I’ve gotta say I’ve been loving Lloyd Blankfein lately. He’s the Goldman Sachs boss who’s been appearing before the American Congress and doing a series of media interviews in the last week, trying to defend, preserve and protect his firm’s reputation. (Well, perhaps “renovate” is a better term for what he’s doing about their reputation, because no one would want to preserve Goldman’s present popular image, which is that of a blood-sucking vampire that lives off the gashed-open veins of the millions of Americans who have lost their homes and jobs in the market and economic collapse that many partially blame on Goldman Sachs.)
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You can, I believe, see a particularly good interview of him tonight on Charlie Rose on Bloomberg TV. It’s one I saw a couple of times this weekend, and they said this morning that they’re playing it again this evening.
The first time he appeared before a Congressional panel, a few months ago, he seemed self righteous and defiant, which just added to the hatepile Goldman’s had heaped on it in recent months. But now he seems to have mellowed, learned to be apologetic, and seems actually likeable. Perhaps it’s just my penchant for the underdog, even obscenely overpaid ones, that made me sorta cheer for Lloyd as he endured congressional and Charlie Rose grilling. Or perhaps it’s his first name, which is Welsh and convinces me that at least on that count he has Great Worth, because the Welsh are the greatest people in human history and sporting that “Ll” makes up for a few billion in possibly ill-gotten profits in my books.
Or perhaps it’s because I sympathize with much of the work that Goldman does and now gets blamed – often unfairly – for in the present mood of inquisition. People seem to assume that 1) Goldman Sachs staff all could see the future and know that everything to do with subprime mortgages would implode; 2) They conned their clients into buying stuff that was bad; 3) All the money Goldman makes comes out of the pockets of fleeced investors.
I’ll be as disgusted as everyone else with evidence of any deliberate mispresesentations of securities that Goldman was selling to clients, and hope any conmen who convinced clients to buy stuff that the salesemen knew was “crap” (their words) gets nailed.
But most of what Goldman does, and in many cases with subprime mortgages, did, was to make markets for buyers and sellers. Like with the infamous-now situation with John Paulson, who bet against subprime mortgages and needed Goldman Sachs to find people to take the other side. There’s only a problem with that if: 1) they knew Paulson was going to be right (they didn’t – no one “knows” what’s going to happen in the future); 2) they convinced innocent buyers into buying stuff they should not have had (that’ll be examined in the lawsuit against Goldman launched by the U.S. government; 3) the money they earned from the transactions resulted from deliberate malfeasance and an opportunistic transferring of wealth from client to Goldman (that seems doubtful in most of these cases).
I’m partially sympathetic to Goldman here because making markets is an extremely important function in the capital markets, and in the commodity markets. Markets are good. If they don’t exist, someone needs to make them. It’s OK to make money from willing buyers and sellers for providing the market. That part of their business is beneficial.
Anyone watching the Winnipeg commodity exchange’s Western Barley contract recently knows that there’s almost no trading taking place there. There’s a market, but buyers and sellers aren’t using it. In the past the exchange tried to find professional market makers who would offer buy and sell opportunities in order to keep liquidity in some of the futures contracts. There are still buy and sell bids and offers at the exchange now for barley, but a market maker brings the bid-ask spread close enough together that trade flows and confidence remains in the contract.
The exchange has always had trouble finding market makers – it’s a challenging role for any firm – but no doubt they wish there was one operating in barley now. I wish there was too. The last thing prairie farmers need is to see the main price discovery mechanism for prairie feedgrains disappear, as it has with flax, peas and the other contracts the Winnipeg exchange has abandoned.
So, perhaps once he’s done his round of interviews and gets back to his office, the Winnipeg exchange could call up Lloyd in his office and see if he’s interested in flying in on his vampire wings to make a liquid barley futures market for us.
