in goldman we trust

i have been more nervous, concerned, leery, even peeved, ok, plain steaming with every new financial bailout plan. a couple of paulson plans, now a couple of geithner plans, and i still get the uneasy feeling that the banking/financial sector is becoming ever more important and powerful in this modern world of ours, without getting its proper comeuppance.

one would think that the executive management and major shareholders they represent, who got us in this mess – and by that i include all the usual suspects, the financial institutions – would have been fired without bonuses, heck without pay, double heck with being forced to give back past pay and bonuses or have their shareholdings wipes out completely over and above a stock market slide (and i will let others discourse on the legality of such intentions). not quite. not quite by far.

quite the reverse actually. each plan coming from treasury whether under bush or obama has been vetted, agreed, approved, blessed by the financial industry it seems, or dare i say by goldman sachs and its cadre of alumni, within or without of treasury or major hedge funds. every plan has been crafted to cater the banking industry. consider that treasury is still not considering nationalizing banks and still insisting on convoluted deals to use taxpayer money to purchase toxic assets, of which we still know very little in terms of quantity and quality on or off balance sheet with most major banks and other financial institutions. we only know that aig has not quenched its thirst for our money, so i can only imagine the worse with other balance sheets out there.

consider this instructive video to understand the true effects, intended or not, of the geithner plan ii. consider this article from a former imf executive. and you will get a sense of how poorly constructed these plans have been. and by poorly, i mean poorly for us, not for banks or hedge funds.

now, we can lend credence to two major beliefs: 1) the markets will correct themselves in due time and 2) we are faced with a structural dilemma. i do not ascribe to 1). markets do fail sometimes, and if soros’ reflexivity theory is correct, reality is just a dream and human actions most times distort situations… and markets. i rather believe in 2) extremely laissez-faire capitalism having run its course over the past 30 years, and this article, amongst many others is instructive. of course, few recent krugman pieces in the nyt will also make the point. which leads me to two sub thoughts assuming the premise is correct. if the structure is broken, a) why are the artisans of its creation and management still at the helm? and b) why is each treasury plan tinkering at the edge. after all, obama’s automobile industry bailout plan is more blunt in its approach both in terms of cleaning old management – goodbye mr wagoner – and restructuring. as such, a further thought comes to mind. what if the extent of the banks and other financial institutions problems were much worse, and if divulged in a transparent process would lead to global panic? not an outlandish thought if you map chronologically the series of events since just before the first paulson plan.

either way, it seems to me that outside of the united states – read western europe, japan, china – there is enough energy and intent behind structural remedies that a new financial/banking era will come about. g20, g8, eu and bilateral china-usa negotiations will ensure that – and geithner’s proposal for further regulation in the us is just the first step. it also seems to me that taxpayers money will be less at risk, and definitely not offered as a freebie to every bank and hedge fund willing to exercise their well honed greed, if severally ailing banks are left to fail – within the proper manager framework so as to avoid widespread panic – ailing banks are nationalized – at least taxpayers will get the benefit of full ownership – and healthy banks are left to further develop their sound business lines. it would be interesting to figure out how many “healthy” banks there are today in the united states. the above also applies to europe i think, where politicians are conveniently hiding behind the us mess, and deliberately not noticing the mess of their own financial system.

after all the financial sphere is so intricately woven around every major economy around the world, that a failure in the us, or europe, would have global repercussions.