Will Goldman Sachs Prove Greed is God?

The investment bank's cult of self-interest is on trial
against the whole idea of civilization - the collective
decision by all of us not to screw each other over even
if we can

By Matt Taibbi

April 24, 2010

The Guardian

http://www.guardian.co.uk/business/2010/apr/24/will-goldman-prove-greed-is-god

So Goldman Sachs, the world's greatest and smuggest
investment bank, has been sued for fraud by the
American Securities and Exchange Commission. Legally,
the case hangs on a technicality.

Morally, however, the Goldman Sachs case may turn into
a final referendum on the greed-is-good ethos that
conquered America sometime in the 80s - and in the
years since has aped other horrifying American trends
such as boybands and reality shows in spreading across
the western world like a venereal disease.

When Britain and other countries were engulfed in the
flood of defaults and derivative losses that emerged
from the collapse of the American housing bubble two
years ago, few people understood that the crash had its
roots in the lunatic greed-centered objectivist
religion, fostered back in the 50s and 60s by ponderous
emigre novelist Ayn Rand.

While, outside of America, Russian-born Rand is
probably best known for being the unfunniest person
western civilisation has seen since maybe Goebbels or
Jack the Ripper (63 out of 100 colobus monkeys recently
forced to read Atlas Shrugged in a laboratory setting
died of boredom-induced aneurysms), in America Rand is
upheld as an intellectual giant of limitless wisdom.
Here in the States, her ideas are roundly worshipped
even by people who've never read her books oreven heard
of her. The rightwing "Tea Party" movement is just one
example of an entire demographic that has been inspired
to mass protest by Rand without even knowing it.

Last summer I wrote a brutally negative article about
Goldman Sachs for Rolling Stone magazine (I called the
bank a "great vampire squid wrapped around the face of
humanity") that unexpectedly sparked a heated national
debate. On one side of the debate were people like me,
who believed that Goldman is little better than a
criminal enterprise that earns its billions by bilking
the market, the government, and even its own clients in
a bewildering variety of complex financial scams.

On the other side of the debate were the people who
argued Goldman wasn't guilty of anything except being
"too smart" and really, really good at making money.
This side of the argument was based almost entirely on
the Randian belief system, under which the leaders of
Goldman Sachs appear not as the cheap swindlers they
look like to me, but idealised heroes, the saviours of
society.

In the Randian ethos, called objectivism, the only real
morality is self-interest, and society is divided into
groups who are efficiently self-interested (ie, the
rich) and the "parasites" and "moochers" who wish to
take their earnings through taxes, which are an unjust
use of force in Randian politics. Rand believed
government had virtually no natural role in society.
She conceded that police were necessary, but was such a
fervent believer in laissez-faire capitalism she
refused to accept any need for economic regulation -
which is a fancy way of saying we only need law
enforcement for unsophisticated criminals.

Rand's fingerprints are all over the recent Goldman
story. The case in question involves a hedge fund
financier, John Paulson, who went to Goldman with the
idea of a synthetic derivative package pegged to risky
American mortgages, for use in betting against the
mortgage market. Paulson would short the package,
called Abacus, and Goldman would then sell the deal to
suckers who would be told it was a good bet for a long
investment. The SEC's contention is that Goldman
committed a crime - a "failure to disclose" - when they
failed to tell the suckers about the role played by the
vulture betting against them on the other side of the
deal.

Now, the instruments in question in this deal -
collateralised debt obligations and credit default
swaps - fall into the category of derivatives, which
are virtually unregulated in the US thanks in large
part to the effort of gremlinish former Federal Reserve
chairman Alan Greenspan, who as a young man was close
to Rand and remained a staunch Randian his whole life.
In the late 90s, Greenspan lobbied hard for the passage
of a law that came to be called the Commodity Futures
Modernisation Act of 2000, a monster of a bill that
among other things deregulated the sort of
interest-rate swaps Goldman used in its now-infamous
dealings with Greece.

Both the Paulson deal and the Greece deal were examples
of Goldman making millions by bending over their own
business partners. In the Paulson deal the suckers were
European banks such as ABN-Amro and IKB, which were
never told that the stuff Goldman was cheerfully
selling to them was, in effect, designed to implode; in
the Greece deal, Goldman hilariously used exotic swaps
to help the country mask its financial problems, then
turned right around and bet against the country by
shorting Greece's debt.

Now here's the really weird thing. Confronted with the
evidence of public outrage over these deals, the
leaders of Goldman will often appear to be genuinely
confused, scratching their heads and staring
quizzically into the camera like they don't know what
you're upset about. It's not an act. There have been a
lot of greedy financiers and banks in history, but what
makes Goldman stand out is its truly bizarre
cultist/religious belief in the rightness of what it
does.

The point was driven home in England last year, when
Goldman's international adviser, sounding exactly like
a character in Atlas Shrugged, told an audience at St
Paul's Cathedral that "The injunction of Jesus to love
others as ourselves is an endorsement of
self-interest". A few weeks later, Goldman CEO Lloyd
Blankfein told the Times that he was doing "God's
work".

Even if he stands to make a buck at it, even your
average used-car salesman won't sell some working
father a car with wobbly brakes, then buy life
insurance policies on that customer and his kids. But
this is done almost as a matter of routine in the
financial services industry, where the attitude after
the inevitable pileup would be that that family was
dumb for getting into the car in the first place.
Caveat emptor, dude!

People have to understand this Randian mindset is now
ingrained in the American character. You have to live
here to see it. There's a hatred toward "moochers" and
"parasites" - the Tea Party movement, which is mainly a
bunch of pissed off suburban white people whining about
minorities consuming social services, describes the
battle as being between "water-carriers" and
"water-drinkers". And regulation of any kind is deeply
resisted, even after a disaster as sweeping as the 2008
crash.

This debate is going to be crystallised in the Goldman
case. Much of America is going to reflexively insist
that Goldman's only crime was being smarter and better
at making money than IKB and ABN-Amro, and that the
intrusive, meddling government (in the American
narrative, always the bad guy!) should get off
Goldman's Armani-clad back. Another side is going to
argue that Goldman winning this case would be a rebuke
to the whole idea of civilisation - which, after all,
is really just a collective decision by all of us not
to screw each other over even when we can. It's an
important moment in the history of modern global
capitalism: whether or not to move forward into a world
of greed without limits.