The Goldman Fleece

In helping the Greek government fudge its books, Goldman Sachs may have cheated the wrong folks.

In case you were wondering how it was possible, year after year, to achieve the returns on equity and incomes per employee that Goldman Sachs has racked up, the answer is that it wasn’t.

Not honestly, that is.  I’ve been hearing for years about Goldman’s habit of shafting its unsophisticated clients (for example, smallish school departments who thought they were buying conservative investments from a respected firm, acting as their financial advisor, when in fact they were  getting stuck with the toxic waste of the CDO business).

Now it seems that Goldman may have cheated the wrong folks.

European (especially German) taxpayers aren’t going to be happy about having to bail out Greece.  And it turns out that Goldman helped the Greek government fudge the books.  Appolonius of Rhodes would no doubt call the swindle the Goldman Fleece.

In a political environment where its campaign contributions matter less than they do in the U.S., Goldman could wind up in a world of hurt. Couldn’t happen to a nicer bunch.

Author: Mark Kleiman

Professor of Public Policy at the NYU Marron Institute for Urban Management and editor of the Journal of Drug Policy Analysis. Teaches about the methods of policy analysis about drug abuse control and crime control policy, working out the implications of two principles: that swift and certain sanctions don't have to be severe to be effective, and that well-designed threats usually don't have to be carried out. Books: Drugs and Drug Policy: What Everyone Needs to Know (with Jonathan Caulkins and Angela Hawken) When Brute Force Fails: How to Have Less Crime and Less Punishment (Princeton, 2009; named one of the "books of the year" by The Economist Against Excess: Drug Policy for Results (Basic, 1993) Marijuana: Costs of Abuse, Costs of Control (Greenwood, 1989) UCLA Homepage Curriculum Vitae Contact:

11 thoughts on “The Goldman Fleece”

  1. A few years back when the british were debating in the run up to a referendum on switching from the pound to the euro, someone oppined that it is better to have complete control of a small monetary system than a small part of a large monetary system.

    To be sure the brits will catch flack anyway but the members of the euro zone must be quaking in anticipation of other shoes dropping with revelations of other camoflaged bad deals through out the continent.

  2. Fred, you have a point, but even if everyone were being completely scrupulous there's a question whether Spain, Germany, Greece, and Luxembourg should have the same monetary policy and interest rates.

  3. Corporate cash might not run the entire European political system, but Europe isn't immune to the powers of its all too large infestation of domestic conservatives and is also very vulnerable to Washington exerting pressure on behalf of Goldman Sachs.

    "Nice dollar-Euro swap lines you have there. Shame if something were to happen to them…."

    It's essentially impossible for any American vassal to move against Goldman as long as Goldman controls Washington.

  4. G-S makes the Mafia look like the punks that they were. The Mob had to fear the feds; G-S controls the feds.

    The best statement on G-S was in a comments thread on Balloon Juice. The poster had said that G-S should replace SPECTRE in the next Bond film; the comment said that that wouldn't work, because in a Bond film the bad guys have to lose.

  5. The Europeans (Germans) don't even have the nerve to come down hard on Greece, so there's no reason to think that the bank that helped facilitate Greece's mess is in any trouble.

    I'm not sure that Goldman has ever done anything as "progressive" as this.

  6. "The Europeans (Germans) don’t even have the nerve to come down hard on Greece, so there’s no reason to think that the bank that helped facilitate Greece’s mess is in any trouble."

    Nevertheless, if I worked at the German Consulate in Peshawar I think I would seriously consider calling in sick until this episode blows over. Accidents happen.

  7. As long as the unholy trinity of economics and finance (Geithner, Summers, Bernanke) are kept in power by Obama's terror that Wall St will completely crash and trash the U. S. out of spite, walking away with trillions in their pockets, nothing will change and we will continue to be set up anyway for a crash so deep that the federal government will not be able to bail out the banks again without bringing itself to its knees. Obama has utterly failed to do anything meaningful about the banks. It should have been his domestic priority when he first took office. Now he has lost the high ground and anything he does will be too little, too late. All will be blocked by the Republican obstructionists, who are emboldened by their success in derailing appointments and bill passages. Add to this the victory for corporate political donations in the Supreme Court, and it looks like Obama is already a lame duck, despite reports that he is now looking at executive ways to get things done since the Republicans in the Senate have only one objective: bring down that uppity, pretty-boy negro.

  8. We need to remove the reason for their bad behavior. 80% tax rate for income over 5 million, 95% for over 10 million. As long as they can keep what they steal they will continue to steal.

  9. Peter John makes an important point here: there is no reason that marginal tax rates have to stop increasing at $373,650. There is a considerable difference between $400,000 per year and $10 million per year. Why not raise the marginal rate by 5% increments for each additional $250,000 in income over $400,000, until we reach a top marginal rate of 75%? And why not graudate the capital gains tax, so that people making over, say, $1 million, from whatever source, pay more than people making $50,000?

    Is this bad politics? Do you think raising taxes not you and me, but on Wall Street types who make $9 million bonuses would upset the American people? I don't, nor do I see how it could.

    No one needs to make that much money, maldistribution of income is bad for the country, and if the diminished incentive means that fewer go into investment banking, and instead pursue more socially useful pursuits — or do something for the love it it, rather than for the money — what's the harm?

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