Just read Matt Taibbi’s incendiary rant on Goldman Sachs, after hearing him on NPR yesterday. How wonderfully angry he is! And to hear him saying the same things I’ve been saying for months to years now, but coherently and with independent fact checking … neat!
The article is very much about how Goldman Sachs specializes in riding the leading edge of securities and trading fraud. They seem to have mastered the idea of both making the rules and exploiting them. Convincing the government to bail out AIG (so that AIG could pay off their debts to Goldman) and at the same time allowing Lehman Brothers (Sach’s big competitor) to default. Genius! While that’s all true, I really resonated with something he said on the radio:
When I was somewhat naive about these things, I would hear about big bonuses and profits for bankers and wall street types and assume that meant that, in general, the economy was doing well. That they were some sort of barometer for our national finances as a whole. The reality is this though: Any profits and bonuses shown by the finance houses are money removed from the useful economy. That money does not go to create jobs, to invest in businesses, or anywhere but the least useful place in any economy: Rich people’s pockets.
In the article, he also makes the important distinction that the banking assholes with whom I’ve dined over the years never seem to get: There are companies and people who produce things or provide services to other people or companies … and then there are the fucking parasites. Banks are parasites. Banks and finance houses do provide some valuable services – but they also pull money *out* of the system and they don’t directly *produce* anything. That’s fine and good as long as they make the system more effective as a whole. When the parasite nearly kills the host (as it seems to do every decade or so), it’s time for a purge.
A related point is that when the derivatives market exceeds the size of the *real things* market (oil futures as opposed to oil itself, for example) price fixing, bubbles, and a crash are the inevitable result.
After the endorphins wore off, I settled down into a bit of a funk. Here I am with my 10 years worth of retirement savings, my fresh mortgage, my recently paid off credit cards, and my decent earning potential for the coming couple of decades. I would like to be able to stop working at some point with a reasonable nest egg. I don’t want millions … but I want my house paid off and I want to not fear the idea that I might live well past 100 years old.
What’s a bright, enterprising guy to do when the sharks are busily feeding in the waters of finance?
Well first off, don’t swim with the sharks. Day trading and small time investing are for suckers. I treat that crap like going to vegas and playing blackjack. It’s possible to make a small profit by working very hard and never making mistakes. However, at the end of the day you’ll still have to look yourself in the mirror and realize that you could have spent the day creating something rather than trying to scam the world out of a few bucks. Also, the house always wins in the long run.
Secondly, buy into companies that pay dividends. Invest in companies that use their money to make things or to provide services, and demand dividends. Paper is worthless, Wall Street’s estimates of corporate value are worthless. We all thought we were rich because we owned shares of artificially inflated companies. You know what I want now? I want to do business with companies who will *pay me* for the privilege of holding my money. You know what they call that? It’s a savings account, a money market, or a certificate of deposit. It’s a bond. It’s also investing in power companies. God, I love power companies.
Thirdly, live well within my means. We’re on the way to this – and as of October 1 we’ll be rational again (right now the house and apartment are overlapping and it’s a little crazy).
Finally – to return to the first point: Do not swim with the sharks.