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Well, it's Goldman this. And Goldman that. And Goldman rhymes with greed. But it's "Thank you Mr Blankfein", when it's money that you need.
On Monday, Greek finance minister George Papaconstantinou slipped. Unwittingly, he told the truth: his country's budget was "out of control". He begged for more time to straighten it out. "We're trying to change the course of the Titanic," he said. The EU ministers gave him a month.
Papaconstantinou was speaking of Greece. But he described much of Europe, Britain, Japan and America. And, in his metaphor, he prophesied. The big ships can't be turned around. They're going to sink. Greece has been taking on water for many years. But this was the first time any country's finance minister signalled to lenders that they should head for the lifeboats. Then, looking around, the press noticed that one of the lifeboats had already been launched. In it were no women or children. Just one very satisfied Lloyd Blankfein, chief executive of Goldman Sachs. He had sold the Greeks their debt, said the papers; now he's sold it short.
Der Spiegel was first to break the story. Then it hit The New York Times. Then Bloomberg. It wasn't the mess the Greeks had gotten themselves into that attracted the press attention, it was who had helped them get into it. Greece has been in default to its creditors in one out of two years since it got independence in the early 19th century. It is almost the definition of a poor credit risk. The European Union requires each member state to keep its deficit under the limit of 3% of GDP. By what crook and what hook did the slippery Hellenes manage to get themselves into the Euro Club?
Creativity in art makes for masterpieces. Innovation in industry may lead to success. But when the financial industry schemes and canoodles, it invariably leads to disaster. Goldman Sachs, the most cunning of Wall Street's financiers, is fundamentally a debt-monger. Like a liquor store or a drug dealer, it earns money to the extent it is able to move its merchandise. The more the customer wants, the more it earns. Whether the purchase is good for the customer or not is not Goldman's concern. But just look at where the moneylenders have been most creative and you will surely find something you should sell.
In the present example, Goldman earned a total of $300m. Pundits kvetched that the investment bank shouldn't have earned a penny, because its work was both criminal and noxious. As to the noxious charge, Goldman needs no defence. Greece has always been a notorious drunk. Goldman is merely a bartender. As to the criminal charge, Goldman says it was perfectly legal to structure the deal with Greece the way it did. The Brussels authorities have been aware of it for years... and even seemed to approve. Member states were allowed to "use derivatives to adjust deficit ratios", the FT revealed on Wednesday.
Goldman could further point out that many other European states do similar deals – effectively securitising state assets so as to get cash now and pay for it later. Goldman arranged for Athens to swap cash for a stream of income coming from an airport and a lottery. Was it debt or equity? Had Goldman lent Greece money, or had it bought part of the national patrimony? Whatever you call it, the Greeks had impaired their balance sheet. Goldman had merely made a buck helping them do it.
Goldman might also bring some character witnesses to take the stand on its behalf. Such as Mario Draghi. Draghi has a long, impressive resumé. Not only has he been a managing director of Goldman Sachs, in charge of business development in Europe, he's also served as director-general of the Italian Treasury and, lately, Italy's central bank governor. Now he's up for the post of head of the European Central Bank, to replace Jean-Claude Trichet, scheduled to step down next year. He is Goldman incarnate: banker, servant of the people, one of the financial elite's high priests, from whose hands come unction, salvation – and cash.
In the US, Goldman is so tight with the Feds it's known as 'Government Sachs'. But what's new? Governments always turn to well-connected money men for finance. The Rothschilds largely financed Britain's continental allies in its war against Napoleon in the early 19th century. Then JP Morgan financed the British in World War I. In both cases, lenders found innovative and complex ways to keep the money flowing.
Now, we are in the early 21st century and Goldman is providing the money. But this time it's different. Borrowers are not at war. They borrow to blow themselves up. There is no foreseeable end to their borrowing, nor any foreseeable way to finance their deficits. Not at today's low rates. The Greek affair is peanuts. America's ink is so red it looks as though it has cut an artery; this year's deficit alone is $1.6trn. Japan, the world's second-largest economy, now borrows more than it raises in tax revenues. Goldman is right; this is a good time to sell government debt. You may be early. You won't be wrong.
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