Posted on 10/15/2009 7:11:44 AM PDT by SeekAndFind
It will be business as usual for Goldman Sachs this morning. The bank will annoy a lot of people.
Goldman, the institution that came through last year's financial crisis best - arguably the only pure investment bank left standing - will say how much money it made in the third quarter (a lot) and how many billions it has stored for bonuses (about $5.5bn towards a likely 2009 bonus pool of $23bn).
For believers in Goldman's ethical standards and way of doing business, these are difficult times. Although it avoided the mistakes that brought down Bear Stearns and Lehman Brothers, forced Merrill Lynch into Bank of America's arms, and prodded Morgan Stanley further into lower-risk retail broking, Goldman has become a whipping boy.
There is outrage that, having taken government money to survive the crash, Goldman is in such rude health that it will hand out billions in bonuses. Matt Taibbi, a Rolling Stone writer, caught the mood memorably by describing Goldman as "a giant vampire squid wrapped around the face of humanity".
Such is Goldman's importance to Wall Street and regulation that I am devoting a pair of columns to it. Today, I will discuss the Goldman problem (different and less egregious to what Mr Taibbi believes, but still a problem.) Next week, I will suggest what should be done about it by regulators and the bank itself.
Goldman executives were wounded by how seriously Mr Taibbi's piece was taken despite their riposte that vampire squids are small creatures that present no danger to humanity. He accused it of profiting from bubbles such as the US internet and housing booms, and of repeatedly "selling investments they know are crap" to retail investors.
But, amusing though his article was, Mr Taibbi mischaracterised Goldman. Its run of success since its 1999 initial public offering has not been based on "pump and dump" broking but on sticking obstinately to the institutional, less-regulated elite end of the market.
While others such as Morgan Stanley and Merrill have wavered, Goldman has steadily built a widely envied list of clients among blue-chip companies, hedge funds and private equity firms. It has used its superior network and information to invest, and trade with, its capital.
One rival Wall Street executive describes Goldman (with rueful admiration) as "a bunch of clever thugs". He means that Goldman has been tough about seizing profitable opportunities even if that involves, for example, bidding for an asset against a former client.
Whatever Goldman is doing to make money, it works. Between 2000 and 2008, its average ratio of pre-tax profits to revenues was 29 per cent - one of the highest in the Fortune 500, even after allocating nearly half its revenues to bonuses.
That was a cause for concern before the crisis, but Goldman was playing in the big leagues and its clients, from large corporations to wealthy individuals, could - at least in theory - take care of themselves. Equally, its shareholders knew it was betting with their capital.
What changed things was the financial crisis. Hank Paulson, the former Goldman chief executive who was then Treasury secretary, first let Lehman Brothers founder and then rescued American International Group by settling at par its credit default swaps with banks including Goldman.
Goldman received $10bn in government capital (which it has paid back) and issued $21bn in bonds backed by the Federal Deposit Insurance Corporation. It turned into a bank holding company, and then a financial holding company to allow it to keep, among other things, its private equity arm.
From being a small Wall Street firm in which its employees risked all their own wealth by placing it in a partnership, it has become a large, Federal Reserve supervised bank with public shareholders and employees that expect to be richly rewarded each year.
Lloyd Blankfein, Goldman's amiable and funny chief executive, has made thoughtful speeches about reform (including on this page this week), but said nothing I can detect about changing how it operates. Yet Goldman, much as it wishes to be, is is no longer the same firm.
It has not yet been declared a "tier one financial holding company" - a systemically important institution that the Fed is supposed to watch over carefully - but that is a foregone conclusion.
The US government wants to create a resolution regime that would permit even such banks to fail in an orderly fashion, but it suffers from a credibility problem in Goldman's case. Few people believe that it would actually go through with dismantling the most powerful financial institution of all.
Not only is it reasonable to suspect that Goldman, which has entwined itself with governments around the world by sending partners out into "public service" when they leave, would not be allowed to fail by its alumnae network, but the bail-out was prima facie evidence.
Thus, at the heart of the financial system, now sits a professionals-only, high-risk Wall Street firm with its own private equity and hedge funds arrayed on top of a nonpareil corporate and government client list, which taxpayers reasonably assume is gambling with their money.
You do not have to be a vampire squid-style conspiracy theorist to see the difficulty. Goldman wants to carry on as its old self (but bigger) in a world that has changed.
Next week: how do you solve a problem like Goldman Sachs?
What a worthless company.
Goldman, with its former employees/stockholders infesting the federal government, managed to destroy its main competitor, Lehman Bros. while sopping up billions in bailout money through the cover of AIG.
It’s not too difficult to be top dog after a contract killing.
Well, when the former CEO winds up as our token Democrat under Bush as our Treasury Secretary and helps send the country down the pike (while padding plenty for his Goldman Sachs cronies), it looks like Goldman Sachs not only got unfair, grotesque amounts of money under the table (which we aren’t told of actual amounts, etc.), but it looks like Goldman Sachs was at the top of the whole freaking ponzi scheme.
I say lynch the company. I’d like to see its staffers and executives, mostly all hard-core liberals, behind bars for life.
Goldman Sachs is leftist vermin, run primarily by one of the Democrat Party’s most reliable demographics. They weaseled their way into the Federal Government’s affairs, greatly enriching themselves, while contributing significantly to the nation’s current financial disaster.
Don’t forget that Goldman has CLOSE TIES to Washington DC via their network of former employees.
This really isn’t free market competition, it’s about who you know who controls the levers of power.
Don’t forget what Mark Taibbi from Rolling Stone (!) called Goldman Sachs:
A blood sucking squid attached to the face of humanity ... forever.
How GS makes their profits is of course corporatist (fascist), but how they offer bonuses is fair. They reward those who perform. Let’s not punish the second policy by the corruption of the first.
Yep, they've always been the object of envy.
" Taibbi, a Rolling Stone writer, caught the mood memorably by describing Goldman as "a giant vampire squid wrapped around the face of humanity". I've analyzed Taibbi's article at length elsewhere on this forum. Both the article and the man are complete fraud.
Will you post any article, no matter how stupid and lying low in the gutter, as long as it raves against Wall Street and Goldman?
Matt Taibi has been an independent journalist capable of very good work for a very long time. I followed his work over a decade ago in Moscow and he was way ahead on Clinton's crooked war in Kosovo. So if you are going to fling guilt by association then best you provide the factual bases for your contentions.
"It has not yet been declared a "tier one financial holding company" and yet, a few lines later, GS is declared "at the heart of the financial system." Which one is it?
And which of those terrible things GS allegedly does is NOT done by other banks? If all do what GS does (just not as well, which is the source of the envy), why is GS singled out, why not speak of the bankers' supposed credibility problem?
Like many on Wall Street, the author has probably aspired to get to GS and failed. That's usually the reason they love to hate Goldman.
"Goldman, which has entwined itself with governments around the world by sending partners out into "public service" when they leave."
Here he gives himself away again --- this time, as a dumb conspiracy theorist. The board of directors has a meeting, at which it is decided to SEND out Paulson. What a moron.
Throughout history, abut 20% of Supreme Judges are graduates of Harvard Law. Does that school entwine itself with public service by SENDING graduates to the Supreme Court? The stupidity of the statement is breathtaking.
What's more disturbing, is that such intellectually dishonesty and incendiary writing reverberates with so many self-described conservatives on this board who love to participate in witch hunt against the "rich" Wall Street "evil-doers."
"would not be allowed to fail by its alumnae network, but the bail-out was prima facie evidence."
Evidence of what? Goldman did not want bailout but was forced to take the money. The author himself admits that that money has been promptly repaid. So what is the evidence?
"Thus, at the heart of the financial system, now sits a professionals-only, high-risk Wall Street firm with its own private equity and hedge funds arrayed on top of a nonpareil corporate and government client list, which taxpayers reasonably assume is gambling with their money."
He just said that the money has been repaid. Which taxpayer money does GS gamble with now? The author will stoop to any depth to "prove" his point but proves only his own inability to think, reason and write to an audience with reasonable intelligence.
"You do not have to be a vampire squid-style conspiracy theorist to see the difficulty. Goldman wants to carry on as its old self (but bigger) in a world that has changed."
Now he simply passes wind. There has been tremendous changes in the last year. Goldman changed its strategy and exposure to certain now-toxic securities (the only one to have done so before the crises), took bailout money against its will, repaid that money, reorganized, etc. So what is his support for the conclusion about carrying on as "its old self?" Where does he see the "old self" of GS?
He actually does worse: he purports to know that GS WANTS to do? Yeh, he must sit on the GS' board; he is certainly privy to the discussions about what the company WANTS to do.
All of this vitriol is consistent with one hypothesis: the author shares the common envy and hatred to Goldman, whether "old" or "new." To justify spilling ink on paper, he needs to invent new justifications for his irrational hatred and envy. But no quantity of spilled ink is a replacement for intellectual honesty and intelligence.
What bothers me is not this vitriol but the fact that it reverberates with so many. With conservatives that rave against Wall Street, is it any surprise that we have a socialist in the WH? The same thing justified the socialist takeover by the FDR (1929 was also blamed on capitalism and "Wall Street speculators"; the only difference with Nazi Germany was that all speculators were blamed in America and not just Jewish as in Germany).
Feeling that my previous post is questionable without further justification, I did write another post where I sketched some of the problems in the article. Sorry if it is a bit strongly worded: I am just dismayed at the witch hunt that is going. ANYTHING negative about the financial sector, no matter how illogical and lacking factual justification, finds a ready audience, even among conservatives. Any (American) conservative should be find it disturbing when he finds his position to be similar to that of witch-hunting mob. They failed to recognize this in 1930s when they allowed themselves to be dragged into the same kind of witch hunt. We acquired some fascist (statist) control over our economy and society then, and those features are still with us. The present-day anti-Wall Street witch hunt allows the OBamites to perform further TRANSFORMATION (rather than recovery) of our economy. It is sad when consrvatives serve, whether willingly or unwittingly, as facilitators in that process.
Please read my previous post.
Feeling that my previous post is questionable without further justification, I did write another post where I sketched some of the problems in the article. Sorry if it is a bit strongly worded: I am just dismayed at the witch hunt that is going. ANYTHING negative about the financial sector, no matter how illogical and lacking factual justification, finds a ready audience, even among conservatives. Any (American) conservative should be find it disturbing when he finds his position to be similar to that of witch-hunting mob. They failed to recognize this in 1930s when they allowed themselves to be dragged into the same kind of witch hunt. We acquired some fascist (statist) control over our economy and society then, and those features are still with us. The present-day anti-Wall Street witch hunt allows the OBamites to perform further TRANSFORMATION (rather than recovery) of our economy. It is sad when consrvatives serve, whether willingly or unwittingly, as facilitators in that process.
Please read my previous post.
I used to love Goldman. I dreamed of working for the firm. Then it accepted government money though it didn’t need one cent and its employees give hand over fist to Democrats.
No thanks.
My analysis of it may be found here:
The observation that GS has looted the US Treasury is neither a casual judgment or an accusation. It is an observation...and a monument to the end of the USA that nobody-but NOBODY- has called them out on it.
the same was done to Rome as its flame faded...
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