Resist The Urge To Punish Success ( RE: Goldman Sachs)

Washington Post ^ | Sunday, July 19, 2009 | Mark Gimein

[Ernest_at_the_Beach]

Money can't buy love? For proof, look no further than Goldman Sachs. Last week, the firm reported a spectacular quarterly profit -- close to $3.5 billion for the bank and about $385,000 in compensation for each employee for the first half of the year -- and right on cue, the braying began for the heads of the Goldmanites. Earlier this month, Rolling Stone's Matt Taibbi, in a comprehensive exercise in conspiracy mongering, primed the pump of outrage with his article "The Great American Bubble Machine." Now a chorus of supporters has chimed in, shocked that in a recession the evil Goldman could turn such profit.

The rhetoric of outrage has come full circle: Before, the villains were the banks that were stupid and greedy enough to fail; now the villains are those -- a small club, basically just Goldman and J.P. Morgan Chase -- that have been smart and greedy enough to succeed.

What began as an effort to keep the financial industry from repeating its mistakes has turned into, as at other points in history, an attack on the idea of trading profit. It is no longer enough that the banks should be reformed; the opportunity to make this kind of profit should be eliminated.

This now-fashionable line of attack is badly misguided. Goldman and J.P. Morgan are reaping great rewards as the last firms standing in a game in which everyone else has been cowed or crushed. Yes, they're able to do that partly because the government has kept the financial system afloat. (Would anyone really prefer that it had not?) But the essence of the outcry is that we must punish Goldman for having been right. This is a mistake.

[dirtboy]

GS did not bring us the financial meltdown in the first place.

Uh, yes, they played their own role in overleveraging the financial markets.

[JasonC]

The treasury did intervene. Your pretending that it should not have is exactly a fantasyland between your ears. Other men are not required to live and act in that fantasyland of cascading collapse as authorities stand around grinning and doing nothing, because they didn't and predictably didn't. Other men get to live in the real world in which AIG was able to make good on its debts. Your wishing that AIG was not able to make good on its debts, your wishing that the treasury hadn't supported AIG, are not facts or realities. They are your wishes, and unreal. Other men do not need to take them seriously at all. You aren't in charge of anything about it. Responsible men who were, acted correctly and enabled AIG to cover its debts. Other men saw this. Their reliance on it was not a mistake on their part. Their predictions about how things will happen is judged by the real world and the actual events, and not by your make believe or your fantasy policies.

That is the first point.

The second point is that your fantasy policy is stupid and that is why it was not followed by the responsible men actually in charge of the matter. Not because it helped Goldman or AIG or your Aunt Mabel, but because it helped the US treasury. They tried the puritanical no bailouts line with Lehman, and attempting to "save" the treasury about $60 billion that way, for all of 72 hours, cost the authorities $2 trillion in necessary interventions by the following Friday's close. Starving a panic is stoopid, it doesn't work. Some of them had to be beaten over the head by events to admit this, but admit it they did; you still haven't. If they had continued on the no bailout policy, it would not have saved them another $185 billion or whatever on AIG. It would just have cost them another $2 trillion, or $5 trillion, in another month or so.

In the long run, the treasury is only solvent if the financial markets in which they live are sound. There was never any prospect of the treasury not being on the hook, or just backing away and pretending that others could take all losses. All the losses would have multipled 10 to 100 fold and ended up in a big steaming pile at the treasury, after first taking down more intervening institutions and wrecking more future economic growth.

Your approval isn't required for any of those propositions either. Any more than a stone needs your permission to fall under the force of gravity.

The treasury did the right thing, it did not harm you in the slightest, it benefited you. It benefited other men too, and this apparently bothers you. Tough freaking toenails. None of the rest of us are under any obligation to give a damn about your raving lunacies and your false fantasy alternate realities. And I for one don't.

[JasonC]

The AIG bailout was not necessary for Goldman to stay alive, any more than anyone else at least. It was necessary for the treasury to stay alive and the banking system to remain open. It is true that a complete failure of the banking system would have taken down Goldman too, just as it is true that if the US air force nuked lower Manhattan it hurt Goldman. However, this does not suffice to prove that the sole reason the US air force has not nuked lower Manhattan is a grand Jewish conspiracy, nor that nuking lower Manhattan is a clear duty of the US air force and ought to be tried tomorrow.

Your policy recommendations are that stupid. The comparison is quite exact.

[dirtboy]

The treasury did intervene.

That's my point, weasel. GS did such a good job auditing AIG's ability to make good on its CDS commitments that they missed the fact that when the economy slowed, AIG would need $185 BILLION in goverment assistance to meet commitments. And that GS would rely on a decision by government officials as to whether they would get that $13 billion from AIG. That is an abject failure to properly assess risk by any objective standard - taking a path to where your fate as a corporation is left in the hands of others.

And the fact that the entire financial sector required massive intervention by goverments around the world shows just how wrong the lot of all these geniuses were in getting so overleveraged.

So these guys you are defending have triggered a financial crisis that so far has cost this country $4.7 billion, led to unemployment approaching 10 percent, yet you act like no one was impacted by all this? And guys like me are wrong for pointing all that out? You're truly an obtuse idiot and an utter fool.