Goldman’s role in the financialization of America was similar to that of other players, except for one thing: Goldman didn’t believe its own hype. Goldman, famously, made a lot of money selling securities backed by subprime mortgages — then made a lot more money by selling mortgage-backed securities short, just before their value crashed. Goldman made profits by playing the rest of us for suckers.
World Focus: the Predators and the Grazers
My favourite passage from the novel “The Dogs Of War” by Frederick Forsyth is the conversation between Capt Shannon, mercenary contractor, and main protagonist of the story, and Julie Manson, daughter of Sir James Manson, the wealthy man who hired Cat Shannon to overthrow a small African nation’s government in order to install a puppet government and steal the mining rights to a recently discovered mountain of solid titanium.
Recalling this conversation, I marvelled at the genius of Frederick Forsyth in capturing with amazing insight not just the folly of wars – the one in Iraq and Afghanistan for instance – but other issues as how banks despite the current economic recession still makes a fool of tax-payers and the folly in fighting the politicians battles for them.
How for instance- despite the fact that the American economy remains in dire straits, with one worker in six unemployed or underemployed- Yet Goldman Sachs just reported record quarterly profits, and could afford to hand out huge bonuses, comparable to what it was paying before the crisis.
Forsyth explains to you why despite being intelligent, works hand and being a law abiding citizen, you still fail to get to the top, whereas a bastard like James Ibori would go on to become one of the most powerful politicians in Nigeria.
He also gave an apt answer to the slavery apologists – those that argue that our African ancestors should be partly blamed for 500 years of slavery, when Africans were illegally seized and kidnapped, through terrorist actions of the Western countries and shipped to Europe and America to build those countries.
“Why do you live the way you do? Why be a mercenary and go around making wars on people?” Julie asked.
“I don’t make wars” Capt Shannon answered. “The world we live in makes wars, led and governed by those who pretend they are creatures of morality and integrity, whereas most of them are self-seeking bastards. They make the wars, for increased profits or increased power. I just fight the wars because it’s the way I like to live.”
“But why fight for money? Mercenaries fight for money don’t they?”
“Not only the money. The bums do, but when it comes to a crunch the bums who style themselves as mercenaries usually don’t fight. They run away. Most of the best fight for the same reason I do: They enjoy the life, the hard living, the combat.”
“But why do there have to be wars? Why can’t they all live in peace?”
He stirred in the darkness and scowled at the ceiling ” Because there are only two kinds of people in this world: The predators and the grazers. And the predators always get to the top, because they’re prepared to fight to get there and consume people and things that get in their way. The others haven’t the nerve, or the courage, or the hunger or the ruthlessness. So the world is governed by the predators, who become the potentates. And the potentates are never satisfied. They must go on and on seeking more of the currency they worship.
“In the Communist world, and don’t ever kid yourself into thinking the Communist leaders are peace loving-the currency is power. Power, power, and more power, no matter how many people have to die so they can get it. In the Capitalist world the currency is money, more and more money. Oil, stocks, gold is the goals, and even if they have to lie, steal and bribe and cheat to get it. These make the money, and the money buys the power. So really it just comes back to the lust for power. If they think there’s enough of it to be taken, and it needs a war to grab it, you get a war. The rest, the so-called idealism, is a load of crap.”
“Some people fight for idealism. The Vietcong do. I’ve read about them in the newspapers.”
“Yeah, some people fight for idealism, and 99 out of 100 of them are being conned. So are the ones back home who cheer for the war. We’re always right, and they’re always wrong. Those GIs in Vietnam, do you think they die for life, liberty and the pursuit of happiness? They die for the Dow Jones Index on Wall Street, and always have. And the British soldiers who died in Kenya, Cyprus, and Aden. You really think they rushed into battle shouting for God, King and country? They were in those lands because their colonel ordered them there, and he was ordered by the War Office, and that was ordered by the Cabinet, to keep British control over the economies. So what? They went back to the people who owned them in the first place, and who cared about the bodies the British Army left behind? It’s a big con, Julie, A big con. The difference with me is that no one tells me to go and fight, or where to fight, or which side to fight on. That’s why the politicians, the Establishments, hate mercenaries. It’s not that we are more lethal than they are; in fact we’re a damn site less so. It’s because they can’t control us; we don’t take their orders. We don’t shoot the ones they tell us to shoot, and we don’t start when they say ‘Start,’ or stop when they say ‘Stop.’ That’s why we are outlaws; we fight on contract and we pick our own contracts.”
“What about wars when people fight for what they know is right?” she asked. “I mean what about fighting Hitler? That was right wasn’t it?”
Capt Shannon sighed and nodded.”Yes, that was right. He was a bastard all right. Except that they, the big shots in the western world, sold him steel up to the outbreak of war and then made fortunes making more steel to crush Hitler’s steel. And the Communists were no better. Stalin signed a pact with him and waited for Capitalism and Nazism to destroy each other so he could take over the rubble. Only when Hitler struck Russia did the world’s so idealistic Communists decide Nazism was naughty. Besides, it cost 30 Million lives to kill Hitler. A mercenary could have done it with one bullet costing less than a shilling.”
“But we won didn’t we? It was the right thing to do, and we won.”
“We won, my little darling, because the Russians and British and Americans had more guns, tanks, planes, and ships than Adolf. That’s why, and that’s the only reason why. If he had had more, he’d have won, and you know what? History would have written that he was right and we were wrong. Victors are always right. There’s a nice little adage I heard once: ‘God is on the side of the bigger battalions’. It’s the gospel of the rich and powerful, the cynical and the gullible. Politicians believe in it, the so called quality newspapers preach it. The truth is, the Establishment is on the side of the big battalions, because it created and armed them in the first place. It never seems to occur to the millions of readers of that garbage that maybe God, if there is one, has something to do with truth, justice and compassion rather than sheer brute strength, and that truth and justice might possibly be on the side of the little platoons. Not that it matters. The big battalions always win, and the ‘serious’ press always approves, and the grazers always believe it.” End quote
There you have it.
Perhaps, Paul Krugman had just read this conversation before he wrote about “The Joy of Sachs”. Mr Krugman explains that despite taking tax-payers money and the people still in dire straits, Goldman Sachs could afford to report record profits and hand out huge bonuses because “Goldman is very good at what it does. Unfortunately, what it does is bad for America”.
Let’s start by talking about how Goldman makes money.
Krugman wrote in the New York Times:
Over the past generation – ever since the banking deregulation of the Reagan years — the U.S. economy has been “financialized.” The business of moving money around, of slicing, dicing and repackaging financial claims, has soared in importance compared with the actual production of useful stuff. The sector officially labelled “securities, commodity contracts and investments” has grown especially fast, from only 0.3 percent of G.D.P. in the late 1970s to 1.7 percent of G.D.P. in 2007.
Such growth would be fine if financialization really delivered on its promises – if financial firms made money by directing capital to its most productive uses, by developing innovative ways to spread and reduce risk. But can anyone, at this point, make those claims with a straight face? Financial firms, we now know, directed vast quantities of capital into the construction of unsellable houses and empty shopping malls. They increased risk rather than reducing it, and concentrated risk rather than spreading it. In effect, the industry was selling dangerous patent medicine to gullible consumers.
Goldman’s role in the financialization of America was similar to that of other players, except for one thing: Goldman didn’t believe its own hype. Other banks invested heavily in the same toxic waste they were selling to the public at large. Goldman, famously, made a lot of money selling securities backed by subprime mortgages — then made a lot more money by selling mortgage-backed securities short, just before their value crashed. All of this was perfectly legal, but the net effect was that Goldman made profits by playing the rest of us for suckers.
And Wall Streeters have every incentive to keep playing that kind of game.
The huge bonuses Goldman will soon hand out show that financial-industry highfliers are still operating under a system of heads they win, tails other people lose. If you’re a banker, and you generate big short-term profits, you get lavishly rewarded – and you don’t have to give the money back if and when those profits turn out to have been a mirage. You have every reason, then, to steer investors into taking risks they don’t understand.
And the events of the past year have skewed those incentives even more, by putting taxpayers as well as investors on the hook if things go wrong.
I won’t try to parse the competing claims about how much direct benefit Goldman received from recent financial bailouts, especially the government’s assumption of A.I.G.’s liabilities. What’s clear is that Wall Street in general, Goldman very much included, benefited hugely from the government’s provision of a financial backstop — an assurance that it will rescue major financial players whenever things go wrong.
You can argue that such rescues are necessary if we’re to avoid a replay of the Great Depression. In fact, I agree. But the result is that the financial system’s liabilities are now backed by an implicit government guarantee.
Now the last time there was a comparable expansion of the financial safety net, the creation of federal deposit insurance in the 1930s, it was accompanied by much tighter regulation, to ensure that banks didn’t abuse their privileges. This time, new regulations are still in the drawing-board stage – and the finance lobby is already fighting against even the most basic protections for consumers.
If these lobbying efforts succeed, we’ll have set the stage for an even bigger financial disaster a few years down the road. The next crisis could look something like the savings-and-loan mess of the 1980s, in which deregulated banks gambled with, or in some cases stole, taxpayers’ money – except that it would involve the financial industry as a whole.
The bottom line is that Goldman’s blowout quarter is good news for Goldman and the people who work there. It’s good news for financial superstars in general, whose pay checks are rapidly climbing back to pre-crisis levels. But it’s bad news for almost everyone else.
Yes, very bad for the rest of us, suckers!
To be continued
Daniel Elombah (LLM) London