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Is Goldman Sachs evil?

July 7, 2009

Is Goldman Sachs really a “vampire squid wrapped around the face of humanity”?

That’s the view of journalist Matt Taibbi in a long article in Rolling Stone magazine. Taibbi blames the firm for almost single-handedly orchestrating every investment calamity since the Great Depression. And judging by much of the reaction in the blogosphere, Taibbi’s view has become the accepted meme when talking about Goldman.

Yet that simple storyline, as compelling as it may be, is far from the truth.

The reality is Goldman is no more of a sinner than any other Wall Street bank. Is Goldman really any more responsible for the inflating and the bursting of the housing bubble than

Citigroup, Merrill Lynch, Countrywide or even New Century financial? No single bank cornered the market on greed in the current financial crisis.

But what does separate Goldman from the pack is that it consistently plays the trading game with a far more ruthless attitude.

Goldman’s rough-and-tumble style is on display in the case of a former employee accused of stealing some of its secret proprietary trading codes. According to the criminal complaint, Goldman learned about the alleged skulduggery of its former employee, Sergey Aleynikov, sometime in mid-June. But the firm waited until July 1, right before the start of the Fourth of July holiday, to notify federal authorities of the theft.

Aleynikov’s late evening arrest on July 3 forced an unusual holiday court appearance the next day in federal court in Manhattan. The terms of the bail were rather steep. And, of course, the banks were closed for the next two days — all but insuring Aleynikov would spend a few more nights in jail.

Talk about a deterrent. You can bet that Goldman won’t be dealing with any Aleynikov copycats for quite sometime — even if the former programmer is ultimately found not guilty of the charges.

Goldman’s ruthlessness also worked to its advantage in navigating the collapse of the housing market.

Back in 2007, when Goldman started turning bearish on the housing market, the firm began quietly to take steps to lighten its exposure to home loans to borrowers with risky credit histories.

Now it’s well-known that Goldman was the first of the big Wall Street banks to play hardball with American International Group, pushing the insurer in late 2007 to pay up cash collateral on some of the guarantees it had provided on mortgage-backed securities.

What’s not as well known is that Goldman, in a move to rid itself of subprime-backed debt, managed to peddle off some of its soon-to-become refuse on CIBC of Canada.

Sometime in 2007, Goldman sold off pieces of collateralized debt obligations it had in its portfolio to CIBC. The CDOs were guaranteed with credit default swaps sold by ACA Capital, a bond insurer that begin to collapse in December 2008. ACA was an early sign of things to come with AIG. But back when Goldman sold the CDOs to CIBC, the deal looked solid enough.

When tiny ACA collapsed, however, the guarantees were worthless and the value of the CDOs quickly plummeted. An embarrassed CIBC, which has never said how it came to possess the CDOs, took an initial $2.3 billion write-down and since has taken additional write-downs.

From Goldman’s perspective, the firm, since it clearly harbored doubts about the securities, did the shrewd thing by finding a buyer for them. So Goldman delivered a Trojan horse to CIBC — a firm with a troubled history in investment banking.

Is that evil? I don’t think so. But it’s the kind of one-sided deal that leaves one wondering why any firm thinks they can get the better of Goldman in a trade.

Comments

Our economy before 2008 was an inflated one, aggravated by greed, voluntary risk-taking and leveraged trade. Now is the pain for correction. Never lay blame on anybody making decisions with good vision. The market is cruel and pragmatic, as otherwise Lehman Bros with 150 years’ history wouldn’t go out of biz.

No one would envisage Goldman purposely did that.

Posted by Yamayoko | Report as abusive
 

Goldman have ruthlessly exploited the flaws in the ICE and NYMEX crude oil contracts, adversely impacting the economy, and consumers. They have then participated in bamboozling Congressional Commitees into believing that speculation only played a limited role in the run up of oil prices to $150/bbl last year. The bamboozling was carried out with the able help of their friends in high places so that they can continue the game as soon as the anger of consumers subsided. We have already seen Goldman predicting higher oil prices even though the world is swimming in surplus oil and refined products inventories.

Posted by johnny | Report as abusive
 

The prosecutor said: “He added that because of the way this software interfaces with the various markets and exchanges, the bank has warned it could be used to “manipulate markets in unfair ways.” Goldman used the program why are not they charged and prosecuted
for doing just that.

Posted by Haverlad | Report as abusive
 

It’s way past time to shut all of them down. As long as central banks with their fiat currencies and investment banks exist the world shall continue to suffer economic depressions while the banking elite collect their multi-million dollar bonuses.

Posted by Karl | Report as abusive
 

These large banks have such firepower for proprietary trading activities that they are able to destabilize “small” OTC markets (especially derivatives) and thus create market anomalies from which they derive their profits.

It is not evil as humans are greedy by nature but it certainly is amoral.

Posted by Heiki | Report as abusive
 

Come on Goldstein, give people the link to the article and let them decide for themselves. Goldman employees may not be even slightly criminally wrong, as you indicate, but it sure looks like ethical and moral decay. Here is the link: http://www.rollingstone.com/politics/sto ry/28816321/the_great_american_bubble_ma chine/print

Posted by Ima Sukkor | Report as abusive
 

As far as Goldman is concerned, evil certainly has nothing to do with the big picture. They are just smarter than the average company and doing whatever it takes to make the business profitable. There’s nothing wrong with approach and it’s sad that their competitors are upset enough to turn to the government to solve their own business shortcomings by “turning in” those who are merely playing the game that they all play. But then again, turnabout’s fair play. The entire investment banking business is just exacly what the vast majority of the American people want, or they’d change it.

Posted by Frank | Report as abusive
 

GS has managed to be the smart money too often and too consistently for the world to believe that they play fair. They have the insider track, they have a seat at the high table. They have played the US taxpayer for a sucker, all the while cramming yet more into a belly already full to bursting. Their individual bonuses would still buy a small town.

Posted by Dave | Report as abusive
 

It sure seems they have an interest in placing GS alumni in key posts at public institutions worldwide!! I am sure Paulson took on the Treasury post from the goodness of his heart, and by no means for tax purposes or to help his buddies in the first rould (!) of bailouts!

Posted by Topes | Report as abusive
 

Gee a guy named Goldstein doesn’t think Goldman is evil. Shocker.

Posted by Anonymous | Report as abusive
 

Goldie has chutzpah, no question. I recall reading that, when Goldie was long a truckload of AIG-written CDS’s, they hedged that position by shorting…AIG stock! you really do have to admire such ruthlessness – and that’s the right word, too.

Posted by Gotthardbahn | Report as abusive
 

“Is that evil? I don’t think so.”
Well, if you are the one that creates the bag of crap in the first place and sell it off as a dozen of roses to unsuspecting investors, then I think that’s evil.
GS knowingly packaged up an enormous amount of toxic debt, made a buck doing so, and sold it claiming it was solid.
And they say they are afraid the code may fall into the wrong hands allowing someone to manipulate the market unfairly…….WTF is GS doing with the code?……manipulating fairly?

Posted by MarkD | Report as abusive
 

“The reality is Goldman is no more of a sinner than any other Wall Street bank.”
That’s your defense?

Posted by Buck in NC | Report as abusive
 

The heavy-handedness with which Sergey Aleynikov’s case was handled may end up harming the firm’s reputation. It took the firm at least ten days to detect a significant IT security breach. With the publicity they helped stir up about an alleged theft of code that may inflict the loss of millions of dollars, but may be virtually useless to anyone other than the purported “thief” himself, they may have made things worse for themselves.

It is difficult to fathom what the actual damage from this “theft” might be. Implementing the code in a new environment would need a gargantuan effort. By the time the job was accomplished, the program at the firm would have improved to a degree that it would propel the firm once more ahead of the field. Therefore, even if the “theft” succeeded, the consequences might have been bearably small, unless information in the “stolen” files imperiled the firm legally.

Read more here:
http://brainmindinstrev.blogspot.com/200 9/07/national-security-intellectual-prop erty.html

 

The only way to control the market manipulation is to have a “Gaming Commission”. We might borrow some folks from Nevada to show us how to get rid of the card counters and the computer odds students. What we have in the stock and commodity markets is a large unregulated gambling house. When these banks lose the backing of pension funds, state funds, and other wells of money it will get better. It is time for the pension funds and others to do their own investing in safe bonds and safe real estate.

Posted by f belz | Report as abusive
 

I never thought I’d see the day that people are taking a faux journalist (in an entertainment magazine no less) and his conspiracy theory seriously. This is just a reflection of unfocused anger directed at the finance industry….don’t worry the government will save us and take care of our problems, nevermind the fact that their interference in the housing industry played a role in the collapse.

Posted by Vic Sage | Report as abusive
 

Goldman Sachs may not be evil but they have shoddy ethics big time.

Posted by ronald noble | Report as abusive
 

I don’t think anybody would be wondering if Goldman was evil, if it had either declared bankruptcy, been taken over by a bank under the Fed’s aegis or been nationalized in September 2008. The fact that strings were pulled to save it (and Morgan Stanley) from the market’s judgment — now that is suspicious.

Posted by Anon | Report as abusive
 

Goldman Sachs is an evil organization of criminals. They are a ‘vampire squid’ with their tentacles bored deep into government and regulators.

Posted by sukhbir | Report as abusive
 

Goldman Sachs can be considered evil only to the extent that American capitalism can be considered evil. They’ve operated quite well within the parameters set out, considering their goal is to facilitate credit and investment and generate profit for themselves and their investors. (Until recently I guess, when the whole damn world fell apart, and they went with it.)

We should learn from the previous president that calling something “evil” doesn’t accomplish anything. If you want a beast to behave in a certain way, you need to change the incentives.

Posted by Sam | Report as abusive
 

What is the role of Paulson (ex. Goldman chief) in Lehman collapse? Did he ensure that Lehman fails to get rid of competition for Goldman..?

Posted by Saravanan | Report as abusive
 

I think that bankers and investment banks in a general sense operate to maximize their profits within the regulatory framework in which they exist. The public’s primary grudge with Goldman is the tendency of the US Treasury to draw on it for staff without apparent restriction(s) in dealings with the firm after post.

Positions at Goldman because of its regular distributions of firm profits to key executives are highly lucrative contracts. Because of its success, it also has similar normal banking relations with other governments.

In this the public apparently perceives a conflict of interest whether actual or implied and potential for foreign influence over US Policy that is not representative of the civilian population.

That said, Goldman Bankers are the best in the industry and it is probably that quality of performance to which governments are attracted.

As Principals of the firm benefit from fees, a good customer is one who generates fees for the firm. Whereas other banks in the US generate services for US Citizens, like BoA and JPM, Goldman does not benefit the average voter with customer services and does nothing for US Small Business that would merit a tolerance by the public for the banks professional influence in government.

By this measure, Goldman’s lack of service to the US Public and Small Business makes them an easy target for condemnation for the influence that they do have in Washington, DC. The Bank thereby appears disconnected from the US Public unlike a JPM or BOA, to which fact their is an obvious public objection.

Goldman could repair this matter by being of better service to the US Public and US Small Business, which at present it is undeniable fact that they are not.

The firms PR rightfully suffers having not recognized this years ago.

Ultimately, if the people perceive a threat in Goldman (right or wrong) Goldman will be less successful in the future given a new paradigm of public accountability of US Financial Institutions.

I’d advise they find all reasonable ways to cure this public perception by taking a front runner role in financing a recovery based upon US Small Business and enterprise finance with noteworthy public examples that the public can comprehend.

 

How about all the people that think it’s great to have such a ruthless company around, pay more in taxes to cover the bailouts their favorite ruthless companies victims will receive, while the people who do not want their children growing up in a society that is constantly gambled with, pay no taxes. Then everyone gets what they want. Sounds fair right? Pay to play..

Posted by Hiemlich | Report as abusive
 

Heimlich,

Am I understanding you correctly to be suggesting a Bankers Bonus Tax? Let’s say with a threshold over $250,000.00?

 

I believe the derivative risk Goldman has will come into play the next few weeks. Check out why.

http://goldstocktrades.wordpress.com/200 9/07/02/derivative-risk-will-cause-goldm an-and-jp-morgan-to-crash/

 

If you could notice, it was GS who predicted that the Oil prices will shoot up and once it was at the peak, they only predicted that it will come down to below $ 70 which at that time no one else could believe. So this shows, how much influence they have.

Posted by abhilash | Report as abusive
 

It’s ok for others such as CIBC to take a loss thanks to GS, but it’s not ok for GS to take a loss via AIG so that Paulson (former GS CEO) has government bailout AIG to pay GS in full through AIG and to also give TARP to GS and to change it into bank holding company so it can have access to very low interest money that it can lend out for more. It’s good having connections with influence and power that can save your neck at just they right time that your rival Lehman Brothers didn’t. This is a form of plutarchy.

Posted by John Gilbert | Report as abusive
 

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