Monday, March 23, 2009

The Most Profitable Banking Practice

While reading Eliot Spitzer's continuing effort to excoriate Goldman Sachs over their involvement in the AIG bailout, I came across a sentence that precisely sums up my feelings towards these bailouts that started with Henry Paulson and George W. Bush and is continuing with Tim Geithner and Barack Obama.

What continues to be fundamentally disappointing is that the "too big to fail" institutions continue to absorb enormous sums of taxpayer support without either demonstrating the genuine need for such support or altering their behavior after receiving it.

As I say every time I post something about this subject, I can't stand bailouts. But I understand the desire by the federal government to save the economy because it saves peoples jobs and keeps smaller businesses from being turned into debris from any potential financial supernova caused by the explosion of a big bank. This continues to be the rationale given for saving big corporate institutions that claim to be doing poorly.

But even after trillions now in federal help to giant private industries, credit is still tight, and unemployment continues to grow. Why have their business practices not changed? Because they don't have to. The bailout money has been one no-strings-attached handout after another, because our government still trusts the experience and decision-making ability of existing CEO's to deliver the most efficient outcome. But it's not in the interest of the powerful executive to create a better economy for everyone; it's only in his interest to make money for his company. And about the most efficient way to generate skrill is not to spur innovation or streamline production but rather to stick your hand out in Washington D.C. and beg. Goldman Sachs just made $10 billion in just one day, October 3, 2008, when the Troubled Asset Relief Program was signed into law. The only work put into that was done by whoever was in charge of financial reporting. Screw investment banking. The real money's in bailouts.


A note on honest math:

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