It Doesn’t Change The Facts

Published today in CommPro.biz http://www.commpro.biz/news/tuesday-october-30-2012/ 

 

Remember last March when a Goldman Sachs executive very publicly resigned with a scathing OP-ED in the New York Times? Well, last week (2012.10.23) Greg Smith released a book fleshing out his description of Goldman’s decay over the twelve years of his impressive career from the heady time when he made the cut and became an intern. Prior to the book’s release, Goldman fired back. They deny that they play any of the smarmy games that Smith claims are routine.

The investment banking firm paints Smith as a disgruntled employee who left not out of disgust with a deteriorating culture, but because he was refused an increase in his annual bonus from a half-million to a million dollars. Smith doesn’t deny that request, but suggests that instead of select items, Goldman should release his entire personnel file. He says it will show twelve years of rave reviews.

While smearing Greg Smith may blunt his criticism, the fact is, Goldman has paid out more than a half-billion dollars to make charges of the very kind Smith hangs his arguments on, go away. Goldman CEO Lloyd Blankfein told the Times of London, that he is “just a banker doing God’s work.” Comedian Stephen Colbert noted that “Blankfein had not indicated which god. Perhaps Shiva, Lord of Destruction.”

Blankfein has hired a lawyer with a history of defending high profile corporate crooks; not what those working in God’s vineyards normally do. On the face of it Greg Smith has an impressive track record. During his twelve years at Goldman he rose from intern to a high ranking position in their London office. He was chosen as one of ten out of more than 30,000 Goldman employees to appear in their college recruiting video. He was certainly a key player.

A Congressional investigation detailed that Goldman routinely sold packages of crappy investment vehicles to their customers (AKA “Muppets”) all the while betting that they would fail. Testifying before a Congressional Committee, CEO Blankfein denied knowledge of these practices. However, the Committee trotted out internal documents putting his denial in “Pants on Fire” territory.

So it comes down to this. Greg Smith’s motivation for leaving may or may not have been pristine. However, his motivation does not make his claims untrue. Goldman Sachs is not a nice outfit. They are not doing God’s work. They grind out huge profits moving money around. In Goldman’s case not a role that contributes to the well-being of society.

Understand, many investment banks play an important role. They provide bucks to keep major organizations in business and serve as advisors to businesses and to institutional investors. Problem is Goldman Sachs and some other bottom feeders play both sides of the street. The game that regulators during the Great Depression decided was a really bad idea. The laws set up back then to protect against the activities Greg Smith sees as toxic were swept away in the 1980’s and 90’s, leading to the recession we are struggling to overcome. Bad idea? You bet! Once a bad idea, always a bad idea.

That Greasy Sleazy Feeling

 

As we pull out of the gas station these days, in addition to the empty spot in our wallets there’s a scent of sleaze in the air. It’s not our friendly gas station dude, he’s just trying to get by like a lot of us; it’s more complicated than that. The more we drill down, we discover that it has little to do with the price of oil. But isn’t oil scarce, aren’t we importing more than ever before? No, actually we are producing about 80% of our needs. All that new drilling that fired up over the last few years combined with reductions in usage, has narrowed that gap. Don’t say anything out loud, but America is even exporting oil. What’s the problem then?

There are many factors from the seasonal bump we see this time every year, to the capacity of our refineries, to unrest in the Middle East. While the latter does not seem to be a real factor given how little we need from those folks, there is no doubt that it is a factor. Not in the way you might think, however. No less an authority than Goldman Sachs has found a culprit that adds at least $.56 to the price of every gallon of gasoline. It’s the casino called Wall Street.

The commodities market was designed to stabilize the price of grain, cattle, pork and other things including oil. The idea is to assure the producer’s pricing when the fruits of their labor hits the market. But of course it turns out that you don’t have to be a buyer or seller of these commodities to get into the game. You just have to have the bucks and the free pass that the Congress gave Wall Street, immunity from gambling laws. Add something like instability in the Middle East and give their roulette wheel a spin; we always lose.

Now the commodities market is flooded with all kinds of financial instruments, things like “swaps,” the fun stuff that helped toss the world economy into the dumpster. Speculating on commodities has always been around but until recently the end users and producers controlled over two-thirds of the contracts. Today that number has flipped and two-thirds are in the hands of speculators. Not the players in the oil market that have traditionally dominated this game. Today a frighteningly small number of Wall Street types hold the price of oil in their hands; playing with what we pay at the pump.

You can figure that seven to eight bucks is pocketed by the Wall Street types every time you fill up, ten bucks or more if you drive a bigger vehicle. The average price for a gallon would be a little over three bucks without Wall Street’s “take.” Given the rare peek we got into the wonderful world of Wall Street when one of its own, Greg Smith, laid out his reasons for leaving Goldman Sachs in an OP-ED, you can imagine the nicknames the Wall Street types pin on us. While most businesses, in fact most folks are trying to do the right thing, pond scum like Goldman and their ilk have no concept of the ethical life.