Quote Of The Day

Robert Reich, regarding former Goldman Sachs manager Greg Smith's open letter of resignation that he published in the New York Times last week:

In the Great Crash of 1929, Goldman’s investors lost their shirts but Goldman kept its hefty fees.

If Mr. Smith believes such disregard of investors is unique to Goldman, he doesn’t know the rest of Wall Street. In the late 1920s, National City Bank, which eventually would become Citigroup, repackaged bad Latin American debt as new securities which it then sold to investors no less gullible than Goldman Sachs’s. After the Great Crash of 1929, National City’s top executives helped themselves to the bank’s remaining assets as interest-free loans while their investors and depositors were left with pieces of paper worth a tiny fraction of what they paid for them.

The problem isn’t excessive greed. If you took the greed out of Wall Street all you’d have left is pavement. The problem is endemic abuse of power and trust. When bubbles are forming, all but the most sophisticated investors can be easily duped into thinking they’ll get rich by putting their money into the hands of brand-named investment bankers.

If You Took the Greed Out of Wall Street, All You’d Have Left Is Pavement: Why Greg Smith’s Critique is Way Too Narrow

I think that anyone who reads John Kenneth Galbraith's book on the Great Depression would recognize this quote as being true. In the years before that crash, so much demand for investments existed that the financial industry of the time just made things up, as Reich notes National City Bank did. Investors, in essence, invested in other peoples' investments. It all came crashing down in 1929, just as it did in 2008.

The only difference I can see between those times and now is that in the 1930s there were leaders who wanted to see real reforms happen. Herbert Hoover, the much-maligned President at the time of the crash, tried to institute such controls. By the end of Franklin Roosevelt's term in office, most of the rules that kept the economy on a more even keel until the Reagan conservatives undid them were implemented.

This time, nothing of consequence happened, and the pirates profited at our expense. Thanks to the negligence of the Obama Administration and its predecessors, they have more power than ever.

So, while I'd say that greed is a problem, Reich is correct that there is a lot more wrong in America these days. We need to recognize that greed is a problem, and return it to manageable proportions.