Goldman CEO Lloyd Blankfein was on Fareed Zakaria GPS Sunday in an attempt to exonerate Goldman from any wrongdoiing during the recent financial crisis. According to Blankfein, Goldman was little more than an innocent bystander to the crisis. Goldman was just a simple little "market maker," not a major player duping people out of their money. In Blankfein's view, Goldman just simply set up deals where those interested in going long were introduced to those interested in going short. They were just a broker, in other words, (or a bookie) who brought these parties together. Yes, Goldman structured deals at the request of its clients, but these deals were freely entered into by professsional, sophisticated investors who knew what they were doing. There were those who sought risk in the market and there were those who sought to hedge their risks. Surely, Goldman is not the bad guy that it has been portrayed to be by the media.
Yes, ..., er uh Mr. Blankfein, you don't think that Goldman had anything to do with selling toxic securities that your research operations surely told you were bad investments? You don't think that you palmed off on investors certain securities, and then Goldman bet against those securoities? Oh no, says Mr. Blankfein. Any security could have risen or fallen at any particular time. Even when a security's value was dropping like a rock there were those who were willing to bet that all of a sudden it would start rising again. Goldman was simply the middle man. So uh, Mr. Goldman, you don't think that you had any responsibility to tell these idiots that certain investments were bad investments? Oh no, these investments could regain value at any time and that's what their investors were betting on. There were people who sought risk in the market, they hungered for risk, and who was Goldman to tell them that they shouldn't satiate that hunger?
So, Mr. Blankfein, your role is simply that of a gambling casino in which all parties know the odds, and some, being mature adults and of sound mind, are willing to take on a lot of risk in order to make a potential killing although the most likely scenario is that they will probably lose their shirts and others are just looking to hedge their bets. Yeah, that's it. So when prominent hedge fund manager John Paulson came to you with his design for a portfolio which he subsequently shorted and ultimately made $3.7 billion dollars, you obligingly set up the Abacus fund, and those investors who invested in that portfolio, who subsequently lost $1 billion fully well knew what they were doing? They knew Mr. Paulson had designed it. They knew Mr. Paulson then shorted it. They knew it was junk. Well, uhhh.
Did Mr. Blankfein relish the prospect of the markets being reined in so that supposedly professional, institutional investors would be protected in future from their own idiocy and propensity to gamble? No, not if it represented a lost revenue opportunity for Goldman. In other words financial reform shouldn't result in any diminished opportunities for Goldman to make money any more than a gambling casino should protect its customers from losing all their money playing blackjack.
But who are these institutional investors. Well, pension funds, municipalities, state governments, foreign governments. You mean to tell me, Mr. Blankfein, that pension fund managers are gambling with the money that's supposed to be there to pay former employees' pensions? Well, yes, it's not up to Goldman to tell investors, even those responsible for the health and welfare of pensioners who count on their monthly pension check, what to do. It's not up to Goldman to protect professional, institutional, sophisticated investors from their own stupidity or inability to size up the value of a potential investment.
And does Mr. Blankfein have any concern about the millions of ordinary people who lost their houses and their jobs because of all of Goldman's dealings while Mr. Blankfein himself made $68 million in 2007 as the market melted down? Well, here Mr. Blankfein launched into an elaborate personal history that centered on his growing up in public housing, his father being unemployed and then later working nights at the Post Office and how insecure all this made him feel. Did this show any empathy for the millions of people who were hurt in the financial crisis? Of course not. It only showed Mr. Blankfein's enormous empathy for his own personal plight and that of his family. Not a word about anyone that was suffering from the meltdown of the current financial crisis in which people lost homes, jobs, marriages due to Wall Street shenanigans. I guess Mr. Blankfein is suggesting that they all go to work for the Post Office like his father did and work their way up to Mr. Blankfein's position. They too could, from humble beginnings, aspire to make $68 million a year.
The problem here, of course, is that Goldman is not simply an innocent market maker. Goldman is also a participant in the market and as such is looking out primarily for Goldman. You don't suppose that there is a little advertising going on telling clients that they should buy something that Goldman knew was not in their client's best interests? But, caveat emptor! Well, that goes on all the time in the capitalist marketplace. People advertise products that they know are not in their customers' best interests, but it's not their responsibility to protect their customers from making foolish decisions. Their only responsibility is to maximize their own profits.
And Goldman after all is an insider. They have many more resources at their disposal than does the average institutional investor. They have quants, PhDs in mathematics, who analyze everything. They are able to hypertrade, they have the fastest computers and can execute deals in microseconds. They can think many chess moves ahead. In short they have access to much more information and the smartest brains in order to insure that Goldman always comes out on the long end of the stick. Goldman knows more than you do; Goldman is in it to make money. And if you lose money because you're not as smart as Goldman, then that's simply part of the game, a game played fair and square according to Goldman. In short if you can't stand the heat, you better get out of the kitchen. Pension funds better fire poorly performing managers and hire someone else. However, I don't think that any city or state can afford to pay their pension fund manager as much as Goldman pays their "talent." So just as a casino is set up to make money for itself and the occasional lucky gambler, Goldman is set up to make money for itself and, if pension funds end up on the wrong side of a bet, that's tough luck. Goldman wins, you lose - fair and square; it's not Goldman's fault.
Mr Blankfein is attempting to rehabilitate Goldman's reputation with the general public, something it didn't have to worry about until recently because it never had to deal with the general public, only with institutional investors and the very rich. Since Mr. Goldman admits that Goldman's business is a confidence game, he now realizes that instead of just paying lobbyists, politicians' campaign funds and quants, he now has to be concerned that some of the public angst does not bleed over into the class of rich investors and pension fund managers. It just doesn't look good that Goldman set up a deal that it then peddled to investors but shorted itself. It appears that Goldman bet against securities that it was telling its investors were good investments. Even though the investors, supposedly, had access to all the analyists' information regarding the deal, it still seems that Goldman rigged the deal in such a way that they made money knowing in all probablility that its investors would lose money. It's a little like selling a house with a faulty wiring system and then taking out a fire insurance policy on the house or taking out a life insurance policy on an employee who smokes 6 packs a day.
Perhaps Goldman should start advertising on Meet the Press or Face the Nation or Fareed Zakaria GPS like Exxon Mobil, Chevron and Boeing do. You know, feel good advertisements. These other advertisers are not really trying to sell products; some of them like Goldman don't have commercial outlets or store fronts either. But they want the general good will of the public, just like Goldman does now. And it would guarantee that none of these shows or networks would be too critical of Goldman Sachs going forward.
