business school world

We definitely need more articles implicating specific bankers for irresponsible behavior, and the NY Times does an admirable job in this piece nailing Goldman Sachs (as well as JPMorgan) for its role in the Greek fiasco which may eventually derail any hopes of a full recovery.  I hope that Mr. Gary Cohn of Goldman has had a very miserable weekend, having friends and family read about his near criminal behavior.
 
But let's not forget why Goldman involved itself in the financial chicanery to help Greece defer responsibility:  because if they hadn't, the Greek government could have found someone else who would.  In this specific instance, the Greek authorities actually showed restraint, deciding not to pursue the proposal in this once instance.
 
As always, it comes down to the short sighted, myopic nature of people with too much power.  So, much like bankers and real estate agents churning out subprime mortgages, you had a number of Greek officials toying with financial tools they did not understand to defer payments on current spending and with bankers too willing to help.  This problem, of course, goes well beyond Greece, as noticed by anyone who lives in a country that has a government.
 
What we really need is a system that vests elected officials to their governments in the same manner that people are eager to hold bankers more responsible for the long term health of their companies.  So, if you leave office and in ten years time your country defaults on its debt, for example, well...you and your family get no pension.
 
Likewise, what we need to do is publicly implicate both the government officials and the bankers, the cheaters and those who helped them cheat, if you will, in public forums.  (And yes, when you design financial derivatives to exploit loopholes so countries can keep spending freely without any oversight, as these derivatvies did, that is cheating!)  Apparently, the German press is doing a good job of disclosing this type of behavior.  If Greece does end up in collapse, bringing Europe and the rest of the world with it, I think the names of the bankers involved would be very useful to have for when the torch carrying mobs start forming.

Today, the President went to New Hampshire to discuss small business.  He talked about providing them with loans from a large federal fund and about giving them tax credits for hiring new employees.  Of course, the former is only useful if there are any decent projects to invest in, and the latter only makes sense if the business is making income on which it pays taxes.  That said, of all the community investment initiatives out there, these are pretty solid ideas.  I mean, there have to be some small businesses who are making money and who want to grow, right?  Right?!
 
Anyway, what caught my eye was a proposal that Obama had also mentioned in the State of the Union:  cutting capital gains taxes on small business investment.  This sounds nice, of course, until you think a little.  Who invests in small businesses?  Community banks? No, they generally provide them with term loans, not equity.  Friends and family?  A little, but usually informally, and with no real consideration to their eventual tax burden on capital gains.  The government?  Well, clearly, they don't pay taxes.
 
No, the only entities that really invest in small businesses are private equity and venture capital firms.  Which is fine...until you realize that private equity people really are just bankers in disguise!  Which means, this is all just another bailout for more bankers!  Those dastardly con artists.  Even when you think you're pushing them aside, they're standing right in front of you.
 
In all seriousness, this may prove to be a pretty effective investment tool.  Projects and companies that may not have been worth the series investment of a VC fund may become so with a tax cut in place.  This helps entrepreneurs.  Sadly, it also helps bankers - which means it could blow up in the administration's face once someone at Kleiner Perkins lets the cat out of the bag.