The Sins of Goldman Sachs and the Fraud of the American Government
Back in July of ’09, Rolling Stone journalist Matt Taibbi wrote a scathing indictment of investment bank Goldman Sachs. He accused Goldman of engineering virtually every major market bubble since the Great Depression (among other crimes against humanity). According to Taibbi, Goldman is everywhere and has their hand in everything. In essence, they’re pretty much responsible for every bad thing that happens in the market. And I’m sure if we look hard enough we’ll find they cause obesity and erectile dysfunction, too.
Okay, maybe I’m being a little facetious. But in all honesty, the article falls somewhere on the far side of laughable, given a length and breadth that, in the end, sounds more like a rant than investigative journalism. To be fair, while Taibbi has a number of detractors, he does manage to paint a disturbing picture of Goldman Sachs. Unfortunately, he just never really puts any hard evidence behind the diatribe.
While I found the article interesting and believe there is a great deal of truth to the accusations, my response is probably going to surprise you. In my opinion, the article is nothing more than a whiny journalist crying out for investors who lost their bets and are themselves crying sour grapes. On the whole, I think he’s looking in the entirely wrong direction.
Allow me to explain…
In every instance mentioned in the article, Goldman never had a gun to anyone’s head. They created investment vehicles that, for a time, made money like mad. But of course everyone wants the gravy train to last forever. When it finally comes time to pay the piper (i.e. the investment turns negative – as ALL markets and ALL investments eventually do), then investors cry foul and want their money back.
Where I point the blame is government. As I always say, government is the source of all trouble and pain for the common man. The joke of this is that the government is a much better liar than Goldman and every other investment bank put together. In fact, they’re so good at it that they’ve largely convinced the masses that the opposite is true! Everyone looks to the government to save them when it’s usually the government that betrayed them in the first place.
If we take a long, hard look at most of what Goldman did, we find that it wasn’t that they swindled people so much as they got an idea and the government gave them a free pass to carry it out. Why blame the company whose only purpose is to make money? Blame the government whose purpose is supposed to be to look out for the people. Instead, they give out dispensations to big business so they themselves can profit from it.
Ask yourself this: Why has no one from Goldman been thrown in prison?
Answer: because they’re too good for business! That’s why they’re smacked on the wrist, fined, and then sent back out to do more of the same. This is the business of government.
Here’s another example:
An independent study a few years back found that, collectively, Congress made a combined total of $195 million from their personal investments in war-related (D.O.D.) companies. And the authors suggested this “might” be a conflict of interest. It might be???? Of course it’s a conflict of interest!
Fact is, the government is the largest collection of insider traders in the world. They always have the foreknowledge of impending legislation that will immediately impact markets. All they need do is take a profitable position before the legislation is finalized and – Bingo! – huge profits. And this is perfectly legal so long as they disclose such investments. Is it any wonder government is full of rich, self-serving liars?
Once again, a perfect example of the fox being put in charge of guarding the hen house…and the only thing people can think to do is criticize the construction of the hen house.
This is the greatest flaw in the article – instead of planting the blame where it belongs (the government), the author cries out against the evil corporation, raising the call for greater regulation. The joke of this is that it’s not a lack of regulation that’s at fault. After all, the financial services industry is the most heavily regulated industry in America. Instead, it’s a complete and utter failure of the regulators that’s to blame. To be even more frank, it’s often the regulations themselves that create the loopholes to be taken advantage of by the regulators and their pals.
To belabor yet another analogy, Goldman may be the bank robber, but the government is the crooked security guard letting them into the vault after hours. Sure, Goldman is to blame for robbing the place, but the government gave them a key to the front door. And more to the point, if the guard had done his job, he’d have called in the troops and stopped them before they had the chance to rob anyone.
In essence, civilization knows there are criminals. Criminals have always been around and there will always be new ones to take their place. That’s why we organize police and governments to jail the criminals when they do harm so as to prevent further harm. The real problem is that the U.S. government is aiding and abetting the criminals. Therefore, the answer to the problem is not to point the finger at the criminals, but to institute new government.
Unfortunately, that concept completely escapes our ignorant country, so utterly convinced are they that government is the benefactor of the people.
Finally, I just can’t feel sorry for investors of any stripe – not regular people, not municipalities, not corporations. Every American is simply too anxious to make big bucks from risky investments rather than saving and working hard. I think that in large part they get what they deserve.
Most people are the shoot-for-the-moon investor types – the gamblers. They don’t know the first thing about investing or the wider market around them. They simply open an eTrade account and go to town with every “hot” stock pick they hear about. Or they pay into their company’s 401(k), handing over all personal responsibility for their future well-being to a company who has zero vested interest in their success.
These same people are left dazed and confused when their accounts lose money…because the markets go up forever, right? Prices always go up, houses always gain in value, and the government is there to make sure none of us lose any money along the way. Doesn’t that sound about right?
Well, that’s what most people can’t seem to understand. Investments are risky. Do your homework. Sometimes you win, sometimes you lose. It’s a zero-sum game – someone always has to lose and no one wins forever.
So isn’t it strange that Americans get so mystified when investments lose money, as if they were personally slighted in some way. They don’t seem to understand that this is how things work. Crying sour grapes after the fact is pretty naive and infantile. An investment is not a guarantee, it’s an educated gamble. It means that the game of investment is not for the everyman. But everyone thinks they know what they’re doing – until they lose – and then it’s someone else’s fault.
Outright scammers like Madoff were aided and abetted by insiders. Most serious analysts and fund managers absolutely knew that his numbers didn’t work out. The prevailing idea was that he was “assisting” his commercial clients at the expense of his retail clients. This was pretty much common knowledge! Granted, no one had proof, but no one really went looking very hard, either, since they weren’t about to tip the gravy train. Most insiders knew he was probably making them money by screwing over the other guy, but so long as it was the other guy taking it in the shorts, they were okay with it.
There were numerous analysts who were shouting from the rooftops for people not to get involved with Madoff. It was fairly well known, but many regular people (including some celebrities) were willing to overlook due diligence in an effort to jump on the gravy train before it left the station. Again, I say “too bad, so sad”.
So Bernie is in prison for the next 150 years for providing an “investment” that, for a time, paid off quite handsomely. But once it fell apart, he was branded a criminal and now everyone is acting like this is news to them.
As bad as Madoff’s fraud was, however, Congress has been doing the same thing with social security and Medicare – empty Ponzi schemes, the both of them. But we’re willing to overlook this because it’s a government benefit. It’s just too bad that the government is as duplicitous in defrauding the American people as any bank or investment firm.
And now people are jumping on the bandwagon of Obama’s great healthcare initiative – ObamaCare – with more business-as-usual government bureaucracy and expense to back it up. Suckers!
As I always say, the answer to what ails us is LESS, not MORE, government.