THE BLOG
07/16/2009 05:04 am ET | Updated May 25, 2011

What Would Happen If Goldman Went Under?

So, we read now that Goldman Sachs is back to making record profits ($2.7 billion in the last quarter alone) by taking higher risks (AP reports that Goldman has returned to "high-risk trading"). Great, the economy must be fixed. Or maybe it's the exact opposite -- it's a company taking advantage of a system they know is broken.

Here is what I mean. Goldman Sachs knows that they are too big too fail. And they already know what the government does when a financial company is too big to fail. They bail them out -- no matter what.

What if Goldman took too many risks in making the absurd amount of money they're making now (while we're told that the banks don't have any money to lend)? What if they crashed right now? What do you think would happen?

Everyone in the world knows that we would bail them out. The idea that Tim Geithner would let Goldman go under is so laughable that it makes me sick. Does anyone trust that guy's impartiality (other than Obama)? Does anyone believe there is even a 1% chance that Geithner and Summers would let Goldman go down?

So, if you knew that no matter what level risk you took the government would always come riding to the rescue -- and that more risk equals more money in the short term -- wouldn't you take more risk? Of course you would.

Now, that might be short term thinking and you might get yourself into a lot of trouble in the long term. Well, if you were worried about what might happen in the long term, what would you do next? Right, take out as much money from the company as you possibly could and put it into your own pocket. And guess what Goldman is doing right now? They are setting aside $18 billion to pay their employees this year.

That's called looting the store. They're taking most of the money the company made and giving it to themselves. Who cares about the long term health of the company? The employees don't own it anymore. If they can take most of the money for themselves before it gets to the shareholders and do long term damage to the company, why not do it? What do they have to lose? It's not their company, but the check they take home is their money to keep.

William K. Black wrote an excellent book called "Best Way to Rob a Bank is to Own One." That about sums it up. But these days the bank robbers have one additional advantage -- when the bank runs out of money, the government comes and fills it up again. Then, they invite them to rob it one more time.

So, who's convinced we have this financial problem under control? Who's convinced we have any idea what to do if Goldman went under? Who's convinced they have any incentive not to take more risk to make more money? Who's convinced that we have done enough to rein in banks that are too big to fail?

No, we still have the same problem we did before. I disagreed with the bailouts. I think we gave the banks an enormous amount of money with almost no strings attached. I understood the urgency of bailing out the financial industry, but if we were going to do that, we could have at least made sure that we took steps to make sure this never, ever happened again. Now, who's convinced we've done that? No one, outside of a couple of suckers who are about to get their pocket picked again.

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Update: AOL Poll on this question now. You can vote here.