A suit was filed last week in the US against Goldman Sachs by the US government’s financial watchdog, the Securities and Exchange Commission.
GS is an example of all that is morally and practically wrong with capitalism. This is an obscenely-rich company whose ludicrously-rewarded executives do not actually do anything that I would describe as “work”. Their activities do not in
my estimation benefit the world in any meaningful way. They are parasites which feed off the backs of real workers (nurses, police, teachers, firemen, bridge-builders, electricians and so on) and – as in the recent shambles – end up practically killing the host.
There is a good case for forcibly putting them out of business and completely reorganising financial services, with the accent on SERVICES. A functioning society needs investment and jobs. Banks should be there to look after money and provide investment to companies, not shuffle around paper to make themselves obscenely-rich.
GS and others apparently have some sort of electronic system that operates automatically and instantaneously to market movements, allowing them to make vast sums by doing no work. NO WONDER bright graduates seek to join such leech-like firms instead of becoming teachers, researchers or otherwise seeking to do something useful for society apart from themselves.
If they are guilty, I hope we see the company broken up and put out of business. The criminal deception is no different from that at Enron, where people pretending (with already vast salaries) to serve the public were conniving to do criminal damage to put up the cost of their product. They were given a severe penalty, and it should be the same for any white-collar worker if found guilty. I don’t have much hope for the eventual down-to-earth-sizing of GS (they are well-connected and can afford good lawyers …), but I am not the only person angry about all this greed. Get past the cosy confines of Wall Street bars into the real America and there are plenty more who feel the same way.
By Chris Snuggs
Learning from Dogs 
May I offer you a couple of different view tweets on the Goldman Sachs affaire!
Goldman’s ABACUS 2007-AC1: The whole truth and nothing but the inconvenient truth! http://bit.ly/acaRfo
The lover’s spat between Goldman Sachs and “sophisticated investors” is not the real problem! http://bit.ly/95stIo
And now, is it time for some “Razzle dazzle ’em” http://bit.ly/b5b5ob
We can’t shame enough the irresponsible silent experts and the plain lousy regulators http://bit.ly/aXSYyu
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Many people agree with your sentiments, Chris. These kinds of operations can, surely and hopefully, not continue for much longer in their present form.
However, I suspect that Sherry Jarrell would be able to provide an objective view of the market advantages of the existence of financial services, or any other services for that matter.
It is interesting important but, presumably, not easy to try to reconcile these different perspectives.
A recent post by Clay Shirky (here: http://bit.ly/dsTCZx) has provided a description of a book by Joseph Tainter, The Collapse of Complex Societies. The description emphasises the effect of complexity on the net incremental value of further complexity.
Whether this approach contributes to resolving the view from these different perspectives, I do not know; but it might!
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What Tainter says is only incidental to the problem at hand. But it’s nice to the plutocracy that Mr. Tainter accuses something much more abstract and irrelevant. He ought to be very popular with plutocrats, and their servants.
It seems to me (although I did not read Tainter, just what it is said he wrote) that Tainter knows just enough Roman history to present an alternative causality. Alternative to reality, that is. So Tainter accuses ‘complexity’ in the fall of Rome. Whatever. Middle Ages society was more complex than Roman society, and more ossified. But it was also plain much more correct.
Verily, plutocracy unchained is what killed Rome, and stupidity, the weapon of plutocracy, followed closely behind.
PA
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I am trying to write an essay entitled: “Why bankers have turned into gangsters”.
The underlying reason is purely mathematical, and was known in the Neolithic: riches foster riches. It has to do with the definition of the exponential function. The rich man has capital that he can lend, and most of the time, will bother to do so only if he has interest… Meaning if what he lends brings back more capital than he started with. But this capacity to lend is proportional to the rich man’s wealth. Thus the capital of the rich augments proportionally to said capital, the exact mathematical definition of the exponential.
Prehistoric men discovered that law, and took countermeasures, such as various wealth taxes and death taxes.
In the Anglo-Saxon world, Great Britain was highly successful in leveraging itself, thanks to an alliance with the Rothschild and the like, to pay for military forces to defeat much more powerful and wealthy France (in the 130 years preceding 1815). In truth that financial leveraging model originated in the Middle Ages, and was initially fostered by republics, before being adopted by Francois I and Charles Quint (fighting each other, financed by different bankers, some Italian, some German).
What came out of it all was an unworldly alliance between plutocracy and governments. The latter gave the former the ability to create money, and also seed capital from public treasury. In counterpart, the former gave wealth and influence to the latter, extending their so called “public service”.
Public service became public self service. nothing we have not seen before with Rome.
Creating money is the so called (private) fractional reserve system; government has outsourced to private individuals one its most important functions. It creates money through debt to private individuals (the bankers). This is the exact mechanism that generated the Feudal system.
Seed capital is the often secret injection of funds through the treasury and the central bank. The latter is independent of any democratic supervision (it makes a presentation of its work to democratic representatives, but its work is mostly secret).
If you add the exponential function to this, plus the inverted tax structure of the USA (in practice, the wealthier, the less tax rate you pay), you get a capture of the democracy by the plutocracy. That is what we have got. The situation will be terminal when the plutocracy makes an alliance with the military, as happened in the Roman republic just before its fall.
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Patrice – fascinating analysis and comments as ever, which I am struggling to grasp. Can you help me by giving me a “bottom line”? Is the crisis basically on the mend OR has the original virus not been killed so that a recurrence or “double-dip” is very much on the cards in the next couple of years? (and how bad could it THEN get?)
On a point of information, I believe – possibly wrongly – that much of this fiasco stems from the repealing of the Glass-Seagall Act which separated proper banking from speculation. At the very least I would have expected this to be brought back at once, as it seems to have prevented a financial crisis since the Great Crash. What is the take on this?
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Hi Chris:
Sorry not to react before: I was busy all day. The G-S Act ought to be called by its name: Banking Act of 1933. Summers started to dismantle it as soon as he could service Reagan (with Krugman!). He finished the job under Clinton, and then he seduced Obama. Hopefully he will decay soon from Terminal Bad Faith (see Sartre on the subject).
The BA 1933 had not, in any case, anticipated the rise of metastatic bad faith, as implemented by Shadow Banking and Derivatives. Amusingly, banksters claim that the rise of the Shadow and its Derivatives prevent thinking, and is only “NOTIONAL”.
In truth the correct interpretation would be to define speculation as anything with more than 10 times leverage and without any real world, dedicated collateral. [Say]. Then there is much less of a problem: no more Shadow, no more Derivatives, no more outrageous, otherworldly speculation. The BA 1933 would have been refurbished, crashes would be more unlikely.
But this would not be enough to make finance into servant of the economy, as it ought to be. Finance has to be made intermediary between aspects of the real world, not an end in itself, running a “notional” casino. Only then will capital availability be maximized in the real economy. My solution: forbid all and any financial product or service which has not been proven safe and effective, on a worldwide basis.
Meanwhile the crisis is going in on strong. And future paroxysmal eruptions will happen.
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10 to 1? The Basel Committee has authorized 62.5 to 1 leverage for everything associated with a AAA rating
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