THE SYDNEY MORNING HERALD: New Zealand's conservative Prime Minister, John Key, a former investment banker, summed up the state of the world financial system brilliantly during a recent visit to Sydney: "Six months ago, The Wall Street Journal came to interview me and asked me if capitalism was dead. Now Goldman Sachs is paying record bonuses."
After a near-death experience, the world financial system is returning to business as usual - only worse.
The Group of 20 countries, meeting at the end of this week in Pittsburgh, is supposed to be restructuring the system so that it "never happens again". Or, as Barack Obama put it last week: "We will not go back to the days of reckless behaviour and unchecked excess that was at the heart of this crisis."
But we already are. Even if the G20 succeeds in every aspect of its well-intentioned agenda this week, the two greatest systemic problems stand unchanged and uncorrected.
The big investment banks, and Goldman Sachs is the biggest of them, have feasted on public money and, now, restored to strength, are throwing themselves back into the markets as recklessly as ever - only more so.
The big US investment banks are not just symbolic of the greed and excess of the pre-crisis craze. They were instrumental. They created, sold and traded the derivatives the world later came to know as "toxic assets''. But now, after restoring themselves with emergency government loans, they have repaid the US Treasury and rushed back into the markets. Goldman reported a record profit for the three months to the end of June of $US3.4 billion ($3.9 billion).
And the company - where average employee pay is $US700,000 - set aside a record $US11.4 billion for staff bonuses for the first half of the year alone. Guess where the firm made its biggest profit? From trading all the Treasury bonds the US Government issued to pay for the $US787 billion stimulus it injected into the economy to save it from the financial crisis.
Criticism of its bonuses sent Goldman's chief, Lloyd Blankfein (2007 salary plus bonus: $US70 million), out to give a contrite speech. But behind the facade, his firm was betting the bank once again. >>> Peter Hartcher* | Tuesday, September 22, 2009
*Peter Hartcher is the Herald's international editor and author of Bubble Man: Alan Greenspan and the Missing Seven Trillion Dollars
