Tuesday, May 11, 2010
The Vampire Squid's Serfs
"Mike Mayo is a veteran of six Wall Street [WS] banks. In the wake of the street's disaster, he found refuge at a boutique brokerage and has lately taken to startling his peers with the question 'What part of Goldman Sachs is good for the country?' Regular people will be tempted to answer, 'None of it,' but the question reminds us that, at least in theory, [WS] serves society (not the other way around). And as opposed to Harrah's, Trump Casino and their ilk, [WS] is endorsed and regulated--with marked restraint--so as to let it perform an important task. Because some people have savings and others need capital, some unifying force must bring the two together. ... [WS] privatized this function, aggregating the savings of disparate individuals through the sale of stocks and bonds. ... These instruments, in the main, did not involve selling bonds so that a DuPont could build new factories; they were rearrangements--new permutations, new alignments of risk--on flows of cash that already existed. ... The point of these and many other new financial instruments was to charge a hefty fee and to furiously trade them, and no one was in a bettter position to do that than their [WS] creators. If trading was, for society, a zero-sum game (someone wins, someone loses), it was, for the street, a gold mine. ... For much of [WS], capital-raising is now a sideshow", Roger Lowenstein at the NYT, 21 March 2010, link: http://www.nytimes.com/2010/03/21/magazine/21FOB-WWLN-t.html.
Decades ago WS performed a useful service as a "dating service" for capitalists. Now by and large, it's just a big fee-generating paper shuffle.