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In Goldman Sachs We Trust?

It’s going from obscene to disgusting. Each day reveals how we’ve traded away our sense of decency and the common good in exchange for pure, unadulterated greed.

Unemployment is a statistic. We hear it so often that, unless we are without work, it loses its meaning. Even when we learn that the U6 jobless rate hit 17.5 percent it doesn’t really register. After all this isn’t the 1930s. We have no bread lines or Hoovervilles. We’re not lined up outside of banks praying we can get our savings. We’ve come a long way…or have we?

We learn today that unemployment still means hunger. The Department of Agriculture reports that 49 million Americans don’t have enough food. That’s up 13 million over the last year and is highest number ever recorded since the survey began 14 years ago. Next time you hear people blame the crisis on poor people buying houses they couldn’t afford, think about skipping meals because you don’t have a job.

Meanwhile, unemployment and hunger are rising because the very banks we bailed out are not lending money. As Ben Bernanke put it just yesterday:

“Banks’ reluctance to lend will limit the ability of some businesses to expand and hire. Because smaller businesses account for a significant portion of net employment gains during recoveries, limited credit could hinder job growth.”

And if that isn’t enough, the TARP special inspector general reports that Tim Geithner completely botched the AIG negotiations, thereby showering billions of our dollars onto Goldman Sachs, JP Morgan Chase and other large banks.

Bubble Trouble?

Traders in Sao Paulo’s futures and commodities market. Photograph: Dado Galdieri/AP

Everywhere the story is the same. Gold: at a record high, above $1,100 an ounce. Shares: 50% up since March. Oil: back to almost $80 a barrel. Bonds: yields on two-year gilts at a record low. Average UK house prices: up £11,000 this year.

Around the world, asset prices are booming. Relief that the global economy has avoided the Armageddon feared in March, combined with large dollops of virtually free money, have helped put a smile back on the faces of the speculators. Too big a smile, according to some experts, since the buoyancy of asset markets is not reflected in the real economy.

Away from the frenzied financial world, among struggling firms and cash-strapped families, signs of recovery from the worst downturn since the 1930s have been much patchier.

The US returned to growth in the third quarter, thanks to Washington’s cash-for-clunkers scheme and tax breaks for first-time homebuyers. But unemployment is at its highest level since 1983 and the number of Americans losing their homes is still rocketing, so Fed chairman Ben Bernanke still has plenty to worry about.

Wall Streets Biggest Con Game

Why is Wall St. at war to keep financial innovation secret, hidden, and without public transparency? Why is Wall Street spending millions on lobbyists to kill financial-regulation reforms?

Because Wall Street rakes in tens of billions of dollars annually from their financial innovations, gambling in the shadowy $670 trillion global derivatives market. And Wall Street does not want government, investors or competitors digging into their “financial weapons of mass destruction,” as Buffett calls them.

Remember, financial innovation is just a Wall Street code word. Translated it simply means derivatives and other proprietary secrets like the high-frequency trading algorithms used by their quants.

Yes, Wall Street wants you to believe that financial innovations also help Main Street, but that’s just Wall Street lobbyist propaganda to mislead the public, regulators and legislators. Remember when Washington proposed standardized mortgages as a way to help consumers? Wall Street attacked, spending millions to kill it.

Wall Street has no interest in helping Main Street. Time magazine’s Justin Fox, author of “The Myth of the Rational Market,” said it best in his “Curious Capitalist” column.

Most so-called financial innovations are “just new ways to fleece customers or hide risk, and all major financial crises have been associated with some financial innovation.” Even credit-card innovations are used against customers as marketing tools to increase fees. The truth is: Wall Street’s greed-driven financial innovations fuel our bubble/meltdown cycles in many ways.

Wall Street on the Lam

Slashing executive salaries, bonuses and perks at the seven bailed-out companies that gorged most gluttonously at the public trough is emotionally satisfying, but it shouldn’t be. It’s like arresting jaywalkers while ignoring the bank robbery that’s happening in broad daylight down the block.

Don’t get me wrong. The Obama administration’s “pay czar,” Kenneth Feinberg, is right to put a lid on compensation at the Not-So-Magnificent Seven: Citigroup, Bank of America, General Motors, Chrysler, GMAC, Chrysler Financial and the unforgettable AIG.

Twenty-five of the biggest earners at each of those firms will have their overall compensation cut roughly in half, and most of that will come as restricted company stock, not cash. This means that what they ultimately reap, when they are eventually allowed to sell the stock, will depend on how well the company performs — which will depend on how well the executives do their jobs.

Tying pay to performance: What a concept.

Feinberg even muscled outgoing Bank of America chief executive Kenneth Lewis into accepting no pay or bonus for this year. But Lewis will still have an estimated $70 million retirement package to keep him warm at night, so hold your tears.

It’s nice to know that there must be some pooh-bah at B of A, Citigroup or AIG who will have to live without the new $90,000 Porsche Panamera he was planning to buy. But Feinberg’s writ of imperial decree doesn’t extend beyond those seven companies, and the rest of Wall Street gives no indication of remotely understanding what the big deal is about compensation.

Goldman Sachs, for example, has a bonus pool this year of at least $16 billion and perhaps as much as $23 billion.

But all this is just a sideshow. The main event is the limited, far-too-modest attempt by the Obama administration and Congress to curb the irresponsible Wall Street practices that led to the financial meltdown — and, if unaddressed, will lead inexorably to the next crisis.

Deregulation allowed the financial marketplace to devolve from an institution that served the overall economy — by allocating capital most efficiently to the companies that could put it to best use — into an institution whose primary mission was to serve itself.

The vast over-the-counter trade in instruments known as derivatives, nominally worth a staggering $600 trillion worldwide, is largely an exercise in make-believe. Firms make highly leveraged investments in exotic securities whose true value is opaque. Then they hedge these investments by buying insurance against potential losses, although the insurer doesn’t have a fraction of the money it would need to make good on all its promises.

All this investing and hedging generate huge transaction fees and big profits, which can be skimmed off the top each year.

Everything’s fine, until there’s some disruption in the real economy — a downturn in the housing market, say. If the disruption is severe enough, the web of make-believe deals starts to unravel. At which point the government steps in and bails everybody out.

Capping salaries and bonuses is fine. But we need to pay attention to the guys in ski masks with bulging bags of money slung over their shoulders. They’re about to jump into the getaway car.