Roger’s Rules

The Goldman Sachs Bogeyman

[POST is updated at the end . . .]
You’ve probably been reading a lot about the investment firm Goldman Sachs recently. When it comes to making money, the place seems to be a veritable printing press. The economy does well, Goldman does better. The economy does poorly, Goldman is just fine, thanks.  How do they do it?  As usual, the obvious answer comes closest to the truth: clever chaps at Goldman. They can, as Belshazzar did only imperfectly and too late, see the writing on the wall. And when it says “Mene, Mene, Tekel, Upharsin” (rough translation, “Barney, Barney, you wrecked the housing market!”), they knew enough to bet against the bubble. Result: they made astonishing sums of money even as the world economy teetered on the brink.

Was this wrong? The SEC is interested in ascertaining the answer to that question. Certain parts of the public have already decided, though, and the answer is Guilty, guilty, guilty!

Guilty of what?  Well, of succeeding, and succeeding  ostentatiously, when others failed. That’s one thing. Of being “greedy,” for another. (You and I, of course, are never greedy.) Tina Brown, plain man of the people, emits a typical condemnation on her blog: “Every time we lift up a rock on Wall Street,” she says,  “something ugly scampers out.”  Gosh. Miss Brown fears for the  reputation of Goldman Sachs: Will it survive? Most Wall Street types, she generously allows, have at least a residual moral compass to guide them.

Not these guys. No pretense of any kind of social usefulness from the likes of hedge-fund manager John Paulson, who sat glued to a computer screen making billion-dollar bets on everyone else’s future calamity. No such fig leaf for Goldman vice president Fabrice Tourre, the baitfish chosen by the SEC to lead them to the big sharks, a guy who spent his life’s precious hours devising ways to stuff his own clients’ loans with Paulson’s handpicked securities dross. A bunch of digital Dombeys in an iPad Dickens novel.

Nice writing, eh? “Digital Dombeys in an iPad Dickens novel”: smooth stuff, Tina! Surely no one will say crusaders like Tina Brown lack abundant pretense of social usefulness. They, or at least she, positively ooze the stuff.

Goldman Sachs is precisely the sort of villain the public loves to hate. Tina Brown knows this. The Obama administration knows it, too. Was John Paulson wrong to make “billion dollar bets”? Maybe. The SEC is looking into what he and Goldman did and did not disclose.  We’ll see. But to me, the more pertinent aspect of the story is one that Andrew McCarthy airs at the end of his excellent analysis of this latest episode of Search for a Villain:

Goldman and the sophisticated CDO investors wagered that subprime borrowers would meet mortgage obligations that were out of their stars — a belief actively encouraged by the same government that now has Goldman in its crosshairs. They were wrong: Goldman says it lost $90 million on the transaction. That is, knowing everything there was to know about Paulson’s role in structuring the product, Goldman bet with the investors against Paulson. The investors were no more deceived than Goldman itself was. And the deception wasn’t caused by Paulson (which the SEC implicitly admits by not charging him). It was caused by the delusion that government could forever suspend the laws of economics.

The statists who gave us the financial meltdown are making a wager more insidious than anything Paulson or Goldman ever came up with. They are betting that Americans will be duped into believing that something other than pandering — something other than the government’s scheme to use taxpayers’ dollars to purchase the loyalty of low-income and minority voters — is responsible for our current straits. Obama & Co. are constructing a narrative that says a near-depression was triggered by greedy Wall Street predators who dragged investors under water. If you buy that, they get a double boon: They escape blame, and they bolster their campaign to grab more control of the private sector under the guise of “regulation.”

Don’t buy it.

Good advice! We all want the chaps who manage our own money to get as great a return as possible.  But when it comes to the pleasures of moralizing about some other institution, it’s much more fun to sit back and intone about “social usefulness,” “billion dollar bets,” etc., etc.  I have no idea whether Paulson and the folks at Goldman did something they oughtn’t have done, or failed to do something they ought.  Lawyers at the SEC will determine that. What is dispiriting about this melodrama, though, is the extent to which the Obama administration has deployed it as smoke—as a diversion intended to take people’s attention off the main event, which is the extent to which the government itself, through its incontinent social programs masquerading as progressive credit policies, provided the spark that ignited the economic crisis. Its response, now that the horses have bolted, is to secure the doors with punitive raids on the successful and a whole new slate of growth-crushing regulation. Let me repeat what McCarthy said: Don’t buy it.

*** UPDATE *** a friend writes about my comment in the last paragraph that “Lawyers at the SEC will determine” whether Goldman Sachs engaged in any wrongdoing. He point out that

“That’s not the way it works, viz., the SEC has determined that it thinks that Goldman has violated the securities laws. A lot of other people think otherwise, and that, for example, caveat emptor applies. But now the SEC has brought the complaint in court and shortly Goldman will show up in good time and say that this is all rubbish. Thus at this point it will become the judge on some issues and the jury (that the SEC has somewhat quizzically demanded) on others, not the SEC, who will determine whether the folks at Goldman did something they oughtn’t have done and if so, what’s to be done about it. . . .”

I am grateful for the correction/expansion.