The Lloyd’s Prayer
by Bill Bonner from The Daily Reckoning
Posted originally 19 November 2009
The Lloyd’s Prayer
Our Chairman, who art at Goldman
Blankfein be thy name
The rally’s come
God’s work be done
On earth as we have no fear of correction
Give us this day our daily gains…
Poor Goldman Sachs. Everyone is on its case. Criticizing. Carping. Jealous. Envious. So, today we rise in defense of the Wall Street giant. Yes, the Goldmen may be shysters. But they are honest shysters… Besides, it was another slow day on Wall Street. Investors are still mulling the news. As we all know, the recession is over. But… What kind of strange recovery is this? A survey showed that only 1 in 10 workers say his income is going up. This is the lowest reading since 1946.
Meanwhile, the news two days ago was that homebuilding took a dive in October. Work began on 11% fewer houses than the month before. On multi-family dwellings, the figures were worse – down 35%. Why would homebuilding go down when the economy is supposedly gathering strength? Well, builders were wondering what would happen when they finished the houses. The new house tax credit was due to expire; they weren’t sure the politicians would be witless enough to renew it.
They need not have worried. Give the politicos a chance to do something stupid and they will come through every time. Since the end of October, Congress passed and President Obama signed an extension of the housing credit. Until next April, at least, first time buyers will get an $8,000 credit. You’d think that would have revived animal spirits a bit in the residential construction industry. But today’s news tells us that mortgage applications are falling – even with lower interest rates.
How come interest rates are falling? Well, here again, we see the heavy hand of the feds. The “quantitative easing” has come to a halt… that is, the Fed is no longer buying US Treasury debt (it doesn’t need to). But its buying of mortgage backed securities continues. That program will last until March of next year. Still… housing is not cooperating. This news hasn’t had much impact on Wall Street. All that can be said is that investors have seemed to hesitate for the last couple of days.
Stocks fell softly yesterday, with the Dow down only 11 points. Oil stayed at $79. Gold rose to $1,141. And the euro remained at $1.49. Investors must still believe in what The Washington Post calls a “lukewarm recovery.” It is like finding a body on the street. You feel for a pulse and discover that it has not quite reached room temperature. It is tepid… Not quite alive. Not quite dead. Too close to the quick to bury…too close to the grave to boogaloo.
And now, back to our defense of Goldman… We pick up sword and shield, ready to fight for Goldman, after reading The Financial Times. The FT has devoted a whole page to Goldman bashing. It’s time someone stood up to say a kind word for the firm. Besides, Lloyd Blankfein said he was sorry. That’s right. He announced that the firm regretted its role in the world financial crisis. And if that weren’t enough, he pledged half a billion dollars to helping small business through tough times.
In his apology, Blankfein mentioned that he thought Goldman was doing “God’s work.” That is what prompted humorists to make up the “Lloyd’s Prayer,” we have republished above. On the surface of it, it does seem absurd. If any group of people ever worshipped Mammon, it is the bunch that works at Goldman. Money is what makes that mare run; no one doubts it.
In 2008, the average compensation of the average Goldman employee averaged $364,000 – or more than 6 times the earnings of the average American who was not employed by Goldman. Naturally, the widespread publication of this fact caused a surge of envy. Now comes news that the average Goldman man expects to make about twice as much this year – or about $765,000. As you can imagine, this did nothing to soothe the jealous spirits. Instead, it inflamed them.
And now, everyone has Goldman in his sights. Newspaper editorials kvetch and moan. Union-organized yahoos demonstrate in front of Goldman’s offices. Cartoons make fun of Blankfein. Commentators say the Goldman crew is greedy. The Rolling Stone magazine described Goldman as a “vampire squid.” Saturday Night Live mocked the company. Stand up comics stock up on Goldman jokes. Even priests criticize the firm’s claim to be doing ‘God’s work.’
The regulators cannot be far behind. It is illegal to trade on “inside information.” So, when a company targets the shares of a rival, and passes its buy orders through a Wall Street firm, the traders are forbidden from trading the shares on their own account. They cannot profit from ‘front running’ shares, based information not yet available to the public.
Goldman clearly profits from front running. But it does it by aggregating information from clients rather than using the inside information from a single client. This gives them a “market color,” rather than precise trading targets. In other words, if you have a client who sets out to acquire Acme Cement Company, you can’t buy up the shares yourself in anticipation of the rise in the share prices. That information is “protected, inside information.” But suppose you have two clients, each of whom targets a cement firm? You quickly get a “market color,” don’t you? You put two and two together. If they’re both after cement makers, probably, the whole cement sector will go up.
You buy cement makers, though not those that your clients are buying. This aggregated inside information gives Goldman a big advantage. So do its close contacts with the feds. Goldman has its former operatives in key posts throughout the government. It knows what the government is doing; it has a fair idea of what the government will do next. In trading US government securities, the biggest business in the financial world, this “insider” knowledge is no doubt a handy thing to have. It doesn’t hurt either that the Fed is making money available to Goldman at practically no cost. Nor, that the Fed is buying its mortgage backed securities – perhaps even ones that would be hard to unload on the private market. These contacts and sources of ‘insider’ information are what George Soros has called the “hidden gifts” that Goldman enjoys…and that contribute mightily to its success.
But so what? As far as we know, Goldman holds no gun to any counterparty’s head. Nor does it lie…unless you call saying things that aren’t true “lying.” Goldman merely says the same falsehoods as the rest of the financial industry…the things people want to hear…which almost everyone believes anyway. And is there anything wrong with taking money from the US government? Doesn’t every retiree do so? Doesn’t every larcenous Congressman and every conniving contractor and every shiftless welfare addict aim to do the same thing? Isn’t the whole idea of government to take from someone and give to someone else? Then, why not to those who are most able to claim it? The swift… the strong… the smart… the Goldmans!
No, dear reader, we cannot criticize Goldman. Instead, we admire it. Goldman took advantage of the financial boom by selling debt and derivatives all over the world. Now, it takes advantage of the ‘recovery,’ by trading on its client information. And who can blame it for wanting to do business with the richest and dumbest client of all, the US government?
In God’s plan, at least as we see it, the lowly are raised up. The rich…the proud…and the foolish are brought down. God deals with the meek on his own. Goldman helps him bring the boom down on the others.