Lloyd Blankfein
From Zanecorpwiki
Lloyd Blankfein is on the charge offensive and I have to say he's does a pretty good job. I have to say I am reminded of the value of market makers. I'll go so far as to say I understand and even agree with what he meant by his mis-timed statement of "Doing God's work".
If you have interest, you should really listen to Blankfein explain it because it's clear he really does understand--and I believe--he really does believe in the goodness of these things, but I want to summarize and paraphrase a point he made towards the very end of the interview.
Why Wallstreet is not a casino. Yes, you have different people betting on prices going up and down, but there's tremendous social benefit in this. If a company wants to build an oil well and they need to sell oil at $80/barrel to break even, then to get the funding and manage their risk, it is only to the good that they be able to sell a future's contract to sell their oil for the next 7 years at $80/barrel. The counter parties on the other side of that transaction may be a trucking company looking to lock in what they believe to be a reasonable price, or it may be a speculator who just places such bets all day, bet even in the case of the latter, the result is that a new oil well gets built civilization marches on.
I'm not ready to say that Goldman Sachs is entirely without blame--Blankfein himself doesn't claim to be and it's nice to think he means it--but I do think it's clear that the real problems are structural. So why do we focus on specific firms and people? We like to have villains and to point fingers so the Senate hearings and rants against this firm or that play well. You can't put the system on trail so Blankfein becomes a stand in. To the extent that any one firm or individual did something wrong, punish them. But the problems we faced are systemic and I worry that we never seem able to focus on system issues like we should.
And Blankfein does miss (or at least can't speak too) a few key points. First, Blankfein's assumption that making a market is in-and-of-itself a good thing is axiomatic to many "capitalists" but it's by no means a clear truth.
It would be hard to prove but I believe that well functioning markets shouldn't need speculators and that speculation itself has negative effects. To go back the oil example, the trucking company trying to lock in a reasonable oil price makes sense as a reasonable counter party. A speculator betting that oil is going to go to $120/barrel may be useful to get the oil rig built, but the placing of the bet itself drives up the price of oil. It may even contribute to a bubble. Let's set aside environmental and other questions and grant that building the oil rig is a good thing. The question then becomes does the speculation which enables that positive itself yield a net negative to the system as a whole? I think it might, and to the extent that speculation is a negative, then markets that rely on speculation to generate sufficient counter parties are markets we'd be better off without.
Capitalist models tend to ignore the negative effects of speculation. It's clear that speculation has negative effects, and I believe the effects are quite obvious and specific: bubbles and the resulting economic turmoil, backsliding, and disruption that occurs when the bubbles burst. There is an argument that the market making function of speculation offsets this, but I find that hard to believe. It has the sound of a perpetual motion machine argument. In classic economic transactions, both parties benefit directly so in a proper functioning market, speculation should never be necessary. If there is no counter party for a transaction, it means the transaction is probably a bad idea, so enabling that transaction is not to the good.
The second key point that Blankfein and Wallstreet miss is that even if--and I happen to think this is true--what they do is net positive, it's still very unfair. Blankfein is famous for having worked his way up, and that's respectable. He's a smart guy and he deserves to do well. But let's be clear: he's not 1,000 times smarter than the average person. He worked hard, but he was also in the right place at the right time. There are without doubt many thousands of people--many of them currently doing as poorly as he's doing well--who could do his job as good or better than him. It's not Blankfein's fault that he makes so much money and I don't think we should blame him, but there is a problem here.
Again, I think the root of the problem is structural, and it has to do with our inability or failure to value the little things along the way. Imagine that young Blankfein is in high school and he has an above average economics teacher so when he goes to college, he has that little leg up over the other students. Without this teacher, Blankfein wouldn't have done quite as well on this or that key test, or impressed such and such, or whatever, and though his hard work would have still hopefully paid off, he'd now be earning a more average wage. This teacher was the kernel around which the pearl grew and was absolutely necessary and vital to everything that followed. What does Blankfein owe that teacher? Sure Blankfein worked hard, but many people work hard for minimum wage or less, so that doesn't mean much. Blankfein listened to the teacher and was certainly a party to the success, so let's say 60/40 is fair. Whatever is fair, it's certain that 100/0 is not it.
Of course that's a made up scenario. It's impossible for anyone--even Blankfein--to know what lucky happenstances lead us to where we get to, and that's the point. Blankfein probably owes quite a bit to many people, some he's never even met, but we don't value any of that very well. Instead we let all the little things accrue to a focus point. The same reason why it's unfair that Blankfein is being made to stand in for the failure of the system is why it's unfair that Blankfein benefits at the expense of the system. Fundamentally, it's the same action and the same cause.
Finally, there's the problem of the two-tiered investment classes. It's fundamentally unfair that if you have a million dollars you can go to the hedge funds and Goldman Sachs and plug into these money making machines and earn double digit returns year on year and, even when there is a collapse, come out ahead. True, not all hedge funds and investment firms survived, but as a group they did better than the average American and more importantly, they had the opportunity to thrive. As a regular earner, I'm not even allowed to make these investments. The best I can hope for is a couple points return every year. Yes, there are high risk investments open to me that can pay off, but that's the point. The double digit investments for the rich aren't high risk. If your rich, you can lose all your money making double digit returns, but it's unlikely. If your average, it's almost guaranteed.
It's not the rich shouldn't have these opportunities, but they shouldn't have them to themselves. It's not right to blame them, but it's equally wrong for everyone else not to be included.
TODO: Sir Patrick Stewart got into Shakespear and acting for the first time at age 12 when an English teacher had him read from Merchant of Venice. Substitute for conjecture store about Blankfein. Actually, break off into separate though and link.
