Like a Bad Penny, Goldman Always Turns Up

It's easy to despise Goldman Sachs (NYSE: GS  ) these days. Rolling Stone commentator Matt Taibbi famously described the many-armed megabroker as a massive "vampire squid." Now, revelations about Goldman's role in Greece's ongoing financial collapse have added even more fuel to the conspiratorial fire. Stock up on your garlic -- and, uh, whatever keeps squid away.

The wrong kind of Greek mythology
We've learned in recent weeks that Greece essentially cooked its national books, covering up its debts so it could remain in compliance with the European Union's financial requirements. Goldman Sachs and other banks allegedly helped Greece mask those shortfalls. At the same time, a company backed by Goldman and its cohorts facilitated credit default swaps as hedges in case Greece defaulted -- in essence, setting itself up to profit if and when Greece's house of cards collapsed. (That strategy bears a striking resemblance to the disaster that befell AIG (NYSE: AIG  ) .

To put it another way: Suppose you have a friend with a risky and dangerous secret -- say, a heroin addiction. But instead of urging that friend to clean up and get treatment, you're vouching for him to everyone else, insisting he's holding down a job and doing fine, even as he's borrowing money from you to get his fix. Worse yet, you're quietly placing bets around town that your junkie friend will eventually O.D., knowing that sooner or later, the truth will come out. Is it me, or does that behavior sound downright sociopathic?

Force for good?
Heated criticisms like Taibbi's have moved some financial columnists to defend Goldman. They argue that Goldman's behavior doesn't exactly set it apart from the rest of Wall Street, and that financial bubbles, busts, and other disasters always require a whole herd of dummies and suckers to buy into money masterminds' delusional thinking in the first place.

That may be true, but it doesn't make Goldman and its ilk look any less irresponsible. They seem hellbent on masking or downplaying risk -- at least as it pertains to their own interests. And when the you-know-what finally starts hitting the fan, they inflict the painful results of their reckless behavior on shareholders and taxpayers, then waltz away with fat paychecks and fatter bonuses.

We can't blame Goldman for every financial disaster under the sun, but I wouldn't trust the broker or any of its Wall Street peers as far as I could throw them. Despite their sunny pronouncements, I still don't think that banks like Bank of America (NYSE: BAC  ) and Citigroup (NYSE: C  ) are truly out of the woods. In our still-shaky economy, more defaults and foreclosures could be just around the next curve, even as piles of toxic debt from the last mess remain on these companies' books.

The vampire squid reaches far and wide
I'm also suspicious of Goldman Sachs' widespread influence. Its veterans have a curious habit of ending up in powerful positions within the government, especially in the Federal Reserve. In addition, the company seems to have a puffed-up opinion of itself, between its infamous remark about "doing God's work" and its huffy response to Taibbi's Rolling Stone piece: "We reject the assertion that we are inflators of bubbles and profiteers in busts, and we are painfully conscious of the importance in being a force for good." The company's got a funny definition of "good," if you ask me.

I'm pretty sure that real forces for good make great, innovative products and services -- think Apple (Nasdaq: AAPL  ) , Google (Nasdaq: GOOG  ) , or Amazon.com (Nasdaq: AMZN  ) . They're not arrogant Wall Street firms that push pieces of paper around and try to pass it off as "innovation." A credit default swap ain't fire or the light bulb, folks. That sort of invention may change the world -- but only for the worse.

If you want to be a force for good, Fools, take your business -- and investing dollars -- to forward-thinking, transparent companies, rather than blame-shifting, well-connected behemoths. Whether we're pointing the finger at Goldman or one of its competitors, Wall Street's heavy hitters have proved their own irresponsibility time after time after time. Greece wasn't the first example, and unfortunately, it won't be the last.

Should we blame Goldman for everything? Does the fault lie with Wall Street, politicians, or all of us? Sound off in the comment box below.

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Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy.


Read/Post Comments (16) | Recommend This Article (36)

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  • Report this Comment On March 02, 2010, at 5:13 PM, gslusher wrote:

    As much as I like Matt Taibbi's writing, calling Goldman Sachs a "vampire squid" is a massive insult to cephalopods everywhere.

    FWIW, there really IS a vampire squid, though it's in its own order, separate from octopuses and squids:

    http://en.wikipedia.org/wiki/Vampire_Squid

    http://www.youtube.com/watch?v=q5ZQH2Uzpew

  • Report this Comment On March 02, 2010, at 5:43 PM, gooseball wrote:

    excellento article alyce!

  • Report this Comment On March 02, 2010, at 11:05 PM, FoolishElephant wrote:

    Goldman is the proverbial shark playing high stakes poker against a bunch of suckers. In addition, they have insurance against any unlucky losses, with an endless line of new suckers ready to join the game. Who's more wrong in this scenario...the shark or the suckers?

  • Report this Comment On March 03, 2010, at 9:18 AM, RRGY2K wrote:

    Shark? How about deception. What's open about a market for a stock that can have most of a day's trading in it done by one manipulating company? The way they make money is by compromising the market to the point where no one knows for sure what something is worth except for the manipulator. This is organized crime!

  • Report this Comment On March 03, 2010, at 1:57 PM, FuerteFunds wrote:

    Making Bernie Made Off with the money look like small potatoes. Sad sad cheese. Thank goodness for the Fool shedding light in this risky financial hard earned savings and investing world.

  • Report this Comment On March 03, 2010, at 1:59 PM, TMFDiogenes wrote:

    We should also add that last month a senior Goldman advisor wrote op-eds arguing against bailing out Greece without disclosing his affiliation with Goldman. To continue the analogy, you're also going around town warning all the hospitals not to admit your friend you own life insurance policies on who is ODing because he might "destabilize" the hospital.

    http://www.bloomberg.com/apps/news?pid=20601087&sid=aOZ0...

  • Report this Comment On March 03, 2010, at 2:42 PM, grant224 wrote:

    Is any of this behavior illegal? and by illegal I mean prosecutable...

    Or is GS so interwoven within our Government and the Fed (simply by recycling the same individuals- (former GS employee to person at the Fed) )that they operate free from any regulation?

    I know the fed is an independent entity that adheres to 'guiding principles' set down by the Federal Government". It would seem GS has this same designation..

  • Report this Comment On March 03, 2010, at 3:24 PM, plange01 wrote:

    its time for the disgrace called goldman sachs to be forced to close...

  • Report this Comment On March 03, 2010, at 4:17 PM, rett448 wrote:

    First I don’t believe Rolling Stone is the best source to site when covering a financial topic, especially given the magazines traditional anti-business bias.

    I’m going to play Devil’s Advocate here for a minute. The Greek population elects a government that enacts a series of expensive policies. To finance this Greece takes on an enormous amount of debt (in relation to their GDP). Goldman steps up and lends money to the Greek government. If Goldman didn’t lend them the money I’m sure someone else would have. Now at the same time Goldman understands the Greek debt is high risk, so it takes out credit-default swaps to protect itself in the event of a Greek default.

    So to me this seems like smart business sense. Goldman didn’t elect the government in Greece or force them to run up an unsustainable amount of debt. The reason for taking out the default swaps is to protect a high risk loan. It is actually in the shareholders best interest for GS to take out these swaps. If there were no hedge and Greece defaults then Goldman is out a large amount of money.

    You list Google, Apple and Amazon as “real forces for good” but theses companies are far from perfect too. What about Apple’s censorship of their App store or their legal team targeting competitors with “patent extortion”. There is plenty of controversy with Google and how it respects user privacy. Additionally there are plenty of companies whose current and former executives land high position jobs in the government. Eric Schmidt (Google CEO) has been an advisor to President Obama since his campaign began in 2006.

    I think the Goldman bashing is getting a little out of hand. Yes they have some shady business deals, but what company doesn’t? It seems the general public is angry they couldn’t control their personal spending over the past decade. So in retaliation they demonize companies like Goldman to make up for their own mistakes.

  • Report this Comment On March 03, 2010, at 4:17 PM, rett448 wrote:

    First I don’t believe Rolling Stone is the best source to site when covering a financial topic, especially given the magazines traditional anti-business bias.

    I’m going to play Devil’s Advocate here for a minute. The Greek population elects a government that enacts a series of expensive policies. To finance this Greece takes on an enormous amount of debt (in relation to their GDP). Goldman steps up and lends money to the Greek government. If Goldman didn’t lend them the money I’m sure someone else would have. Now at the same time Goldman understands the Greek debt is high risk, so it takes out credit-default swaps to protect itself in the event of a Greek default.

    So to me this seems like smart business sense. Goldman didn’t elect the government in Greece or force them to run up an unsustainable amount of debt. The reason for taking out the default swaps is to protect a high risk loan. It is actually in the shareholders best interest for GS to take out these swaps. If there were no hedge and Greece defaults then Goldman is out a large amount of money.

    You list Google, Apple and Amazon as “real forces for good” but theses companies are far from perfect too. What about Apple’s censorship of their App store or their legal team targeting competitors with “patent extortion”. There is plenty of controversy with Google and how it respects user privacy. Additionally there are plenty of companies whose current and former executives land high position jobs in the government. Eric Schmidt (Google CEO) has been an advisor to President Obama since his campaign began in 2006.

    I think the Goldman bashing is getting a little out of hand. Yes they have some shady business deals, but what company doesn’t? It seems the general public is angry they couldn’t control their personal spending over the past decade. So in retaliation they demonize companies like Goldman to make up for their own mistakes.

  • Report this Comment On March 03, 2010, at 4:28 PM, TheDumbMoney wrote:

    Wow, maybe I'm a socially irresponsible jerk, but every single sentence in this article makes me want to own a part of GS! Is the author just as opposed to PM, XOM, etc., on social grounds, one wonders? Also, given the extent to which GS has historically been such a heavily Jewish firm (founded, if I'm not mistaken, because white-shoe NYC investment banks at the time it was founded, many of which are now defunct, weren't too keen on hiring jews), I'm beginning to detect a whiff of anti-semitism in the "they control everything," "they control the government" meme currently circulating around GS. This also makes me want to buy GS stock. GS is powerful. GS is filled with super-smart people. So what. Get over it! It does not rule the world. It might have failed, too, if Buffett hadn't sunk $1.5 bill or so in confidence money into it in 2008. The only reason I personally wouldn't buy GS stock is that they do not seem particularly intersted in their shareholders. Famously they took the company public right at the height of the tech bubble, thereby allowing the partners to reap maximum money from patsy IPO "investors." Since then, too much money has been paid in bonuses, and not enough is paid to yours trully the investor/owner in dividends and/or reinvested in growth (and no, I don't count the bonuses as being more than marginallyl related to reinvesting in the company). So as a theoretical GS shareholder, unless I could get a really sweet deal buying in (such as I would have if I had bought in when the stock was recently sub-$100/share), I'd feel like just as much of a patsy as AIG and Greece must feel like. THAT'S the only good reason not to buy GS stock!

  • Report this Comment On March 03, 2010, at 4:41 PM, viconquest wrote:

    There's something evil about Apple trying to protect their patents? Eric Schmidt, the CEO of the most progressive tech company in the world, being an advisor to Obama is somehow insidious? Questioning Rolling Stone's credibility?

    Also, it's one thing to lend a billion dollars or so to Greece at a exorbitantly high yield. It's another to take out CDS's then short Greece debt to not only drive up yields but also cash out in the event of a default which they helped accelerate.

  • Report this Comment On March 03, 2010, at 5:04 PM, rett448 wrote:

    I’m refereeing to Apple’s current lawsuit against HTC. Many of the patents they are suing over are basic smart phone/PDA technology that was pioneered by Palm over a decade ago.

    I was merely stating many of the best and brightest usually move to government service after they have made their money in the private sector. Eric Schmidt works for one of the best tech companies in the business; hence he is the president’s technology advisor. How is that any different than Henry Paulson, from one of the best financial companies in the business, running the Treasury?

  • Report this Comment On March 09, 2010, at 1:52 PM, fug57fug wrote:

    One of my many criticisms of the current government is that they lack high level people who have actually worked in the real world at some point.

    Thanks ex Goldman employees for doing such a great job of covering GS's butt. Sure makes a great example of why not to hire stars from private industry to run government institutions.

  • Report this Comment On March 10, 2010, at 12:41 AM, tnk4800 wrote:

    "I think the Goldman bashing is getting a little out of hand. Yes they have some shady business deals, but what company doesn’t?"

    "GS is powerful. GS is filled with super-smart people. So what. Get over it! It"

    Yikes!! Now there's some values for you! what are we supposed to do, ignor the 800 pd gorilla in the room?

    Their gangsters in gorilla costumes manipulating world economies with their shady business deals, arrogantly proclaiming they're a legitamate "market to market" business.

    Here's a news flash, It's not just the investor they don't care about. Ignoring them is our big mistake they've bet on. Forget bashing them, get the elephant guns. restore law and order!!

    or something along those lines.

  • Report this Comment On March 12, 2010, at 9:01 PM, eekthecat wrote:

    "painfully conscious of the importance in being a force for good"

    Painfully, huh? So it's painful for them to realize that they should be doing good.

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