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Goldman Sachs’ little local difficulty

It can’t be a lot of fun working for Goldman Sachs these days (unless you are still making big dollops of money, that is). A former employee has, famously, come out with a fairly spectacular rant about his old firm. Some might regard this as a sign of speaking truth to power, others might say that if this man really felt as he did, he perhaps could have quit the Wall Street giant earlier than he did. It adds to the gaiety of nations. Even the Daily Mash website has got into the act. (I love that site). And Michael Bloomberg – good businessman, not-so-great NYC Mayor – has come to Goldman’s defence.

But while the Goldmans of this world, with their privileged access to central bank funds, bailouts, political pull and so on, represent that form of crony capitalism that has even normally friendly pro-market people up in arms, there are, maybe, signs that new banking businesses are being formed. Over at the Cobden Centre, Steve Baker MP has a nice piece contrasting the Goldman Sachs affair and the launch of a new bank.

In the meantime, my only caveat about all this piling on at the expense of Goldman Sachs is to point out that it is only one of a number of Western banks that have enjoyed the privileges of our quasi-statist monetary order. Goldmans may be a powerful, well connected institution, but it is hardly the only one of its kind.

21 comments to Goldman Sachs’ little local difficulty

  • RRS

    Because of its constant mis-use, the constant citation of Crony-Capitalism becomes nauseating.

    Please wake up to the fact that what is observed is not business people getting into and using politics (though that does happen) it is politics getting into business involvements for obvious Public Choice objectives.

    It is the reverse of getting money out of politics; we need to get politics out of money!

  • Laird

    I agree, RRS, although perhaps it could better be said that is it a reciprocal relationship: each hand washes the other, to their mutual benefit and (to abandon the metaphor) to the detriment of the rest of us.

  • Paul Marks

    One hand washes another only at first Laird.

    For example, the ICC benefitted established railroads (by de facto enforcement of a railroad cartel) – but eventually its regulations destroyed the the railroad companies (certainly in passenger traffic).

    Even in banking – the hand that gives the subsidies can also crush your throat.

    As Dodd-Frank-Obama (and so on) shows.

    As for Goldman Sachs – J.P. is right, they are scumbags.

    And he is also right that they are not the only ones.

    For example, Jamie Dimon (of J.P. Morgan Chase) has rushed to the defence of Goldman’s

    How noble of a man to rush to the defence of a competitor…..

    Accept that is not what Jamie Dimon is about (he is many thing – but noble is not one of them).

    What Dimon is scared of is the spotlight falling on J.P. Morgan Chase – where clients are also thought of as “muppets”, people who should be taken for every bit of money they have got.

    Indeed this the general attitude of the big Wall Street firms – they do not serve their clients, they regard their clients as food.

    Expose Goldmans and the whole goverment created cartel might start to fall apart – this is the fear of Jamie Dimon.

    Accept (whatever happens) the financial cartel is going to fall apart anyway.

    Most likely as early as next year.

    Of course there are honest people on Wall Street – but even Peter S. admits that he would be unable to build up his firm under current levels of regulation.

    If he was just starting out he would go nowhere, neither would Jim Rogers.

    There is a de facto financial cartel – government regulations and subsidies have created it, and it rips off anyone it can.

    However, in the end, not even the key members of the cartel will benefit from it.

    The tiger they are riding (as they happily eat their clients) will turn round and eat them.

  • Mendicant

    RRS, you have it bass ackwards. Politicians serve the interests of banks and other corporate entities in order to get cushy board jobs at said

    The government forced everyone to have a bank account in order to give the banks a captive market. The whole move away from cash (indeed the outlawing of cash in some parts of the economy), primarily benefits the bankers and no one else.

    Why, for example, if a person wants to buy a house, does he have to go through a pointless middleman (the bank)? The banks have become like a giant, fat, enormous corporate, communist bureaucracy, controlling all aspects of financial transaction, including in areas which are none of their business.

    The simple solution is to ban all donations to politicians, and ban all lobbying.

    An MP should only be serving his constituents, if he receives any bribes or donations he should be sacked and charged with treason. Simple.

  • RRS

    It is not truly “reciprocal,” in that in establishing a relation or connection for its benefit the Political Class (not just the elected) does not have to calculate a “cost” or “risk” to itself since those are handed off into the rest of society; whereas the business interest if it is seeking a benefit has to calculate the costs and risks of establishing any relation or connection, since it can not simply “hand-off.”

  • RRS

    Wow! Mendicant –

    If it were (which it ain’t) all that simple it could be resolved by (a) removing,(b) reforming, (c) replacing (d) resolving causes of [Pick you favorite] electorate apathy.

    Do MPs really represent the principles of their constituents? (If so is England untethered?) If not, why not? Do the constituents have principles or only interests (which conflict) [answer optional]?

    As an investor and analyst, I quite agree with you about the structure of some large financial entities, that are just too large to manage in this age of managerial capitalism. My experience with Wachovia (U.S.) and Washington Mutual have left me with a sense of enema-osity, but knowing it was my deficiency in the end.

    But, if you examine what you say, it sort of confirms what I was driving at – it is the political class getting involved in business, not business getting into politics.

  • Tedd

    I pretty much come down on RRS’s side on this one, with two further comments. It’s still crony-capitalism. And, while we might wish it otherwise, I don’t see any reason to expect businesses not to try to curry favour with the government. It’s up to voters to (a) not give the government the authority to do things that benefit specific businesses and (b) vote out legislators who try (especially, but not only, if they do so in their own self interest).

    Not that I expect that latter bit to happen any time soon, of course.

  • The whole move away from cash (indeed the outlawing of cash in some parts of the economy), primarily benefits the bankers and no one else.

    Surely you jest? The primary beneficiary of banning cash is not bankers, it is THE TAX MAN.

  • Sam Duncan

    Hear, hear, RRS!

    What I object to about the term “crony capitalism” is that it has the word “capitalism” in it, so people ill-disposed towards the good kind, and those willing to be persuaded by them, fixate on that part and not the “crony” part. It’s like a mirror image of Gorbachev’s “communism with a human face”: sounds all nice and fluffy, but it was still bloody communism. “Crony capitalism” doesn’t sound half as nasty as it actually is, and what it is has precious little to do with capitalism.

    Mind you, having said that, I’m not entirely convinced about the word “capitalism” either…

  • Regional

    You don’t sell shares in a really profitable goldmine.

  • Alisa

    One hand does wash the other, but only one of them holds the gun.

  • Alisa

    …which is to say, ‘what RRS said’.

  • Alisa

    …or, as I-forget-who put it: the only relevant question here is who can shut down whom.

  • Alisa

    BTW, how come this was never all over the news? Don’t answer that.

  • RRS

    Alisa –

    The answer you want could (but won’t) be supplied by the present head of the IMF, who had a quite different responsibility with respect to the reserves of French banks that relied on AIG “insurance” for the tier positions and valuations of purported “assets.”

    GS maintained, and it has never been disputed (as I recall) that they held “adequate collateral” (probably T-Bills) to cover AIG obligations to GS in the events of cascading defaults or values.

    Listen carefully to what Shep reads about the AIG statement; then remember that it was the European placements made through the AIG London office that blew the hole in the hull.

    Though I may not be a big fan of GS, their risk management relied in collateral, not memoes to CYA.

  • Alisa

    This is the part where my brain begins to hurt, RRS.

  • Paul Marks

    Medicant – which banks benefitted from Dodd-Frank-Obama?

    And Congressman Frank and Senators Dodd and Obama recieved the most banker bribes (sorry campaign contributions) in the years just before the present crises.

    Some businessmen think they can ride the tiger (pay off local thugs, “Community Activists”, in Chicago – and the big thugs in Washington D.C.).

    “In return for campaign contributions and promises of nice jobs, these people can be tamed – indeed they can be very useful to us by……”.

    But, in the end, the tiger always ends up eating them.

    As Lenin said.

    “The Capitalists will sell us the rope with which we will hang them”.

  • RRS

    The Marks Organization:

    From what you have written before, it is doubtful that you really think Lenin understood the “capitalism” (as he alluded to it) of his day; any better than say Marx, or the more experienced Engels.

    Similarly, it seems doubtful that you do not recognize that most of the financial “industry” actions have been defensive, and by their reactions (they did not initiate or instigate anything) seek to establish means of damage control as the flood of political action (aimed at populist sentiments) rose out of rational bounds.

    The Political Class (including the unelected and the Academic symbiots) initiated actions, all for the varying Public Choice reasons of their positions in our society. The Crisis (especially if it could be intensified) was too valuable to waste.

  • Alisa

    I think that I’ve already mentioned that I’m with RRS on this. Still, I think it’s a bit too generous to describe the financial industry’s actions as merely ‘defensive’. Human nature is opportunistic, and it that includes bankers as much as anyone else.

  • Alisa

    Sorry RRS, didn’t mean to address you in third person…:-)

  • Paul Marks

    I really do not think that RRS and myself have an argument here.

    I am the most argumentative person alive (only natural for an Irish/Jewish cross breed I supose), but I can not see anything to argue with in what RRS (or Alisa) have to say.