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  1. Wealth
April 19, 2010

Gold(mans bites the) dust

By Spear's

The Goldmans which emerges from this string of crises may be unrecognisable from the one that helped precipitate them.

The regulators are eating giant vampire squid kebabs. The SEC has pounced on Goldman Sachs, for the allegedly nefarious way they acted: in essence, they let John Paulson’s hedge fund pick most of the sub-prime mortgages to go in a CDO, which Goldmans sold on to investors and Paulson shorted, the complaint says. Vested interests much?

News of Goldmans’ demise is surely premature, but perhaps (using a different metaphor) we might consider that the snake is shedding its latest skin: the Goldmans which emerges from this string of crises may be unrecognisable from the one that helped precipitate them.

Lloyd Blankfein has done his best to seem as out of touch as possible, telling Spear’s columnist John Arlidge that the bank was doing ‘God’s work’.

Read these other Spear’s articles on Goldman Sachs

AlphaOne Male: A rare interview with a Goldman insider
Sects Appeal
Review of ‘The Partnership: A history of Goldman Sachs’
Goldman Sucks (Blood!)
Golden Opportunity: How I got inside Goldman Sachs

Goldmans was implicated in the Greek debt crisis, since they performed financial alchemy and made debt disappear (temporarily) with currency trades, so Greece would not fail to meet the criteria for joining the euro. Goldmans protests it was widespread at the time, but now we are seeing the results, with turmoil in the Greek bond markets and an EU-IMF bailout being arranged.

On a smaller level, Goldmans’ chief economist, Jim O’Neill, the coiner of ‘BRIC’, made enemies of the owners of Manchester United, the Glazer family, by supporting moves to oust them. The Glazers, unluckily, were clients of Goldmans.

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And then there was the damning indictment of Rolling Stone (Rolling Stone!), which gave the world the metaphor of Goldmans as ‘a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money’.

Goldmans is the totem of not just the financial crisis but the deep underlying greed and clever-clever innovation which caused it. So where does it go from here?

If he cared for public opprobrium, Blankfein would have gone a long time ago. So that won’t do it. But might the combined weight of a successful SEC prosecution plus Goldmans’ inability to fight off the Congressional regulation coming down the pipe break him? Possibly, but you don’t get to the top of the Goldmans bear-pit by giving in.

That would be symbolic, but it would not change Goldmans’ true nature, as exemplified by the fact that it aggressively seeks to make money on both sides of a trade. It has no regard for its clients (perhaps we should call Goldmans the estate agents of Wall St?) and that is what might finally hurt it: a concerted repulse from a few major businesses might be the slap that sends Goldmans reeling.

The FT this morning said that people have no choice but to trade with Goldmans because they are in the flow, absorbing information from all sides. This may be a virtuous circle at the moment, but with a little change in dealflow, it could easily become a vicious one, people finally sick of being held to ransom and thus removing what is most vital to Goldmans, making them all the time less important.

And the only way for Goldmans to escape from that will be a slightly more contrite approach to business, where businesses trust them, rather than always suspecting Goldmans is giving the eye to the other side of every deal. It could look to the long-term: a form of ethical banking, along the lines of sustainable energy, is not inconceivable, and for a powerhouse (however reduced) to take the lead would be a strong inducement.

(The immediate riposte – credit will dry up! the earth will stop spinning! – should perhaps be taken to mean that businesses should not be able to obtain the sort of system-endangering credit Goldmans and others provided.)

Will Goldmans turn into good boys? Some chance…

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