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By Graydon Carter
January 2010
It’s
looking a lot like the 19th century these days. There’s a gold rush on
(not in panning for it, but in hoarding it—the price of an ounce of
gold went over $1,100 this fall, its highest ever); the biggest
railroad in the country is owned by the nation’s second-wealthiest man;
the name Morgan is in the papers every day; and the disconnect between
the country’s richest and its most downtrodden is looking very much the
way it did during the first Gilded Age, in the late 1800s.
Taxpayers
have put up an estimated $17.5 trillion toward guarantees, loans, and
bailouts since 2008, and what have they to show for it? They’ve seen
their net worth drop by an estimated $14 trillion. The nation’s jobless
rate hit 10.2 percent in October—it’s half again higher for people
between the ages of 20 and 24. And given that most Americans get their
health-insurance plans at work, the number of people in the country
without coverage now totals almost 50 million—just shy of the combined
populations of Canada and Australia. Meanwhile, nearly six million
homes in the U.S. have been foreclosed on in the last three years, and,
according to the Center for Responsible Lending, another home is being
foreclosed on every 13 seconds.
Banking
interests have been the beneficiaries of that $17.5 trillion in
guarantees, loans, and bailouts, and what have they to show for it? At
top-tier firms such as Goldman Sachs and J. P. Morgan Chase, the aid
has meant record profits—which means record bonuses. Those two outfits,
along with Morgan Stanley, all of which received funds from the
Troubled Asset Relief Program, will reportedly dole out an
unprecedented $29.7 billion in bonuses for 2009, almost half of that by
Goldman Sachs alone, meaning it will enrich its 31,700 employees by an
average of $415,000 each.
Regular
banks—that is to say banks that don’t just place side bets on others’
financial instruments but also deign to take in money and lend it back
out—have repaid taxpayers by taking even more from them. Citibank
pumped up the interest rate for some credit-card holders to nearly 30
percent, and Bank of America has boosted its fees for a basic checking
account by 50 percent. As a whole, the banking industry will take in an
estimated $38.5 billion in 2009 just on charges for bounced checks.
Indeed, all these myriad little extra fees now account for more than
half of the industry’s profits.
No
firm illustrates the glaring disparity between those who funded the
bailout and those who benefited from it more than 140-year-old Goldman
Sachs, the subject of V.F. contributing editor Bethany McLean’s report
this month, “The Bank Job,” beginning on page 82. The firm takes proper
pride in its teamwork, its expertise, and its tentacles of alums in
powerful positions all over the globe. Here’s the Goldman Sachs career
path: great school, great grades, 20 to 30 interviews before being
hired; then it’s 24-7 through your 20s, 30s, and early 40s; then
retirement and giving back, as they say. The London Sunday Times
reported that the company is the biggest single user of voice mail in
the world, and at Goldman, employees are told, all messages should be
responded to within 24 hours. C.E.O. Lloyd Blankfein is famous for his
“mind bullets”—short and informative or inspirational voice messages to
all staff. “Switch off on holiday, for goodness’ sake” was one. (They
remind me of nothing so much as Diana Vreeland’s slightly mad
dispatches to her underlings: “I adore that pink! It’s the navy blue of
India” or “Let’s promote grey. For everything!”) Goldman is better than
its competitors, too. In the third quarter of 2009, it lost money on
just one trading day, according to the Financial Times. On 36 days of
the quarter, the company made more than $100 million each day.
Like
grubs, slugs, and moles, Goldman prefers to work in the dark. It is a
firm that has long prided itself on its secrecy and general
unshowiness. Its current headquarters are at 85 Broad Street, in Lower
Manhattan, although you’d never know it from the front of the
building—there is nothing as pedestrian as a sign indicating the firm’s
presence. And following the lead of Michael Milken, the Drexel Burnham
Lambert junk-bond king of the 1980s Wall Street orgy, Goldman Sachs,
along with other firms, has attempted to buy up the copyrights to most
official photographs of its senior officers.
Given
that the firm has become ground zero of the backlash from the bailouts
and bonuses, Goldman has launched a so-called charm offensive, going so
far as to apologize for its part in the bank crisis and start a $500
million initiative with its biggest investor, Warren Buffett, to aid
small businesses. But at the same time the firm has demonstrated a
heretofore hidden tendency to put its foot in it. On his blog, former
Clinton labor secretary Robert Reich recounted this comment last fall
by Brian Griffiths, one of Goldman’s advisers: “We have to tolerate
inequality as a way to achieve greater prosperity and opportunity for
all.” Blankfein himself cracked open the money crypt to speak to
McLean, a former Goldman analyst herself, for her piece and said, “I’m
charged with managing and preserving the [Goldman] franchise for the
good of shareholders, and while I don’t want to sound highfalutin, it
is also for the good of America.” When he allowed John Arlidge of The
Sunday Times of London up to the executive offices, Blankfein made the
unfortunate mistake of asserting that at Goldman they do “God’s
work”—something you should never say, even as a joke, unless you really
are doing His work, and have the documentation from Him to prove it.
The firm also released the 297-page 2008 tax returns for its charitable
foundation. Which was curious on so many levels. The filing showed that
the foundation’s asset base had dropped by almost a third in
2008—despite the fact that its interests were being managed by Goldman
Sachs (for which service it billed the foundation $3,864,540). And the
endowment is relatively small—$404 million at the end of September.
That’s a lot to you and me, but it’s a veritable rounding error for a
bank of this magnitude and wealth.
Criticism
of Goldman and its lapses became so distracting that Blankfein saw the
need to bring in Buffett to give pep talks to the staff. He had a lot
to praise them for. Goldman Sachs got everything it could possibly have
wanted out of the 2008 meltdown. The firm reaped huge profits by
betting against mortgage-related financial instruments while continuing
to sell them to clients, and then received a $10 billion bailout when
things turned sour. The bank crisis eliminated two of the company’s
major competitors, Lehman Brothers and Bear Stearns. Goldman also
received a shipment of H1N1-flu vaccines before some hospitals and New
York City schoolchildren. And to top all of that off, don’t forget,
there are those enormous profits and bonuses for 2009.
Not
ones to rest on their laurels, Goldman and its fellow
financial-services-industry companies have put more than $200 million
since the rescue into lobbying efforts to ward off any sort of bank
reform in Washington. And given how little capital it takes to persuade
a politician these days, that’s a lot of arm-twisting muscle. So it
looks as if for some, especially at Goldman Sachs, the Gilded Age will
continue on its merry way.
Graydon
Carter is the editor of Vanity Fair. His books include What We’ve Lost
(Farrar, Straus and Giroux) and Oscar Night: 75 Years of Hollywood
Parties (Knopf).
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