Rethinking Markets

Looks like Goldman Sachs is going to be making record bonus payments on the year. Let’s take a stroll, shall we?:

• Under then-head Jon Corzine (the soon-to-be-ex-governor of NJ), Goldman fucked over LTCM when they were going bankrupt in the late-1990s. From Roger Lowenstein’s When Genius Failed: “In Greenwich, Goldman’s sleuths, who had the run of the office, left no stone unturned…A key member of the Goldman team was Jacob Goldfield…[who] appeared to be downloading Long-Term’s positions, which the fund had so zealously guarded, from Long-Term’s own computers directly into an oversized laptop (a detail that Goldman later denied). Meanwhile, Goldman’s traders in New York sold some of the very same positions. At the end of one day, when the fund’s positions were worth a good deal less, some Goldman traders in Long-Term’s offices sauntered up to the trading desk and offered to buy them. Brazenly playing both sides of the street, Goldman represented investment banking at its mercenary ugliest. To JM and his partners, Goldman was raping Long-Term in front of their very eyes (172-173).
• They bet against their own positions during the sub-prime collapse As Michael Lewis put it, “Goldman had, in effect, an entirely separate enterprise, sitting on top of the firm, with the power to reverse the judgment of its own supposed experts in various markets. They were able to do this, apparently, without ever saying a word about it to their own traders. Instead of telling the fools trading subprime mortgages that they are wrong, and that they should unwind their positions, they simply offset their trades.”; And instead of telling the rest of as well.
• They took $12.9 billion government payouts as counter-parties to AIG’s credit default swaps. (the same M.O. they used as counterparty to LTCM, when the Fed bailed them out then as well);

And this is the stuff that comes without even digging any. I used to want to work for GS, and recommended a friend take a position there. Why? Because they’re smart, interesting, the top of their class. And I still appreciate some of the more interesting hedge funds. But honestly, reading this kind of stuff is so so so frustrating. How is this conscionable behavior? Seriously, how? I’m at the point when I just think, Fuck Them. I might as well recommend my students go into the mafia or prostitution before recommending that they go into investment banking these days. There seems to be only nuanced differences.

There was a time in our history when, in exchange for building the infrastructure of the United States, we allowed industrial robber-barons to make massive amounts of money. And in FDR’s famous ‘new deal’ speech, to the San Francisco Commonwealth Club, he called for a New Deal to remedy this.

Maybe there was a time when a similar bargain was made for Wall Street. But what are we as a society getting in return for allowing these new robber-barons? If the answer is, not enough, then where’s our New Deal?