From the FT this morning comes this gem:
Goldman Sach’s attempt to spend some of its $170bn excess capital on loans, real estate and other distressed assets is being hampered by a prolonged rebound in risk appetite that has lifted prices on many would-be bargains.
Goldman's financial strength in the wake of the crisis has helped the bank stockpile “excess liquidity,” or cash deposits and securities it could sell or pledge quickly, but the assets have weighed down its returns.
Undaunted, Goldman executives have said they would continue to prioritise these deals above accelerating stock buy-back plans or raising dividends.
David Viniar, Goldman’s finance chief, told analysts last month: “Our number one choice will be to find opportunities to use the capital profitably, and if not we would probably give some more back.”
So here we have modern banking explained in a nutshell. A bank with 'excess liquidity' (despite which it needed considerable government assistance, please note) sits on a pile of cash because it cannot find 'distressed' assets to trade.
There's not a hint it might really invest in the economy. And recall, that by investment I always mean providing funding for the creation of real capital - tangible or intangible - that results from the expenditure of new human endeavour. No, the only thing it can think to do with its money is trade in second hand goods.
And these are the people we're beholden to.
No wonder we're in the doldrums because let's be candid, bankers appear to have not one ounce of economic sense between them.
The sooner we regulate banks to require investment performance, or better still, the sooner we tax them much more heavily to ensure that the state has the cash needed to deliver investment, which it is very clearly in a much better position to identify and direct, the better off we will all be.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
There are links to this blog's glossary in the above post that explain technical terms used in it. Follow them for more explanations.
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
A parasite simply bleeds its host dry – it does not take action to support its host’s well-being. When the host has nothing more of use to submit, the parasite jumps onto a new juicy host. It is not in its nature to give something in return.
@John Palmer
A pedant speaks…
That’s not always true. I believe there are many instances in nature where parasites give real benefits to their hosts – those “good bacteria” in our stomachs for instance. Which is why it may not be appropriate to call bankers parasites. It’s insulting to parasites!
Well that would get the economy moving, just from Goldman (£137bn)
Nowaday banking possesses instead a negative reputation.
Richard,
I was a little bit phased when you write ‘it needed considerable government assistance.’
The recived wisdom, for what it is worth, is that Goldman didn’t really need the cash and took it to stop an arbitrage between those that did and those that didn’t.
That seems to be backed up by the fact GS paid the cash back asap. Or are you arguing a different point?
@Deborah
Well I call billions of dollars considerable government assistance. If you don’t, so be it. But to claim that it was only taken to create a level playing field is one of the most absurd comments I’ve seen for some time, and I see a lot of absurd comments on this website made by people probably like you.
Your received wisdom is no doubt that of neoliberal right seeking to exonerate bankers from all responsibility for plunging the world into the worst recession for up to 80 years.
And yes, Goldman Sachs repay the cash. But lastly at the money that it secured from AIG’s bailout. How kind. How convenient. And how typical of the private sector capturing public funds for private benefit.