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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

April 20, 2010 at 10:04 AM

What’s wrong with Goldman’s big earnings coup

What fraud charge? Goldman Sachs topped even optimistic estimates today with first-quarter earnings of $3.46 billion, 91 percent better than the same period last year. Questions may surround the recovery of the American economy, but there are none about Goldman’s recovery — not that it was hurting before, with vast Fed and bailout backing and getting 100-cents on the dollar for its questionable bets with AIG. Compensation was $5.5 billion, a 17 percent increase.

Meanwhile, Federal Reserve Governor Elizabeth Duke said yesterday that “despite the best efforts of bankers and regulators, small businesses are still finding it difficult to obtain credit.” Small firms employ nearly 40 percent of the private sector workforce. This is no small issue with the economy facing its worst unemployment crisis since the Great Depression.

Herein lies a big part of the problem. Like the other big banks, Goldman is making most of its profits from moving money around, “trading.” This has been made especially profitable thanks to cheap money and low interest rates. Another big profit center is merger and acquisition activity, which necessarily eliminates one company with each deal, as well as many jobs. It’s casino capitalism vs. capital markets that raise money to fund productivity, expansions, innovations, new ventures, jobs, etc. Real things. Yet the casino is open again, and there’s little indication the incentives have changed. And it’s all perfectly legal. Latest example: A futures market on movie box-office performance. Fun for the idle rich, but no new jobs, no 21st century infrastructure, no reinvestment in the real economy.

The Back Story: From Huffington Post, we get the “10 scariest charts of the recession.” Over-reliance on the financial sector? Sky high. Household debt as a percentage of GDP? Barely eased since the roof fell in. Income inequality at an all-time high. Etc. Wow.

Today’s Econ Haiku:

Jobs isn’t laughing

iPhone walks into a bar

Now he needs a drink

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