Wednesday, July 15, 2009

Goldman Sachs and moral hazard

So the banks, which provided the taxpayer with a yoke of billions of dollars and pounds, are now returning large profits. Goldman Sachs, which was given $10bn (£6bn) state aid last year, has unveiled a $2bn profit. And its staff all get handsome bonuses while its directors laugh all the way to the bank (every day, straight after breakfast).

Ah, Mammon. How we worship thee.

It is something of an outrage that the US and UK governments bailed out any of these deficient financial institutions. Perhaps the moral order demands that they be allowed to fail in order that malpractrice might be rectified. Bankruptcy is humiliating, it is a corrective, and capitalism is the system where people are allowed to fail.

But now that the banks have had their state aid and are turning around their fortunes, one gets the feeling that the taxpayer suffers the lean years while the bankers revel in the fat.

We hear the mantra ‘markets need morals’. But is it not profoundly amoral to bail out the banks for their irresponsible lending? Moral hazard refers to the irrefutable fact that insurance distorts behaviour: when one is insulated from the consequences of risk one behaves differently from the way one would behave if one were fully exposed to that risk.

When we do not bear the consequences of our actions, there is indeed the creation of a false sense of security. While abortion is available on-tap, why not indulge in endless irresponsible sex? And so it is that national governments have granted the banks endless abortions, because the consequences of delivering the children conceived during their age of irresponsibility are too frightening to contemplate.

Banks and building societies are in the business of lending money, and the risks of doing so are offset by the potential for making high returns. But moral hazard arises when those banks and building societies enjoy all the fruits of the good years but are bailed out in the bad. Shareholders appoint boards of directors who make decisions on risky loans, and they all profit when the investment turns out well.

If Cranmer never profited from the years of plenty, why should he subsidise their years of famine? And if that famine is short-lived, why on earth are directors permitted to revel at the taxpayer's expense when the lean years are over?

Should they not invite the lowly, forgotten taxpayer to their party?

It is a perverse financial morality when the humble and oppressed are forced bear part of the burden of risky financial decisions made by irresponsible lending institutions.

Reliance on central banks coming to rescue as lender of last resort is bound to discourage prudent behaviour. When a government guarantees the liabilities of a financial institution, it also risks weakening the currency and causing an increase in interest rates, with all the consequent unemployment, recession, inflation and increased poverty. This is an undoubted moral issue, for people are reduced to hardship and depression, firms are condemned to closure, more workers to unemployment and more families to homelessness through unprecedented levels of repossession. The total number of suicides, heart attacks, divorces and mental breakdowns is never known.

God cares for the poor, the oppressed, and the underdogs in society. He pours his wrath upon those who corrupt justice or create economic machines designed to provide more wealth for the wealthy and deprive the poor. The story of Naboth’s vineyard in 1 Kings 21 establishes that authorities are not free to pursue any policy they please or to ride roughshod over the rights of the poor. These same concerns are vehemently expressed by the prophets Amos, Hosea, Isaiah and Micah, writing in the 8th century BC.

God demands conscience above political conviction, and a government which places narrow economic considerations above liberty and justice is guilty of worshipping Mammon above God.

Judgement is inevitable.

44 Comments:

Blogger John Doe said...

There is a strong sense of ironic justice in all of this for me. The banks will always screw us over, the government will always screw us over, but the rich will always have to pay tax also, and non of this seems to be effecting my bottom feeding self.

While it is the banks who have been bailed out, it is because they have given all their money to the poor and foolish, but who is feeling foolish now? I am not worse off than before, I pay the same tax, I get the same shite service from the government.

It seems to me that if we did not have this 'Global' crisis, we would not have had the money to squander, and seeing how it is the rich and wealthy who have lost money (because the rest of us have been spending it like there was no tomorrow) I could not give a rat's arse. The sooner the banks get back to their old ways the better so we can go at it again.....good eh!

15 July 2009 at 09:51  
Anonymous indigomyth said...

Mr Cranmer,
//It is a perverse financial morality when the humble and oppressed are forced bear part of the burden of risky financial decisions made by irresponsible lending institutions.//

Finally, a sentiment of yours that I can wholly share. The banking sector needs a moral code to direct their actions and activity. Perhaps you should talk more on economics?

15 July 2009 at 09:53  
Anonymous indigomyth said...

Mr Cranmer,
//It is a perverse financial morality when the humble and oppressed are forced bear part of the burden of risky financial decisions made by irresponsible lending institutions.//

Finally, a sentiment of yours that I can wholly share. The banking sector needs a moral code to direct their actions and activity. Perhaps you should talk more on economics?

15 July 2009 at 09:53  
Anonymous TheGlovner said...

Seconded.

I couldn't agree more.

15 July 2009 at 09:58  
Blogger D. Singh said...

Your Grace,

‘The story of Naboth’s vineyard in 1 Kings 21 establishes that authorities are not free to pursue any policy they please or to ride roughshod over the rights of the poor. These same concerns are vehemently expressed by the prophets Amos, Hosea, Isaiah and Micah, writing in the 8th century BC.’

Naboth’s story should interest our prime minister. The Lord sends Elijah to warn Ahab concerning His judgment as Ahab has provoked God to anger and made a nation, Israel, sin.

Ahab humbles himself and God defers judgment to be executed in Ahab’s son’s day upon Ahab’s house.

Thus, the moral may be that even if Gordon Brown rips of his shirt in the House of Commons, covers himself in ash, falls to his knees, bury his face between Darling’s knees, begs for mercy from the Good Lord (ignoring his Best Friend the Prince of Darkness) God will still execute judgment tomorrow upon the House of Socialism.

Thus, whichever way the socialists turn: judgment is impending.

But one thing is for sure, that when it happens, we must not laugh or mock the fall of socialism; lest God turn away from His judgment and disaster strike us.

15 July 2009 at 10:03  
Blogger Gnostic said...

Um...didn't I hear that GS had paid back the 10 billion bail-out?

Or am I mistaken?

15 July 2009 at 10:10  
Anonymous Simon said...

No Gnostic, you aren't mistaken. Goldman has repaid what they took as bailout. So people might ask if the authorities should have pushed for better repayment terms from the bank if they can switch to profit again so quickly. But in fiscal debt to the taxpayer they are not.

15 July 2009 at 10:19  
Blogger Gnostic said...

Thanks for the clarification, Simon. :)

15 July 2009 at 10:25  
Blogger English Viking said...

"Judgement is inevitable". Let's hope it's soon, then there just might something left in the wreckage of what was once a decent country which we can salvage.

15 July 2009 at 10:48  
Blogger John Doe said...

Come on guys, it's God's way of taking the piss out of silly capitalist pigs. They pretend that their money grubbing is for the benfit of all, and it has been, because the only way the system could work was if the greed could be perpetuated. The greed has had a reboot, but it will always be the same old story.

Stop bitching and get your money in the bank...I need another loan!

15 July 2009 at 10:49  
Blogger Gnostic said...

Here's a thought. Instead of making money let's just print it instead.

:D

15 July 2009 at 11:17  
Blogger Gnostic said...

Your Grace, the Church has been worshipping Mammon for centuries. Why else would it have a considerable property and commercial portfolio?

15 July 2009 at 11:22  
Blogger D. Singh said...

Your Grace,

Gnostic raises an interesting point which one could, I suppose, trace back to the following account:

Matt 17:24-27

When they had come to Capernaum, those who collected the didrachma coins came to Peter, and said, "Doesn’t your teacher pay the didrachma?"
He said, "Yes."
When he came into the house, Jesus anticipated him, saying,
"What do you think, Simon?
From whom do the kings of the earth receive toll or tribute?
From their children, or from strangers?"
Peter said to him, "From strangers."
Jesus said to him, "Therefore the children are exempt.
But, lest we cause them to stumble, go to the sea,
and cast a hook, and take up the first fish that comes up.
When you have opened its mouth, you will find a stater coin.
Take that, and give it to them for me and you."
That account perplexes me.

Here we have Jesus and Peter visiting the Temple. Jesus knowing that He ‘should’ pay the Temple tax ‘sneaks’ out of the Temple without doing so.

The accountants are livid; and demand to know from Peter why Jesus did not pay the tax.

The next point I am unsure of. Did Jesus not pay the tax because Christians are the royal priesthood?

15 July 2009 at 11:34  
Blogger John Doe said...

Cranmer wishes us to rise up in fury because the selfish and greedy bankers have run off with our money. This is illusion.

I am payed a token minimum wage for slaving my arse off for 40 hours a week....I have no money and short of a lottery win, I am never likely to get any. I do not have what ever it takes to be a banker but I will agree that they seem to enjoy a dam better standard of life than me. People who say that money isn't everything are the one's who either have non, or are too scared to contemplate the notion of it.

Give a poor man some dosh and watch him go like a firework on November the 5th.

The last couple of occasions that we went through this, we invented a few wars to cull the population. I am waiting with bated breath to see what ingenious method we come up with this time........

BUT MARK MY WORDS, IT WILL COME.

GREED IS GREED AND IT AIN'T READY TO RETIRE YET.

All I ask is one simple thing, just remember old John Doe laughing his arse off at the lot of you.

I will leave you in peace now for the rest of the day.

15 July 2009 at 11:39  
Blogger Gnostic said...

The government has already introduced its method of culling the population. It's called turning the lights off, aka "sustainable" energy, aka carbon credits and sequestration.

15 July 2009 at 11:44  
Anonymous Athanasia contra mundum said...

D Singh
Jesus didn't pay the tax because he was subversive and a political revolutionary.He's demonstrating to us that we shouldn't tolerate injustice and that if it means breaking the unjust laws of the land we as normally law abiding
Christians might have to consider this at some point.

15 July 2009 at 12:04  
Blogger D. Singh said...

Athanasia contra mundum

A ‘subversive’; a ‘political revolutionary’ you say?

Consider breaking the law of the land? You mean civil war?

But, but this is England. We don’t do such things here.

The convention is, at the command of officialdom, to roll over and have our tummies tickled by the socialist oppressor.

Subversive; political revolutionary!

Pah!

15 July 2009 at 12:49  
Blogger Tomrat said...

@ D. Singh,

I disagree with ACM; you cannot be subversive or revolutionary when you are the one in power and glory - that is what Jesus teaches us by his actions here.

Additionally, the one clear act of anger and violence the Lord Jesus ever committed was to upturn the market place in the temple (the "den of thieves"); what is less known, but is equally as important, is the underlying history here - without it this looks, falsely, like an attack on capitalism and is extolled by many a "christian (small c) socialist" as any I have seen.

What is not qualified or mentioned in the traditional biblical texts is the precise role of the "money changers" (or I could be wrong; doubt it) - the corruption of the Jewish religion had become so great that the priests had instituted a "temple currency" made of silver, only with this could the temple tax be paid and sacrificial offerings could be bought (from sellers in temple grounds) - as such money was changed at commission, acting as a further, manmade barrier between the people of Israel and their Creator; contained in this act is the entire principle of sin embodied - Rebellion and barrier building to Gods holy plan for all.

This is important in a modern sense when we consider the nature of our money - for several centuries many countries operated on a system of currency whose principle philosophy was as a principle of exchange for mutual benefit (i.e. swap you 2 bananas for a pineapple) - the evolution of this was the gold standard against which standardised values could be claimed against a relatively stable product: gold.

However, about 300 years ago goldsmiths and banks realised that their customers only ever really took out 10% of their total gold reserves as a matter of course; his enabled them to lend the other 90%, which, through further deposition and relending could inflate the overall "paper" value of nearly 10 times its original cost; this led to the rise of "fiat currency", where there is now little or no intrinsic worth to our paper currency other than the vaule of the paper and what our government, assisted by those same money lenders (now known as central banks), says it has, and more importantly, at what rate the money supply increases (i.e. interest); this may not seem obvious at first until you realise that the printing of fiat currency carries with it a "debt" based on commission charged by central banks - this means that the money supply, originally marked against the value of gold or other commodity, is now at the mercy of an arbitrary interest rate set by individuals who earn money on the commission; we are indebted slaves simply by using our own currency!

This is important when considering the "credit crunch" or the "sub-prime crisis" and the perspective we view it; combine an ever weakening currency with political motivations to make us seem "richer" and you get rules which caused these crisis' like the American Communities Act (which forces banks to offer sub-prime) or politically motivated setting of the interest rate at too low a rate in the UK, encouraging banks to lend to less able individuals in the form of "125% mortgages" in the UK, or the EU accounting rules which "mark to market" the value of mortgage bundles, rather than the value of the collateral contained within the bundles.

The blame doesn't entirely lie at the hands of the bankers - a heavy portion of the blame, the majority even, lies at the door of the monetary system based on non-collateralised debt.

Best book to read this and an example of its impact is Ron Paul's The Revolution, which he wrote shortly before the last US Presidential Election. Can lend to you if you like. ;-)

15 July 2009 at 13:33  
Anonymous Athansia contra mundum said...

Yes I agree Mr.Singh there is too much tummy tickling occuring in England .This long term habit has resulted in an almost debauched epidemic and the blame can be laid squarely at the feet of BASE.It is time to roll over the other way or
you could stand and fight.

15 July 2009 at 13:36  
Anonymous Athanasia contra mundum said...

Mr T Rat
To regard Jesus's anger against the money changers in the temple as an attack on capitalism is far too limiting. Jesus was human as well Divine and had human emotions of anger and fear. It is Christian to be angry at the injustice of the way Christians are being insulted an discriminated against on so many levels in this country.
When Jesus turned the tables over
it was a message otherwise he would have had a quiet word in the Pharisee's ear.

15 July 2009 at 13:58  
Blogger D. Singh said...

ACM

I prefer Lord Oliver Cromwell’s path (see The Tyrannicide Brief by G. Robertson Q.C.) and the methods of Gen. Patton (see War As I Knew It).

Let us then remember the Apostle Paul’s military command to Christians borrowed from Rome’s legions: Stand firm!

Tomrat

I have learned something new today – thank you.

As to the puzzle I suggest the answer lies in these lines of text:

“From whom do the kings of the earth receive toll or tribute?
From their children, or from strangers?"
Peter said to him, "From strangers."
Jesus said to him, "Therefore the children are exempt.”

Who are the “children” that are exempt?

When we are in God’s house, we are not strangers but His children.

That is not an argument or model for failing to pay our taxes and the incident has nothing to do with tithing.

15 July 2009 at 14:38  
Blogger ultramontane grumpy old catholic said...

Your Grace:

Happy St Swithin's Day to you and your communicants.

Maybe I am ranted-out for the time being, but I can't get aerated about the big profits GS have made.

The story as I understand it is:

The US govt bailed them out to the tune of $10B

GS have now repaid the $10B and also $426M to share holders.(cf Bloomberg)

So GS have paid fat bonuses to their people as well? If anyone has a complaint it's surely the shareholders. Oh and you might question the terms of the US Govt loan, whether it was too generous or not. I bet at the time it was let, it would have looked severe enough.

So (yawn) how do I get a job there? Even cleaning the offices might be quite lucrative.

15 July 2009 at 14:53  
Anonymous Anonymous said...

How on earth did they pull all that money back in, in such a short space of time, in the middle of a global recession, and pay out all those bonuses?

Has the smell of bullshit about it.

15 July 2009 at 15:08  
Anonymous Anonymous said...

I suppose if you have to talk crap then you may as well do it with an air of self-assured confidence eh Grumpy. Rant!

15 July 2009 at 15:11  
Anonymous Laird said...

That's very uncharitable.Grumpy's old and Catholic and deserves some consideraton.

15 July 2009 at 15:24  
Blogger ultramontane grumpy old catholic said...

Thank you Laird. Your sentiment and defence much appreciated.
(UGOC adjusts gout-ridden foot and transfers it to rest onto other pouffe so that he can operate more easily the galvanic typewriter ...)

15 July 2009 at 16:01  
Anonymous Laird said...

Comes as a bit of a surprise grumps that you've got pouffes at your place.
'It is requisite for the relaxation of the mind that we make use from time to time of playful deeds and jokes'
Bet you don't know which anti semitic misogynist catholic saint said this.

15 July 2009 at 16:55  
Anonymous Anonymous said...

Your Grace,

And He said "the love of money is the root of all evil ...... "

As outstanding debts are deductable in ascertaining 'profit', is the 2 bn profit (allegedly made by Goldman Sachs)their gain AFTER repaying the (reported) 6 bn taxpayer funded loans with statutory interest ?

In order to clear such substantial debt within one year, their gross profits would have to be in the region of 10 - 12 bn., possibly more given the colossal interest on such debt.

It was predicted at the time of Blair's 6 month fight to abolish Clause 4 (proper financial regulation) that the proposal was the equivalent of "removing Genesis from the Bible".

Time has proved this to be true. Never before have taxpayers been so used and abused by those paid to serve them.

15 July 2009 at 17:54  
Blogger ultramontane grumpy old catholic said...

Laird

I didn't know but that nice Mr Google has just told me that it was St Thomas Aquinas.

The story also goes that he was taken to see the astonishing sight of a nun levitating. After witnessing it he simply shrugged his shoulders and said, "I didn't know nuns wore such big boots."

15 July 2009 at 18:38  
Anonymous caesars wife said...

judging by what i hear from small businesses it would seem govt money is securing the banks balance sheets and not lending to those in need.

If it is true that the PM is trying to save his small residual reputation by diverting funds into these , govt owned banks , then the tax payer will be paying twice, once for the bailout and again fro the losses caused by the banks failue and the bust .

i can only hope that there is not some form of artifical trading going on between the state owned banks , that is consumming more than intended of the tax payers money .

double whammy labour are indeed blighting our nations future yet again

15 July 2009 at 18:52  
Blogger Lord Lavendon said...

I am going to get battered for writing this , but it is what I feel :

Your Grace is actually incorrect about this one .

Goldman actually did not need to be rescued in the first. Hank Paulsen the then US Treasury secretary told all of the major financial institutions that they were going to recieve TARP money whether they liked it or not or indeed needed it in order to provide some form of stability and in an attempt not to illuminate to the market which banks were the weakest in order to avoid a run on these instituions.

[I might also add that company has also paid back every cent of the so called TARP money. ]

I believe that these people deserve their bonuses- Goldman is not a failing company -what is wrong is that bonuses were paid to poorly led companies a la AIG , Citi Group, RBS etc .

This has been the real problem with the credit crisis - really irresponsible and bankrupt companies have allowed to survive. For example I utterly disparage and disagree with the Lloyd's takeover of HBOS, which should have been wound down in an orderly fashion , with compensation to the depositors to avoid a general bank run.

I would also add if it is so bad to make money, why does the Church of England have ( as I have mentioned in previous posts ) a massive investment portfolio , which basically follows the same strategies as any good investment bank?

The Church has a lot of assets - why is this acceptable to you and Merchant banking not ?

15 July 2009 at 20:58  
Anonymous len said...

U G O C ,
apparently One of Simon Magus`s specialities was levitating around Rome , perhaps he gave lessons?

15 July 2009 at 22:25  
Anonymous Adrian P said...

I would have given the Money to the People not the Banks, I would have said the Banks have gotten us into this mess.
As punishment I'm going to declare all Mortgages, Bank Loans and credit card debts as null and void.

Thay way, the public has more disposable money, they will spend and so stimulate the economy.
We would be independant and prosperous and therefore independant.

The way we have it at the moment, Govt's and the Military industrial complex has us where they want us, at their Mercy.

15 July 2009 at 22:49  
Blogger Ayrdale said...

Your grace, a typo. can't ignore it...

"If Cranmer never profited from the years of planty, why should he subsidise their years of famine? And if that famine is short-lived, why on earth are directors permitted to revel at the taxpayer's expense when the lean years are over?"

You, a dope grower ? Surely not.

16 July 2009 at 00:06  
Anonymous Execute Bankers said...

Lord Lavatory

Unfortunately I am not allowed to cut your head off and push it up your rear tract because it is against the law.

16 July 2009 at 00:10  
Blogger Lord Lavendon said...

Execute Bankers- yes the UK would certainly become a lavatory with another fews years of Brown and his cronies in charge !

16 July 2009 at 00:24  
Anonymous sydneysider said...

I have returned after an interesting voyage of self discovery.Along the way I ran into Mackenzie sunbathing in a field ,a little worse for wear muttering psalms and singing snatches of hymns.Doesn't know when he'll be back.On some trip of his own
@UGOC
Saw those levitating boot nuns
while I was on hols.I thought Fr. Longenecker was another figment of recusant's imagination but turns out not so.Recusant needs sorting ...very confused ideas on catholic dogma and cricket.

16 July 2009 at 03:05  
Anonymous sydneysider said...

Don't be ridiculous Ayrdale,the Archbishop was burnt at the stake
not stoned!

16 July 2009 at 06:32  
Anonymous Voyager said...

Nice article in Rolling Stone magazine -

Goldman

They have rigged roulette wheels and find suckers to enter the casino. Supernormal Profits do not exist in a competitive marketplace; only in an imperfect market.

The tables are rigged and they flaunt conspicuous wealth. Goldman is not clever or diligent, few people on Wall Street are clever - certainly far far fewer than get bonuses. You get to be a "Made Man" if you stick with the Capo, that's how gangsterism works

16 July 2009 at 08:36  
Blogger ultramontane grumpy old catholic said...

Len

Interesting - I didnt know he got to Rome I only knew of him from the reference in the Acts.

...Master classes in levitating...probably an early instance of yogic flying?

..and a proto-Gnostic (Wikipaedia). Perhaps an ancestor of one of His Grace's most illustrious communicants?

Sydneysider - Recusant has confused ideas on Catholic dogma and cricket? Do tell!

16 July 2009 at 09:44  
Blogger Pearl said...

One of the senators was heard to say that Wall Street was a 'holy place'. Such are the woshippers of consumerism.

17 July 2009 at 10:17  
Anonymous Archbishop Cramners beard said...

Notice that his grace said he deleted comments because they provided no rational comment - unless it is of course in line with his general view , as expressed by execute bankers, that bankers should have their head cut off and put it up their rear tracts.

18 July 2009 at 00:06  
Anonymous Laird said...

Yes I thought that remark was extremely rude and unacceptable
but to be fair to His Grace, he has to be seen as tolerant and occasionally he allows the token Muslim to express his views on the site.Execution, beheadings and the lodging of body parts into unnatural cavities are almost always the sign that a Muslim is on site.

18 July 2009 at 08:49  
OpenID jamestheless said...

D. Singh,

The first-born son in each family was required to pay a temple tax of two drachmas. Jesus is saying that, just as worldly kings do not require their own children to pay taxes to them, the heavenly King does not require his children to pay the temple tax to Him.

It's possible to read this as a claim that Jesus is the first-born son of God, but the use of the plural, and the payment in verse 27 being for both Jesus and Peter, are not consistent with this. I think it reads better as another example of the "old" rules being about to be swept away.

Matt 17:27 was often read allegorically: the sea represents doubt and unbelief, the fish represents a person, the hook represents the preaching of the Apostles, and the coin represents the confession of Christ as Lord and praise of God, the only tribute the heavenly King requires.

25 August 2009 at 10:35  

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