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Doing Good Work

Criticism of Goldman Sachs is overdone.

Capital Beat Blog

The appearance of police barricades and bomb-sniffing dogs at Goldman Sach’s 85 Broad headquarters in New York City last week is a warning that bank-bashing - with Goldman as a favorite target - may be going too far. In fact, it serves as a reminder that we would be better off with Goldman than without it.

The public anger toward banks and bankers is well-deserved. For a bank CEO like ex-Citi chieftain Chuck Prince to walk away with $30 million while taxpayers clean up the mess is outrageous, as Warren Buffett points out in a recent CNBC interview. And, it is galling to see bankers receive millions in bonuses when one out of ten Americans can’t even get a paycheck.

But of all the banks that received TARP funds, Goldman hardly deserves the most blame. It was not a big player in mortgage-backed securities or asset-backed securities, or even collateralized debt obligations. In 2006-2008, Goldman’s underwriting volume was lower than those of J.P. Morgan, Citi and Merrill Lynch.

In any event, Goldman’s and the other banks’ underwritings were driven by strong demand. They did not create securities and force them down investors’ throat. Perhaps overweight consumers have some right to blame McDonald’s for their obesity, but sophisticated institutional investors have less an excuse for their behavior.

Moreoever, does Goldman’s short position in MBS mean that it should not underwrite them? Banks’ various divisions frequently contradict one another. A merger banker might advise a client to do a deal even as an analyst at the same bank writes a report slamming it. The trading desk might buy a future’s contract that effectively bets against the forecast of their economists. Given the scope of banks’ businesses today, it is almost impossible to avoid such conflicts.

And, even if Goldman were to exit the MBS underwriting business, other competitors would quickly fill the void.

Take a step back, Goldman fuels the engine of capitalism by providing the capital for companies to grow and hire workers. Since 2005, Goldman has underwritten $1.4 trillion of debt and $346 billion of equity, along with advising on mergers, acquisitions, divestitures and spinoffs worth some $4.5 trillion, according to Dealogic.

Goldman’s post-crisis success further vindicates it. Institutional investors are still counting on the firm for trading, capital-raising and sensible market advice. Goldman does a superb job at those vital functions. For that it should not be despised. Indeed it should be admired.

Xiang Ji (Nina) is the capital markets reporter at Institutional Investor, covering mergers and acquisitions, debt and capital markets from an institutional investor’s perspective. Xiang Ji was formerly with BusinessWeek in China covering the wider business world. Send email to

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