Goldman Sachs, Essay Example

The current financial situation with Goldman Sachs occurred mainly because they took a lackadaisical attitude towards housing prices. As a result prices were subsidized through government supported Fannie Mae and Freddie Mac. The Executive management at Goldman Sacks watched as high consumerism and low savings rates as well as entitlement spending were encouraged and financed through the deficits.

Over the last 2 decades growth of foreign capital has created a significant shift in the balance of payments with many emerging countries such as China and India.  Following almost ten years of low long term interest rates the market continued vivacious growth.  The Chinese continue to invest heavily and have become leader in the international market.

From 1992-2007, the United States of America has had its deficit increased by more than 1,300%. China’s current trade account increased by over 5,100%, as did the excess for the oil rich nations (OPEC). This created the record oil price inflation since 2000. The increase in global savings ran up as the increase in petroleum continued to rise. At the same time the growth in foreign investment continued to attack the global economy as a whole. Foreign holdings in the United States Federal Government and U.S. Corporate debt continued to climb. China went from buying $2 billion in long term securities in late 2000 to over $15 billion in 2007.

Foreign entity capital flooding into the U.S. market, particularly U.S. Treasuries, pushed relatively low long term interest rates down even further. And they stayed low, even after the Federal Reserve Inc. began raising short-term rates in 2004.

At this time Goldman Sachs watched the market hover at all time low interest rates the consumers continued to buy at an unprecedented rate. Many families at this time invested what little money they had into real estate.  The real estate feeding frenzy caused inflation to occur in the value of houses and property.  As consumers continued to demand more property the price of houses began to rise and many houses were sold for far more than the retail price. Thus housing markets grew by decades in just years.

This could have been prevented by creating a strong transparent window into the banking industry in the preceding decades. It is important to look to the market with a discerning eye.  Upon close examination of the mortgages, the intellectual side of the market is revealed. In 2000 through 2008 Goldman Sachs so-called “lack of sight”  led to “junk” mortgages across much of the landscape. These “Junk” mortgages  had excess of 5% inflation in 30 days during 2007 and 2008 much of which was forecaster months even years in advance.  Using sustainable economics one could argue this was a lending trap. Why would any lender continue to lend into such a dark place unless the lender had a light. This is introducing fair lending acts for banking institutions as well as foreign investment capital.

The analysis on the other hand continues to point to Goldman Sachs or Freddy Mac but the issue in the free market is an informed educated consumer. When your society has a wealth of knowledge and the tools it needs to make sound decisions the free market becomes a learned market. In addition allowing large foreign investment into the United States Governments pool of funds creates volatile influxes in the market. Allowing the government to place a market cap on a per annum basis of foreign investors could create the investment with the needed growth without the bottom falling out from the economy as a whole. This is not to say that total control is needed, but more concise control of foreign investment.

On another note, reason for the current market situation is due to U.S. Corporations making huge investments into China over the last 2 decades. Warren Buffet through Berkshire Hathaway owns 3.3 Billion shares or 1.3% of China Petroleum. With Motorola controlling vast market shares of the Chinese cellular phone market it would seem timely to offer the ox. That is to say corporations, including Goldman Sachs, only care about the outcome when it involves their own interests.  Additionally, scraping the fragments of the banking industry into a pile to one day regain a footing seems immature. Rather it seems prime to explore additional methods of commerce trade. To better grasp the long term goal of sustainable growth now would be the time to take president. Instead of corporations looking at the world as a market to be played a different approach would be to try experiencing it through global stewardship as a whole.

References

Middleton, Reggie. “The Goldman Sachs Forensic Analysis.” Safe Haven Preservation of Capital 25 July 2008.  Web. 4 May 2010.  Retrieved from http://www.safehaven.com/article/10836/the-goldman-sachs-forensic-analysis

Reinhart, Carmen M., Rogoff, Kenneth S. “From Financial Crash to Debt Crisis.” The National Bureau of Economic Research March 2010. Web. 4 May 2010.  Retrieved from http://www.nber.org/papers/w15795

“Warren Buffett’s Company Defends Chinese Investment.” CBC News Online, 23 Feb. 2007. Web. 4 May 2010.  Retrieved from http://www.cbc.ca/money/story/2007/02/23/berkshire-china.html

Whitehead, Charles K. “Shortening the SEC’s Case Against Goldman Sachs.” Reuters Online 23 Apr. 2010. Web. 4 May 2010. Retrieved from http://blogs.reuters.com/great-debate/2010/04/23/shorting-the-secs-case-against-goldman-sachs/