securities it offered offshore.

In December 2006, after "10 straight days of losses" in Goldman's mortgage business, Chief Financial Officer David Viniar called a meeting of mortgage traders and other key personnel, Goldman spokesman DuVally said.

Shortly after the meeting, he said, it was decided to reduce the firm's mortgage risk by selling off its inventory of bonds and betting against those classes of securities in secretive swaps markets.

DuVally said that at the time, Goldman executives "had no way of knowing how difficult housing or financial market conditions would become."

In early 2007, the firm's mortgage traders also bet heavily against the housing market on a year-old subprime index on a private London swap exchange, said several Wall Street figures familiar with those dealings, who declined to be identified because the transactions were confidential.

The swaps contracts would pay off big, especially those with AIG. When Goldman's securities lost value in 2007 and early 2008, the firm demanded $10 billion, of which AIG reluctantly posted $7.5 billion, Viniar disclosed last spring.

As Goldman's and others' collateral demands grew, AIG suffered an enormous cash squeeze in September 2008, leading to the taxpayer bailout to prevent worldwide losses. Goldman's payout from AIG included more than $8 billion to settle swaps contracts.

DuVally said Goldman has made other bets with hundreds of unidentified counterparties to insure its own subprime risks and to take positions against the housing market for its clients. Until the end of 2006, he said, Goldman was still betting on a strong housing market.

However, Goldman sold off nearly $28 billion of risky mortgage securities it had issued in the U.S. in 2006, including $10 billion on Oct. 6, 2006. The firm unloaded another $11 billion in February 2007, after it had intensified its contrary bets. Goldman also stopped buying risky home mortgages after the December meeting, though DuVally declined to say when.

I've Got a Secret

Despite updating its numerous disclosures to investors in 2007, Goldman never revealed its secret wagers.

Asked whether Goldman's bond sellers knew about the contrary bets, spokesman DuVally said the company's mortgage business "has extensive barriers designed to keep information within its proper confines."

However, Viniar, the Goldman finance chief, approved the securities sales and the simultaneous bets on a housing downturn. Dan Sparks, a Texan who oversaw the firm's mortgage-related swaps trading, also served as the head of Goldman Sachs Mortgage from late 2006 to April 2008, when he abruptly resigned for personal reasons.

The Securities Act of 1933 imposes a special disclosure burden on principal underwriters of securities, which was Goldman's role when it sold about $39 billion of its own risky mortgage-backed securities from March 2006 to February 2007.

The firm maintains that the requirement doesn't apply in this case.

DuVally said the firm sold virtually all its subprime-related securities to Qualified Institutional Buyers, a class of sophisticated investors that are afforded fewer protections than small investors are under federal securities laws. He said Goldman made all the required disclosures about risks.

Whether companies are obliged to inform investors about such contrary trades, or "hedges," is "a very hot issue" in cases winding through the courts, said Frank Partnoy, a University of San Diego law professor who specializes in securities. One issue is how specific companies must be in disclosing potential risks to investors, he said.

Coffee, the Columbia University law professor, said that any potential violations of securities laws would depend on what Goldman executives knew about the risks ahead.

"The critical moment when Goldman would have the highest liability and disclosure obligations is when they are serving as an underwriter on a registered public offering," he said. "If they are at the same time desperately seeking to get out of the field, that kind of bailout does look far more dubious than just trading activities."

Another question is whether, by keeping the trades secret, the company withheld material information that would enable investors to assess Goldman's motives for selling the bonds, said James Cox, a Duke University law professor who also has served on the NYSE advisory panel.

If Goldman had disclosed the contrary bets, he said, "One would have to believe that a rational investor would not only consider Goldman's conduct material, but likely compelling a decision to take a pass on the recommendation to purchase."

Cox said that existing laws, however, don't require sufficient disclosures about trading, and that the government would do well to plug that hole.

In marketing disclosures filed with the SEC regarding each pool of subprime bonds from 2001 to 2007, Goldman listed an array of risk factors that grew over time. Among them was the possibility of a pullback in overheated real estate markets, especially in California and Florida, where the most subprime loans had been made.

Suits filed by the pension funds, however, allege that Goldman made materially false or misleading statements in its public offerings, failing to disclose that many loans were based on inflated appraisals and were bought from firms with poor lending practices.

DuVally said that investors were fully informed of all known risks.

"What's going to happen in the next few years," said San Diego's Partnoy, "is there's going to be a lot of lawsuits and judges will have to decide, should Goldman have disclosed more or not?"

Tish Wells contributed to this article.

McClatchy Newspapers 2009

• Pay all their bills consistently and on time until abruptly stopping mortgage payments with no attempt to get current again.

• Keep current on other debts after defaulting on the mortgage.

• "Strategic" defaulters have perfect payment histories before suddenly going 60 days late on their mortgages. After default they remain current on other debts. Another surprise: Two-thirds of strategic defaulters bail on primary homes, not investments. However, strategic defaults are growing among owners of all homes. "It's useless to spend energy modifying these loans because it's not the payment that matters in their case," says Chung. They are likely to take advantage of loan-modification programs for free rent and then default again.

• "Distressed" defaulters: Most -- 53% -- of defaulting property owners fit the conventional picture: They skip payments on the mortgage and other debts, yet keep trying to recover by paying occasionally until they're overwhelmed. These defaulters need loan modifications and help managing finances and even those may not be enough to prevent eventual failure.

• Cash-flow "managers" are the heroes of the report; in situations identical to those of the strategic defaulters, they show the intention to make good on mortgages by continuing to try to pay even after skipping some payments. A third of this group pulls the loan out of trouble within six months. "This group's performance is about twice as strong as average," the report says. With resources and motivation, it found, people in this group could be the best candidates for loan-modification offers.