Tuesday, March 20, 2012

On Greg Smith by R Reich

Wall Street Greed: Why Greg Smith’s Critique is Way Too Narrow

by: Robert Reich, Robert Reich's Blog | Report
Greg Smith, a Goldman Sachs vice president, resigned his post Wednesday with a stinging public rebuke of the firm on the oped page of the New York Times — accusing it of no longer putting its clients before its own pecuniary goals.           
But if Mr. Smith believes his experience at Goldman is something new, he doesn’t know history.
In 1928, Goldman Sachs and Company created the Goldman Sachs Trading Corporation, which promptly went on a speculative binge, luring innocent investors along the way. In the Great Crash of 1929, Goldman’s investors lost their shirts but Goldman kept its hefty fees.
If Mr. Smith believes such disregard of investors is unique to Goldman, he doesn’t know the rest of Wall Street. In the late 1920s, National City Bank, which eventually would become Citigroup, repackaged bad Latin American debt as new securities which it then sold to investors no less gullible than Goldman Sachs’s. After the Great Crash of 1929, National City’s top executives helped themselves to the bank’s remaining assets as interest-free loans while their investors and depositors were left with pieces of paper worth a tiny fraction of what they paid for them.
The problem isn’t excessive greed. If you took the greed out of Wall Street all you’d have left is pavement. The problem is endemic abuse of power and trust. When bubbles are forming, all but the most sophisticated investors can be easily duped into thinking they’ll get rich by putting their money into the hands of brand-named investment bankers.
Moreover, finance has become so complex that investors don’t even know when they’re being taken for a ride, and so can’t possibly hold a brand-name bank responsible for their losses – or for gains that are a fraction of what they might otherwise have been.
That’s why we have regulations. After millions of investors lost everything in 1929, the federal government stepped into the breach with the Securities Acts of 1933 and 1934 and the Banking Act of 1933, sponsored by Senator Carter Glass and Congressman Henry Steagall.
But starting in the 1970s and 1980s, Wall Street made sure these and the regulations issued under them were steadily watered down – which contributed to the junk-bond and insider trading scandals of the 1980s, the dot-com scams of the late 1990s and early 2000s, the Wall-Street enablers of Enron and other corporate looters, and the wild excesses that led to the crash of 2008.....
  • Ah, and the problem of excessive greed. Sorry, but Reich is wrong, I submit to you. All finance and economic decision-making can be conceived in the concept of accounting, and conventional businessmen of anykind, and especially of the investment banks, operate as such. They externalize and socialize social and environmental costs in order to "privatize" and maximize profits. Their lack of "whole cost accounting" as discussed especially by the likes of the non-profits Redefining Progress, CASSE, and NEF and by Cobb, Halstead, and Rowe in "If the GDP is Up, Why is America Down?" in the Atlantic of 1995 and on-line.
    This is another fundamental understanding necessary to conceptualize "excessive greed." As if credit unions and small businesses only function from greed. This point is another strong indicator of Reich's own affinity for Friedman and Boesky's ideology of "Greed is Good."
    As an Ivy League graduate with a master's, I never got my education out of pure greed, and quality and service are not the basis or outgrowth of greed, but of good citizenship that makes for a sound business. Many businesses had or have this concern, especially as small enterprises. As for the larger ones, I don't know if that is still true....ask Mr. Smith formerly of Goldman Sachs.....
  • Mark R for Rochdale
    Actually, come to think of it, the Tea Partiers are funded more or less indirectly by reactionary corporations, as I recall....
  • Mark R for RochdaleCollapse
    Reich is not a commentator who has gone much beyond the basic Democratic criticisms to the necessary grassroots and decentralized solutions as say William Greider or especially Gar Alperovitz has, but this piece certainly introduces some nice tidbits and ties in the immediate antecedent politics of the last few decades.
    Kudos to him for that. However, to lump the Tea Partiers with the Occupiers I find objectionable. If I think about it, I haven't researched them thoroughly, but I believe they are a more hateful bunch crying "Obama the Socialist" while the Occupiers at least have identified an objective reality in the 1%/99% divide.
    For additional depth of history, see William Greider's piece in the Nation back in 2008, "Establishment Disorder."

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