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THE WORLD FROM WASHINGTON
Michael Hirsh
As it was in the beginning, so shall it be in the end: Goldman Sachs will be there.
Back in the '90s and through the mid-'00s, major figures from Goldman Sachs such as Robert Rubin, Gary Gensler and Hank Paulson stood fast against derivatives regulation (Rubin and Gensler) and lobbied successfully for higher leverage ratios so they could bet more of their capital on the market boom (Paulson). When those policies came to grief and Wall Street imploded, and the Feds scrambled to rescue stricken insurance giant AIG, Goldman CEO Lloyd Blankfein was reportedly the only bank executive invited to an emergency meeting at the New York Federal Reserve (convened by then-Fed president Tim Geithner).
Now Treasury Secretary Geithner—a Rubin protégé, of course—has assigned two more ex-Goldman men to fix the vast mess their colleagues helped to create.
They are Steve Shafran, a former favorite of Paulson's, and Bill Dudley, Goldman's former chief economist and now the successor to Geithner as head of the New York Fed. Shafran and Dudley have been given the mind-bending task of resurrecting the market for securitized assets, a policy that is linked to an effort to lure the private market back in to bid on the toxic securitized assets that sit like dead weight on major banks' balance sheets. This vast project is being designed in two parts. First, revive the asset securitization market, frozen since last year's crash, through the TALF, the Term Asset-Backed Securities Loan Facility (don't try to say this at home!), started up on Tuesday. This program will bundle triple-A-rated loans into new securities and market them. Second, begin to sell off the toxic assets to private funds, in hopes that some day the TALF-revived securitization market will create demand for the lower-rated assets as well. According to a Treasury spokesman, the TALF plan and the troubled-asset buy-up program are "operating on parallel tracks."
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