Rather then too big to fail, they are actually too big to jail.  Too smart, too.  Sandwiched in between President Obama’s State of the Union Address, and Steve Jobs introduction of the Apple iPad were a couple of Goldman Sachs stories that are disturbing, and deflating.

1.  The champagne has been flowing, and the champagne flutes clinking in toasts that could be heard all over the world last night.  Goldman Sachs paid out $23 BILLION in bonuses yesterday.  40% of this is paid in cash, with the balance paid in GS stock.  Since 85 Broad Street is in charge of the Country, this stock is worth more then the cash.

Click here to read about some lawsuits against GS by shareholders, Ken Brown and Central Laborer’s of Illinois pension fund.

2.  The AIG bailout generated a $16 BILLION payment to Goldman Sachs.  Tim Geithner was handed the bailout like a football, by ivy league football player Hank Paulson.  Geithner and Treasury paid 100% of AIG money owed to Golman Sachs, rather then negotiate a lower payment.

There should have been a much smaller payment to GS, as AIG had a realistic threat of bankruptcy and break up.  I say realistic threat, but with Hank Paulson in charge, with a wink and a nod, it was never a question that GS would be paid, and paid for poor products and services.  While Goldman Sachs was advocating AIG invest in mortgage backed securities, Goldman Sachs was reducing it’s exposure in MBS’s and CDO’s.

I believe that Goldman is in charge of our economy.  The former Goldman Sachs CEO Henry Paulson was the Treasury Secretary during the largest economic crisis our lives has made this obvious (most people alive during the depression are no longer with us).  GS has the best of both worlds, they have the partners plugged in to the posts that matter in US government.  They do not need lobbyists, because they are the politicians.  They also are a market maker, they sell products that they know are failing or are bad.

I will never be confused with an economist.  I don’t have answers, but I do have questions.  Can our government find a way to do what these large firms, like GS will not do?  Make banks smaller?  Rather then help Chase buy Bear Stearns, or BOA buy Merrill Lynch, or let Lehman BK, why not help Bear, and ML, and Lehman become 100 new firms?  If Goldman has 1,100 partners, force each one of these big brained bankers to be it’s own firm.

Wouldn’t we be in a safer economy if Bank of America, Chase, and Citi, were regional banks?  If banks were community banks, and our largest banks were regional, with a limit to the amount of banks each could manage and how many states they could operate in?   Bad banks could more easily be absorbed, and FDIC insured accounts would be smaller.  These banks should also be restricted from owning investment banks or businesses.  Morgan Stanley was a major catalyst for the run up in oil prices in 2008, as they own businesses that store oil.

I know, then we may not have bank CEO’s that make $50 Million annually.  We could instead have 50 Bank Presidents making $500K to $1M Annually.  I am certain this would benefit our economy, as it would spread the wealth and create more opportunity for a greater amount of individuals to be entrepreneurial.

If we did an overhaul of the financial system, we could operate with less regulation, as rules could be simpler, and investing would be as well.  More risk would be shouldered by the smaller investment bankers that run investments, and they would deserve the money they make, as they could be eliminated if they were to fail.  If we have talent in our financial systems, it will not run to England to work at Barclays, it will stay here to run its own boutique firm.

This could also be a way to create new investment in our country, which is being lost to other markets.  I don’t have answers.  I just think these banks are way to large, and we have created a bottle neck that is bad for our economy.  If we are lending money at 0% to banks, but this money is not being reinvested through lending into our country, we need to overhaul the system.

Big banks have business models that do not rely on lending.  They are focused on M&A, and only answer to their share price.  M&A does not benefit small business and the entrepreneurs that employ the majority of Americans.  Small banks and credit unions make money on deposits and lending.  Obviously they also invest in homes, oil, commodities, even parking (Morgan Stanley, Chicago), but it is a more diverse group of holdings.  If any small banking institution makes a mistake by over exposing themselves in something like an MBS, they could very easily be absorbed.

If you are interested in reading some interesting conspiracy newsletters, check out Martin Armstrong.  Keep in mind, he is in jail.  With the Internet, there is never a shortage of bad information, so it all must be investigated before it can be considered fact.

Tags: Banks, Economy, Goldman Sachs | Category Banks & Wall Street, John's Blog Posts, Politics