Stephen Foley: Put Goldman on a diet of humble pie

It is the opening line of a piece in Rolling Stone magazine, which has been zinging
around the email inboxes of Wall Street for the past few days, and which has
got Goldman’s tentacles all a-twitching with fury.

Matt Taibbi’s piece is a rip-roaring read, obviously. It goes over
well-trodden ground, listing all the Goldman alumni in positions of power in
governments and at regulators around the world (or not listing them
actually, since that would be “absurd and pointless, like trying to
make a list of everything”), and then accuses the bank of using its
influence to get government out of the way so that it can inflate all the
recent investment bubbles, from dot.com stocks, through oil prices, to the
biggest one of all, the US housing bubble.

In keeping with the hyperbole of the row, Goldman’s wonderfully arch spokesman
Lucas van Praag described the piece as “an hysterical compilation of
conspiracy theories,” adding: “Notable ones missing are Goldman
Sachs as the third shooter [in John F Kennedy’s assassination] and faking
the first lunar landing.”

Very funny. The Rolling Stone article is indeed a horribly unfair arrangement
of the facts. In these howls of rage against the way unfettered finance led
us into boom and bust, it is always tempting to assume Goldman must be
uniquely villainous just because it has been uniquely profitable ? but it is
illogical to single out any one institution for stoking investment mania
that by definition has many, many participants.

It is also not true that the US government’s bailout of Wall Street was a
matter of Goldmanites at the Treasury handing taxpayer money over to help
out a few of their friends in banking. That is an outright misrepresentation
of what happened last autumn, and if people start to believe it, we will
doom ourselves to one day letting the banking system collapse ? at which
point we will learn all over again how ensuring the soundness of the banks
is vital to keeping an economy out of a slump.

Yet there has been something troubling me about Goldman’s response to this
little flap, and it is this: the sheer lack of humility.

At the heart of the financial crisis in the spring we heard Lloyd Blankfein,
chief executive, talking about changing the way bonuses are calculated, so
that they do not act as an incentive to reckless risk-taking in the pursuit
of short-term profit. That was good stuff, but it falls far short of
repairing the compact between Wall Street and society, between banking and
the people it is meant to serve.

Goldman is sleepwalking into a situation where it is the Wal-Mart or
ExxonMobil for a new generation. Wal-Mart was hounded for years over the
effects that its dominance of the retail sector was having on wages, on
suppliers and the local environment, and it only got its critics off its
back by looking for common ground on green issues and healthcare.
ExxonMobil’s old chief executive, Lee Raymond, was known as the Darth Vader
of Climate Change for denying man-made global warming, but two years after
his retirement there were no protesters at the company’s shareholder meeting
this year because his successor has stopped funding anti-global warming
science and started talking the language of carbon taxes.

Goldman says it doesn’t fear these sorts of reputational problems, because it
does not sell anything to the public. But a sustained and substantial
campaign against its activities will sap the energies of its management,
weaken its lobbying power with politicians and drive away many of the bright
young recruits it will need in years to come.

That is the lesson from the Rolling Stone row, not the language or the thesis
of the piece itself, but the very fact that it was printed in a magazine
whose cover story this issue is an article on the Jonas Brothers. Attacking
Goldman Sachs has gone mainstream, and that is a development that will have
profound and unpredictable consequences for the company.

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