Posts tagged ‘Goldman Sachs’

Yes, We Have No Bananas

Did you ever wonder if the game is rigged?

carmen-miranda-1Sure, lots of recent sentiment seems to indicate that the worst is over.  Banks are declaring profits , the market is up, there are “green shoots” poking up through the dead leaves of the economy.  Real estate activity is picking up in moribund regions like Sacramento and Las Vegas.  Maybe we’re nearing bottom.

On the other hand, pundits can’t agree on whether we’re headed for massive inflation, or slip-sliding away down the deflationary toilet bowl.  Consensus seems to be that the bank “stress tests” are a sham, using unrealistically favorable assumptions.

Just yesterday we hear the government believes Bank of America (NYSE: BAC) will need to raise another $35B.  Does anyone really believe that will be the end?

Finally, there’s Fed Chairman Bernanke’s repeated assertion that none of the banks undergoing stress tests will be allowed to fail.  For all the talk about how we’re too smart to repeat the mistakes of either the Great Depression, or (more to the point) Japan’s “lost decade”, we seem well on the road to creating “zombie banks”.  Colorful shells made up of window dressing and government infusions, surrounding a soft, chewy middle of bad assets.

How many licks does it take to get to the center of a bad bank, anyway?

tootsie-roll-popThe real problem, I believe, is a collusion of sorts between the government and an oligarchy of “too big to fail” banks.  Both the government and Main Street are continually reminded of the dangers inherent in letting banks fail, in restricting pay, in interfering with the operations of the big banks–in fact, of any change at all to the status quo.  And, for the most part, we’re buying it.

Monday’s  Wall Street Journal spoke of how Stephen Friedman, the NY Fed Chairman, has benefited from his ties to Goldman Sachs (NYSE: GS)–yet another way investment bank elites have been influencing and then benefiting from policy.  There remains a revolving door between Wall Street executive suites and the Treasury.  And a recent Economist essay wonders why the Fed is perpetuating an oligarchy of “big three” ratings agencies, when they contributed to causing this mess in the first place.

This is not the behavior of the financial pillar of the world.  It’s the behavior of a banana republic after a bubble pops.

I’ve been sharing an excellent article with friends recently, by Simon Johnson, former chief economist of the International Monetary Fund.  Johnson makes an elegant and persuasive case that we are no different than emerging market economies such as Argentina, Malaysia, or Russia at key crisis points.

For me, the key takeaways from that article:

  1. What we’re going through now is not–in the final analysis–all that rare.
  2. Yes, it can happen to the U.S.
  3. It’s a little surprising (and perhaps encouraging) that it hasn’t happened here more often.

True, there are differences, such as the dollar’s prominence in world financial affairs, and the trust the world has in U.S. Treasuries.  And there are encouraging signs in some of Obama’s and Geitner’s initiatives.

[As an aside, I’m still amazed at the schizophrenic approach the Treasury and Congress have taken to date.  They keep pumping (our) money into banks, but then turn around and hamstring their ability to be successful by imposing compensation restrictions, demanding lower lending rates and fees, and restructuring mortgages–reducing the value of those “bad assets”.  Are we trying to buttress the banks or chop them off at the knees?  Can’t we just pick one?]

The conclusion, however, is inescapable.


The key roadblock to rescuing our financial system lies in breaking the oligarchy of large Wall Street banks and the influence they have over the Fed and Treasury.

When you ask him anything, he never answers “no”.
He just “yes”es you to death, and as he takes your dough
He tells you, “Yes, we have no bananas
We have-a no bananas today.”

Just because we’re not primarily a tropical fruit exporter doesn’t mean we’re acting any better than those corrupt banana republics we so disdain.

Disclosure: I hold no position, either long or short, in any stocks mentioned here.

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May 7, 2009 at 6:38 am 11 comments

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Scott J. Berry, NY area

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