August 3,2009/2

I defer to no one in my high regard for Joe Nocera as a financial writer, except for one quirk: now and then he'll strut his sympathy for Wall Street, he'll show that he feels the pain of Goldman Sachs and others for the terrible things people are saying about them. This past Saturday's column was a good example. Goldman and the rest have merely been doing what they do, he argued, and to call them greedheads or fraudsters - words that I happen to think apply - for not having behaved otherwise in the months since the October credit freezeup is wrongheaded. I disagree. I do not think that TARP and other taxpayer-funded facilities were designed to fund business-as-usual for Goldman, JPMC and the other survivors. I do not think these taxpayer programs were put in place to subsidize the overpricing of risk inevitable if 50% of the historical competition is swept off the board and an oligopoly brought into being in the name of "bailout." I do nor think that discount window "free money" was intended to finance computer-driven trading programs of whatever frequency. Given the speed of its profit reversal, I seriously doubt that Goldman was in anywhere near as bad shape as it must have represented itself as being in last fall, or that its exposure to AIG was truly critical. I have my doubts as to Buffett's investment in Goldman. It's not that I quarrel with Berkshire-Hathaway earning twice the rate of return on an investment a fraction of the size of the taxpayers' assumption of risk. I just wonder whether that deal may not have been window-dressing.
I like the way a team of writers recently put it in Der Spiegel:

"The taxpayer is paying for the chips in the casino," the head of the German operations of an international investment bank says quite openly, but anonymously nevertheless. "It doesn't get any better." The government, he says, provided guarantees for banks like Munich's Hypo Real Estate, whose securities are now being traded on the market at a huge discount. Investment banks, for their part, have bought the securities with money they borrowed from central banks at ridiculously low rates.

"The biggest beneficiary of the crisis has been US investment bank Goldman Sachs, which posted record earnings of $13.8 billion (€9.7 billion) in the second quarter. Its traders used money from the US government and the Federal Reserve Bank to speculate, behaving as if the bank were a gigantic hedge fund. Profits from proprietary trading almost doubled over the previous year, while earnings rose by a whopping 186 percent in the bank's bond, commodities and foreign currency speculation businesses. And Goldman CEO Lloyd Blankfein's appetite for risk is still growing. Value at risk (VaR), a measure of the risk of loss on a single day of trading, rose to $245 million -- the highest VaR in the bank's history."

To me, this kind of behavior with respect to measures designed to open up the credit spigots is inexcusable.