Be Very Afraid: Goldman Sachs Is Smiling

High-risk model hasn't changed, could lead to new crisis, says Reich

By Jason Farago,  Newser Staff

Posted Jul 15, 2009 7:41 AM CDT

(Newser) – Goldman Sachs is back in the black, with trading and stock underwriting revenues at an all-time high—and that should scare you, former Clinton cabinet member Robert Reich writes in Salon. While Goldman's earnings may signal that the current crisis is abating, the bank hasn't modified high-risk strategies that forced the taxpayer to bail it out. And Goldman's latest success will only encourage competitors to do the same.

Goldman may have paid back its TARP loans, but it's still holding onto $28 billion in cheap debt backed by the FDIC, "which means you and I are still indirectly funding Goldman's high-risk operations." And if markets go south again, Goldman has a sure-fire solution: go back to its friends in Washington, many of whom are bank alums. Goldman is keeping to its old habits, Reich says, "leaving the rest of us once again to pick up the pieces."

Goldman Sachs said yesterday its second-quarter profit easily surpassed expectations as profit was buoyed by strength in its trading and underwriting businesses.
Goldman Sachs said yesterday its second-quarter profit easily surpassed expectations as profit was buoyed by strength in its trading and underwriting businesses.   (AP Photo/Richard Drew, file)
Goldman Sachs & Co. Chief Executive Officer and Chairman Lloyd C. Blankfein testifies on Capitol Hill in Washington, Wednesday, Feb. 11, 2009, before the House Financial Services Committee.
Goldman Sachs & Co. Chief Executive Officer and Chairman Lloyd C. Blankfein testifies on Capitol Hill in Washington, Wednesday, Feb. 11, 2009, before the House Financial Services Committee.   (AP Photo/Haraz N. Ghanbari)
Lloyd C. Blankfein, CEO of Goldman Sachs, speaks at a luncheon at United Nations headquarters.
Lloyd C. Blankfein, CEO of Goldman Sachs, speaks at a luncheon at United Nations headquarters.   (AP Photo/David Karp, file)
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Goldman is skillful at playing the market. Now that most of its competitors are out of the action, it has the market mostly to itself. But Goldman is also skillful at playing politics—something its rivals aren't nearly as good at. - Robert Reich, former labor secretary

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