The London Times got an interview with a bunch of Goldman Sachs people including its CEO, Lloyd Blankfein. The headline quote was “I’m doing God’s work.” It’s so Gordon Gekko, you can feel Blankfein’s nostalgia for the 80’s. But the article reads more like a Stephen King novel, with creepy crawly things sliming the reader.
“We’re very important,” he says, abandoning self-flagellation. “We help companies to grow by helping them to raise capital. Companies that grow create wealth. This, in turn, allows people to have jobs that create more growth and more wealth. It’s a virtuous cycle.” To drive home his point, he makes a remarkably bold claim. “We have a social purpose.”
The GS 10-Q tells a completely different story. For the nine months ended 9/30, GS derived 82% of its total revenues from trading and principal investments. Every penny of that came out of someone else’s pocket, and some unknown part came from $1.71bn (at 9/30) in borrowings guaranteed by the FDIC. See note 6, p. 50. About 10% of revenues came from investment banking, the business of raising capital. A big part of that seems to come from securitizations. See Note 4:
During the three and nine months ended September 2009, the firm securitized $18.75 billion and $35.22 billion, respectively, of financial assets…, including $18.75 billion and $34.63 billion, respectively, of residential mortgages, primarily in connection with government agency securitizations….
They packaged up a bunch of mortgages, sliced and diced them, sold them and included the profits in investment banking income. That doesn’t create jobs.
Here’s a better description of Goldman Sachs’ hard work:
You can’t see the cash whizzing around 85 Broad Street as you walk through the place, but you can feel it being shuffled 24 hours a day between central, commercial and investment banks, vast companies, Russian oligarchs, Middle Eastern movers and sheikhers, Texas oilmen and secretive billionaires in Bermuda and the Cayman Islands.
I’m not feeling the hand of the Almighty in this. And since Blankfein and the Company Pastor, Lord Griffiths, invited it, let’s look at the morality of all this money-shuffling.
Most of the people in the world work and play by the rules. They work for their income, they take care of their families, they do volunteer work through churches and other groups, they pay taxes, and they act responsibly. The work of the world is in their hands, and they do it, because they are socially responsible, or because their religion requires it or because mother and daddy taught them to, whatever, they do it. We all eat and sleep safely because others of us are responsible, contributing members of society.
Then there are the pirates. Some of them are Somalis, who raid ships in the ocean. Some are banksters, who raid the productive work of their neighbors. They ignore the laws, as Sanford Weil and John Reed did when they merged Citicorp and Travelers; or they get Congress to change laws to suit them. They don’t pay taxes, and they arrange transactions so other rich people won’t pay taxes either. They jack up fees and interest rates on credit cards in the face of legislation to stop them. They set up trading computers at the site of an exchange, and use them to cut in front of other traders. They trade stocks in dark pools without exposing the prices or the securities to the public. And here’s another example:
Goldman trades securities for big firms and pension funds. It also acts as adviser to many of the companies whose securities it trades. This means the firm has a view on what everyone in the market is doing. Say an investor approaches Goldman and says it wants to buy into the oil market. Goldman can offer an accurate view of what is likely to happen in that market because it knows what its own corporate energy clients are doing on its advice and what other big investors are trading. This also means the bank can do well on its own oil trades.
Responsibility and piracy define the relationship between two sectors of society. One produces goods, security and civilization. The other takes. In the entire article, Mr. Blankfein doesn’t point to a single thing he has done in his life besides making money. Well, he has saved a few kitties.