Goldman Sachs (GS) has been active in the auto industry of late, not always in the most obvious ways. It got pissy about failing to be the lead underwriter for General Motors' (GM) 2010 IPO and more recently assisted Chrysler in issuing some high-interest new debt to pay off government loans. But where it's really been doing its worst is in the oil game.
As BNET's Alain Sherter has pointed out, Goldman has been surfing the commodities market like Laird Hamilton. First it called a top and advocated a shorting strategy, but now it's reversed and gone long -- just as everyday rube macroeconomists were beginning to think that an anticipated spike in summer gas prices, driven by oil speculation, wouldn't happen after all.
Why this is bad for the auto industry... and the economy
Goldman's services on behalf of the financial side of the car business are necessary and, if you're of a traditionalist temperament, evidence of what the investment bank used to be good at -- advising companies about how to access the manifold glories of financial capitalism.
Trading in a commodities bubble is another story. This is where the predatory, vampire-squid Goldman enters the picture. Okay, higher gas prices -- if that's indeed what we're to have this summer -- will help the resurgent U.S. carmakers to solidify their efforts to build and sell more fuel-efficient vehicles.
But the Detroit Big Three aren't really out of the woods yet. A real collapse of the commodities bubble would be helpful to them. And oil is only a part of it. Lower materials costs would also enable them to avoid raising prices any more than they have already.
Wall Street vs. Motown
A potentially serious rift between the U.S. industrial heartland and its capital sources on Wall Street is beginning to emerge. (Actually, it's been there for a while, but both sides made nice after Wall Street nearly killed the auto industry.) Chrysler CEO Sergio Marchionne can't be ecstatic about the steep terms on the debt that Chrysler has just issued, nor can GM CEO Dan Akerson be giddy about Wall Street's reluctance to acknowledge the company's profitability while keeping its post-IPO share prices depressed.
But maybe they don't care. It's becoming clear even after the near-obliteration of the global economy that the trading interests of banks like Goldman are often completely disconnected from their role in making capital available to companies so that they can, you know, make stuff and sell it to people, not incidentally creating jobs in the process.
It's enough to make you a Marxist
Every day, it seems, some new tale of Goldman et al. engaging in some enraging practice emerges. I've done my best to ignore it all, figuring that it's silly to expect i-banking to return to its old partnership mode -- when it sought to empower the U.S. economy -- instead of wildly chasing profits in international-market mood swings.
Should we care that as Goldman flips from short to long on oil that it also goes long on inflation-hedging gold, knowing full well that pricier oil mean pricer food, even if neither of those categories are counted in the U.S. inflation data?
Why bother? Better to become a Marxist, focusing on how the productive aspects of the U.S. economy are taking us out the recession and pointing toward a future in which stable jobs bolster the beleaguered middle class -- while decrying the predatory nature of Kapital and its courtiers.
So get ready to pay more for gas this summer. And if you're mad about it, buy a new car. Because the people who built it are on your side.
- About Face! Goldman Sachs Goes From Bearish to Bullish on Oil
- Priming the Pump: How Wall Street Boosts Gas Prices
- Chrysler's Refinancing: No, It's Not (Really) Revenge of the Bondholders
- Auto Rebirth: Detroit Is Leading an Industrial Renaissance, but There's More Work to Do
- GM CEO: Carmakers Didn't Learn Nuthin' From Last Gas Crunch
- Turbulence Ahead: GM Is On a Roll, but Skeptics Are Hanging Tough