Goldman Sachs Web of Government Influence

Goldman ‘Government” Sachs have become the anointed oligarchs of finance.

Having earned $3.44 billion in the second quarter, Goldman Sachs announced that it would be setting aside a compensation pool of $11.36 billion for the first half of 2009, or nearly $400,000 each, on average, for its roughly 29,400 employees and temporary workers.

…A critic of the bonuses, however, would point out that Goldman has benefited from taxpayer largess and continues to benefit by far more than the $10 billion capital injection it returned. The F.D.I.C. has been guaranteeing some of Goldman’s debt, and Goldman dodged its counterparty exposure to A.I.G. (valued in the billions of dollars) because the government bailed out A.I.G. Thus Goldman is still a major beneficiary of taxpayer funds, which suggests it should pay the rest of this bailout back before paying itself bonuses.

Goldman might argue that the bonuses are necessary to retain its top employees and promote future profitability, so that these bonuses are a good investment for taxpayers. Yet without being privy to Goldman’s books, and without knowing exactly how the government’s involvement will unwind, it is impossible for taxpayers to know whether they will see a return on their investment or get stiffed to a substantial degree.

The lesson to be learned, therefore, is that this kind of dilemma is one reason governments should not provide bailouts in the first place. Once a bailout occurs, the government is inevitably drawn into the day-to-day business decisions of the companies and forced to resolve issues with no good resolution. More generally, the bonus issue raises a crucial unanswered question going forward: how will the federal government be able to exit its huge role in managing the financial sector?

On a recent Glenn Beck show he outlined Goldman’s web of government influence:

The angst against Goldman Sachs was widespread after the firm announced record profits & bonuses last week just months after the company received tens of billions in government aid.

The rightwing television host Bill O’Reilly referred to Goldman as “swine”. And the Nobel Prize-winning economist Paul Krugman weighed in, declaring that what the bank does is “bad for America”. “Goldman made profits by playing the rest of us for suckers,” wrote Krugman, pointing out that the firm made a fortune in the run-up to the financial crisis by betting on a collapse in the sub-prime mortgage market.

…Most galling of all is that, in the eyes of many, the money has been made with the help of the US government. In the dying days of the Bush administration, Goldman was one of nine top banks ordered by the US Treasury to accept bailout money whether they needed it or not.

…”The government and other banks want us to engage fully and provide liquidity into the markets,” says Goldman’s spokesman. “It seems perverse to criticise firms that have done what they’re asked to do for doing what they’ve been asked to do.”

Additional charges were leveled against Goldman last week by financial analyst Max Keiser including that Barack Obama ‘dances to Goldman Sachs tune’.

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However, the article which appeared to strike the most damage to Goldman’s public image was Taibbi’s The Great American Bubble Machine. In it the author highlights among other things how the influence of former Goldman execs grew during the Clinton administration.

…Goldman’s cochairman in the early Nineties, Robert Rubin, followed Bill Clinton to the White House, where he directed the National Economic Council and eventually became Treasury secretary. While the American media fell in love with the story line of a pair of babyboomer, Sixtieschild, Fleetwood Mac yuppies nesting in the White House, it also nursed an undisguised crush on Rubin, who was hyped as without a doubt the smartest person ever to walk the face of the Earth, with Newton, Einstein, Mozart and Kant running far behind.

Rubin was the prototypical Goldman banker. He was probably born in a $4,000 suit, he had a face that seemed permanently frozen just short of an apology for being so much smarter than you, and he exuded a Spock-like, emotion-neutral exterior; the only human feeling you could imagine him experiencing was a nightmare about being forced to fly coach. It became almost a national clichè that whatever Rubin thought was best for the economy — a phenomenon that reached its apex in 1999, when Rubin appeared on the cover of Time with his Treasury deputy, Larry Summers, and Fed chief Alan Greenspan under the headline The Committee To Save The World. And “what Rubin thought,” mostly, was that the American economy, and in particular the financial markets, were over-regulated and needed to be set free. During his tenure at Treasury, the Clinton White House made a series of moves that would have drastic consequences for the global economy — beginning with Rubin’s complete and total failure to regulate his old firm during its first mad dash for obscene short-term profits.

The basic scam in the Internet Age is pretty easy even for the financially illiterate to grasp. Companies that weren’t much more than potfueled ideas scrawled on napkins by uptoolate bongsmokers were taken public via IPOs, hyped in the media and sold to the public for mega-millions. It was as if banks like Goldman were wrapping ribbons around watermelons, tossing them out 50-story windows and opening the phones for bids. In this game you were a winner only if you took your money out before the melon hit the pavement.

The Great American Bubble Machine

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