Would America be a better place without Goldman Sachs (NYSE:GS)? Of course it would. The "vampire squid" of Wall Street does not care about the future of America. Sadly, Goldman Sachs apparently does not even care much about their own clients. What Goldman Sachs is all about is making as much money as humanly possible. In the end, there is nothing wrong with making money, but there are constructive ways to make money and there are destructive ways to make money. Unfortunately, Goldman Sachs seems to find the destructive path almost irresistible.
Greg Smith, the head of the U.S. equity derivatives business for Goldman Sachs in Europe, the Middle East and Africa, made headlines all over the world on Wednesday when he resigned publicly from Goldman Sachs in a scorching editorial in the New York Times. Smith said that he could "honestly say that the environment now is as toxic and destructive as I have ever seen it". Considering what we know has gone on at Goldman over the past decade, that is very frightening to hear. So could this be the beginning of the end for Goldman Sachs? And if it is, will America be a better place when Goldman is gone?
You would think that at some point clients of Goldman would become so sick and tired of the stories of corruption coming out of the firm that they would simply walk away.
Unfortunately, corruption is so endemic on Wall Street that Goldman Sachs really does not seem out of place. The truth is that a lot of the things that are said about Goldman could also be said about JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), Citigroup (NYSE:C) and Morgan Stanley (NYSE:MS).
But in recent years Goldman Sachs has truly become a national symbol of what is wrong with our financial system. As the American people become fed up with institutions such as Goldman, hopefully we will start to see some of them disappear.
The following are 11 reasons why America would be a better place without Goldman Sachs....
#1 Even after all of the negative publicity we have seen in recent years, Goldman Sachs appears to not have learned any lessons. The following is how Greg Smith described the three ways to get ahead at Goldman Sachs....
"What are three quick ways to become a leader? a) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) “Hunt Elephants.” In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym."
#2 Goldman Sachs is one of the too big to fail banks and those banks just keeping getting bigger than ever. Back in 2002, the top 10 U.S. banks controlled 55 percent of all U.S. banking assets. Today, the top 10 U.S. banks control 77 percent of all U.S. banking assets. So if we couldn't afford to let them fail back in 2008 because they were so big, why did we allow them to become even larger?
#3 The Federal Reserve shows great favoritism to big Wall Street banks such as Goldman Sachs. For example, between December 1, 2007 and July 21, 2010 the Federal Reserve made 814 billion dollars in secret loans to Goldman Sachs.
#4 Goldman Sachs is at the heart of the derivatives bubble that threatens to throw the entire global financial system into chaos. At this point, Goldman Sachs has over 53 trillion dollars of exposure to derivatives.
According to the New York Times, the big Wall Street banks completely control derivatives trading. In fact, the New York Times says that representatives from JPMorgan Chase, Goldman Sachs, Morgan Stanley, Bank of America and Citigroup hold a secretive meeting each month to coordinate their domination over the derivatives market....
On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan.
The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.
#5 Goldman Sachs was at the very heart of the financial crisis of 2008 which plunged the entire global economy into a very deep recession. In the years leading up to the financial crisis of 2008, Goldman Sachs was putting together mortgage-backed securities that they knew were garbage and they marketed them to investors as AAA-rated investments. On top of that, Goldman then often made huge bets against those exact same securities which turned out to be extremely profitable when those securities crashed and burned.
The following is how the New York Times described what was going on at the time....
"Goldman was not the only firm that peddled these complex securities — known as synthetic collateralized debt obligations, or C.D.O.’s — and then made financial bets against them, called selling short in Wall Street parlance. Others that created similar securities and then bet they would fail, according to Wall Street traders, include Deutsche Bank and Morgan Stanley, as well as smaller firms like Tricadia Inc."
Sylvain Raynes, an expert in structured finance at R & R Consulting in New York, said at the time that he was absolutely shocked by what Goldman was doing....
"The simultaneous selling of securities to customers and shorting them because they believed they were going to default is the most cynical use of credit information that I have ever seen"
#6 Goldman Sachs played a huge role in getting Greece, Italy and several other European nations into so much debt. The following is an excerpt from an article by Andrew Gavin Marshall....
In the same way that homeowners take out a second mortgage to pay off their credit card debt, Goldman Sachs and JP Morgan Chase and other U.S. banks helped push government debt far into the future through the derivatives market. This was done in Greece, Italy, and likely several other euro-zone countries as well. In several dozen deals in Europe, “banks provided cash upfront in return for government payments in the future, with those liabilities then left off the books.” Because the deals are not listed as loans, they are not listed as debt (liabilities), and so the true debt of Greece and other euro-zone countries was and likely to a large degree remains hidden. Greece effectively mortgaged its airports and highways to the major banks in order to get cash up-front and keep the loans off the books, classifying them as transactions.
#7 Goldman Sachs is working very hard to help state and local governments sell off our highways, water treatment plants, libraries, parking meters, airports and power plants to the highest bidder. Much of the time foreigners are the highest bidders for these precious infrastructure assets.
The following is how Dylan Ratigan described what is going on....
On Wall Street, setting up and running “Infrastructure Funds” is big business, with over $140 billion run by such banks as Goldman Sachs, Morgan Stanley, and Australian infrastructure specialist Macquarie. Goldman’s 2010 SEC filing should give you some sense of the scope of the campaign. Goldman says it will be involved with “ownership and operation of public services, such as airports, toll roads and shipping ports, as well as power generation facilities, physical commodities and other commodities infrastructure components, both within and outside the United States.” While the bank sees increased opportunity in “distressed assets” (ie. Cities and states gone broke because of the financial crisis), the bank also recognizes “reputational concerns with the manner in which these assets are being operated or held.”
#8 At the same time that Goldman Sachs is causing all sorts of trouble for everyone else, their employees are making crazy amounts of money. During 2010, employees of Goldman Sachs brought in more than 15 billion dollars in total compensation.
#9 Goldman Sachs has way too much influence over the federal government. There is a reason why it is commonly referred to as "Government Sachs". No matter who is the White House, people that used to work for Goldman and other big Wall Street banks always seem to be crawling around.
Last year, Michael Brenner wrote the following about the composition of the Obama administration....
Wall Street's takeover of the Obama administration is now complete. The mega-banks and their corporate allies control every economic policy position of consequence. Mr. Obama has moved rapidly since the November debacle to install business people where it counts most. Mr.William Daley from JP Morgan Chase as White House Chief of Staff. Mr. Gene Sperling from the Goldman Sachs payroll to be director of the National Economic Council. Eileen Rominger from Goldman Sachs named director of the SEC's Investment Management division. Even the National Security Advisor, Thomas Donilon, was executive vice president for law and policy at the disgraced Fannie Mae after serving as a corporate lobbyist with O'Melveny & Roberts. The keystone of the business friendly team was put in place on Friday. General Electric Chairman and CEO Jeffrey Immelt will serve as chair of the president's Council on Jobs and Competitiveness.
#10 Employees from Goldman Sachs pour way too much money into our national elections. In 2008, donations from individuals and organizations affiliated with Goldman Sachs donated more than a million dollars to Barack Obama. This time around they are pouring huge amounts of cash into Mitt Romney's campaign.
#11 Goldman Sachs is still a "vampire squid" as Matt Taibbi once so famously proclaimed in Rolling Stone....
"The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled dry American empire, reads like a Who's Who of Goldman Sachs graduates."
Once again, there is nothing wrong with making money. And there is certainly nothing wrong with working in the financial system. But there is a right way to do things and there is a wrong way to do things.
Goldman Sachs is doing things very much the wrong way, and America would be a better place without them.