Tuesday, May 17, 2011
Thoughts on NYT and Goldman.
The New York Times today continued the glorification of Goldman Sachs. The article trumpeted the careers of the best and the brightest luminaries that have led Goldman in its transition from a partnership to public firm.
What is lost in this presentation of Goldman as the successful center of the world of finance is how that success has morphed. The financial meltdown caused aggregate losses to financial institutions that have yet to be tallied, though the numbers $2 to $4 trillion are bandied about. Goldman, much as their PR efforts have denied it, would itself have collapsed in the absence of the bailout of AIG counterparties and conversion to a Fed-eligible bank holding company. Why on earth Goldman fit the profile of "systemically important"—warranting extreme public actions to assure its continued life—is one thing, but to continue on with the hubris and arrogance, and ignore the fact that financial institution losses not only took down the world as we knew it, but also wiped out a century of earnings.
In the old days of Wall Street partnerships, these losses would have wiped out the Street, and the partners would have lost much—if not all—of their personal wealth. That is why it would have been unlikely to happen. Back in the day, each of those partners had the others looking over their shoulders, scrutinizing their business, their trades and their risk. It was a real market system, and the feedback was exacting. Partnership risks were assessed by those best able to understand them—unlike the well-documented, feeble efforts of under-staffed, and intellectually less capable regulators—and unreasonable risks and trades were taken off the table by those who had their own wealth at risk.
So tell me again how this works today? Heads we win, tails you lose? We are the best and the brightest when the bets turn our way, and you hold us harmless when we are wrong. Good deal for them. Bad deal for us.
Ah, what happened to the capitalism of my youth.
Posted by David Paul at Tuesday, May 17, 2011