When the term “obscene profits” enters the vernacular of conversations when talking about American business, you have to ask yourself if the United States is ever getting back to the days of being a preeminent economic superpower. And, when the term is used in an insinuating tone toward one of America’s most distinguished companies, the art of capitalism begins to lose a little of its luster.
So is the case these days at Goldman Sachs & Co. One of the true cornerstones of American capitalism, Goldman Sachs stands as the envy of every Fortune 500 company, regardless of industry. The mystique and culture is what every CEO and small-business owner emulates, especially those fond of the loyalty and passion found so often in the DNA of Goldman Sachs personnel.
Those same Goldman Sachs employees now entered their offices knowing what was lying ahead of them: Intense Public Scrutiny.
If you haven’t heard already, Goldman Sachs shattered the consensus earnings estimate of $5.20 per share for the fourth quarter by reporting an eye-popping $8.20 on revenues of $9.62 billion. For the entire year, the Wall Street firm earned $13.4 billion! Truly remarkable considering the slowdown in investment banking, not to mention trading revenue.
Obama’s Punching Bag
Needless to say, Goldman Sachs has been a convenient piñata lately for President Obama. Those who live in Middle America, not to mention people not familiar with the landscape of financial services, can’t even grasp the notion of a company as economically powerful as Goldman Sachs.
Realizing this, President Obama has decided to use the firm as the reason for another one of his handcuffs on the sector by proposing limits on proprietary trading. In his mind, he sees prop trading as a way for firms to engage in unlimited risk-taking, because firms make bets on the financial markets with the firm’s money, rather than executing a trade for a client. I know what you’re thinking: The risk falls on the firm, not the client. And, theoretically, you are absolutely correct.
What Really Caused the Financial Crisis
But this President Obama feels that prop trading was the primary cause of the financial crisis, and to think, all this time I thought it was housing that brought down the U.S. economy. Obviously, I and every other economist not associated with the White House was wrong.
What the president is really upset about is how Wall Street firms like Goldman Sachs could recover so quickly and pay out well-deserved compensation packages; so he figures he’ll just add another preventive measure to doing business and send the economy down the toilet.
This is incredibly irresponsible and downright dangerous because prop trading at Goldman Sachs – and every other firm on the planet – is not illegal, and is used as a way to sustain revenues, which permit these firms to create new credit-generating products that are used to expand business and hire people! How is it that he can’t understand this?!?
Adding additional regulations and taxes on Wall Street firms like Goldman Sachs will force them to curb their strategic initiatives, which will prevent economic and labor growth. The question remains: If Goldman begins losing money, has a couple rounds of layoffs, and then asks for a government loan, will the president begin to like these guys? It seems kind of twisted to me.
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