Today I was featured at the New York Times “Room for Debate” blog, along with five others more notable than me.
- William K. Black, economist, the University of Missouri
- Yves Smith, financial analyst
- Mark Thoma, economist, University of Oregon
- David Merkel, financial analyst
- Charles Geisst, author
- Jeffrey A. Miron, economist, Harvard University
The question was “about Goldman’s compensation pool, which will be $11.36 billion (set aside) for the first half of 2009 (working out to about $386,429, on average, for each of the roughly 29,400 employees and temps).
The average reader may be perplexed about huge bonuses making such a comeback.We’re asking various economists, whether it’s reasonable to be critical of this kind of payday at Goldman when the rest of the economy is still floundering? Or is this a sign that the financial industry is stabilizing and the federal government’s aid is doing what we want it to do?”
Word limit was 300. I had more to say, because if you’ve read me for any length of time, you know that I am no fan of government intervention. I was against the bailout from the start, preferring Resolution Trust-style solutions.
My view is that Goldman would have survived on its own without the bailout, though it would have scraped by. That said, absent the bailout, Goldman might have ended up being a near-monopoly. Bank of America would be gone, as would Citi, and Wachovia. Wells Fargo, JP Morgan and Morgan Stanley would be question marks. The amount of increased pricing power to the remaining investment banks would be even larger than it is today.
Most of the government programs Goldman Sachs benefited from were available to many institutions of their size and class. The government took the risk that some of the money would be used by healthy firms to make more money, in order to prevent panic regarding firms that needed the money to survive. Other money, like the TARP, was forced on Goldman.
Does this mean I don’t think that Wall Street (and thus Goldman) has too much influence on government policy? No, I believe that the US Treasury has been captured by those that regulate them. This includes Pimco and Blackrock, who finance the government, and the investment banks, who try to profit from government policy. There are too many appointees in high positions at the Treasury and Fed coming from firms that seek to influence the US government.
I don’t fault Goldman for its actions; they are a profit-seeking firm, and a very good one. I fault our government for intervening where they should not have done it.
Let the bonuses be paid, why should the employees of Goldman be held responsible for the errors of the US Government? That is water under the bridge. Let us move on and try to make future government policy better (less interventionist).
PS — does that mean we shouldn’t investigate Goldman Sachs to see if they aren’t front running the market with their high frequency trading? No, that’s worth looking into, but such an investigation would need some deeply smart people to be able to understand what is going on.