Socialized capitalism

Thu, Jul 16, 2009


In case you hadn’t noticed, the Masters of the Universe are back in charge.

Goldman Sachs reported earnings of $3.2 billion for the last quarter. Great and clamorous was the rejoicing among the storied investment bank’s employees, whose bespoke suits were getting a little frayed and rumpled.  By announcing that the bank would set aside $11.8 billion for employee compensation, Goldman made it clear that happy days are here again, and that employees would no longer suffer the indignity of shrinking bank accounts, not to mention surviving on PBR and ramen.

Normally, I’d applaud such news as a sign of a rebounding economy, and a return to the cheerful prosperity that we’d all like to enjoy once again.

But this is a little different.

Goldman can be fairly characterized as the King of the Jungle-the alpha predator.  With its peers, Goldman devised, sold, and profited mightily from the complex derivative instruments that were supposed to stabilize and benefit the world economy, but instead almost brought it down. 

Even Goldman was humbled.  Hovering on the edge of insolvency, Goldman borrowed $10 billion from the Governments bailout fund.  In addition, the bank persuaded the feds to pay AIG’s counterparties 100 cents on the dollar, netting Goldman $13 billion, a sum which, if counterparty holders had been made to bear some of the pain, would have been substantially reduced.

And what did the Feds get for their largesse?  Not much, other than a package of warrants to buy Goldman stock.

The stock’s heading north (up more than 70 percent this year), and of course Goldman, having paid back the $10 billion, wants the Feds to give back the warrants for a relatively piddling sum.

As a company, Goldman manufactures nothing, builds nothing, designs nothing, and creates nothing-except coldly brilliant financial schemes and trading models, which have allowed it to make money in good times and bad.

It’s interesting to speculate how Goldman’s execs would have structured the bailout had the positions been reversed.

They would have demanded, on the government’s behalf, a big chunk of the firm’s equity and an equally big share of any future earnings.

But the Feds coddled Goldman, and its fellow predators.  Like a band of demented uber-environmentalists insisting that cougars ought to be reintroduced to New York’s Central Park, where they could feed upon chihuahuas and the occasional unwary jogger, the Feds bought into the “world financial collapse” scenario.  

So the perps not only walked-the victims paid them to commit the crimes.

Goldman, like its peers, is an organization composed almost entirely of young men and women of risk-taking age. If they weren’t at a trading desk, they’d be doing extreme sports, driving too fast, or free-climbing big walls.  Over 40?  Forget it-you’re outta there.

And if you think that the culture’s too risk-oriented, too sociopathic, or too predatory, don’t worry about it.

By the time things go seriously bad, IBG-YBG.

Meaning “I’ll be gone-you’ll be gone.”

There’s something very uncomfortable about having a government run by patsies, who sit back with goofy smiles and allow Goldman and its peers to socialize the risks, and privatize the profits.

When they make money, they keep it-and when they get in trouble, we bail ‘em out.

Remember Pan-American World Airways, once America’s flagship carrier?  Like GE, or GM, US Steel, it was a company that symbolized America’s world industrial dominance. It’s gone, swept away by the tides of history-allowed, in a different era, to fail when its business model was no longer relevant.

Gold man, like a junkyard dog fed scraps by naive passersby, is baaack-meaner, more vicious, and less communitarian than ever.

As Yeats wrote: “What rough beast, its hour come at last/slouches toward Bethlehem to be born?”


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