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Thu 16 Jul 2009 04:00 AM

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It’s Goldman Sachs’ planet, we just live on it

Is Goldman Sachs' success a harbinger of imminent better days for the rest of us, asks Damian Reilly.

It’s Goldman Sachs’ planet, we just live on it

“A great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money,” was how Rolling Stone recently described Goldman Sachs. The magazine went on to blame the investment bank for the deliberate creation and puncturing of every bubble in recent memory — dotcom, property, oil — before claiming that Goldman effectively exercises malevolent control of the planet through its awesome tentacles of influence.

Perhaps the squid metaphor is wide of the mark. Given that the bank, as Arabian Business went to press, was announcing profits of $3.4bn for the second quarter, up 65 percent on last year and putting each of its 29,400 employees on course for a year-end average payout of $770,000, comparison with the cockroach might be more apt. They say cockroaches can survive nuclear blasts. Aren’t we supposed to be in the midst of financial Armageddon – the biggest downturn the world has ever known?

David Viniar, the bank’s CFO, says that in the three months to June, Goldman Sachs earned almost $13.38bn in revenue, the most in its 140-year history.

Should we be livid with Goldman for its nerve in announcing profits — and, of course, implied bonuses — like this after it not only recently received $10bn in US state-backed bailout funds, but was saved from writing off the $13bn owed to it by AIG when Capitol Hill, at the behest of former Goldman-man-turned-treasury secretary Henry Paulson, stepped in to save the insurer with an $85bn bailout? (Paulson put Ed Liddy – another Goldman old boy – in charge of AIG. Liddy oversaw the $13bn cheque-signing ceremony).

Or should we be on our feet applauding the bank for not so much bucking the global economic trend as laughing in the face of it, paying back the $10bn TARP funds on the very first day it was allowed to, and getting on with the business of leading the capitalist world into the promised land of recovery? After all, it would be self defeating, surely, for companies handed huge sums of tax payer money to then roll over and die. Better they prosper, no?

Perhaps you are just wondering how the hell they did it. Well, according to Viniar, the strong performance was due to the company’s “basic blocking and tackling abilities.” He added the company had, with the exception of its exposure to commercial real estate, done well across “a variety of businesses”. He also made a reference to there being “less competition out there”.

That last comment, to the cynical, could be interpreted as dancing on the grave of former rival Lehman Brothers, who of course went out of business after not being granted a bailout by Paulson.

There is no disputing Goldman Sachs has friends in very high places. In fact, a roll call of Goldman alumni in positions of power makes for astonishing reading. Paulson was Bush’s treasury secretary, while Clinton had Robert Rubin, who was previously at the bank for 26 years. He later became chairman of Citigroup (recipient of a $300bn bailout from Paulson). John Tain was a Goldman man before taking over Merrill Lynch. Paulson threw billions of taxpayer dollars at both Merrill, and at Bank of America so it could take over Merrill. Joshua Bolten, Bush’s chief of staff was ex-Goldman, as is Mark Patterson, Obama’s chief of staff. Then there’s the current head of the New York Stock exchange, the last two heads of the Federal Reserve Bank, and the heads of several national banks. The list goes on and on.

Given this influence, we should no longer be surprised by Goldman Sachs’ financial dominance. It operates on a different playing field to all others.

The only question is whether its success is a harbinger of imminent better days for the rest of us, or instead the economic version of plutocrats partying while Rome burns?Damian Reilly is the editor of Arabian Business English.

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Anna 11 years ago

The only reason that Goldman Sachs posted such a huge profit is because it took the TARP money at rock bottom interest rates and lent money out at exorbitant rates. It would have been surprising if they hadn't made a profit .... on the backs of cash strapped consumers!!!

AddyBhai 11 years ago

A great article... but nothing new.. Anybody who has common sense and knows the political economy is aware that GS has been a mammoth for ages. By this recession, they actually became much bigger and better than other peers. They ruined the Asian and European giants. They killed the competition by letting Lehman Brothers and Bear sterns go down the drain (with the help of US Govt.). They gain control to middle east market by putting a sharp 100 Plus staff in Dubai. They made billions by pulling Oil futures to 150 mark.. and then again made billions by pushing it down the 40 dollar mark.. So, they are here to make money. Now in this material world, you would put you money, where the money is. So, many more Arabs and other billionaires are opening their accounts with GS and trusting them. And why not. They are good and have made profits in these bad times and good ones alike. The issue is how they earn it? Is it ethical all the time. I guess, NO. But since the world is ruled by Satan, better put your money with the Devil.