Or does it? Slagging off the world’s most powerful bank is a popular pastime these days — but how much of the mud really sticks, asks Stephen Hill
Most of us had never heard of Matt Taibbi until, in a recent issue of Rolling Stone magazine, he described Goldman Sachs, in an article headed ‘The Great American Bubble Machine’, as ‘a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money’. Ouch!
No sparing the blushes or the sucking with Matt on the job, that’s for sure, as the strap-line yells at us: ‘From Tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression,’ and now it screams: ‘And they’re about to do it again.’
Matt started off eloquently enough, as he enumerated all the high positions in American society held by Goldman’s alumni, which is just about all of them, and in the rest of the world too, which even Matt admits is a slightly larger place.
Bubble Number One in the Gospel according to St Matthew was the Great Depression itself, wherein the upstart Goldman came a cropper with its over-leveraged investment trust failures, Blue Ridge and Shenandoah, of which JK Galbraith opined: ‘It is difficult not to marvel at the imagination which was implicit in this gargantuan insanity. If there must be madness, something may be said for having it on a heroic scale.’
Well, that doesn’t sound much like a major market manipulation that affected the whole crash, if you ask me, but more like a disastrous own goal, from which Goldman eventually, painfully and amazingly recovered.
Matt’s Bubble Number Two — 65 years later, please note — was the dotcom disaster which we all lived through. Sure, all the bulge-bracket banks got sucked in as they sought to suck money out, but the arch villain wasn’t Goldman’s at all, it was Morgan Stanley and Mary Meeker — remember her?
She was the banker who taught the world that profits didn’t matter, but the burn-rate divided by the remaining cash did, and that all valuations should be driven by multiples of revenue and that losses were just so much EBITDAM. EBITDAM? Yes, ‘Earnings Before Interest, Tax, Depreciation, Amortisation and Marketing’. It was the earthling marketing costs that cut the dotcoms off at the knees. Nice try, Matt, but at least give Morgan Stanley credit where a debit is due.
And on to Bubble Number Three, the housing bubble. All of Wall Street and beyond got involved in this one eventually, as usual, but Matt, Goldman didn’t start the dicing and splicing of mortgages into CDOs as you aver; that was Larry Fink and his team at First Boston working with Freddie Mac in 1983. Sorry, Matt, but at least you can take comfort that Uncle Sam’s mortgage company was in at the very beginning of these shenanigans.
As for Goldman, they were a Johnny-come-lately in this debacle and had the sense to be the first ones to head for the exit, and at a profit — unlike the blundering nerds of Merrill Lynch who practically busted Bank of America with their toxic mortgage losses.
Matt’s Bubble Number Four was the $4-a-gallon gas deal, but sorry again, Matt; that was the hedge funds following the lead of Morgan Stanley, which even bought up storage space at refineries to enhance their profits — oh, and to store their unsold but steadily appreciating oil.
Bubble Number Five was Goldman’s rigging the TARP bail-out, according to Matt, as the Secretary to the Treasury at the time was Hank Paulson, an ex-Goldmanite. Nice one, Matt, but I’m pretty sure the TARP came into existence to save the whole financial system, not primarily to make money for Goldman, even though Goldman did make money from the TARP as a result of AIG’s greed and incompetence with CDSs, which for the record were an invention of JP Morgan in 1993, to be exact.
And Goldman’s latest wheeze, Bubble Number Six, is, according to Matt, that they are planning to dominate the market in carbon credits, a market in which they are already five years behind Deutsche Kleinwort, the market leader, but which market does not yet really operate in the US as Uncle Sam hasn’t bothered to sign up to the Kyoto Agreement.
Having said all that, Matt’s polemic does have a real point: Goldman is increasingly being singled out as the Bad Boy of the Bulge-Brackets. Why? Simples… when you go compare meerkats, Goldman is no mere cat, but is undisputedly the smartest cat on the street, and so jealousies are aroused. Goldman is Target Number One — a dangerous position to occupy for too long, even if it’s very profitable, but there’s no Target Number Two, or Three, or Four.
Just ask that fat cat Marie-Antoinette, who wanted all the lesser cats just to eat cake, until she lost her own cake-hole. I think I can even hear Matt Taibbi licking his lips at the prospect of Madame Guillotine making a timely appearance on Wall Street, but by then Goldman the Giant Squid, with tentacles everywhere, would be leading and financing the revolution.