Is the Wall Street Casino Closing?
In a powerful sign of tough times for the casino business, Wall Street powerhouse Goldman Sachs is actually going to use their bank charter to do what banks do – expand loans. According to the Wall Street Journal Goldman is planning to substantially increase their lending arm:
“Goldman Sachs Group Inc. is building an in-house bank to lend money to wealthy people and companies, in a significant shift that underlines the harsh business climate facing Wall Street since the financial crisis.
The New York securities firm, known for its aggressive trading and big corporate deal-making, is ramping up its activities to become a private bank to serve wealthy customers around the world. The new unit will also lend more directly to corporations, some of whom already make investments and do business with Goldman. Executives have set a goal of $100 billion in loans, up from $12 billion …”
There was a time when banking was a relatively simple business, but what these companies have morphed into has made the business infinitely more complex and an increasing risk to the financial system. I’m certainly not against private banking, but I am skeptical of this idea that it’s good for the health of our banking system (really our payments system) to be so directly tied to these companies who now derive so much of their income from gambling related business streams. Of course, I don’t have an issue with gambling (I love a trip to Vegas as much as the next guy), but when we’re threatening the stability of the entire payments system just so these companies can expand the bottom line and increase shareholder value then you have to start wondering if something isn’t wrong with the system. I won’t say that this move by Goldman is a sign that we’re moving in the right direction, but one can hope….
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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10 Comments
The casino is open for business and business is certain to boom and bust in the coming years.
Cullen have you read “A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation” by Richard Bookstaber?
Great read.
What’s your game, Cullen?
Black jack.
that’s the best game in Vegas
Craps is the best game.. especially on a table full of comradery (when things are going well!)
Too much group think going on. There’s no such thing as a “hot hand”. The only game that gives the player any quantifiable edge is black jack when played right. But more often than not you’re just there for the free drinks and the people watching anyhow so all the games end up pretty much the same. I guess the good thing about craps is you get to meet some interesting people.
Vegas is not built upon winners. Plus money is too hard to throw it away gambling (as a student I might be biased). I’d rather stick to bonds, Forex, and futures where I have at least some sort of edge.
I don’t think Cullen is implying that this turn is a bad one, quite the opposite. When refering to GS/and other such ‘banks” as casinos, he is referring to the prop trading/speculating and types of things that can negatively reverberate throughout the economy & banking system- that is to say; specifically not these types of traditional banking actions.
That is my read of this.
And the real story here will be how they use this fresh AAA collateral base…