Goldman Sachs (NYSE:GS) CEO Lloyd Blankfein said in an online Vanity Fair article recently that the company didn’t need a government bailout, and would have survived without it. President of Goldman Sachs, Gary Cohn, said it stronger, stating the company had cash and “would not have failed.”
Goldman spokesman Lucas van Praag confirmed that Goldman indeed did have a lot of cash on hand they had raised, which would have allowed them to weather a long-term financial storm. “We had cash and funding that would have allowed us to survive for quite a long time,” he said.
Faltering Treasury Secretary Timothy Geithner took issue with the statement because the government is attempting to interfere with the pay of banks and financial institutions; even those that have paid back the TARP money like Goldman already has.
Geithner’s argument on Bloomberg Television went like this: “The entire U.S. financial system and all the major firms in the country, and even small banks across the country, were at that moment at the middle of a classic run, a classic bank run.” He said this is the reason the financial system in the U.S. would have collapsed. “None of them would have survived,” he stated.
The reason the argument in stemming around whether the firm needed to be bailed out or not is because of the idea the government thinks it has a say in the matter if that was the case. The argument at this point is irrelevant, as whether they did or not will never be known.
Let’s look at Geithner’s thoughts on the bank run idea making it necessary to bail out everyone and see if it can stand up.
First we need to get the idea out of our head of a bunch of people stampeding the bank to get in line to draw out their money. That could and did happen to a small degree, but what scared the government is in just a couple of clicks on the Internet people can make their bank runs today, and in a very short time empty the deposits in a bank.
The problem with Geithner’s reasoning as I see it is if people do take out, i.e., transfer their money, from their bank, it’s going to be transferred to somewhere other bank or financial institution. Most aren’t going to take their money out and hide it in the equivalent of their mattress.
If one bank gets clobbered, another bank somewhere else will benefit from it. What should we or the government care if one poorly run bank suffers and another benefits. In a true free market the best business survive and the others fall by the wayside. That’s the way it should be.
But by Geithner’s reasoning, the money would have to be completely be taken out of the banking system in order for his scenario to have had to happen. It makes no sense whatsoever. If people were making a run on the banks, they were going to put that money in a bank they better trusted, probably a local or regional one they knew better.
What was really happening is the banking cartel with its large players were in jeopardy of losing their financial and, consequently, political power, if consumers voted to use another bank; which they were in fact doing.
Much of this on the part of Geithner is more than likely political posturing, as the recent debacle in trying to find a CEO for Bank of America (NYSE:BAC) has proven no one is going to take a position like that with the government interfering with pay and other elements of the business.
The government and lawmakers are under fire for the outrageous bailouts and what they have cost taxpayers, along with the extraordinary deficits being run up, which will ultimately savage us all with high inflation.
So they continue to make it look like executive compensation was the reasoning behind the economic and banking crisis, rather than the Federal Reserve and its monetary policies, along with the over-extension of Fed Chairman Ben Bernanke in bailing out companies beyond the authority and purpose of the institution.
This doesn’t include the stupid government policies which force banks to offer loans to many people which aren’t really qualified to receive them, which was a big part of the housing market collapse, and is largely unreported by the mainstream media.
We need a real capitalist system to re-emerge in America, as government interference in this one has basically made into something which is no longer and can no longer be considered capitalism. This is why the government and its mainstream media allies continue to say capitalism has failed. The government interferes in it, resulting in failure, than extracts itself from its role in the minds of people so it can look like free markets and capitalism were the cause of the downfall, and government interference ended up saving the day. It’s a lie, but it’s a lie that many continue to believe.
This is why the poorly run banks should have been allowed to fail. If they indeed did make poor decisions and their bonuses would have brought them down, then it needed to happen, as the free market would have disciplined them; showing their actions and practices were wrong. That’s the only way it can be done, and not through a government theory that can’t be proven one way or another that the financial system would have collapsed if they hadn’t intervened.