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Goldman loses its grip

November 23rd, 2009

Lloyds Blankfein, CEO Goldman Sachs, image courtesy of Total Banker

About two months ago I wrote a blog post that concluded “Yes, it seems that the game may finally be up for Goldman” (see Is the game up for Goldman? published October 4th, 2009). Well it looks like things are unravelling faster than I expected for the US-based investment bank.

The bank’s chief executive Lloyd Blankfein earlier this month claimed to be doing “God’s work” yet admitted on November 17th that Goldman had participated in things that were clearly wrong. Blankfein said: “Certainly, our industry is responsible for things. We’re a leader in our industry, and we participated in things that were clearly wrong and we have reasons to regret and apologize for.”

However this does not go nearly far enough for the New York Times. In an excoriating editorial titled Goldman’s non-apology the newspaper said that, a bit like the mumblings of British banking’s unfab four on February 10th, this was a “non-apology apology.”

The  newspaper said: “His remarks do not come close to an apology. Even if he had said, “we’re sorry,” it would have been hollow since he never actually said what he was sorry for (“things” doesn’t cut it) or to whom he was apologizing.

In summary the article, published on the Times’s Op-Ed page on Saturday, basically accused Goldman of being “in denial” about its own culpability in causing the current financial crisis and recession, and also of being in denial about the extent to which it owes its continued existence to the generosity of the US taxpayer (particularly in view of the bailout of insurer AIG, without which Goldman would be nowhere near as cocky now — in fact it might actually be bust).

The leading article ended by making a suggestion. It said that Goldman might be able to ward off the current serious calls for a windfall tax on bankers’ bonuses — which are an aburdity at a time when many banks only continue to trade because governments around the world agreed to socialise their losses, and especially given the well documented fact that most bonuses still promote recklessness — if its army of overpaid executives voluntarily donate their bonuses to the US government.

That’s quite something for a mainstream newspaper like the New York Times to say. Finally, the penny is dropping that most Goldman Sachs’ employees — and indeed most of the employees of any “successful” investment bank — are sociopaths who will always put their own interests way ahead of those of their clients and the wider economy. People are gradually recognising that today’s investment bankers are little different from the Glasgow “tobacco lords” whose self-interested profiteering prompted Adam Smith to write The Theory of Moral Sentiments (1759).

The Times article concluded by saying that such a “contribution might help Goldman ward off the alternative: serious calls for a windfall tax on bonuses, which would be justified since the profits they are based on are in large part the result of government efforts. One way or another, the taxpayers will demand their due, and one way or another, they just might get it. Cheques can be made out to the Bureau of the Public Debt and sent to Bureau of the Public Debt, Dept. G, P.O. Box 2188, Parkersburg, W.Va., 26106-2188.”

Chicago-based structured finance professional Janet Tavakoli also has it in for Goldman. Writing on the Wall Street Pit website, she said: “In light of the SIGTARP report, I withdraw my earlier apology to Goldman. Public commitments to AIG are currently around $182 billion. If you wonder what Goldman CEO Lloyd Blankfein meant when he said: “[Goldman Sachs] participated in things that were clearly wrong and we have reason to regret and we apologize for them,” think of Goldman’s role in AIG’s crisis, Goldman’s bailout, and Goldman’s ongoing heavy taxpayer subsidies. That way, one of you will be genuinely sorry about it.”

It also seems that Goldman’s big investors at last beginning to question the bank’s behaviour. Some are starting to tire of the behaviour of this virtual rogue state which has been humoured by governments around the world for far too long — and are beginning to show signs of wanting to rein it in.

Margareta Pagano, writing in today’s Independent on Sunday, suggested that shareholders in Goldman Sachs thought to include AllianceBernstein, State Street and Wellington are complaining about the fact so much of the bank’s profit is syphoned out in wholly unnecessary bonuses.

Pagano writes: “This must be unthinkable for Goldman, which culturally seems still to believe it can be run along the lines of a private partnership, even though it floated years ago. Even more unthinkable, perhaps, are the whispers that Blankfein may not be around much longer to carry out his divine work.”

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