"John Gapper Brings the Crazy"

Add the FT's John Gapper to Megan McCardle's crazy contingent¹ for questioning the political influence Goldman Sachs wields via its alumni in government. In his column today ("Don’t set Goldman Sachs free, Mr Geithner") Gapper writes:

Goldman wants to escape the burdens of political control while retaining the benefits of public backing. That does not seem like a good deal for the taxpayer.

There are obvious political risks in letting Goldman roam free while other banks remain bound by the troubled asset relief programme (Tarp). It would exacerbate suspicions that Goldman, with its long history of producing Treasury secretaries, gets special treatment. These were not soothed by the decision to pay off all Goldman’s credit default swaps with American International Group, now controlled by the state.

The bigger danger is the long-term precedent it would set. Goldman wants to bolt before Congress or Mr Geithner, who still operates as a one-man band while the nomination process for his senior staff meanders along, has the chance to change fundamentally how it operates.

So far, it has faced mildly irritating limits on how much it can pay staff but nothing on the scale of the 1933 Glass-Steagall Act, which imposed structural reforms on Wall Street after the excesses of the Jazz Age. It would never acknowledge it, but its political campaign is going just fine.

[...]

[Goldman CEO Lloyd] Blankfein criticised Wall Street’s past pay practices as “self-serving and greedy” but Goldman is still putting aside 50 per cent of revenues – $4.7bn in the first quarter – for the bonus pool. Inside, it may feel “humbled”, as Mr Blankfein said, but it looks like the same old bank.

The same, that is, except for one thing – Goldman is now backed by the US government. That is why Mr Blankfein wants to repay the Tarp money. Once it has repaid the $10bn, Goldman hopes to go back to paying employees what it wants, buying and selling more or less what it fancies and operating as before.

He is peddling an illusion. Even if Goldman repays the equity, the world has changed irrevocably because it is a government-backed enterprise.

The illustration above accompanied Gapper's column in the FT.



¹New readers can see this previous post for an explanation: "David Weidner Brings the Crazy".

Eliot Spitzer in Chinatown; David Paterson on SNL

From John Gapper's Financial Times blog, "Eliot Spitzer shows his face in Chinatown":

If Eliot Spitzer had had to choose a venue at which to make his re-entry into society, he would presumably not have selected a former massage parlour in Chinatown on the Lower East Side of Manhattan.

But Mr Spitzer, who resigned as governor of New York state after getting caught up in a call girl scandal this spring, did not get the choice. Happy Ending, the former parlour in question, is now a sleek bar and it is where Slate, the online magazine was holding its seasonal drinks party.

Mr Spitzer this month week started to write a column for Slate as part of his comeback - he wrote last week about the Detroit bail-out - and so he showed up at the Slate party to be sociable.

The first I knew of it, since I was there last night, was when Mr Spitzer’s familiar face appeared, asking where he could find Jacob Weisberg, Slate Group’s editor-in-chief. I pointed through a crowd of people in his direction.

“Don’t worry,” Mr Spitzer replied cheerfully, starting to make his way through the crowd. “I’ve got sharp elbows.”

I went over afterwards to ask him how he was enjoying life as a columnist. “It sucks,” he said with a grin. “I used to be governor of New York”.

Mr Spitzer presumably knew he was walking into the lion’s den since he was surrounded by journalists, but he was unabashed. I rather admired his chutzpah and his willingness to turn up with just a sense of humour to protect him.

Incidentally, for those who haven't seen this yet, Spitzer's successor as New York Governor, David Paterson, was spoofed on Saturday Night Live last weekend:

Flashback to 1999

It's striking to consider how much has changed in nine years. In the wake of the financial meltdown, Alan Greenspan's reputation has taken a beating, Robert Rubin's reputation is starting to take one too, and Larry Summers -- three years after losing his job as Harvard president following some politically incorrect speculations about standard deviations -- is on his way back to Washington, to head the incoming Obama Administration's Council of Economic Advisers.

In his profile of Robert Rubin in the Financial Times last year ("Man in the News: Robert Rubin"), John Gapper noted that a framed copy of this Time Magazine cover adorned a wall in Rubin's office at Citigroup.