Goldman Sachs bonuses: more than just bad PR
Billions in Goldman bonuses could generate the kind of public outrage that can rewrite the very terms of free enterprise.
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In light of what happened to the financial system just a year ago, this is an astonishing statement. It shows the same fundamental faith in free markets as Buckley’s wry aperçu. There is nothing essentially wrong with capitalism, just a few errant capitalists who, because of bad faith or simply bad manners, spoil the party for the rest of us. The vices of capitalism – greed, reckless ambition, ill-considered risk-taking – are merely the defects of its virtues. This does not obviate the need for the occasional acts of public contrition. Blankfein himself admitted that Goldman’s bankers “participated in things that were clearly wrong and have reason to regret.” But the implication is clear: Give capitalism some time, and it will work these problems out.Skip to next paragraph
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The public doesn’t share this faith. In a Time Magazine poll conducted shortly before Goldman announced its blockbuster bonuses, only 18 percent of respondents thought “large Wall Street financial institutions learned from their mistakes,” while a whopping 75 percent believed that “business as usual” would prevail. More ominously for Goldman, 62 percent of respondents said the government should strictly limit pay at Wall Street firms, “regardless of whether or not they’ve paid back the government.”
A year after Wall Street nearly took down the world economy, most Americans cannot understand how any firm that stood at the center of the crisis could be doing so well, even one as venerable as Goldman Sachs. Conspiracy theories worthy of Dan Brown seem to better explain Goldman’s success than elbow grease and old-fashioned hustle. It doesn’t help that the fingerprints of its alumni are all over the decisions that saw its competitors fail last fall shortly before it received nearly $13 billion in bailout money (which has since been repaid).
This is dangerous territory for Goldman, or for anyone who champions free markets. The invisible hand describes an economic world where winners and losers are chosen by the public – individually, anonymously, and without coordination – not by any one person or secret cabal. It is an elegant vision that provides a powerful moral justification for the kind of economic inequality that year-end bonuses highlight. Individuals, this vision implies, rise and fall by hard work, not elite favor.
Last fall, the invisible hand was pulling the big banks into financial quicksand. Without the strong arm of the federal government, as Treasury Secretary Timothy Geithner recently affirmed, “none of them would have survived.” For free-market evangelists, this is an inconvenient fact, one that ought to lead to the kind of soul searching about capitalism’s shortcomings. It certainly should give second thoughts to Wall Street about the wisdom of handing out blockbuster bonuses when the health of the larger economy remains in doubt.
For now, however, it looks as if the bonuses will go forward, the outrage will grow, and Americans will continue to demand that the government fix a financial system that seems incapable of fixing itself. When Washington heeds that call, it is unlikely to conclude that the problem with capitalism is merely capitalists. They, and their year-end bonuses, will only be the most obvious defects in a system that will seem deeply, perhaps even inherently, flawed.