The Reassuring Cynicism of Goldman Sachs

Two years after the start of the financial crisis, the whole world still doesn’t know what to expect, except for Goldman Sachs Bank, which is posting up the best quarterly results in its history.

Exactly two years ago, the global financial system registered the first cracks that would lead to the crash of September 15, 2008, and to the current economic crisis. How many dollars have gone up in smoke since then? $2 trillion, if we consider the losses – undeclared – of the banks alone? $20 trillion, if we take into consideration the losses on the stock markets? The actual number is probably much higher if we calculate the impact of the recession in terms of the slowdown of global economic growth and its effect on all kinds of assets. It’s even possible that we have yet to see the worst of this crisis. A worldwide swine flu pandemic could disrupt the timid signs of recovery, causing national economies to freeze up for a long time.

Thus, two years following the first cracks, the world still doesn’t know what’s in store. Nobody knows what will happen to the 50 million left unemployed due to the economic crisis. As for the great powers that are loaded under debt, they are preparing for a “second plan of reflation” that won’t increase their liabilities much or destabilize the monetary system, yet will still allow the world economy, slammed by a liquidity crisis, to recover a little.

Despite everything, there’s someone who’s going to do well in this gloomy atmosphere, a bit like the undertaker who is present at a Lucky Luke shoot-out and wonders whether there is enough wood to make the coffins. That someone is Goldman Sachs Bank. It is known as “The Firm,” for all who work on Wall Street and dream one day getting a job there. The “banker of kings and the king of the bankers” is causing others to look up at this institution with fascination. It’s an institution dating back four hundred years, posting for the first months of the year the best results in its history during the first quarter of this year.

“How is it possible?” yelled a public, furious with the profiteers of Wall Street. Here is a bank that produced a completely financial and virtual universe; a bank that led the world to failure. All its rivals lost not only their haughtiness but also their independence. Yet there it is, having never made so much money before in a market where its motto seems to be: “Do as I say, not as I do.”

These grievances do not go unheard by Goldman. Some accuse it of systematic collusion with the powers that be. Hank Paulson, treasury secretary for George Bush during the crisis, was a former chairman of the bank. Tim Geithner, his successor, started his career at Goldman. Probably one reason for his support for the banks is because he comes from “the Firm.” Other banks say that Goldman received special treatment last October. The fact remains that it quickly repaid the bailout money given to it a few months ago so that it could recover its freedom.

It’s here where we come to the issue that matters. Since the first quarter, Goldman Sachs has made a huge profit, putting aside not less than $11.4 billion to pay for bonuses for salaried employees. This means that the bankers of Goldman Sachs will, without any doubt, get record salaries in 2009. This is despite all G20 admonitions, all of President Obama’s criticism and all the angelic promises that were made during the crisis.

This attitude brings up three questions. Firstly, are the politicians very weak now in view of the economic “power” of Goldman Sachs, and so naive that it comes as a surprise that the rules decreed in London on April 2 about bonuses were broken? Secondly, shouldn’t they have known human nature well enough to not believe that the acts of contrition during the crisis; that Goldman saying “we had been so far and greedy, we won’t ever repeat it,” would be dropped now that the Dow Jones sparkles every day? Finally, we can also wonder whether this type of attitude is compatible with capitalism. Naturally, this “greediness” is not capitalism’s most pleasant aspect. That’s exactly what led the economist Joseph Schumpeter to create the concept of “creative destruction,” which contends that every period of prosperity be preceded by a deep crisis in which those who don’t innovate will be destroyed by the crisis, the crash or the change of age.

Ronald Reagan, who was so amusing, came out with this fabulous phrase: “The problem of capitalism is with some capitalists. However, the problem of socialism is with socialism as a whole.” This cynical lack of scruples can be also taken as a warning sign of the rationalization of the old world that has collapsed in the past two years. Capitalism is going well. Thanks to it. All of those who had forgotten it a bit quickly will be obliged to get used to the fact that this Phoenix is still alive.