Goldman Sachs has been attacked by the right—and has even had a few barbs thrown at it in TIA Daily—for being a leading example of a big business that exploits its political connections. Michelle Malkin, for example, catalogs the numerous top officials who have gone through the revolving door from the financial industry to the Treasury Department, in which capacity they have been responsible for doling out bailout money to their former (and perhaps future) employer. "While President Obama assails the culture of greed and recklessness practiced by the men of Goldman Sachs," she concludes, "his administration is infested with them. The White House can no more disown Government Sachs than Da Boss-in-chief can disown Chicago politics."
This is a real and substantial aspect of the Obama Banana Republic. And that is the proper term for Obama's economic system, not "crony capitalism"—because it is obviously not capitalism when it suddenly becomes hard to tell where government leaves off and the private sector begins.
This concern about the intertwining of government and business is heightened by Senator Dodd's new financial regulation bill, the essence of which is to make the TARP bailout program permanent, creating a standing government bailout fund for certain large financial institutions. Thus, Bloomberg's Kevin Hassett argues that the Dodd Bill amounts to a government guarantee of these institutions.
The Dodd bill will establish a set of companies that will be implicitly established as too big to fail, or TBTF. These firms will, according to Plosser, have an advantage: "when stock and bondholders of TBTF firms win, they profit, but when they lose, they become eligible for a government bailout."This will lower the cost of capital for the firms so designated, since lenders will understand that the US government will be there should calamity ensue. If you lend to a little guy, you lose if he runs into trouble. If you lend to a big guy, you get your money back from taxpayers….
For Goldman Sachs, that is the good news. The bad news is that there is a cost associated with becoming one of the government's favored financials. The Fed will be granted almost unlimited power to micromanage systemically important institutions.
In effect, he concludes, the Dodd bill turns Goldman into AT&T before it was broken up: a government-protected, government-regulated public utility.
Perversely, this is not what the latest Goldman Sachs scandal is about.
Among the left—and the left-leaning mainstream media—the big Goldman Sachs scandal is a rather ordinary trade Goldman organized in 2007. At the request of hedge fund investor John Paulson, Goldman organized a package of securities that would go up in value if the housing market collapsed, which Paulson believed (correctly) was going to happen. Goldman then sought out a group of other investors—the majority of the market, at the time—who had come to an opposite conclusion and were willing to bet that the housing market would rebound. They were wrong, of course, but they were all big boys, and in every market trade one side is proved right and the other is proved wrong.
In short, this is a non-scandal, and there is no real evidence there was anything fraudulent about the transaction. The SEC's accusation boils down to complaining that investors who bet on a real estate rebound were not told that the guy on the other end of the transaction was betting that real estate would go down. This is like buying shares of stock in the expectation that they will go up—then complaining that you didn't realize somebody else was actually selling those shares to you. Goldman Sachs is being accused of fraud for failing to state the obvious: that there are two sides to every trade. It is an absurdity.
But don't bother to examine a folly—ask only what it accomplishes.
In this case, the giveaway to the real motive is a set of internal Goldman Sachs e-mails released to the press by the Senate Permanent Subcommittee on Investigations. (Part of the Obama Banana Republic is that your private information can be subpoenaed by the government, then selectively leaked to the public at its arbitrary discretion, with no due process or consideration for your rights.) These e-mails are supposed to make Goldman Sachs look bad by showing that it profited during the economic downturn by making the right call about the direction of the housing market. According to the New York Times:
In the messages, Lloyd C. Blankfein, the bank's chief executive, acknowledged in November 2007 that the firm had lost money initially. But it later recovered by making negative bets, known as short positions, to profit as housing prices plummeted. "Of course we didn't dodge the mortgage mess," he wrote. "We lost money, then made more than we lost because of shorts."
Remember, this is not about Goldman Sachs profiting from special government favors. This is about Goldman profiting from being right. This is presented as if it were evidence of wrongdoing, but it is actually a tribute to Goldman's business acumen. And thank goodness someone was making money during the financial collapse, because otherwise the losses would have been greater and the recovery much slower, and we would all have been worse off.
But that's not the attitude taken by the Obama administration or the Democratic Congress. In their minds, Goldman's crime is not how it profited, but that it profited.
We were warned about this at the height of the crisis, when the incoming president proclaimed that "there will be a time for [the banks] to make profits" but that "this is not that time." Profit is a measure of wealth creation, a measure of growth and recovery. To not make a profit—for a business or an individual—is to be in a state of economic crisis and collapse. So Obama was really saying: now is not the time to recover. It was a statement of his desire that the financial collapse should become permanent.
Why would anyone want that? Well, notice the message being sent by the one-two punch of the Goldman prosecution and the Dodd bill. If you make a profit independent of the state, based only on making the right judgment, then you will be publicly vilified, hauled into court, and regarded as fair game for regulatory harassment. But if your business fails and needs subsidies, then the government is here to support you. The message is: it's acceptable to make money only after you've gotten the inside OK from the government. And if you accept that your activity is to be managed by the state, then the state will support you.
This is where Obama has been headed ever since he took control of the government's bailout of the financial industry: the de facto nationalization of the banks. It is the same model, come to think of it, that he has followed for the automakers, the insurance companies, and the entire health care sector.
In the wake of a crisis caused by the overextension of credit by the "government sponsored entities"—Fannie Mae and Freddie Mac—and their subsequent failure, the administration's response is to turn everyone and everything into a government-sponsored entity.
The left holds that private profit is bad, while anything that the government does is a benevolent "public service." So the only way for private financial activity to become legitimate—a kind of moral money laundering for "filthy" private profits—is to go to the government and ask for your business activity to be supported or sanctioned by the government.
But the alternative to profit is power—political power, the power of those who are authorized to use government force. If making a private profit is no longer allowed, the alternative is an inherently corrupt system in which all economic activity is entangled with the power of the state.
0 comments:
Post a Comment