Goldman Sachs vs. Its clients


"It is all very well to say that the customers were foolish. But when a system prevails which caters to the folly of too large a proportion of a population, a proportion so large that the destruction of its purchasing power is of concern to every business in the land, then it deserves serious attention."
E. L. Smith 1930 "The Break in the Credit Chain"

This article written for The Atlantic discusses responsibility with respect to our money supply. It compares our formerly responsible bankers with our always irresponsible traders. There was no difference between 1929 and 2007, simply different assets. Goldman was not managing risk, they were managing fraud. They were well aware of the fraud that was behind the lending and they acted irresponsibly. They poisoned the well of all MBS when they created securities designed to fail, and fail they did. At the time, we were told it was a black swan liquidity crisis that needed helicopter money, TARP, to unfreeze. We now know it was not a black swan, it was a confidence game played by a privileged few, and so successful it ruined the economy.

It is impossible to regulate or legislate responsibility. We need to take away the tools, derivatives, that enable the confidence tricks and games, otherwise our money stability, our chain of credit, will always be in jeopardy of manipulation or collapse. This is especially unnerving for those working fools attempting to save over the long term, when money was not intended to be saved. The system for saving needs better a better model and safe guards to protect it from the parasites and confidence men of Wall Street. This is difficult to accomplish when half the population wants to become one minute millionaires by simply pushing a button or conning a client.

It is our inability to save or lend safely that is the root of our problems and opens all to become victims of confidence scams. Money has transient value and was designed to facilitate exchange of value; transactions that take place in the present. Lending and saving are eternal problems that rely on ethics and responsibility, neither of which can be found on the Wall Street.

Smith makes a point of noting that although bankers earn their money lending, they serve a higher purpose when they decline a loan. They are protecting the chain of credit within the community. The economic activity of the financial sector should be no more than 5% of GDP and probably much lower. The current abuse of the stock market can be cured by eliminating stocks as a form of capital generation, which is basically money printing by companies. Once sold, stocks become the chips of gamblers in a rigged casino.

Nelson Alexander
New York City

Goldman Sachs Traders Are True Americans!

The mistake for the public and its elected representatives is to focus on the wrong unit of analysis. This is not so much about greed and conflict of interests as about the aggregation of data. Given the scale of data and computing power, how could Goldman have done otherwise? It must continually identify and offload falling values in millions of exchanges. The more exchanges it aggregates the better it can estimate potential losses. Can it ignore such information?

We neglect the most fundamental fact of a capitalist system: someone must lose. Just don't tell us who. Keep it abstract. Show us in numbers not in faces. Indeed, in relative terms most people must lose. Somewhere, those losses must accumulate to a destabilizing level. At some fundamental level, exchanges remain a zero-sum game. It is only capitalist ideology that obscures this fact with idiotic tales of the rare win-win trades. Few exchanges are win-win. The vast majority are calculably win-lose, lose, lose, with the losses displaced, deferred, off-shored, abstracted, and disguised as they mount up. What else is Goldman supposed to do? Goldman and the hedge funds (the real problem, still to be addressed since LTC) are behaving rationally, but what is rational for Goldman is not rational for all of its customers and certainly not for the nation or humanity.

Who creates wealth? Real productivity grows at about 2 percent a year, so they say. Way lower than the expectations of the exchanges. Any returns of profit above that are someone else's loss. Goldman is no more greedy and internally conflicted than American itself, which is similarly using exchange rates to export the losses, struggling to lower wages offshore and elevate pension funds at home. We must rid ourselves of childish, magical stories about market productivity. Real productivity marches on slowly on the backs of everyone who works. The vast, global financial exchanges use rules of complexity and probability to transfer 90 percent of that growing wealth to the top 1 percent, while the risks and losses cascade downward.


The good news is that if Goldman Sachs is cut down to size due to client wariness, the market forces held in such high regard by free market capitalists, will have proven to work.

The bad news is that it took too long for the market to correct Goldman Sachs. In the meantime, too many good people who had nothing to do with the market and Goldman Sachs have lost jobs, houses and now live in broken families. So much for family values.

Read Kevin Phillips' "Wealth & Democracy". Corporations ("combinations" as Teddy Roosevelt called them) have been playing fast and loose with our democracy and national economy ever since they came into existence. Republicans ran Washington DC from presidents Lincoln to Herbert Hoover, 72 years through several serious recessions, leading to the Great Depression. Their fiscal management favored accumulation of wealth to a handful of wealthy who bought and paid for Washington, leaving most Americans economically backward. The American families who lost most during the Depression never owned a stock in their lives when the stock market crashed. The regulations, taxes, work programs, work hours and social security measures passed during Franklin Roosevelt's administration combined with WWII production and conservation did more to stabilize our economy and build wealth for American citizens than in any previous period of American history. In spite of Roosevelt's high taxes on the wealthy to pay for the war and the cost to corporations for higher wages and social programs, the wealthiest Americans still became more wealthy. Yet Republicans denigrate this period of profound upward mobility of Americans. And, too many Americans who benefitted from this period deny it, depriving their children and grandchildren a similarly good future.

The Goldman Sachs' story is a clear example of how Republicans and Conservatives took our nation back to the pre-Depression Corporate largess days of greed and predatory practices. As conservatives convinced voters of their false promises, Democrats jumped on board to play in the game. Let's hope Americans who are trying to dump incumbents get smart and realize that the Goldman Sachs corporations of the US have been behind most of our national political and economic crises as “they” buy, sell and tramp on our democracy for their obscenely excessive pay, bonuses and profits. We need more than a market revolution to cut Goldman Sachs down to size. We need a populist revolution that recognizes better government is what we need, not turning government over to the corporations as Republicans have been doing.

No comments:

Blog Archive