2 December 2009. You wouldn't normally expect Bloomberg, that bastion of free market capitalism, to publish seditious material, but that is exactly what they have just done.
This little gem was written by no less a figure than Alice Shroeder, a former Managing Director of Morgan Stanley and now an author and columnist. She describes how, unnerved by mounting negative headlines and outright hatred that is being directed at their firm, Goldman Sachs executives are getting guns to defend themselves when the hordes roll up with pitch forks (or maybe just with money bags for donations, as Michael Moore did in Capitalism a Love Story).
This story has so many in fascinating angles, the most amusing of which is the way Alice describes the sheer impracticality of this approach.
Common sense tells you a handgun is probably not even all that useful. Suppose an intruder sneaks past the doorman or jumps the security fence at night. By the time you pull the pistol out of your wife’s jewelry safe, find the ammunition, and load your weapon, Fifi the Pomeranian has already been taken hostage and the gun won’t do you any good.
She goes on to say that a little humility, maybe an apology or two may be in order.
Until a couple of weeks ago, that was obvious to everyone but Goldman, a firm famous for both prescience and arrogance.
Lloyd Blankfein, Goldman's CEO, had famously said that the firm was doing 'gods work', but in the last few weeks he sort-of apologised, saying some things that were done were 'clearly wrong'.
There is something we would add to what Alice has said. Now we should include a health warning at this point. If you are a banker reading this, please sit down and take a few deep breaths.
Bankers should have voluntarily reduced their bonuses.
I'm sorry to strike at the heart of what you hold most dear, my banker friends, but the culture of bonuses really is rotten. In their last quarter, for example, Goldman execs earned $23 billion in bonuses - half of their total earnings.
The irrepressible Henry Blodget in an interview with Whitney Tilson, Founder and Managing Partner of T2 Partners, said it is 'blindingly obvious' that capital requirements need to be raised. After all, these firms ran out of money and needed a government bailout. Banks should therefore be squirrelling away their profits now, to be able to withstand 'financial tsunamis' that could happen down the line. A few hundred trillions dollars worth of outstanding derivatives, anyone?
But instead of building up their capital base they are padding their own pockets. Whitney gave an excellent analysis of how this bubble has built up thanks to deregulation, and supports former Fed Chairman Paul Volckers suggestion that we need to bring back the separation of big boring deposit banks from flashy freewheeling investment banks, who could no longer be Two Big to Fail.
Whitney then points out this is unlikely to happen as Volcker was politely trashed by the cover of the Wall St Journal - and, we might add, is being politely ignored by Obama.
So although the very smart guys at Goldman might realise the clever thing to do to stop being so hated would be to be humble, apologise and take smaller bonuses, they don't want to do that. Duh! They want the bonuses! Ergo, they want to be hated and the want the firearm. They think of their business as being financial warfare anyway, and toting a gun feels kind of macho.
More scary for Goldmans - and Alice's former employer Morgan Stanley, and the rump of Bear/ Merrill/ Lehmans in their new homes - is the fact that the whole scam might be exposed. It was really suprising to read this bit in Bloomberg, by a participant in the grand charade no less.
Henry Paulson, U.S. Treasury secretary during the bailout and a former Goldman Sachs CEO, let it slip during testimony to Congress last summer when he explained why it was so critical to bail out Goldman Sachs, and -- oh yes -- the other banks. People “were unhappy with the big discrepancies in wealth, but they at least believed in the system and in some form of market-driven capitalism. But if we had a complete meltdown, it could lead to people questioning the basis of the system.”
There you have it. The bailout was meant to keep the curtain drawn on the way the rich make money, not from the free market, but from the lack of one. Goldman Sachs blew its cover when the firm’s revenue from trading reached a record $27 billion in the first nine months of this year, and a public that was writhing in financial agony caught on that the profits earned on taxpayer capital were going to pay employee bonuses.
This slip-up let the other bailed-out banks happily hand off public blame to Goldman, which is unpopular among its peers because it always seems to win at everyone’s expense.
Plenty of Wall Streeters worry about the big discrepancies in wealth, and think the rise of a financial industry-led plutocracy is unjust. That doesn’t mean any of them plan to move into a double-wide mobile home as a show of solidarity with the little people, though.
The bailout was designed to protect the banking system - in other words, the banks - not the economy or the general public. That is fairly obvious once you understand that the Federal Reserve is a private bank, set up in 1913 to protect the banks. The system is doing what it is supposed to do, which is help financiers make money by keeping the rest of us indebted.
Goldman Sachs is the current poster child for hatred of what in Britain are called Fat Cats, and is even being used as a punching bag by its financial counterparties. They might be the smartest money makers in the game (although they clearly don't have the best PR department), but they are just a part of a system which has a monopoly on the money supply in private hands, and which therefore can pretend to be the defender of the free market when it is designed to do precisely the opposite. The implication of the article is clear. The system itself needs to change.
Thanks for the sedition, Bloomberg.