Goldman Sachs’ ability to make money under any type of circumstance was recently proven to be not only a catchy advertisement, but a verified fact. With millions of American’s out of work, construction projects stagnated, the auto industry stripped to its hubcaps by corporate raiders, and the social safety net being destroyed from California to Florida and everywhere in between, Goldman Sachs reported in their quarterly earnings that they had a net profit of $3.44 billion. What most pundits and followers have wondered aloud is how could they do it? Recently the Associated Press wrote an article that was gushing about Goldman Sachs’ magical ability to turn a profit in this type of challenged economic environment. What’s next, turning water into wine?
Global economics has advanced to the point that to even hear a pundit speak about different financial instruments can be a baffling and frustrating process. What Goldman Sachs has done is not magic, anymore than the wizard from the Wizard of Oz was a real wizard. When this curtain is pulled back, these dark wizards of capitalism are exposed for what they are. Goldman Sachs is nothing more than a bunch of greedy capitalists who realize that if the world is going down the drain, the best place to be is the drain.
Rinse, Lather, Repeat: Goldman Sachs formula for success
Goldman Sachs has a simple profit equation that works like this: it promotes a stock, gets investors to invest in the stock; the stock inflates to a high price, Goldman Sachs then abandons it, and then goes down. When the rest of the world goes into a panic, Goldman throws its massive weight somewhere new and the process repeats. One way Goldman survives is by never taking any financial responsibility in the crisis that it helps create.
Historically speaking, Goldman Sachs has been a driving force behind the bubble-and-bust culture that has pervaded America’s brand of capitalism since the days of Andrew Jackson and United States Central Bank. What makes Goldman Sachs stand out from other investment banks is how they have inspired so many Goldman Sachs alumni to go into public service, which has become a self-serving principle. A recent article in Rolling Stone magazine by Matt Taibbi explained this process in vivid detail.
The stabilizing of the system: Goldman Sachs is too big to fail
In October of 2007, the Stock Market was riding high. It had closed with shares up around 14,000. Staying true to the bubble-and-bust formula, a quick decline took place when all of those now infamous “toxic assets” went bust. This dam of toxicity finally burst when Lehman Brothers, a Goldman Sachs investing rival collapsed.
The New York Stock Exchange responded to the collapse of Lehman Brothers by witnessing a massive sell off. On the day of Lehman Brothers collapse the stock market fell by over 300 points only to be surpassed by the September 29th collapse of 500 points.
In the background through all of this was a quiet behemoth. Goldman Sachs was a chief underwriter for thousands of these bogus loans. The question, then, is why didn’t Goldman Sachs fail?
Goldman Sachs has a couple of things going for it that California doesn’t have: As a major player in the banking industry it has been proclaimed “too big to fail.” Goldman was forced to accept $10 billion in government aid which came with those nasty pay restrictions that everyone in a $4,000 dollar suit hates. So they paid back the $10 billion and have now reaped the rewards with political cover for being good guys who pay back that which they never wanted to borrow in the first place. Goldman Sachs is positioning itself to be viewed in public as a profitable bank that is being brought down by bad banks — the good business being punished by the bad. Since Goldman Sachs has repaid TARP money and returned to profitability, it should be free to give whatever amount of compensation it deems fit.
There are two points that undermine Goldman Sachs’ credibility regarding their claim of successful repayment of TARP funds. The first is the 10 billion dollars that was given to Goldman Sachs came directly from the government. What about the money that was paid to Goldman Sachs from other bailed out firms, in particular, A.I.G.? This money is not reported as coming from the government, although Goldman Sachs never would have received these funds if the government hadn’t intervened.
Matt Taibbi pointed out on National Public radio:
“…if AIG had been allowed to proceed to an ordinary bankruptcy without government intervention, Goldman Sachs might actually have gone out of business, because AIG owed Goldman about $20 billion at the time… Goldman was able to appeal to its former chief, Hank Paulson in the Treasury, who engineered an $80 billion taxpayer-funded bailout of AIG, and immediately about 13 billion or 14 billion of those dollars went directly to Goldman Sachs. So this was really Goldman Sachs bailing out Goldman Sachs in the middle of the bailout.”
The second point regarding crooked TARP dealings was made by Neil Barofsky, the special inspector-general for TARP, who stated that the TARP program could cost taxpayers $23.7 trillion [!]. How much of that money Goldman Sachs has received is debatable, but as one of the biggest investment firms left standing, it is likely that they received a lion’s share of the funds. The way that this is being reported is very creative.
But the Democrats are in power, Barack Obama is in the White House, will this all end…right?
Recently the Employee Free Choice Act, which would have greatly helped workers organize unions, has been destroyed and subjected to modifications that will make it palapable to the business community. However, Goldman Sachs has no problem getting its legislation passed. It realizes a fundamental fact of economics which is not commonly understood, namely that money in and of itself is not power. Money only has real power depending on who is holding it. To that end, Goldman Sachs openly desires that its alumni leave their post piut their agents in strategic offices in the government. If you are looking for a fun way to kill a few hours, try researching how many Goldman Sachs’ alumni were in the White House under Clinton, Bush and Obama. Goldman Sachs has power that no dollar bill could match. The power that they have is that they are in positions directly close to the President.
For example, Goldman Sachs alumni such Henry “Hank” Paulson, Tim Geithner, and Robert Rubin have played critical roles in the shaping of financial policy over the last 15 years. Despite the window dressing difference between Republican and Democratic interests, there is no difference of opinion on the matter of financial policy. Goldman Sachs has won on Wall Street precisely because it knows what few other banks have grasped: it isn’t enough just to be a player in the game; if you’re the referee you can and will always win.
Because of this fact the gates of the federal treasury were thrown wide open with Barack Obama as President declaring with little criticism that he will do whatever it takes to stabilize the economic system. As Senator Dick Durbin stated a few months back “The banks run this place.”
Obama and the Democrats are completely and utterly incapable of addressing this situation in a substantial way. There is an old saying somewhere about biting the hand that feeds you.
What about us?
Imagine for a moment if all of this government intervention to prop up banks was directed in a meaningful way towards health care, housing, and social services?
Instead, we get what we have today — a health care debate where everyone is a cost — a housing sector where workers must “pay their fair share” and social services being cut completely.
There is no bailout for us. We are viewed as a cost and a liability by a “street” which has erected a Wall not just in name, but in reality. Behind that Wall are petty-minded men collecting big paychecks plotting ways to exploit the next crisis for their own benefit at our expense. This earning’s report is a slap in the face to all of the working men, women and their children, not just in America, but throughout the globe where people are suffering because of this type of financial anarchy.
Goldman Sachs has effectively used the bailout to eliminate its competition, return to profitability and use the offices of the Presidency, Senate and House as little more than a rubber stamp to their economic agenda. Their economic agenda is to the detriment of working people. It is yet another slap in the face administered to the working class, however. Senator Durbin’s statement that “the banks own this place” is a reference to the control banks have in lobbying the halls of power. That power is built upon the working class believing that the institution, capitalism and the state that supports it, is deserving of that power. History has shown, time and time again what happens when the working class no longer believes in that power; it begins to question whether the interests of the vast majority are being served.