All That Glitters Is Goldman Sachs

Robert Zevin, president of Robert Brooke Zevin Associates and the founder of the socially responsible investment movement in the United States, wrote this talk for a recent event celebrating the 35th anniversary of Dollars & Sense. Bronchitis kept Robert from presenting the talk himself, but he sent the following message via his associate, Dan Thorn, who presented the talk instead: “First, I apologize for not being there and to all of you for the resulting discomfort of having to listen to Dan read my words and to Dan for having to read them even though he could have written better himself. I understand there is a good turnout. Thank you for your show of support for Dollars & Sense, which has earned that support over 35 years by patiently teaching the truth to those deprived of power. If you came undecided, I hope you will give generously, and if you gave before you came, I hope you will give more.” Here’s the beginning of the talk, plus a link to the whole thing. (We second Robert’s call for donations in support of D&S; you can donate online here.)

All That Glitters Is Goldman Sachs

A Primer on Skullduggery in High Finance

When I told a friend who runs a program in community economic development the subtitle of my talk, “A Primer on Skullduggery in High Finance,” he replied “Isn’t that redundant?” Of course it is and apparently always has been. It seems that Jesus thought so, and Buddha, not to mention John Adams and Thomas Jefferson whose view of bankers and stockbrokers closely resembled my grandmother’s distrust of clergymen of all faiths and actors of both genders. The common element being that they were all trying to sell you something that was apparently much more for their benefit than for yours.

But perhaps a primer on this subject is redundant in still more ways. After all just about any grade school student will tell you—now anyway—that bankers and investment managers are a bunch of thieves if not worse. So perhaps this is a primer for the too sufficiently educated? But, yet another redundancy: here in this room are a sizable number of very well educated people, many with advanced degrees in economics, who have always understood how our economy functions and how it hides those functions behind a wall of mathematized ideological dogma. And we are here to celebrate and sustain the effort they make writing and editing a magazine and list of current books, which are themselves, primers on the skullduggery of the entire economic system, including its financial components.

So do not be surprised if your only satisfaction from these remarks is to confirm what you already know. Now to the business at hand. I am going to follow some advice I read many years ago in a primer on public speaking. First, say what you are going to say. Then say it. Then reprise it. What I am going to say is excellently expressed in a piece called “The New-New Gettysburg Address,” by a Wall Street blogger named Jeff Matthews:

The New-New Gettysburg Address

Four or five years ago our Investment Bankers helped bring forth on this continent, and around the world, a new banking system, conceived in Leverage, and dedicated to the proposition that all persons working for Investment Banks can create enormous Wealth for themselves with almost no Risk except to Taxpayers.

Now we the Investment Bankers of Goldman Sachs are engaged in a great Scam, testing whether that Nation of Bankers can get paid without Tipping Off the Taxpayers to that Scam.

We have come to cash our checks.

It is altogether fitting and proper that we should do this, for we have Houses in the Hamptons requiring upkeep.

But, in a check-clearing sense, we can not Cash Our Checks so long as AIG cannot make good on the credit default swaps we purchased to Hedge our Leverage. Thankfully, the brave men of Goldman who struggled to Attain Positions of Power in Treasury and the White House have consecrated it, far above Barney Frank’s poor power to detract from our AIG Contracts.

The Small Investor will little note, nor long remember, how completely screwed He got, but we the Investment Bank of Goldman Sachs can never forget what they did to provide us this cash. We thank them for the $8 billion Their Government is paying to AIG in order to Make Us Whole.

We here highly resolve that The Little Investor shall not have died in vain—that this nation, under Goldman Sachs, shall have a new birth of Leverage Without Risk—and that government of Goldman, by Goldman, and for Goldman, shall not perish from the earth.

Mr. Matthews, who usually ends his blog posts with the expression “No, I am not making this up,” departs unnecessarily from form in this case by saying “Well, Yes, I Am Making This One Up”. While there are a few small errors, notably the idea that Goldman had purchased Credit Default Swaps to hedge its leverage rather than increase it, for the most part this is more accurate than any stories you might find in the New York Times or the Wall Street Journal.

In a recent article in the New York Review of Books, Bob Solow quotes a passage from a book he is reviewing by the ultra-conservative jurist, Richard Posner:

As far as I know, no one has a clear sense of the social value of our deregulated financial industry, with its free-wheeling banks and hedge funds and private equity funds and all the rest.

Solow observes that Posner apparently thinks this social value “is limited.” It is hard not to enthusiastically agree with that conclusion. Starting with my own “industry”, the investment management business whose usefulness is defended in economics text books because it contributes to the rational allocation of capital to the best social uses and attacked by Marx and others as a purely parasitic attachment to the truly productive parts of the economy. I would have to hand the prize to Marx. In my industry the median professional investment adviser, or bank trust department or mutual fund, has consistently, unfailingly done worse than a simple index fund over any ten-year period for as long as records exist. Why? The answer extends to all the rest of the finance sector; the managers consistently put their own interest ahead of the clients. Combined with compensation arrangements that award unusually good short term results far more than they penalize mediocre long term results, this causes managers to take more risks with their clients money than the clients would for themselves. In a market where human nature and professional incentives both lead to excessive risk taking, risk is overpriced and risk taking loses, just as betting on lottery tickets or roulette loses, occasional jackpots not withstanding.

Read the rest of the talk.

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