James Moore: Goldman Sachs is back in the good books, but let’s not forget the past

  • @TheIndyBusiness

Outlook The bankers are well and truly back on Wall Street. Yesterday Goldman Sachs put the icing on top of the cake plus a cherry, well lots of them, for its top people, who should be able to start phoning realtors about property in Aspen or the Hamptons if the second half of the year resembles the first.

The great vampire squid’s blood funnel has been sucking up money almost as if the financial crisis, the $10bn from President Obama’s Troubled Asset Relief Programme and the devastating tailspin that bankers’ activities helped to tip world’s economy into, never happened.

Actually, that’s not completely true. Take Goldman’s return on equity, a measure of profitability of which banks are fond but which critics argue is a dangerous  metric to focus on given the risks that a bank has to take to get it looking jazzy.

In the second quarter, it stood at 10.5 per cent, rather better than expected, but still a pale shadow of the 40 per cent-plus that Goldman managed to turn in during the boom times. Holding risky assets has been made a lot more expensive, so it won’t get to that level again.

But let’s not kid ourselves, life is rosy at Goldman again, and the real driver for this has been its investment & lending division, which concentrates on putting Goldman’s money into debt, equities, derivatives and the like. Trading, in other words.

Goldman reckons that this operation, whose earnings have proved to be wildly variable, won’t fall foul of America’s Volcker rule, which puts restrictions on the sort of bets that banks can take. Not that it has to worry overly much. Thanks to an intensive lobbying effort, it will be years before the rule is fully effective. 

Wall Street’s aristocracy will proclaim that Goldman’s results are good for the US of A, and should be celebrated. Its website, for example, gushes about how it backs manufacturing. There’s even a picture of a smiling African American worker in a hard hat to show it cares, and some fluff about projects it has helped to bring to fruition.

It  would be nice if that was what Goldman was really all about. But it’s not. Yesterday’s results made clear that its main business is financial trading, either on behalf of clients or on behalf of itself. It is, in many ways, a gigantic hedge fund, with some traditional banking on the top. A bit more tightly regulated than before, it’s true, but only a bit. Lobbying has made sure of that.

And if it does break the rules, what then? There may be a bit of a fine, perhaps a big one, but the analysts will play nice and file it as a one-off “exceptional item”. Lloyd Blankfein might agree to give up a bit of his bonus, and a patsy will be thrown to the wolves. A patsy like the Fabulous Fab, Fabrice Tourre, whose lovelorn ramblings at least gave us all a good laugh.

He is on trial Stateside for allegedly misleading investors about mortgage securities that went pop, costing them $1bn but making more than that for the hedge fund which advised on the securities’ creation.

It’s a bit embarrassing for Goldman that it reported its bravura results in the week his trial was just getting under way. A bit, but Wall Street doesn’t care. Wall Street has moved on, and Goldman is its poster boy once again.

Wall Street has moved on, but we shouldn’t. We shouldn’t forget about what went on, or about people like Fab, and the way they have been allowed to become scapegoats to keep us all quiet.