Nothing Can You Steal But Thieves Do Lose It

The great Goldman Sachs hooha continues with Joe Hagan's cover story in this week's New York magazine, one of the few to take a middle ground amid the Goldman bashing mania. I insisted in my recent story about Goldman that I had no especial affection for Goldman and probably should reiterate that--though at this point I'm not sure anyone will believe me, since the debate on the economy seems to have come down to, "Are you against Goldman or are you for naked thievery?" My favorite of the responses to my Goldman story is the one from blogger Karl Denninger in which he proudly bangs his chest about how he'll continue to call Goldman on its robbery of the taxpayers until "the shills [that's me-MG] who advocate for same and try to excuse it" are called to account. What the hell that means, I don't know. I assume the torches are being lit and the rope is being cut to the right length. And, no, I'm not linking to that tirade. Go Google it if you want.

I won't restart the whole debate, but a couple of data points seem to me to be relevant. One comes from Hagan's story, which noted that it's likely that Goldman had actually hedged its AIG exposure with other investments--just as it hedged its mortgage exposure with its AIG contracts. In other words, what the bottom line for Goldman would have been had AIG been allowed to fail we just don't know. Very possibly someone else would have had to make good on at least some part of Goldman's $13 billion if the government had not. The second point worth looking at here is not in the New York story, and wasn't in my story either, but it should give some pause to those who dream of a huge Goldman Sachs conspiracy. It is that the next two beneficiaries of the AIG bailout, with almost $12 billion each were Deutsche Bank and Societe Generale (in fact, Bloomberg's calculations, put SG at number one in the total amount of money takenb from AIG in the endgame, with $16.5 billion). Now, if someone said that Deutsche Bank and Societe Generale somehow had control of the US government and used it to rip off the taxpayers via the AIG bailout, you'd think that was pretty crazy, right? But Goldman is somehow a different matter.

Besides for its influence, the thing that's supposed to distinguish Goldman Sachs as the unmatched financial scoundrels of our time is that Goldman effectively bet against the mortgage derivatives market via AIG while selling the same kinds of securities themselves. Hagan points this out in his story, and, yes, it's an issue. But it's in no way an issue unique to Goldman. Again, the same will apply to most of AIG counter-parties--including, notably, Deutsche Bank (Oh, you thought only American banks sold this crap? Go and look at this astonishing story about how Deutsche Bank became the biggest landlord in Cleveland.) And it is also in no way an issue unique to the current financial crisis. The inherent conflict of interest in having clients who are selling securities and others who are buying them is a central problem of investment banking. If you want to ding Goldman on this stuff, go ahead. But everything you say about them applies equally well to every other bank.

Do any of these details matter? Probably not. Those who want to peddle conspiracy theories will always find takers, because there will always be plenty of folks who would rather blame this crisis and every other on conspiracy than stupidity (I've written before about the history of this kind of rhetoric; it ain't new). The Goldman conspiracy lets a lot of people off the hook, doesn't it? Instead of believing the obvious--that the crash was the result of obvious stupidity and mendacity at every single level of the housing market, from the local mortgage broker to the sleazeballs at Countrywide to the offices of Bank of America (possibly Stupidity's own homeland) to yes, Goldman and all the other i-banks we can just say it all happened when the secret committee of the Illuminati took a vote and broke the glass and pressed that big red button at Goldman Sachs. Whatever floats your boat.

PS: The post's title ... okay, it doesn't really have much to do with the subject at heand. But there's really no better epigraph to place before everything that's happened in the last year.