Goldman Sachs, Richard Posner and Republicans Get Slapped
Two of the worst people in the world, The Goldman Sachs Group, Inc., a corporate person, and Richard Posner, a human person, got slapped around this week. On Friday, Goldman Sachs reported its third quarter results, which were prettied up by slashing compensation. And something I’ve never seen before, a lawyer had the temerity to stand up to abuse from a federal appellate judge, Richard Posner. Of course, these aren’t at the level of the NYT headline: Republicans Back Down, Ending Crisis Over Shutdown and Debt Limit. Still, they may provide a hint of the changes underway in our society at the highest levels.
Goldman Sachs drew ugly reviews from analysts, according to the New York Times Dealbook writers, Susanne Craig and Peter Eavis:
The weakness in [the fixed-income, currency and commodities] division has led to renewed concerns from analysts and investors about the headwinds that Goldman and other banks are facing in big money-producing areas like the trading of interest rate products and currencies. There is some concern that the pull back is not short term and could be the new normal.
Wouldn’t that be good news? Lloyd Blankfein, Goldman Sachs CEO, told us that the company does God’s work, by which he must have meant that the Almighty loves money traders. It’s been obvious since forever that the company is just a bunch of dollar clippers, making money by taking a cut of thousands of trades, with capital allocation as a neglected afterthought. And on top of not making money at overcharging customers in currency and derivative transactions, the company’s revenues from investment banking improved with several initial public offerings, which is the capital allocation part of the business. Hint?
The company saved itself from having to show lower profits in a shocking way: it cut compensation by 35% over the level of the third quarter of 2012. That puts the yearly accrual at $544 million less than last year on increased revenues. Hiring was up a bit, which is more good news, because it means the bonus pool will be diluted. Expect an exodus of baby Galts.
The Posner story begins with another admission by the soi-disant public intellectual that he got something wrong. Posner says maybe he was wrong in upholding Indiana’s photo-ID requirement for voting. His majority opinion that there was no evidence that the requirement would limit voting, but Posner says this was a failure of the lawyer for the plaintiffs. That lawyer, Paul Smith of Jenner and Block, wrote a brief response in the ACSblog debunking Posner’s effort to shift blame.
Smith points to the evidence of unfair disparate burdens on the poor, the old and the sick. Posner recognized this evidence, saying that the law would likely increase the share of the voting population that is Republican at the expense of Democratic voters. That’s not a problem, said Posner, because of the fig leaf of “voter fraud”.
How many impersonations there are we do not know, but the plaintiffs have not shown that there are fewer impersonations than there are eligible voters whom the new law will prevent from voting.
According to Smith:
Moreover, the district court had conservatively estimated that there were 43,000 voting-age Indianans without a state-issued driver’s license or identification card, and that nearly three-quarters of them were in Marion County, which includes Indianapolis.
There has never been a single case of voter fraud in Indiana. Posner’s majority opinion assumes that none of these 43,000 people will be stopped from voting because they don’t have a photo ID. If even one was barred, it would meet his test. It takes a lot for a lawyer to call out a judge. Good for Smith.
In 1985, Posner wrote an article for the Columbia Law Review, An Economic Theory of the Criminal Law, in which he said:
This means that the criminal law is designed primarily for the nonaffluent; the affluent are kept in line, for the most part, by tort law. This may seem to be a left-wing kind of suggestion (“criminal law keeps the lid on the lower classes”), but it is not. It is efficient to use different sanctions depending on an offender’s wealth. P. 1204-5, fn omitted.
I have no idea why he thinks keeping a lid on the lower classes is a left-wing idea, but I am quite certain that the affluent are not kept in line by the tort law, or any other law, for that matter. The evidence that the rich lie, cheat and steal with impunity is widespread, from the failure to prosecute a single Wall Street executive to the meaningless fines levied instead of prison sentences. The courts do less and less, as Floyd Norris mentions in the NYT ?ref=todayspaper:
There are two ways to look at many types of civil litigation. Is the plaintiff’s lawyer seeking to defend the rights of his client, and perhaps those in similar situations? Or is the lawyer abusing the process in the hope of forcing a settlement out of a company that prefers to avoid the costs of litigation?
In recent years, it is the latter view that has tended to prevail, in the Supreme Court and, to some extent, in Congress. In the 1990s, it became harder to bring a class-action suit alleging securities fraud. Court decisions and a law passed in 1995 made it much easier for defendants to have cases dismissed before the plaintiff could gather any evidence from the defendant. And the court ruled that only the government — not a fraud victim — could file suit for aiding and abetting a fraud.
In a number of states, medical malpractice cases, which are bitterly resented by physicians and hospitals, have become harder to prove and harder to win.
This trend was underway in the mid-80s when Posner produced his factually wrong article. And Norris’ bit about abusing the courts to extract settlements? That sounds exactly as real as voter fraud, one of those focus-group tested injections of neoliberal garbage into the public discourse to confuse and distort, and produce outcomes favorable to the rich. The soi-disant public intellectual bites twice on neoliberal trumpery.
People like Smith and Norris, and even the market itself, are delivering blows to the neoliberal consensus about market fundamentalism. In the long run, that is just as important as the news of the day about the Republican defeat.