In 1869, a 48-year old Jewish immigrant from the tiny village of Trappstadt in Germany’s Bavaria region hung a shingle outside of his small office in lower Manhattan to officially launch his new business.
His name was Marcus Goldman, and the business he started, what’s now known as Goldman Sachs, has become the preeminent investment bank in the world with nearly $1 trillion in assets.
They didn’t get there by winning any popularity contests.
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Goldman Sachs has been at the heart of nearly every major banking scandal in recent history.
The company has settled lawsuits on countless charges, ranging from exchange rate manipulation, stock price manipulation, demanding bribes from their own clients, front-running retail customers, and just about every shady business practice that would put money in their pockets.
Yet throughout it all, Goldman Sachs has been protected from any serious punishment by its friends in highest offices of government.
Four out of the last eight US Treasury Secretaries, including the current one, have formerly been on the payroll of Goldman Sachs.
Three current Federal Reserve Bank presidents are Goldman Sachs alumni.
The current president of the European Central Bank and the current head of the Bank of England are both former Goldman Sachs employees.
You get the idea.
On its face, there’s nothing wrong with government staffing its departments with top executives from the private sector; taxpayers would probably rather have someone who knows what s/he’s doing behind the desk rather than some random guy off the street.
But the consequent favoritism that results from this revolving door is blatant and repulsive.
Case in point: in 2008 when the financial system was going up in flames and most banks were suffering enormous losses, the government orchestrated a sweetheart bailout deal, of which Goldman was the primary beneficiary.
Goldman stood to lose billions of dollars from its bad investments in insurance giant AIG (which was going bankrupt).
Instead, Goldman was repaid 100 cents on the dollar, courtesy of the US taxpayer. And that’s not an isolated case.
The point is that Goldman Sachs is deeply embedded across the entire economy, nearly every major western government, and the most important financial markets in the world.
So when the bank’s CEO says that financial markets are too expensive, it’s probably time to start paying attention.
That’s exactly what happened yesterday at the Handelsblatt business conference in Frankfurt, Germany– Goldman Sachs’ CEO told the audience bluntly that world financial markets “have been going up for too long.”
And it’s true. Many major stock markets around the world are near all-time highs. Bond markets are near all-time highs. Property markets are near all-time highs.
Insolvent governments that have a history of defaulting on their debts (like Argentina) are able to issue bonds with maturity dates of ONE HUNDRED YEARS at laughably small interest rates.
Companies which perpetually lose money are seeing their stock prices soar to continual new heights.
Interest rates in many parts of the world are still negative.
And whereas the average length of a ‘bull market,’ in which asset prices rise, is just over 5 years, the current bull market has been going for 8 ½ years.
That makes it one of the longest in the history of financial markets.
There are now legions of seasoned analysts, traders, and investment bankers working on Wall Street who have literally never experienced a down year.
Little by little, a few prominent voices in finance have started to express concerns about the state of financial markets.
Yesterday’s comments by Goldman’s CEO was only the latest. Though given his status as THE market and economic insider, his remarks are perhaps the most noteworthy.
In fairness, no one has a crystal ball, especially when it comes to financial markets. Not even the CEO of Goldman Sachs.
But if these guys are telling the world that the market is overheated, you can probably imagine they’ve already started selling.