Not only did they pay back their
BailOut Bucks to the Feds already ($10 Billion worth), but Wall St. Titan
Goldman Sachs has announced that it is having a very good year. Goldman stock went to the moon
(tripling this year); Goldman employees are licking their collective chops in
anticipation of those hefty bonuses (think secretaries earning six figures!)
and it is business as usual in those hallowed halls again. Is this an example of the wisdom of the
BailOuts from last Fall, a poster-boy example of what went right when so much
went wrong? Or, does this raise
the aroma that Shakespeare long ago attributed to something smelling rotten
over in Denmark? (Apologies to "Hamlet."
Act I, Scene 4: Marcellus’ famously misquoted utterance upon seeing the ghost
of Hamlet’s father, the late king of Denmark.)
Goldman Sachs announced this week that
it earned $3.44 billion in the second quarter of 2009, exceeding expectations –
its largest bonus payout in history is likely coming soon. Last Fall, Goldman received $10 Billion
in TARP’s BailOut Bucks, converted itself from being an investment banker to being
a commercial bank with membership in the Federal Reserve System, and then lined
up at the Fed Discount Window to receive nearly free, or actually free at zero
percent interest, Fed money to use at its disposal in its financial operations. Goldman also thus became eligible for the
FDIC’s guarantees on its debt offerings – something which immeasurably
strengthened their position in a fragile marketplace.
And, lest we forget, instead of licking
its wounds over losses last Fall when AIG teetered, but did not crash, thanks
to – you guessed it, more Fed BailOut Bucks – Goldman also received some
additional $13 Billion of those TARP funds (on top of the $10 directly received
from the Fed) which were meant for AIG, in order to make AIG’s "trading
partners" (including Goldman) whole again. That’s the part nobody focused on last Fall – that bailing
out AIG also bailed out Goldman at the same time – the systemic risk that we
were made to believe last September that was about to bring the whole world of
high finance crashing down like the dishes in your kitchen cabinet at 4:31AM on
the morning of January 17, 1993 when the Northridge earthquake woke all of us
before our alarm clocks got the chance.
Goldman has had the magic touch
when it came to sending its partners and execs to Washington – the roll of
names is impressive and it includes: John Whitehead, Hank Paulson, Robert
Rubin, Josh Bolten, and many more.
Literally tens of millions of dollars have been contributed by Goldman
to members of Congress and the Senate, Presidents, and both political
parties. To say that Goldman has
been ‘good’ at politics is to say that Goldman has a lock on Washington and
those who staff our federal government there.
Life is good again for the Masters
of the Universe over at Goldman.
But, what’s wrong with this picture? Could it be that Goldman and the others have gone back to
their incredibly risky ways already in order to produce that $3.44 Billion in
Q2 2009 profit(?) – indulging in obscene amounts of financial risk, all while
"Regulators ought to be concerned and say ‘Is Goldman making this money with
any kind of reasonable prudence?’" Wilmarth asked using your money and mine,
and that of widows, orphans, people who dream of retiring some day, and people
who actually have retired and managed to stay retired through the stormy
economic times of late?
Bloomberg posed the (‘64 thousand
dollar’) question: "’Goldman Sachs’s results may raise a ‘fundamental
question,’ about Wall Street, according to Arthur Wilmarth, a professor at George
Washington University law school who specializes in issues related to banking.
"Do we think it would be good or desirable to go back to the status quo again?
. . . . Regulators ought to be concerned and say ‘Is Goldman making this money
with any kind of reasonable prudence?’"
Or, are we just gearing up for more
of the same – crazy risk + crazy profit = ultimate collapse?
There are always winners and
losers, regardless of where you look.
In the financial world that translates into survivors and roadkill. Goldman so far is a survivor – it’s Q2
profits make that startlingly clear enough. But, is Goldman’s new success, if it really is just new wine
in the same old bottles, based on exactly the kind of risky bets that we should
be dis-incentivizing now in our financial markets? We should have painfully learned our lessons from the
spectacular failures of companies like Bear Stearns and Lehman Bros so far this
year, all of which are all still too fresh in our memories. Let’s hope that, with the passage
of time, Goldman’s new successes do not reveal themselves to be just so much
more incredibly risky roadkill because we surely do not need that right now.