We had a trading operation at the time, and the beginnings of a principal investment business in which we invested our own money, but they were relatively small compared with our investment banking division, which provided advice to corporations about public offerings of securities and mergers. Two big changes occurred over time. The first was that the firm went public and began to play with other people's money. When the firm was a private partnership, it acted conservatively. This changed.
Partners took out a great majority of their capital and replaced it with public monies. I remember giving a presentation to John Weinberg, our senior partner back in the 's, and the management committee and telling them, "If the transaction is successful, we'll get our money back in four years. I've got my money now.
Eventually most of the executive suite came from the trading side of the business. In his testimony before Congress, he tried to present all of Goldman Sachs's business as just a matter of trades in which Goldman had no responsibility or fiduciary duty to its clients.
He argued that Goldman's clients were sophisticated people, and that the firm's job was to maximize profits regardless of what it meant to the profitability of its investing clients. This is how traders think. Investment bankers spend a great deal of time trying to find loopholes in the tax laws and accounting regulations so as to maximize cash flows and reported earnings for their clients, so they are not completely without sin, but what traders do every day is much more egregious.
And there is very little value in it, other than to the trader himself. When an investment banker takes a small firm public, the banker raises capital for the firm, which creates jobs and new products and services. When a trader packages a bunch of worthless mortgages and lies to investors about their creditworthiness -- he's created no value for society. The client is worse off by exactly the amount that Goldman Sachs profits. It's a zero-sum game. Academics like to argue that trading increases liquidity, thus reducing the friction, or costs, at which trades and economic transactions occur.
This is partly true, but it's hardly a justification for the liberties traders take. Look at the damage done to the global economy in this latest crisis. So for the last 12 years, I've been writing books explaining what I think is the greatest crisis facing our country and the world -- that big banks and corporations have taken over the US government with campaign contributions and lobbying.
People think that banks and corporations lobby the government to get tax breaks and minor government subsidies. No, they lobby to write regulations that help them and to remove regulations that they find cumbersome. And they lobby to obtain trillions of dollars in government contracts, especially the defense companies who push weapons systems we don't really need. The problems of the United States are myriad, yet almost all can be traced to the corporate and banking stranglehold over our government and its politicians.
John R. Talbott, previously a Goldman Sachs investment banker, is a best selling author and economic consultant to families whose books predicted the economic crisis. You can read more about his books, the accuracy of his predictions and his financial consulting activities at www. Tap here to turn on desktop notifications to get the news sent straight to you. Help us tell more of the stories that matter from voices that too often remain unheard. Join HuffPost Plus. Real Life. Real News. Real Voices.
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