President Obama and his congressional allies are looking to extend the government’s control of the financial sector with the help of a compliant news media. The New York Times eagerly takes up this charge in a front page story that suggests to readers that the unsavory practices of Goldman Sachs are to blame for their fiscal woes but the premise here is all wrong…
Washington’s culpability in the housing crisis and its larger economic fallout continues to go unreported in the liberal news media, which would help explain why recent policy missteps stand a good chance of being repeated. President Obama’s proposed financial “reforms” will only exacerbate the same regulatory conditions and perverse incentives that spurred the 2008 financial meltdown.
There’s a nice opening here for enterprising journalists eager to fill in the gaps where interventionist government policies are unconcerned. To the extent these reporters remain in circulation, they do not ply their trade at the New York Times, which reflexively faults the private sector for economic turmoil.
This front page report from the Gray Lady calls out Goldman Sachs for turning a “serious profit” on mortgages is crafted to advance Washington’s regulatory agenda and omits any serious discussion of the misguided policies that have bedeviled America’s financial markets.
The first few paragraphs are built around email messages transmitted between the bank’s executives that are now the subject of a Senate investigation. Readers get the palpable sense that the Goldman Sachs leadership was somehow duplicitous and manipulative in its approach toward the housing market.
Here’s how it is reported:
“In the messages, Lloyd C. Blankfein, the bank’s chief executive, acknowledged in November 2007 that the firm had lost money initially. But it later recovered by making negative bets, known as short positions, to profit as housing prices plummeted. `Of course we didn’t dodge the mortgage mess,’ he wrote. `We lost money, then made more than we lost because of shorts.’
He added, `It’s not over, so who knows how it will turn out ultimately.’
In another message, dated July 25, 2007, David A. Viniar, Goldman’s chief financial officer, reacted to figures that said the company had made a $51 million profit from bets that housing securities would drop in value. `Tells you what might be happening to people who don’t have the big short,’ he wrote to Gary D. Cohn, now Goldman’s president.”
But the premise here is all wrong. What difference does it really make if Goldman Sachs made or lost money betting for or against mortgage securities?
Since “the actions taken by Wall Street firms during the housing crisis” are the central focus of the report, the White House and Congress escape scrutiny. This is unfortunate as pending federal action could further undermine the free market.
Here are a few suggested follow up questions that should figure into upcoming reports.
Is it government’s job to assume the risk associated with bad business decisions? Or if you prefer to get even more Orwellian about it: Is it government’s job to arbitrarily restrict free market exchanges in an effort to prevent bad decisions from being made in the future?
If the government’s answer to either of those questions is “yes,” then it is embracing a Soviet-style command economy and repudiating the free market principles on which this nation was founded.
The political posturing between Goldman Sachs and key U.S. Senators is worth mentioning here as it could impact the legislation’s trajectory. Company officials claim the use of email messages has been highly selective and misleading. In response, U.S. Sen. Carl Levin (D-Mich.) claims the emails sharply contradict what Goldman Sachs has said in public.
It is reported as follows:
“Goldman on Saturday denied it made a significant profit on mortgage-related products in 2007 and 2008. It said the subcommittee had “cherry-picked” e-mail messages from the nearly 20 million pages of documents it provided. This sets up a showdown between the Senate subcommittee and Goldman, which has aggressively defended itself since the Securities and Exchange Commission filed a security fraud complaint against it nine days ago. On Tuesday, seven current and former Goldman employees, including Mr. Blankfein, are expected to testify at a Congressional hearing.”
But here again, what should be incidental information becomes central to the story. Moreover, The Times fails to inform readers that the case against Goldman Sachs is more than a little specious.
The Securities and Exchange Commission (SEC) claims the firm duped a German bank into buying up toxic assets at the direction of a hedge fund manager. Two key facts here have gone unreported: Goldman’s $90 million loss on the deal as well as clear and compelling evidence that the German firm knew exactly what it was getting into.
Moreover, the German bank invoked in the SEC filing crafted similar agreements with other companies only a year or so before the Goldman deal.
As is often the case, the bias here stems more from what is left out of the reporting. An honest assessment need not apologize for Goldman Sachs as its activities should be open to fair criticism. But giving cover to the political class before it prepares to move highly consequential legislation does a great disservice to readers.
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