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Monday, 20 July 2009

Goldman Sachs: Did it cause the problems in the first place?

Reading - Goldman Sachs: Did it cause the problems in the first place? http://tinyurl.com/llje2s

No name is more ubiquitous in the pantheon of global finance than that of Goldman Sachs. At a time when world commerce and banking has been brought to a shuddering halt by greed, excess and foolishness, this investment bank provoked astonishment and disgust this week by handing out record bonuses.

It was revealed that the bank's 29,400 staff - including about 5,500 based in the firm's plush marbled London headquarters on Fleet Street - are each in line for bonuses averaging £475,000 this year.

While Britain and the rest of the world is struggling with record levels of unemployment and when governments are battling to find better ways of curbing banks' profligacy, this is an obscene amount of money.

It is an old City adage that when someone makes a big loss on the financial markets, there must always also be a big winner. And that is certainly true of the bank that was founded in 1869 in New York by the German immigrant Marcus Goldman and his son-in-law Samuel Sachs.

Of course, Goldman Sachs's bosses would like us to believe that it has come out on top, during the worst financial catastrophe since the Great Depression of the Thirties, through sheer brilliance.

Certainly, it seems to have an ability to capture the best and the brightest of every generation. But like a bookmaker who enjoys a special relationship with one horse-racing trainer, Goldman has proved highly skilled at fixing the odds.

The bank's employees make so much money in their early careers that alumni are able to 'retire' in their 40s and go into what the current chairman Lloyd Blankfein described to me as 'public service' or giving back something to society. This, one hastens to add, does not mean working in the soup kitchens of Deptford or among the starving millions in sub-Saharan Africa.

Instead it means filling the top jobs in the Treasuries, central banks and stock exchanges around the world where, like members of a secret society, they are able to ensure the wealth of the next generation of Goldmanites.

The tentacles of this operation reach right into the heart of Washington. It is no coincidence that President Barack Obama's chief-of-staff, Rahm Emanuel, who shaped much of the bail-out plan and stimulus package which has helped to save America - and Goldman Sachs - from ruin, served his time inside the hallowed walls of the bank.

So did President Bush's last Treasury Secretary Hank Paulson, the nervy, shaven-headed financier who decided that rival investment bank Lehman Brothers should be allowed to go under last September and who then persuaded Congress to cough up $700bn worth of rescue funds for America's banks - an estimated $5bn chunk of which (yes, you guessed it) went to Goldman Sachs.

In a searing analysis of Goldman Sachs's survival strategy down the generations, the American writer Matt Taibbi of Rolling Stone magazine has described the firm as 'a great vampire squid wrapped around the face of humanity, relentlessly jabbing its blood funnel into anything that smells like money'.

Taibbi's thesis is simple and he sets it out in meticulous, if one-sided, detail - written with a fury not seen in the more conventional financial press. According to him, Goldman Sachs is at the heart of all that has gone wrong with Anglo-Saxon capitalism.


He alleges that it has been 'manipulating whole economic sectors for years, moving the dice game as this or that market collapses, and all the time gorging itself on the financial vicissitudes that are breaking families everywhere - high petrol prices, rising consumer credit rates, devalued pension funds, mass lay-offs, future taxes to pay off bail-outs.'

In other words, Goldman Sachs is to blame for many of our ills, ranging from the surging cost of petrol to the collapse in value of pension funds and the stock market, as well as other investments which have suffered big losses.

Certainly, there can be no dispute that while much of the world is being devastated by falling trade and reduced living standards and when governments are faced with the biggest debt mountains in history, Goldman Sachs is living high off the hog. The group's earnings in the past three months alone were $3.44billion - 65 per cent up on the same period last year.

As the financial crisis unfolded, the fingerprints of Goldman Sachs have been seen on almost everything that has happened. Along with the other Wall Street investment houses, it was at the centre of the scandal under which sub-prime mortgages - provided to the lowest echelons of American society - were packaged up as solid investments with a good return and sold on to unsuspecting investors.

Goldman even went as far as to buy a couple of brokerage firms who sold these corrupt mortgages 'so that it better understood how the market worked'.

Having helped to create a market in which it underwrote $76.5bn of sub-prime mortgages, it sold off these broker firms which meant it had protected itself from huge losses when the mortgage market went bad.

Read more:http://www.dailymail.co.uk/debate/article-1200481/ALEX-BRUMMER-As-Goldman-Sachs-posts-huge-profits-economic-crisis-question-Did-cause-problems-place.html#ixzz0LqK5EIUf