Posted inUncategorized

Citizens and ‘shareholders’

What does Goldman Sachs do, exactly? How does it make its money?

You can and should read Matt Taibbi's take on the investment bank, but let me simplify. These days, Goldman Sachs makes money by moving money from Spot A to Spot B to Spot C, all across the securities world, and at every point skimming something off the top. It creates and trades securities so complex that they are incomprehensible to the leading minds on Wall Street; these derivatives are ultimately worth no more than Confederate money and pose continuing systemic risk to the economy. But while the band plays on, Goldman makes its fees. With the general economy still deeply wounded, the firm made $12 billion in revenue in the most recent quarter for a profit of $3 billion. Goldman has so far set aside $16 billion — that's with a B — for executive bonuses. Of course all this has been made possible by the massive taxpayer rescue of a financial system whose collapse Goldman helped create, along with the Fed's zero interest rates and opaque lending "facilities" that have been a gift to Wall Street.

Something is so sick in America. The "healthy" sector of the economy makes nothing at all. Gone are the days when the capital markets were primarily concerned with marshaling capital to fund productive work. They now make money off of money in a colossal Ponzi scheme that cannot have a good ending. Take the case of Simmons Bedding, being forced into bankruptcy after being flipped seven times by private equity hucksters. Each deal was done with borrowed money. Each new owner would try to squeeze more out of the company. The long-term health of the company was sacrificed for short-term profits that went to a few. Top executives were lavishly compensated while average worker wages stagnated. Now a thousand Simmons workers and counting have lost their jobs. This has been happened at thousands of companies across the economy for years. And the cause was not merely private equity or neo-Michael Milkens — it is the way the markets work now.

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Posted inPolitics: National

Two roads to the future?

With the exception of LBJ, Democratic presidents since 1960 have fared badly in their legislative agendas, even when Congress was controlled by their party. President Obama, for all his gifts, may be on track to fare little better. Health care. Cap-and-trade. Financial reform. Big-time tax evasion. Even for this cool-handed moderate, it's a tough sell.

Meanwhile, the media and the salesmen on Wall Street are in a constant search for "green shoots" — signs this historic recession is over. Nobody is thinking through what these shoots will turn into, exactly what the road ahead looks like. But for many, including policymakers, we find a desperate assumption that the economy will pick right up where it left off in 2006.

Two schools of thought are at work here. One says the fundamentals are sound, as President Hoover put it, and the future will look much like the recent past. The other, found more among the outliers, argues we have hit a historic pivot point — but will we realize it and save ourselves?

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