The Value of Shaming the Banks? Around $2 Billion.
Joe Krudler received his M.A. in history from CSU Chico. He teaches at Yuba College.
In the year 1711, Joseph Addison penned one of the greatest satirical lines on the topic of banks. “Methought, I returned to the great hall, where I had been the morning before, but,” wrote Addison in The Spectator, a London-based subscription. “I saw, towards the upper end of the hall, a beautiful virgin, seated on a throne of gold. Her name, as they told me, was Public Credit.” By my calculations, then, this makes 301 years worth of moral outrage over what you and I commonly coin banks (pun intended).
It is interesting to note that The Spectator saw as its mission to “enliven morality with wit, and to temper wit with morality…” It is also interesting to note, as Robert Reich recently did, that morality still surrounds and infuses the issue of banking. Responding to GOP presidential candidate Rick Santorum’s recent anti-pornography posturing, the former Secretary of Labor and Berkeley professor wrote that “America's problem isn't a breakdown in private morality. It's a breakdown in public morality,” that “There is moral rot in America but it's not found in the private behavior of ordinary people. It's located in the public behavior of people who control our economy and are turning our democracy into a financial slush pump. It's found in Wall Street fraud, exorbitant pay of top executives, financial conflicts of interest, insider trading, and the outright bribery of public officials through unlimited campaign donations.”
Reich’s comments are not quite the biting satirical commentary of Addison’s; however, the point is that three hundred years after Addison’s virginal golden throne moment, banks -- and the executives who run them -- still drawn the scorn of the English-speaking world. And the bank bailouts of the past few years, which involved extensive use of public credit to bolster their poor decisions over mortgage derivatives, did them no favors.
Often lost in the broad arc of U.S. history is just how anti-big bank Americans have been, and in many ways still are. Alexander Hamilton successfully pushed for the creation of the First Bank of the United States in 1791, but the bank died in 1811; opposition to the reauthorization of its charter was nighh on universal. After the debt incurred in the War of 1812, Congress authorized the Second Bank of the United States. Andrew Jackson, ironically depicted on the $20 bill, rode to the presidency with a vow to kill it, and kill it he did (perhaps one of the contributing factors of the Panic of 1837). Not until the Civil War did a central bank reappear in the United States, and only then because Lincoln, acting under the encouragement of Secretary of the Treasury Samuel Chase, he of the $10,000 bill fame) employed his war powers to bring it to life. Central banks have been with us ever since.
But it was during the Gilded Age (so labeled by Mark Twain -- think once again of Addison’s “throne of gold” comment) that America’s modern banking and financial institutions took form. The era's obvious corruption, brought to you by J.P. Morgan and company, spawned the Progressive Era much in the way America’s Second Gilded Age has given rise to Occupy Wall Street.
Recently, one of Goldman Sachs's executive directors and head of the firm’s equity derivatives business in Europe, the Middle East, and Africa resigned -- very, very publicly. Greg Smith's searing op-ed in the New York Times, published the day of his resignation, lambasted the company for greed and corruption, excoriating the company’s “morally bankrupt people,” that the “firm has veered so far… that I can no longer in good conscience say that I identify with what it stands for.”
How much did this public shaming cost Goldman Sachs?
According to the UK Daily Mail, Smith’s actions caused Goldman’s stock to plunge 3.4 percent -- a loss of $1.3 billion in a single day. Other outlets predict that Goldman could lose another billion before it’s done.
So the moral price to Goldman Sachs now has a dollar figure: up to $2.3 billion. Remember, the size of the bailout from the U.S. Treasury to Goldman Sachs was $12 billion.
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