Goldman Sachs cleans up on the second Great Depression

In the midst of the worst global economic contraction in 60 years, Wall Street investment banks are thriving

Published June 22, 2009 4:03PM (EDT)

The World Bank predicts that global economic growth will decline by 2.9 percent in 2009. That's the worst year for the global economy since at least World War II. As measured by a comprehensive set of indicators, the global economy is on pace, so far, with the outset of the Great Depression.

Goldman Sachs, however, is expecting 2009 to be the most profitable year in its 140-year history, reports the Guardian. As a result, Goldman staffers are salivating at huge bonus payments -- their biggest ever. (And reason enough that Goldman was in such a big hurry to pay back its $10 billion of TARP bailout money.)

The irony is that overall revenues in the banking and securities industries have fallen significantly in the last few years, but the collapse of Bear-Stearns and Lehman, along with the merger of Merrill Lynch and Bank of America, means fewer companies are dividing up the spoils.

Also good for Goldman: Big government deficits. The more bonds the U.S. Treasury has to sell to fund government operations, the more money Goldman makes as one of the prime brokers authorized to bid for those bonds.

David Williams, an investment banking analyst at Fox Pitt Kelton, said: "This year is shaping up to be the best year ever for investment banks, or at least those that have emerged relatively unscathed from the credit crisis.

"These banks are intermediaries in the bond markets where governments and companies are raising billions of pounds of new money. There is also a lack of competition that means they can charge huge sums for doing business."

Last week, the firm predicted that President Barack Obama's government could issue $3.25tn of debt before September, almost four times last year's sum. Goldman, a prime broker of US government bonds, is expected to make hundreds of millions of dollars in profits from selling and dealing in the bonds.

What does it say about our system of economic organization that a devastating global economic contraction, complete with levels of unemployment not witnessed in decades and major industries collapsing, while states like California face bankruptcy, is turning out to be "the best year ever" for investment banks, who played such a large role in precipitating this second great depression in the making?

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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