Blankfein's Goldman Defense

By James Kwak

Blankfein Defends Goldman Sachs Against Breakup.

That’s the title of a Bloomberg article that also cites Bernie Sanders and Simon. Here are the direct quotes from Blankfein:

“Our business is very complex, and I won’t deny that, but it’s far, far simpler than most of the competitors. I wonder myself how some of these things get managed.”

“Most of the activities we do, and you can be confused if you read the pop press, serve a real purpose. It wouldn’t be better for the world or the financial system [to change the firm’s activities].”

“We pretty much stuck to our investment-banking knitting. That’s why we have 30,000 people and many of our competitors have well over 200,000 or 300,000 people.”

I more or less agree with most of this. It makes sense that investment banks should underwrite securities, trade those securities, and trade derivatives, and should advise corporate clients engaged in large financial transactions, although I’m less sure why Goldman (GS) needs to be in proprietary trading, private equity, and asset management. Goldman clearly makes more sense as an entity than, say, Citigroup.

But that’s not the question. I don’t think anyone doubts that at $1 trillion in assets (plus derivatives exposures), Goldman is too big to fail. The real question is not whether Goldman should be in a different mix of businesses. The question is whether a $1 trillion Goldman provides any value to the world that wouldn’t be provided by four $250 billion Baby Goldmans. (Each Baby Goldman would be about the size that Goldman itself was in 1998, when it was already one of the top two investment banks in the world, and the corporate world had no apparent constraints on financing.) I don’t think Blankfein answered this question.

Comments

[ushercules:]

the little babies are sick with swine H1N1 swine flu or became handicap and can't do anything;
Big boys are big boys, little ones will take time to grow but you can't wait for little ones to grow to move forward on this sick, screwed up economy;
I don't understand why don't these analyst including you can't understand the urgency of handling the difficult stuff with big boys are much better than waiting for little ones to grow; also who knows these little ones will grow or will become incompetent idiots.

Think positive, good luck and Have a good night;

Nov 11 12:46 AM

[Harry Tuttle:]

Goldman has become a hedge fund backed by an implicit government guaranteed.

Nov 11 11:13 AM