One and the Same

 

“God gave me my money.”

– John D. Rockefeller

 

Today we step away from the economy and markets and endeavor down the path less traveled.  For fun and for free, we wade out into a smelly peat bog.  There we scratch away the surface muck in search of what lies below.

 

One should actually be careful about quotes like the one attributed to Rockefeller above, even if it of course sounds good and is very suitable for the topic at hand. In reality he probably said something like it, but it is almost certain he didn’t say it verbatim (contrary to Mr. Blankfein, who is indeed on record for stating that Goldman Sachs was “doing God’s work”). We mention this because we have long noticed that the best-known quotes attributed to all sorts of long dead famous people – the ones one immediately finds on the first page that pops up when googling their names – are more often than not either garbled beyond recognition, or misattributed, or at times even completely made up. A genuine quote is a rare find indeed; at a minimum the most famous quotes have almost always gone through the Chinese horse-whisperer treatment (known as “telephone” in the US). What Mr. Dunne said about Rockefeller is rather more certain, since he put it in writing in the Chicago Evening Post in 1895 – albeit in his “Mr Dooley” voice, imitating an Irish accent. Dooley was a figure Dunne had invented for his satirical columns, the fictional owner of a fictional Irish pub located on the South Side of Chicago (so the quote actually read: “He’s kind iv a society f’r the previntion of croolty to money…”, etc.).  [PT]

 

Our unwitting inspiration is none other than long time Goldman Sachs CEO Lloyd Blankfein.  The journey that follows was prompted by word he’s preparing to step down as CEO.  One account said this could happen by the end of the year.  Indeed, times like these are times for honest reflection and celebration.

If you recall, in the fall of 2009, not long after warm rays of sunshine began smiling down upon this bull market, Goldman Sachs’ top man, Lloyd Blankfein had an epiphany.  The way he put it to The Times of London was that he’s just a banker doing “God’s work”.  At the time we weren’t sure what Blankfein was getting at.  Were you?

Perhaps he was elevating himself, and his firm’s business, to the noble and thankless cause of efficiently allocating capital to its highest and best use.  As best we can tell, Blankfein implied that this was, somehow, the work of God.  And by Blankfein’s rationale, the work of God and the work of Goldman are one in the same.

The Times of London may not have been convinced by Blankfein’s claim.  The article did clarify that Goldman Sachs “…makes money by charging hefty fees to the companies and clients it advises and whose assets it manages – typically 2-4 percent.  It also makes profits from trading using its own cash.

 

A famous photograph, showing Mr. Blankfein with Warren “the Oracle of Omaha” Buffett himself, clutching a thick wallet (Mr. Buffett’s, presumably). Buffett seemed to be the “savior” of Goldman Sachs when he invested $5 billion in the company in 2009, a few weeks before the financial crisis ended of its own accord. It was a great decision on the part of Mr. Buffett, but this sweetheart deal sure turned out to be rather costly for existing shareholders of Goldman Sachs. Here is how the deal was structured: Buffett bought a new class of shares, namely $5 billion worth of “perpetual preferred shares”, which sported a 10% dividend yield (!) – costing the firm a hefty $500 million per year. On top of that he received warrants for 43.5 million common shares with an October 1 2013 expiration date and a strike price of $115 per share at no cost. Goldman had the right to buy the preferred shares back at a penalty, which it did in March 2011, paying Buffet $5.64 billion (consisting of the principal, a $500 million prepayment penalty plus $140 million in dividends due for 2011). He had already collected $1.1 billion in dividends by that time, so all in all he made $1.75 billion in cash, a return of 35%. But that is not all – GS agreed to a revised deal on the warrants, and in March 2013 Buffett received $1.35 billion worth of GS stock in exchange for the warrants. The stock was trading at roughly $146 at the time, so he got almost exactly the difference between the strike price and the market price in the form of stock – thus GS issued around 12 million shares to him. So his total return on the $5 billion investment was $3.1 billion or 62% (in the meantime it is more, as the stock has risen quite a bit further). Not too shabby, but if we were GS shareholders we’d certainly have a few questions about the deal – especially as it seems in hindsight that it was completely unnecessary. As Matt notes below, GS had already been bailed out by taxpayers at the time (who did so involuntarily and got not return whatsoever). Did it really need a second bailout courtesy of homely Uncle Warren? [PT]

 

Natural and Moral Order

For whatever reason, Blankfein omitted an important facet of his morality play.  Roughly one year prior, when the sky was falling during the darkest days of financial crisis, government benevolence, courtesy of the taxpayer – that’s you – had rescued Goldman and the other big banks via the AIG bailout. Was this “God’s work” too?

Quite frankly, we don’t know.  We don’t pretend to know the will of God.  But as Ralph Waldo Emerson elucidated in the essay Nature, there’s a natural order to the world.

Following Emerson’s lead, we acknowledge that there are some simple facts of how the world works.  There can also be consequences for attempting to thwart them, or for simply getting in their way.  We may not like some of these facts.  But our opinion really doesn’t matter.

From a purely natural sense, Pi is an irrational number.  There’s no denying it.  Rounding it off after two decimal places doesn’t change the fact that the ratio of a circle’s circumference to its diameter cannot be expressed exactly as a fraction.  This is an apparent incongruity to the world and there’s nothing you or anyone else can do to change it.

 

Fun with Pi – yes, it is definitely an irrational number. Inserted into the graph is Ramanujan’s bizarre equation for calculating it, which can compute 8 decimal places of Pi with each term in the series – it is to this day used as the basis of the fastest algorithms for the calculation. [PT]

 

There are also fundamental truths to the moral order of things.  You can’t always get what you want.  Deficits do matter.  Artificially suppressing the cost of money distorts an economy.  A fool and his money are soon parted.  Fire and gunpowder don’t sleep together.  What goes around comes around.

Here’s the point…

 

Good Riddance Lloyd Blankfein!

While we may not know the will of God, we think we may know what it isn’t.  The natural answer to the mortgage backed security crisis was outright bank failures.  A mass cascading spill over systemic bank panic should have swept across the land and wiped out all insolvent financial institutions.

Nature has no sympathy for the human construct of “too big to fail.”  What we mean is the taxpayer bailout of the big banks was likely counter to God’s work.  Regardless of what Blankfein says, a business that keeps private profits while socializing its losses is profane.

The bailout of the U.S. financial system, by the Emergency Economic Stabilization Act of 2008, took place nearly a decade ago.  This is old news.  No one, save a small fringe of financial gadflies, still cares about this.  But that doesn’t mean it isn’t still important.

The ramifications of the bailout continue to be felt throughout financial markets and the economy.  Toxic mortgage backed securities still soil the Federal Reserve’s balance sheet.  In fact, part of the Fed’s quantitative tightening program involves gradually reducing its holdings of mortgage backed securities.  This, along with increases to the federal funds rate, could usher in the next recession.

 

“Quantitative tightening” in action – assets held by the Fed. The insert shows the y/y rate of change, which is still small at the moment, but set to accelerate. [PT]

 

Thus, given word of Blankfein’s approaching departure from Goldman Sachs we refuse to give him a free exit pass.  Because when the big bank bailout was hatched out, Blankfein was in the middle of it, egging on Goldman cronies Hank Paulson and Neel Kashkari, and ensuring his bank’s access to a lifeline of taxpayer liquidity. Then, following the bailout, and a great big bonus, he offered the following non-apology:

 

“Certainly, our industry is responsible for things.  We’re a leader in our industry, and we participated in things that were clearly wrong and we have reasons to regret and apologize for.”

—Lloyd Blankfein, chairman and chief executive, Goldman Sachs, November 17, 2009.

 

Good riddance!

 

Charts by: numberworld.org, St. Louis Fed

 

Chart and image captions by PT

 

MN Gordon is President and Founder of Direct Expressions LLC, an independent publishing company. He is the Editorial Director and Publisher of the Economic Prism – an E-Newsletter that tries to bring clarity to the muddy waters of economic policy and discusses interesting investment opportunities.

 

 

 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

One Response to “Good Riddance Lloyd Blankfein!”

  • M.N. Gordon:

    Agreed. Quotes these days, particularly those found on the world wide web, are often inaccurate, misattributed, or made up. On the whole, I subscribe to The Jam, News of the World: “Don’t believe everything you see or hear.”

    Certainly, I wasn’t there to hear Rockefeller utter this statement. My source, however, was Old Right journalist and master stylist John T. Flynn, and his 1932 work: God’s Gold The Story of Rockefeller and His Times. You can access a copy here:
    https://mises.org/library/gods-gold-story-rockefeller-and-his-times

    According to Flynn, the material was vetted by Mr. Ivy Lee, representative of the Rockefeller family. And whereas other Flynn works, like The Roosevelt Myth, seems short in references, God’s Gold has an abundance of sources noted.

    Of course, this doesn’t answer the question of if Rockefeller actually said this or not. At the least, the sentiments are likely accurate. But I cannot confirm the actual statement.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • The Gold Sector Remains at an Interesting Juncture
      Technical Divergence Successfully Maintained In an update on gold and gold stocks in mid June, we pointed out that a number of interesting divergences had emerged which traditionally represent a heads-up indicating a trend change is close (see: Divergences Emerge for the details). We did so after a big down day in the gold price, which actually helped set up the bullish divergence; this may have felt counter-intuitive, but these set-ups always do. Consider now the updated chart below...
  • Confronting the Dragon with Peter Navarro
      Of No Real Use A young man might go to business school believing he is obtaining some sort of academic training that will enable him to make a comfortable living.  His degree may gain him entry into a large corporation, where he can work his way up to a good income.  This may even put him on the fast track to what he envisions as success.   Don't knock it: Being useless can lead to unexpected career opportunities... [PT]   But his academic training likely won't...
  • Trouble in Paradise
      Impressive Zeal for Faded Ideals Uncompromising independence, rugged individualism, and limitless personal freedom were once essential to the American character.  According to popular American folklore, they still are.  We have some reservations.   Rugged individualists suffer mid-life identity crisis. [PT]   The principles that gave rise to the American character died long ago.  Freedom.  Liberty.  Independence.  Limited representative government. Sound...
  • The United States of Terror
      Bombs Away! Two recent articles* have again demonstrated that the greatest “terrorist” entity on earth are not the bogymen – Russia, China, Iran, North Korea – so often portrayed by Western presstitutes and the American government, but the United States itself!   This is an old cartoon, but still a good one. It perfectly describes the trigger-happy Western political class and the depth of its “thinking”. By happenstance we recently reviewed the Libya intervention...
  • Gold – Macroeconomic Fundamentals Improve
      A Beginning Shift in Gold Fundamentals A previously outright bearish fundamental backdrop for gold has recently become slightly more favorable. Ironically, the arrival of this somewhat more favorable situation was greeted by a pullback in physical demand and a decline in the gold price, after both had defied bearish fundamentals for many months by remaining stubbornly firm.   The eternal popularity contest...   The list of gold fundamentals that have improved is...
  • Capitulation and Currency Pain - Precious Metals Supply and Demand
      Waving the White Flag The price of gold rose two bucks last week, though the price of silver fell 10 cents. We have seen several analyses recently predicting big price drops, in one case by at least $500 in gold by the end of the year. Is this what capitulation looks like? It’s said they don’t ring a bell at the top, but they don’t ring a bell at the bottom either.   The give-up moment arrives... [PT]   We have also seen technical analysis arguing that...
  • Maurice Jackson Interviews Rick Rule – Investing in Natural Resources
      Contrarian Investment Opportunities in Natural Resources Maurice Jackson of Proven and Probable has recently interviewed Sprott U.S. Holdings CEO Rick Rule, a well known specialist and “old hand” in the natural resource space. This is quite a wide-ranging and interesting interview, so we decided to present it to our readers. Below you find a summary and our comments on the main topics discussed, a video/podcast of the interview,  as well as a download link to a PDF file of the...
  • Black Holes for Capital - Precious Metals Supply and Demand
      Race to the Bottom Last week the price of gold fell $17, and that of silver $0.30. Why? We can tell you about the fundamentals. We can show charts of the basis. But we can’t get into the heads of the sellers.   Other people's fiat: in the global race to the bottom, it was recently the turn of emerging market currencies to tank. [PT]   We can say that in the mainstream view, the dollar is rising. The dollar, in their view, is not measured in gold but in rupees in...
  • The True Sport of MAGA
      Chest Bumps One of the more extraordinary things that investors have seen in living memory is unfolding at this precise moment. This goes for business leaders, money managers, veteran Wall Streeters, value investors, 401(k) holders, momentum traders, FX guys, gold bugs, technical gurus, chartists, pork belly speculators, quants, astrologists, Larry Summers, put option sellers, dweebs and geeks, millennial index fund enthusiasts, and everyone in between.   Pork belly speculators...

Support Acting Man

Item Guides

j9TJzzN

The Review Insider

Dog Blow

Austrian Theory and Investment

Archive

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

Mish Talk

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com