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The 3G Problem: Goldman Sachs, Greed and Government

|Includes: Goldman Sachs Group Inc. (GS)

A recent Pew Research Center poll found that only 22% of those surveyed said they felt they could trust the Federal Government always or most of the time and only 19% said they were happy with its performance.[1]  The poll also found that about half of those surveyed wanted Government to be smaller and do less while an almost but not quite equal number want it to do more. 

So that is our dilemma as a nation, we are divided about what we want the government to do and how much, but when it does act we rarely are satisfied with the result or how much it costs. The result is this rise in cynicism and mistrust which begets things like the TEA party and the current vilifying of Wall Street.  How does that old joke go?  You know the one where the trader says he is “shocked” to learn that there is greed on Wall Street.

If we had more trust that the Government was really looking out for our public best interests we might be more sanguine about the call for scalps at Goldman Sachs.  We might wonder less that this might be some orchestrated witch hunt taking place, coincidently, just as Congress debates a financial reform bill. I’m “shocked” to hear that Congress and the Administration might beat up on someone to score political points and pander for votes. Shocked!

While alleging that Goldman Sachs made money betting on both sides of a transaction might make for good headlines it is hardly news.  There is an entire industry built around hedging bets and mitigating risk.  In fact we count on it to reduce the overall cost of risk in virtually every transaction.  To turn that behavior into something more sinister than it is imposes more risk in our transactions.

That said, I do not know whether Goldman Sachs has done anything illegal but I am suspicious that the SEC has seen fit to bring only civil charges in the matter.  That suggests one of two things either this is about scoring political points and vilifying Wall Street for the sake of getting the President’s Financial Reform Bill passed---or the Government does not have a case sufficient to bring criminal charges or is unwilling to risk proving its charges “beyond a reasonable doubt” so it defaults to the lower civil suit “preponderance of the evidence” burden of proof.  The latter is the favorite tactic of politicians---ask Elliott Spitzer or Andrew Cuomo or Richard Blumenthal.  But the tactic does little to improve the markets nor does it raise our confidence in the fidelity of government.

So what?

The Great Recession brought with it increased cynicism and mistrust of Government and Wall Street for causing or aiding and abetting the mess.  This is not new news.  But like every forest fire it also sows the seeds of renewal and transformation as mistrust is transformed into civic action, voter angst turns to action, new ideas and reforms surface, and great debate ensues in search of consensus.  This is the true genius of the Founders who created a system balanced and self correcting.  Who wisely limited the powers of Government and gave the People the right and ability to take back the Government from any who abuse our trust. If the Great Recession turns into the Great American Renewal it will be our most fitting tribute to the Founders.

Transparency is a wonderful thing in Government and on Wall Street.  Fixing real problems like those created by credit default swaps, securitized mortgage bonds that really weren’t, over leveraging and taking too much risk because you are doing it with someone else’s money---not yours, can all be fixed by exposing the transactions to sunshine before they close.  Congress should do more of that and do less social re-engineering and wealth transfer in order to restore the public trust and get business focused again on creating jobs and growing their business and thus our economy rather than covering their backside or waiting for the next tax, taking or target of the Government to be revealed.

There ends the rant!

Disclosure: No positions in Goldman Sachs