Goldman Sachs and the populist blame game

Justin Kintz Contributor
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You are going to be tempted. You may already be as guilty as Bernie Madoff himself.

Big business. Fat cats. Evil empire. Corporate thieves.

How many of us have used this arbitrary vitriol in the past few years? How many more mouths will spew forth similar hatred and mistrust with the microscope now strongly focused on Goldman Sachs, especially while Congress hammers out new financial industry regulations?

There is little question that more modern and flexible regulations are indeed needed to prevent another wide scale financial system collapse. Our nation’s regulators at the Federal Reserve System, FDIC, SEC, and the Department of the Treasury (among others) certainly have done an outstanding job in recent years preventing a systemic collapse of global proportions; they deserve to be given less-antiquated tools at hand to help mitigate future crises.

For the reform attempt to be successful in the long term, however, it is supremely critical that Main Street spends less time spitting on Wall Street and more time understanding its business practices.

Despite the recent allegations of fraud, the global economy needs businesses like Goldman Sachs to maintain this unprecedented era of growth and prosperity. We may not have encountered a financial meltdown in 2008 if the monoliths of Goldman, Lehman, and Bear Stearns had never existed, (or had they been more tightly bound by Uncle Sam’s leash). But it is also quite clear that America and most of the world’s developed and developing nations would certainly not be anywhere near the level of affluence and economic complexity had we not allowed the same leaders in capital investment to exist.

The public knee-jerk reaction to the kind of allegations that Goldman Sachs currently faces, or to the bailouts and takeovers of 2008, has become predictable and irksome. Do I, as a small-fry investor, constantly fret that there are supremely powerful “market makers” out there, reducing my well thought-out and reasoned investments to a small playing chip on the vast roulette wheel that is the financial markets? Of course I do. Fear and uncertainty are perfectly natural reactions when playing a game in which one is often uncertain of the outcome, the timing, and the rules. But if I lose, I only blame myself, because no one forces me to put my money in a bank that holds dangerous derivatives and neglects proper risk management; no one compels me to buy common stock or mutual funds; no one makes me purchase real estate.

The federal government, however, does make me pay taxes, and thus I can blame all the recipients of those tax dollars when they are used to bail out the very system built on risk that I may have avoided my entire life. Yet once they have returned said tax dollars, then the argument is lost; but the populist rhetoric continues ad nauseam.

Fault lies within human nature. Inevitably, if a business happens to rise above a certain pre-determined and subjective threshold of success, the first hands that reach up to yank them back down are those of this amorphous, utterly virtuous “Main Street,” and then, by proxy, the government. It is a dangerous mentality. Susie got an A on the test, yet I got a C? Susie must have cheated—or, if she didn’t cheat, she’s a nerd, because we need to bring her down to our level to feel better about our own middling performance.

While Goldman’s timing and strategy regarding employee compensation may be poor from a public relations standpoint, why are the beneficiaries immediately (and very publicly) castigated? It is simply too easy for the country to see a headline about massive bonuses at Goldman Sachs or soaring earnings reports amidst fraud accusations and holler: “That’s wrong! Why should they get paid so much when I work twice as hard and get 1/10 of their salary? Take it away!”

The federal government then does what it does best, and uses its definitive authority to legally plunder—this time based off of a populist mandate. A new regulatory agency or bureau springs forth, and, like a stubborn weed, then remains long past its welcome.

There are certainly plenty of recorded cases of fraud and abuse in the private sector, but these have occurred irrespective of past and current regulation, and few should expect a new magical era, free of deception and exploitation given new government control.

As stated previously, fault lies within human nature. But within human nature, and corporate nature, also lies the ability to create floods of prosperity and innovation in a previously barren market climate. Restricting a few humans’ potential—in this case through overly zealous government reform, inherently chains both Wall Street and Main Street to a middling plateau of one-for-all, but not all-for-one.

So, while Congress, the White House, and the nation hotly debate financial regulatory reform, don’t quietly acquiesce because it does not concern you individually. Instead, ask yourself: “Is this government intrusion worth harming my neighbor; is it worth diluting the American dream?”

Justin Kintz is a former George W. Bush Administration appointee to the U.S. Department of the Interior, and current Manager of Special Projects at the Sudden Cardiac Arrest Association in Washington D.C.