Unwinding the Goldman Sachs Myth 30 comments
Daniel Harrison
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Rolling Stone writes about as accurately about the banking industry as the pop stars the magazine more regularly profiles tell the heavily mythologized stories of their biographies.
In a recent sensational article titled The Great American Bubble Machine, Matt Taibbi “exposes” Goldman Sachs (GS) for what he sees as a giant, greedy, political money machine which purposely calculates how it can do the most possible harm to the U.S. consumer in order to extract the vastest sums of money:
The bank’s unprecedented reach and power have enabled it to turn all of America into a giant pump-and-dump scam, manipulating whole economic sectors for years at a time, moving the dice game as this or that market collapses, and all the time gorging itself on unseen costs that are breaking families everywhere - high gas prices, rising consumer-credit rates, half-eaten pension funds, mass layoffs, future taxes to pay off bailouts.
Unfortunately, Taibbi is not alone in harboring these paranoid fantasies about the bank. As one commenter on The Atlantic’s business blog points out:
Goldman Sachs absolutely deserve to be called out for over-profiting on Americans & we all need to be aware of how they will benefit from the Cap & Trade proposal.
The facts are Hank Paulson was their ex-CEO & not only gave them $10 Billion tax dollars, but a healthy part of AIG’s $150+ Billion went into their vaults. Obama is also going against his own word & aiding Goldman, by permitting their head lobbyist to be Tim Geithener’s cheif of staff @ Treasury. What happened to the NO LOBBYIST in my administration promise??
Even The Atlantic’s business writer Daniel Indiviglio confesses that he “found [himself] agreeing with a fair amount of the article as well, but I think it ventures a little too far out into conspiracy theory land.”
And according to left-wing blog Daily Kos, Goldman Sachs is responsible for our personal spending habits, too (and believe it or not, maybe even Michael Jackson’s death):
Goldman Sachs is a wealth devouring machine; its core business is to produce consumers. Like the old days, we become serfs, indentured for life with the promise of happier lives via the american dream and home ownership. The catch? Well, it’s structured in such a way as to pay two/three times what the property is worth and, just for good measure, we are conditioned to create even more debt, which will make us even happier, because we can fill our homes with STUFF and our yards with STUFF. Keeping the ever-expanding model of consumerism alive.
If such theories seem beyond absurd to the discerning reader, remember that for the vast majority of ordinary Americans, they also seem entirely plausible: hence the impact of Taibbi’s article.
The Real Goldman Sachs
So what exactly is Goldman Sachs? Essentially, the bank is a giant sales-trading machine with dubious research and excellent risk-management systems. It’s a hedge fund wrapped into the organizational structure of an investment bank, which allows it to weather the ups-and-downs of market volatility far better than most funds, which are often purely leveraged trading vehicles.
Actually, Goldman Sachs has a far greater corporate finance component than many assume, too, which, contrary to popular belief, does not exist purely to serve the firm’s trading divisions.
On a personnel level, Goldman Sachs is really no different to what McKinsey is in the consulting world: a firm where the best employees get to take their credentials on to the upper echelons of Washington DC, or to whatever corporate boardroom in the United States they choose. It’s a firm with a “life-long” culture, as I have pointed out at BNET Finance before.
But that doesn’t make it scheming or evil … and most of all, the structure and the culture does not make it infallible. Ask most investors, however, and you wouldn’t necessarily know that. The firm’s shares are up 75% so far this year, giving Goldman a price-to-earnings ratio of 31.
The problem is, Goldman Sachs needs big market volumes to come out trumps up every quarter and to be able to make the kind of money it does to pay the hefty bonuses it just has to key employees. With volumes easing over the summer, any significant turn in risk appetite at the same time may just show pundits and investors alike that, contrary to Taibbi’s assumptions, the bank is far from infallible.
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This article has 30 comments:
Miraculous, isn't it that the system has enabled those responsible for the financial fiasco to escape with the loot whilst landing the bill on the taxpayer, benefiting the well-connected elite and impoverishing the middle-classes?
Considering that it was all just darn bad luck according to the author.
Evidently he does not consider that regulatory capture can play any part, that Paulson was entirely even-handed in dishing out the goodies even though he is an ex luminary of GS.
The Financial system with GS at it's heart has also not via it's attack dogs at the IMF forced poor countries to ruin their agriculture by opening up to 'free trade', meaning subsidised US and EU foods were dumped.
It is also heavily implicated in the whole neo-con and Chicago school agenda regarding military policy in the Middle East.
If that is not scheming and evil, I don't know what qualifies.
Goldman Sachs is the system, and the system has been corrupted to the degree that conflicts of interest are not even recognised.
They are not solely responsible, but are at the heart of the corrupt oligarchy which is sucking the West dry.
On Jul 02 08:47 AM RSAAKS wrote:
> I did not find any examples of Goldman's actions which would make
> me believe your conclusion. Yes, they have taken money from AIG,
> and have sent many employees on Fed's payroll. But how are they forcing
> people to consume more or borrow more? I fail to see your point,
> at least from this article, and fail to see what editor's like so
> much in it.
nuff said.
> jack
Goldman, Paulson are guilty as charged. The Congress is guilty by way of association if nothing else.
These crooks are stealing every dime of the bailout money. This has to be the greatest robery in th ehistory of the world and there are dumbasses like you defending them
As thin as you claim this article to be (and it was written at a requisite RS 6th grade reading level), your drive-by assessment brings nothing at all to the table. Your last paragraph even casts doubt upon your entire premise-
<<The problem is, Goldman Sachs needs big market volumes to come out trumps up every quarter and to be able to make the kind of money it does to pay the hefty bonuses it just has to key employees. With volumes easing over the summer, any significant turn in risk appetite at the same time may just show pundits and investors alike that, contrary to Taibbi’s assumptions, the bank is far from infallible.>>
In this very statement, you sum up the moral hazard endemic to such firms. When you're managing a "hedge fund" of Other People's Money, and your skin in the game is either a $300K salary with no bonus or an $80 million bonus, the risks you take can be legendary. To think these risk/reward profiles attract sober-minded individuals, encourage fair play, or bring out the best in people is dangerously naive.
Perhaps I would feel different if GS was still a partnership, rather than a publicly traded firm awash with money from the taxpayers.
Your article does nothing to unwind anything. In short, you just claim that all these guys are wrong in their accusations and that GS is just an honest private bank making money because they are smarter than the rest.
Obviously, you haven't even bothered to read a single piece of evidence to the contrary and there are TONS of it.
heck, some of the allegations may indeed be false, but the case against goldman as such, is outright overwhelmingly convincing. And by extension, the case against the FED (and JPM), too.
But of course, everybody is free to live in his own state of denial as long as he pleases.
We need to give careful thought as to the purpose such institutions serve and the price at which they serve that purpose. Currently these folk get paid as if they have solved the problem of world hunger and developed a pill to cure cancer - in a sinlge dose!
On Jul 02 08:58 AM john s. gordon wrote:
> in july 2008 GS pumped oil to 147/bbl on the premise that 'excess
> demand existed'.
> nuff said.
Let’s do a search and replace on this article with GS for MSFT and Wal-Mart. It reads the same. Google is next as we can clearly see from the sociological experiment.
One guy is even British and complaining about how our taxes are being used. Hey man, we’re right behind you with our healthcare…and they thought the lines at the DMV were long.
Where is Janeane Garofalo? “People that attend the “tea parties” are red-necked racists.” People that don’t like the “tea parties” are little trolls that don’t like freedom, especially if they don’t agree with them – Call them racists, that always stirs the pot. It lets people get away with murder, doesn’t it OJ?
This “rant” is as rambling as these thumbs up comments.
BOTTOM LINE – If GS has this power, BUY THEM AND MAKE MILLIONS! FREEDOM bitches, FREEDOM!
GS definitely laddered Tech IPOs during the internet bubble; I was a customer that paid millions in commissions to them and I still had to play their ‘game’ or they would cut you out of future IPOs.
GS must have badly pulled the wool over the eyes of my CIO at a public pension plan in a multibillion bond trade in the late 1990s. Our CIO resigned within hours of our board being made aware of the trade with GS. The transaction and his resignation were never discussed with the employees even those like me that reported directly to him. That would make anyone like me that lived through something like this very suspicious on what actually went down…it couldn’t have been good.
GS has been pushing green alternative investments for the last two years in their equity strategy gearing up for climate change legislation coming out of Washington. They have also been investing lots of their own money. They may think this is smart, prudent investing or they may also have a peek into Washington’s plans. I hate to say that I think it’s more of the latter.
So as a former buy side institutional investor, I feel I know a few things about ‘the street’ and GS and what Matt outlined doesn’t surprise although he probably overreached a bit journalistically here and there to make some major points. Overall, I enjoyed the article and I know I have and will always watch my own back doing business with the smart and connected GS gang.
That's a cute way to make money on GS - but you have to be buffet and come with his reputation and cash-hoard exactly in times of a crisis.
> BOTTOM LINE – If GS has this power, BUY THEM AND MAKE MILLIONS! FREEDOM
> bitches, FREEDOM!
They have too much power and need to be reined in.
And as this edge gets "discovered" by the masses, new hidden venues are developed (dark pools, hidden program trading stats, etc) to retain the edge. This comes with the governments blessings, from current and former political patronage.
This skews the results and is anti competitive front running...maybe not illegal, but contrary to the mass market for sure.
One thing I do understand, is that when GS hit the low 50s, I bought a lot of shares. I dont care if they shoot cash into space or shove it in their asses. I have almost tripled my money in less than six months.
So keep bashing GS and giving thumbs down to people that don't agree with you.
On Jul 02 11:23 AM User 305589 wrote:
> It's obvious that you even don't understand the basics about Goldman
> - all ''conspiracies'' or non-conspiracies aside. They make a ton
> of money, yes, but it goes straight into the pockets of the partners
> and the employees. shareholders get a small fraction, at best and
> are first in line for the losses. don't you think there was a reason
> that Buffet only invested in GS via perpetual 10% preferred stock
> with a clause that prevents goldman top execs to cash out of GS before
> he does?
> That's a cute way to make money on GS - but you have to be buffet
> and come with his reputation and cash-hoard exactly in times of a
> crisis.
You got into the stock at a great price, rode it up and made money. fine. You could have done almost the same (with similar performance) with BAC, WFC...
But what has catching a stock market rally to do with GS, and the way Goldman Sucks its profits out of the US economy and the taxpayers (or doesn't suck tmne out this way, as you and/or the author of this article might alledge) ?
p.s. you seem to care a lot about other people's opinion regarding yourselves, when just one down-thumbing of your comment by some anonymous reader already stirres your blood pressure.
On Jul 02 12:01 PM Gravity404 wrote:
> Thanks for clarifying MY understanding of GS.
>
> One thing I do understand, is that when GS hit the low 50s, I bought
> a lot of shares. I dont care if they shoot cash into space or shove
> it in their asses. I have almost tripled my money in less than six
> months.
>
> So keep bashing GS and giving thumbs down to people that don't agree
> with you.
>
In Australia we have "Maquarie Bank" if you do not think they are similar, next time you get robbed while paying for something at an airport, be sure that Maquarie own it.
When you invest in stocks, by contrast, the theory is that you have as good a chance as anyone else to come out ahead.
GS, by its manipulations, has turned stock investing into a casino experience. They thrive on OTM--not because they are wiser, but because they can game the system, with the help of political connections. Who, besides Mr. Harrison, wants to argue that that is a good thing?
1. They pay 1% in taxes. Individuals pay more than 50% when you add all of the federal, state, sales, and payroll taxes.
2. Goldman pumped the price of oil in JUL 08 saying it was going to $200. At the same time they were liquidating their long positions and opening short positions.
3. Goldman sold CDO's, CMO's, and other structured debt products to their clients while at the same time shorting these instruments for their personal account.
4. Goldman got payed 100 cents on the dollar for their CDS with AIG after the government (Paulson, Treasury Secretary) seized the firm and put another Goldman guy in as CEO at AIG. If AIG had been allowed to fail and gone into bankruptcy, Goldman would not have gotten payed in full. They needed their "friend" in Washington to fix this.
5. Hank Paulson goes to Congress in October and says if you do not give the bankers $700 billion, the economy will implode and we will have a depression. This is economic terrorism. Paulson then hands $25 billion to his own firm GS. Conflict of interest? Criminal behavior? You bet. Oh--and what happens immediately after the bankers get their 700 billion? The markets crash 23% in 7 days.
6. The next sin that GS will committ is regarding carbon credits. GS supports cap and trade so that they can manipulate the carbon credit market and make 10's of billions. You will literally be paying your carbon taxes directly to Goldman Sachs.
7. You are incorrect in your assertion the Goldman people are somehow smarter than everyone esle. It is easy to make money trading when you have a direct line to the US treasury and know what is going to happen before everyone else. Its called insider information. They are not smart, simply criminal.
These are the facts. What's good for Goldman Sachs is not good for America. But dont expect the SEC to do anything. Why? GS was one of the largest contributors to Obama.
you might find it at least coincidental that the Tulsa firm you refer to ended up suing or trying to sue someone for their troubles. That someone was Goldman, who tried to do a deal for them but found limited interest. In the process of representing them, Goldman allegedly had access to their books and knew their oil positions intimately. Some posit that Goldie put the squeeze on them, knowing they had a massive short on oil.
On Jul 02 10:50 AM Augustus wrote:
> That is about as nutty a conspiracy theory as any others presented.
> If you look closely at the news reports you might find that July
> '08 was when that oil trading firm in Tulsa went TU. That was not
> Goldman with all those positions. And I'm not even sure that the
> Tulsa traders were responsible for the high prices.
On Jul 02 02:56 PM Peter Iwanowicz wrote:
> A little too much conflict of interest going on here for my taste
My point is simple - It is clear you are aligned with Nacy and Harry, so let's use an issue near your heart - executive pay. If GS produces shareholder value, then large bonuses are fine with me.
15% of GS is owned by insiders and another 68% is owned by institutions like Barclays, State Street, Vangard, Janus, etc. The executive pay committee on the BOD makes those decisions.
Another thing which you point out incorrectly to make your point, is the money they received from the Fed for AIG, was owed to them. They just didn't give them money because they're a bunch of fat, old rich, white men.
On Jul 03 05:14 AM User 305589 wrote:
> what conflict of interest? There are just Goldman's interests - nothing
> else.
Tim Geithner www.washingtonpost.com...
John Thain www.thedailybeast.com/.../