What’s good for Goldman?

That wasn’t just because of some broad economic theories on taxes, regulation
and labor management, either. GM itself played a central and stabilizing role
in American society. It provided healthcare and economic security for hundreds
of thousands of American workers, many of whom were blue-collar workers didn’t
have too many other job prospects outside of the auto industry. GM also
promoted American power and American ingenuity across the globe, spreading the
myth of American supremacy in far-reaches of the earth.

As we all know, General Motors fell on hard times, as it had trouble competing
with foreign automakers. Things got so bad, GM last year was actually taken
over the by the U.S. government, giving a new spin to the idea that what is
good for GM is good for America.

I thought of GM as I read a fascinating passage from Hank Paulson’s book “On
the Brink.” Paulson clearly believes that another GM is now the central player
in the American economy. But that GM is not a carmaker, but rather an
investment house, called Goldman Sachs.

“On Tuesday morning, the consequences of Lehman’s failure were becoming more
and more apparent. I received an astounding call from Goldman CEO Lloyd
Blankfein. He informed me that Lehman’s U.K. bankruptcy administrator,
PricewaterhouseCoopers, had frozen the firm’s assets in the U.K., seizing its
trading collateral and third-party collateral. This was completely unexpected —
and potentially devastating jolt….Just about all the hedge funds in London and
New York, whether or not they had any relationship with the bankrupt securities
firm, became unnerved and leaped to a frightening conclusion: they should avoid
doing business with any firm that could up like Lehman. This was bad news for
Morgan Stanley and for Goldman, the leading prime brokers….Lloyd was afraid
that if something wasn’t done, Morgan Stanley would fail, as clients began to
run and hedge funds pulled their prime brokerage accounts. And even though
Goldman had plenty of liquidity and cast, it could be next…

“Hank, it is worse than any of us imagined,” Lloyd said. If hedge funds
couldn’t count on the safety of their broker-dealer accounts, he went on, “no
one will want to do business with us.”

That in a nutshell seems to sum up why the federal government decided to bail
out the financial services industry. Because nobody wanted to do business with Goldman
Sachs.

Now, I am a big fan of Hank Paulson. I think he is an honest and earnest human
being. And I think he was doing what he thought was in the best interests of
the country when he proceeded with his bailout of the financial services
industry, so that somebody would eventually start doing business with Goldman
Sachs again.

But Paulson’s world view is obviously colored by one assumption. That what is
good for Goldman is good for America. And perhaps from a macro-economic view,
that is true. I just wish Goldman acted with some sort of corporate
responsibility in return.

Goldman could make the strong case that it provides the necessary capitol to
create millions of jobs. It could specifically invest in American manufacturers
to create jobs for people who aren’t smart enough to work for Goldman Sachs.

It could put a limit on how much money its senior executives make. How much is
too much? When the CEO makes 68 million smackers and seems to be frankly
unapologetic for relying on a government bailout so that he can make another 60
million dollars the next year, well, you know, that just isn’t very smart
politically. Nor is it very socially responsible.

Instead Goldman Sachs seems to be embarking on a communications strategy that
says basically that it exists for only one reason: To make money for Goldman
Sachs. Of course, it does that very well. And according to the latest SEC civil
suit, it made money for itself by betting hard against products it sold to its
customers.

It was as if General Motors was some how able to make billions of dollars by
selling Buicks that it knew were going to breakdown within 3 to 6 months of
being driven off the lot.

Blankfein was once quoted in the Times of London saying that his firm was doing
“God’s work.” I didn’t know that it was all part of God’s plan that a financial
firm aggressively recruit and hire the smartest people on the planet, then use
those people to work very hard to do one thing and one thing only, to make lots
and lots of money by creating strategies to not only confuse investors, but
also rip off customers by selling them lemons of investment vehicles, designed
specifically to lose money for those idiots who were dumb enough to buy them. And
then to smartly put in place all kinds of former employees in places of great
influence, so that if the wheels do happen to fall off, and business starts to
really suffer, they can get themselves a bailout, so that they start to make
some money again.

That might not be a fair analysis about what Goldman does and the good it
provides to the American economy. But right now, this has become the
conventional wisdom, and thus far, Goldman Sachs hasn’t done much of a job
giving an alternative view.

What was good for GM was good for America in the mid-twentieth century. It is
increasingly looking these days that what is good for Goldman Sachs in the 21st
century may not be what is good for the American people. And that is a real
problem for the folks at Goldman Sachs.

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