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Goldman Sachs has their fingers in many pots, not just the US financial and housing markets but we learned in Greece as well. Simon Johnson, the former IMF chief economist believes that the bank is too big to fail. The bank is worth over $900 billion dollars, it will be bailed out if it crashes.
What are the impacts on the public if the bank were to crash? Is the focus on the giant banks a diversion from more local issues? How does a money making institution have such pull over a government?
http://www.businessinsider.com/simon-johnson-seriously-goldman-sachs-cant-fail-its-too-scary-2011-4
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As we are seeing in this week's book, 13 Bankers, the banking industry definitely has pull over the government, but to be honest I think it is less Machiavellian than the authors, and many other people, believe.
ReplyDeleteGenerally, I just think that these banks are too big to fail. Look at the credit crunch we faced when only part of the industry was failing or in big trouble. If the finance industry fails, the world would stop. Especially because so much of the money being spent isn't even real. It's amazing to think about. As the book states, for every $1 these banks have, they are investing $51! That's incredibly problematic to me.
I understand the value of borrowing money that isn't actually there, but to leverage at these incredible amounts with such risky investments is mind-blowing.
That said, Goldman isn't going to fail...it's the gold standard of investment banking.
There is something fundamentally wrong with allowing any company to be so large that multiple sovereign economies would be in the toilet if it failed. Its to the point where these companies have become more powerful than the governments themselves. I think there really needs to be more regulation to limit the sizes of these companies. De-regulation has clearly not worked out for the masses. Then again, i doubt it was ever intended to benefit us in the first place.
ReplyDeleteDane makes some great points, particularly about Goldman's status on Wall Street. The firm is highly regarded as being the best. In terms of it failing, I think that if it survived the financial crisis there's a pretty good chance that it can survive almost anything.
ReplyDeleteI do not believe there is such thing as too big too fail. BUT in the situation of 2008 having a mass collapse of multiple large entities at once is catastrophic. Thus, “too big too fail only applies to the situation we experienced in 2008. Should these firms face a collapse at a later date they will not be too big too fail.
Thus, I think that if another huge bank fails by itself in the future it will not be bailed out by the government.
I agree with Dane, Goldman is the top standard for investment banking. Another reason I don't think it won't fail in the near future is because of the control they have over the government. I hate to repeat myself but I find it extremely interesting Goldman-Sachs management heads to the government for employment. Hank Paulson sold his stock from Goldman Sachs and he was able to do it without paying capital gains tax on the stock profit. Hank Paulson did a much better job of serving himself than he did for our government and its citizens.
ReplyDelete"There In the biggest stock sale of his life, former Treasury Secretary Hank Paulson didn’t pay one dollar of capital gains tax. Nearly $500 million worth of Goldman Sachs shares – a profit of hundreds of millions of dollars – and not a red cent went to the IRS. Paulson’s Treasury predecessors Robert Rubin and Paul O’Neil enjoyed a similar tax dodge themselves…as did many other familiar Washingtonians over the last 20 years, like Donald Rumsfeld and Donald Evans."
http://dailyreckoning.com/dodge-taxes-legally-become-treasury-secretary/