Sorting Out Goldman

Politicians are hoping they get a vote every time they are filmed lashing Goldman Sachs for betting against the market. It is just a political parade. I don't want to deal with the politics, however, I want to talk about the REAL issue and of course harp and complain about the professional idiots covering this story. Basically, this whole deal revolves around one issue and it is: Did Goldman have a duty to inform its clients that it was betting against them? That is an interesting argument involving conflicts of interest, corporate freedom and ethics, personal responsibility, and many more twisted and tangled web-like concepts. Yet Michelle Norris from NPR and virtually every other talking head thinks this is all about how much money Goldman made when the economy was down. Now I'm sure this isn't a direct quote but Norris says in some political punditry pageant akin to an NBA half time report that "What Goldman did was good for Goldman, but was it good for the economy?" Hey honey I'm going to go to the store to get some milk --- Oh wait I need to ask Michelle Norris if that is good for the economy first.

First of all the entire premise of her argument is wrong. This should be a whole other post, maybe a book, but let me just vent it all out. Adam Smith correctly argued (with a few flaws, but John Nash covered most of them) that the culmination of everybody's individual wants and desires will always result in the best possible social good. When people vote with their money, successful businesses must be producing what the people want in the quantities they want at the quality they want. This is basic stuff. Real life gets more complicated with monopolies, patent law, health care, etc. But in general, individual consumption and competition by businesses results in the best possible social good. Trying to dictate what is good and what is bad is like driving a freight train into a wall. That wall is called subjective value. Nothing, nothing, nothing in the universe has intrinsic value. All value is subjective. How much is a car worth? How much are trees worth? Air? Heated or cooled air? Filtered water? Health care? Police? Teachers? No one can answer those questions because everyone has a different idea of what each is worth. The market is where we bid for these goods and services. Only in a free market is the true social value of something determined. Yes it is true that consumers are myopic and stupid, caring only about immediate wants. And it could be a function of government to make sure long term needs have a market, but that is another post and must be argued for each function of government, not in general.

In the case of Goldman, they bet against the market. They were the smartest guys in the room. They helped pop the bubble! Oh wait, what's best for the economy is to keep the punch bowl filled. Yeah you're Norris right we should just all buy crappy mortgage backed securities and lower interest rates to SAVE THE ECONOMY! It sounds like a bad, sick joke. Look, we needed Goldman to act even earlier and more banks to do the same thing! I mean, just because they were right and made money while others lost it doesn't make their actions illegal or even immoral. What are we still in kindergarten believing that everyone is a winner? Like David Brooks said, if the tides were turned and Goldman bet for the economy while everyone else bet against it and Goldman won the bet would we all hate Goldman? No! It would be a freaking wall street epic drama movie starring Gerard Butler as Lloyd Blankfein. Congress grills Goldman to win political points it is that simple. Now the REAL issue: whether or not Goldman should have disclosed its positions to its consumers...that is interesting. I am always a fan of full disclosure but I am looking forward to seeing how that all plays out. And if we don't get to see the whole drama play out, do not fear, for you can be rest assured that this will all happen again. News agencies should hold on to their stories so they can just change the names for re-print --- courtesy of moral hazard.