Goldman Sachs: Too Big to Succeed?
What an interesting juxtaposition in the Senate Tuesday. At that hearing of the Permanent Subcommittee on Investigation, the parade of insolent Goldman Sachs gangbangers basically made it clear they were way higher and mightier than the peoples’ elected officials of any government.
In effect, they told astonished committee members that concepts such as honesty and ethics, and certainly shame, were alien in Goldman snake pits. All that mattered, as they peddled their indecipherable and deceptive exotic mortgage packages, was that they added new profits to their pile of ill gotten gains.
Meanwhile, over on the Senate floor, the Republicans once again were blocking the Financial Reform legislation, which, among other things, would establish requirements and oversight for the very derivatives Goldman Sachs and the other hustlers in their cabals used in their elaborate and massive financial flim-flams.
While the debate raged on over regulation and what to do about companies deemed “too big to fail”, the Goldman executives were presenting a strong case for the argument that there should really be laws against organizations that are too big to succeed.
Back in history, a President or two, along with some concerned members of Congress and a few judges, concluded that certain companies had become so huge they could crush the economy, squash competition and pulverize any efforts to hold them legally accountable. So they broke them up.
How quaint. After the last several decades of mergers and the other wheeling dealings, the so-called free market is not free, but under the control of a few behemoths who believe they don’t really have to answer to anyone. The fact is, they’re usually right.
But even these rulers of the world can sometimes get tripped up by their own hubris. That’s what we witnessed from the Goldman spectacle Tuesday.
Their well-coached but transparent attempts to deflect questions were not enough to obscure the brazenness of their securities manipulations. The blatant disregard for decency that underpins their business practices was on full display.
One of their main arguments is that all they have been doing was routine business practice. Shifty behavior is the norm. They were merely operating the way the other operators did. That is exactly the point. To a large degree our destinies rely on a system of deceit.
Those who can change that, our members of Congress, face a real dilemma. They somehow must take care not to offend the bankers and captains of industry, who, after all, fund their campaigns to stay in office, while at the same time do something to cool down the fire of outrage from a public ready to vote them out if they don’t make changes.
The legislation they’re considering is a small step toward bringing a little order to the lawless money frontiers. If that doesn’t work, maybe it’s time to seriously consider taking the huge out-of-control structures that overwhelm the terrain and break them into smaller, manageable pieces.
One would think that what we witnessed from the Goldman Sachs hearing will inspire them to finally take meaningful action. But what we saw on the Senate floor suggests that even that was not enough.
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“… than the peoples’ elected officials of any government.”
This is extremely frightening (I think I’ve read similar from Chinese officials). Half the country didn’t vote for the current President and half the country didn’t vote for the previous one (I just wanted to have all my bases covered in case you suggest I am making a partisan statement). I think what you actually mean is “than some of the peoples’ elected officials who have the authority to rule over those who didn’t even want to elect them.”
“All that mattered, as they peddled their indecipherable and deceptive exotic mortgage packages, was that they added new profits to their pile of ill gotten gains.”
This is indeed how every industry works, and how every industry should work. Each producer of a good or service has the ability to decide how he goes about doing business, and each potential buyer of those goods or services has the ability to decide whether he wants to interact with someone who does business that certain way. The fact that your local supermarket doesn’t poison you on a daily basis shows this works quite well (and rest assured it is not the result of some food inspection agency because if that supermarket really wanted to poison you, it could, but it won’t because the moment you are unsatisfied with its products you will leave and it will lose money). The more people decide they benefit from interacting with a company, the more that company’s method of doing business is rewarded. If a business operates in a manner everyone finds immoral, there is a simple solution: don’t do business with them so they lose money. What you need to explain to your readers is why your preference for how a company should be run needs to be imposed on everyone else. The people who might do business with an immoral company never ask others to do business with it as well. Why do you want people to do business with a company the way you want them to?
“… concluded that certain companies had become so huge they could crush the economy, squash competition and pulverize any efforts to hold them legally accountable. So they broke them up.”
This is correct. That is, the companies were broken up based on the exact requirements of the companies that were getting broken up. Might it be possible that as a result, these industries were actually helped rather than harmed, as you suppose? When big companies lobby for minimum wage increases do you think it is because they care for their workers or because they know their smaller competitors don’t have the means to pay the higher minimum wage and will instead go out of business? By the way, is there a point at which the government gets too big when you would say “we should break up this behemoth because it could crush the economy,” or does that institution operate under an entirely different set of rules and morals from everyone and everything else?
“They were merely operating the way the other operators did. That is exactly the point. To a large degree our destinies rely on a system of deceit.”
Please explain, in detail, what level of transparency would be non-deceitful in your eyes. I can guarantee you that level of transparency that you suggest is going to differ from the levels of transparency that every other person would propose if asked the same question. Why should everyone be subject to a level of transparency they might not care for, just because you say it is necessary? What about this simple rule: if a company is transparent enough for you, do business with it, if not, don’t.
“They somehow must take care not to offend the bankers and captains of industry, who, after all, fund their campaigns to stay in office…”
This is correct. It is also precisely why the government is such a destructive institution: it is the only entity in society trusted with the use of force and authority on law so it becomes no surprise when others in society try to influence it to their own advantage.
“The legislation they’re considering is a small step toward bringing a little order to the lawless money frontiers.”
The financial services industry is the most regulated in society. Is anything short of being run by the government considered a “lawless money frontier?” How would you then describe just about every other industry that is much less regulated than even the financial services industry? Crazy nutso anarchic cowboys runnin’ wild industry! Here is a subversive thought: we rarely complain about the industries that are much less regulated, but the financial services industry, which is the most regulated, seems to have lots of problems. Coincidence? Hmmm…
“If that doesn’t work, maybe it’s time to seriously consider taking the huge out-of-control structures that overwhelm the terrain and break them into smaller, manageable pieces.”
This is fascinating. Are you an economist? Could you please discuss the calculations you did to determine there are economic gains from breaking up a large company? I thought history has demonstrated that without government backing, a company that is indeed too large will get beaten out of the marketplace by a competitor (isn’t it straightforward that a large company can only be guaranteed to maintain its position… if its position is guaranteed by the only institution that has the power to guarantee that position?). Also, when those companies end up getting broken up (assuming your preference is enacted) according to rules that those companies will obviously end up creating for the legislators, will you then advocate we should trust the government to create yet another piece of regulation after that one because this time it won’t be influenced by anything other than selfless goodwill?
Amen, brother. I have for months (years) been insisting that we cannot expect financiers to act in society’s interest, that their sole purpose is to make money. Nothing wrong –okay, nothing illegal — with that, but as a society we cannot protect ourselves unless we recognize that appealing to the public good will not get anyone to stop creating S-CDOs.
By the same token, we’ve got to stop expecting politicians to act for the public good either — I truly believe that most of them are in it for ego and power, not public service. But I genuinely believe that they are smart enough to recognize that their reelection chances are better if they pander to outrage against Wall Street rather than deep-pocketed financiers.
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