Memo to Goldman Sachs Clients: Quit Blubbering Over Facebook Snub
Goldman Sachs' (GS) U.S. clients who were shut out of Facebook's private placement have learned an invaluable lesson: Big investment banks don't need them. At least not as much as before globalization spawned a growing class of investors around the world with money to burn.
Naturally, Goldman "regrets" the snub. More plausibly, the company has good reason for not waving a red cape at the SEC given how the Facebook deal already skirts federal disclosure rules. But the episode also shows how the financial industry, like other areas of American business, is increasingly detached from its home market. Whatever flags they fly, Wall Street banks operate in a largely borderless world. From that perspective, fees paid by foreign investors are just as good for the bottom line (and the bonus) as those generated stateside.
Goldman vs. the U.S.: A long story
And why should Goldman preoccupy itself with the home front? For one thing, it's not like the firm's clients don't know the score. One customer groused that the "whole thing has left a bad taste in my mouth." And Goldman's conspiring with hedge fund manager John Paulson to short the housing market at the expense of other clients didn't? How about the firm scattering auction-rate securities around the country like poisonous seed -- what did that taste like, caviar?
For another, this is the deregulated world as we've made it. Leveling barriers to global competition and financial markets, coupled with technological advances, means big companies are transnational. Their market is the world. Isn't that what Goldman's well-heeled clients and their ilk always wanted? Sure seems that way, given that anyone inclined to question that arrangement tends to be written off as a frumpy protectionist, union stooge or anti-globalization long-hair.
So this is part of the deal. If you're in the business of, say, syndicating loans to corporate borrowers or lining up shares for the next hot IPO, a client's nationality matters little. (An aside -- despite the hubbub over it spurning U.S. investors, Goldman can claim to be doing "God's work" by raising money for an important American company.)
The Washington Consensus: Alive and well
It's also worth noting that in recent decades the U.S. government, Republicans and Democrats alike, have encouraged this state of affairs. That's because Wall Street, besides filling up lawmakers' campaign coffers, increasingly serves as a lever of national power, a trend accelerated by increasing industry consolidation since the 1990s. If firms like Goldman are left free to roam the earth, that is above all a political, not economic, choice. And clearly, judging from President Obama's tapping former JPMorgan Chase (JPM) fixer Bill Daley as his new chief of staff, the Washington Consensus is alive and well.
These developments aren't exactly new. Wall Street banks have long set up offices around the world where their U.S. customers did business. What's changing is that the rapid emergence of foreign companies, investors and other clients makes those banks less and less dependent on the domestic economy.
This pattern is visible across the corporate sector. Consider this -- even as the American economy continues to struggle, 96 percent of the top 500 U.S. companies turned a profit last year, while the stock market has roared back following the financial crisis. One reason is that these enterprises earned roughly 47 percent of their revenue overseas. Not surprisingly, that's also where they are hiring. American companies in 2010 created 1.4 million jobs abroad, compared with less than 1 million in the U.S., according to the Economic Policy Institute, a Washington think tank.
The Atlantic's Chrystia Freeland recently described how this new business landscape is changing the mentality of corporate executives:
The U.S.-based CEO of one of the world's largest hedge funds told me that his firm's investment committee often discusses the question of who wins and who loses in today's economy. In a recent internal debate, he said, one of his senior colleagues had argued that the hollowing-out of the American middle class didn't really matter. "His point was that if the transformation of the world economy lifts four people in China and India out of poverty and into the middle class, and meanwhile means one American drops out of the middle class, that's not such a bad trade," the CEO recalled.Echoing this line last year at the aptly named Aspen Ideas Festival, Allstate (ALL) CEO Thomas Wilson was blunter still in discussing the growing disconnect between the interests of U.S. corporations and those of communities and employees. He told Freeland:
"I can get [workers] anywhere in the world. It is a problem for America, but it is not necessarily a problem for American business -- American businesses will adapt."There's an idea for you. Similarly, Goldman can increasingly get investors anywhere in the world. It, too, is adapting.
Images from morgueFile
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