Last Sunday (July 12, 2009), the New York Times reported on Goldman Sachs’ soaring profits (“For Goldman, a Swift Return to Lofty Profits”). Here’s a telling passage:
“The obsessive speculation has already begun, along with banter about how Goldman’s rapid return to minting money will be perceived by lawmakers and taxpayers who aided Goldman with a multibillion-dollar cushion last fall.
‘They exist, and others don’t, and taxpayers made it possible,’ said one industry consultant, who, like many people interviewed for this article, declined to be named for fear of jeopardizing business relationships.
Startling, too, is how much of its revenue Goldman is expected to share with its employees. Analysts estimate that the bank will set aside enough money to pay a total of $18 billion in compensation and benefits this year to its 28,000 employees, or more than $600,000 an employee. Top producers stand to earn millions.“
Al-Jazeera reported on the same issue last Wednesday, July 15, 2009 (“Goldman Sachs bank profits soar”). An interesting passage:
“John Terrett, Al Jazeera’s correspondent in New York, said that Goldman Sachs would be emboldened in paying the bonuses in the knowledge that it has repaid the bailout money it received through Tarp.
‘The key is that they have paid back the $10bn bailout money that they were forced to take at the height of the financial crisis last year. That means that all bets are off now – they can pay what bonuses they like,’ he said.
‘The grey area is that while we call Goldman Sachs an investment bank, it is these days a bank holding company. That means that they been able to take advantage of very, very cheap government money, and then lend it out expensively.
‘The controversy is: because Goldman Sachs took that cheap money should they therefore not pay those bonuses instead of paying back the US taxpayer? Wall Street’s view is no, it should not.’“
So, basically, Goldman Sachs asks for taxpayer money to bail itself out for stupid, risky bets (collateralized-debt obligations, credit default swaps, mortgage-backed securities, futures trading, etc.) it made on Wall Street. It receives the taxpayer money, pays the government back (but still owes $28 billion to the Federal Deposit Insurance Corporation, meaning that the public is still indirectly funding Goldman) and then returns to making the same risky bets that got them in trouble in the first place. Oh yeah, and pays their employees – the same ones who aided and abetted the risk-taking that caused this financial crisis – magnificent bonuses. That’s a really sweet deal for Goldman but a nightmare for everyone else as there is no sign that Goldman (and probably other banks, for that matter) is going to change its ways. As Robert Reich points out in his blog:
“‘Our model really never changed, we’ve said very consistently that our business model remained the same,’ Goldman’s chief financial officer tells Bloomberg News. Value-at-risk — a statistical measure of how much the firm’s trading operations could lose in a day — rose to an average of $245 million in the second quarter from $240 million in the first quarter. In the second quarter of 2008, VaR averaged $184 million.”
Talk about change you CAN’T believe in!
Here are some other interesting articles that help put this issue into perspective: [this is a lot of stuff but, trust me, it’s good]
- “The events preceding Goldman Sachs’ new ‘blowout profits'” by Glenn Greenwald (Salon.com, July 13, 2009). Glenn does a great job of chronologically outlining the events that preceded Goldman’s recent soaring profits.
- “Inside the Great American Bubble Machine” by Matt Taibbi (Rolling Stone, July 2, 2009). This article provides insightful analysis (along with video clips) on how Goldman Sachs has manipulated the market in its favor since the Great Depression.
- “The Quiet Coup” by Simon Johnson (The Atlantic, May 2009). Johnson essentially argues that financial industry’s stranglehold on our government has caused the economic crisis and is preventing any meaningful solutions from being implemented. He even compares the U.S.’s situation to that of emerging-market nations. As the former chief economist of the International Monetary Fund (IMF), Simon Johnson provides a very insightful and global perspective on this issue. I highly recommend reading his article.
- “Why America is a bank-owned state” by Samah El-Shahat (Al-Jazeera, June 12, 2009). Samah is Al-Jazeer’s resident economist and her argument is very similar to Johnson’s. She, too, also compares to the U.S.’s situation to situations faced by underdeveloped countries. She writes regularly for Al-Jazeera and I also recommend reading her articles, too.
- “Laughing all the way to the bank” by Samah El-Shahat (Al-Jazeera, July 10, 2009). Another good article by Samah. Here, she puts the crisis in international perspective.
- “The Mystery of the Missing Unemployed Man: On Jobs and Banks” by Barbara Garson (TomDispatch.com, July 12, 2009). Garson points out, in this article, that while unemployment is rising, the same people who caused this crisis are still employed and doing the same thing they did before. “Why our government would underwrite these bets, and why such gambling contracts are legal in the first place, is beyond me, but as we know, they were placed on a vast scale. No wonder, I thought, that my swap men were all still employed. After all, even if there’s no work for die-casters or editors, there’s still all that ‘unwinding’ to do by the people who did the winding in the first place…the man I couldn’t find, the man who wasn’t unemployed, wasn’t just doing that final bit of unwinding or cleaning up old messes. He was busy making new ones!”
- “Hit hardest by the job crisis” by Sid Patel (SocialistWorker, July 14, 2009). Great article on how the economic crisis is severely impacting women and African-Americans.
- “Free Market Fantasies” by Prof. Noam Chomsky. This is an old talk (from 1995) but Chomsky’s arguments provide some historical continuity to this crisis, especially since this talk was given during the height of neoliberalism. It’s not the only time the public was asked to bail-out big banks and corporations. Note: this talk is about an hour-long and split into five YouTube clips:
This bailout money is a band-aid solution for a much deeper problem. As long as Goldman Sachs (and other banks) continues its same risk-taking, Casino-style gambling, crony capitalist business model, the problem will never be solved and the taxpayers will just be throwing money at nothing. It would make much more sense to break-up and restructure these too-big-to-fail banks to prevent further risk-taking. Something that is “too big to fail” is “too big to exist” in the first place.
But this is what happens when the financial industry and corporations essentially control the government (Did I mention that Goldman Sachs was Barack Obama’s biggest campaign contributor?). The government creates laws and policies favoring corporate interests at the expense of the interests and welfare of the public. Wall Street’s interests get conflated with America’s interests and, essentially, what’s good for Wall Street is good for America. Hence, why we saw the deregulation of the financial industry, free-market fundamentalism, tax breaks to the rich, the gutting of public programs (such as welfare and education), and other neoliberal policies. While these policies have been (and continue to be) beneficial to Wall Street and the financial industry, they have been a disaster for the vast majority of ordinary people. As long as the plutocratic relationship between the government and Wall Street still exists, this economic crisis will continue. And as long as our society (and, in a way, our world) has an economic system based on greed and exploitation rather than solidarity, compassion and human empowerment, we will never see economic justice. In order for true economic justice to be realized, it is up to us, the people, to continue to organize and fight for it.