Friday, February 12, 2010

Polonius vs. Goldman Sachs, with a note on oligarchy

"Neither a borrower nor a lender be."
Polonius, in Hamlet I.iii

That old blowhard Polonius -- does anyone pay much attention to him? Certainly Hamlet didn't, if memory serves. And Goldman Sachs, among others, isn't. One way Goldman has managed to post record profits recently is by borrowing and lending the federal government's money, as Paul Solman's reporting on the NewsHour this evening made crystal clear. As a bank holding company, Goldman borrows from the Fed at extremely low interest rates (a fraction of one percent), then loans the money back to the government by buying Treasury bills, which pay, say, 3 1/2 percent. Result? Big profits, big bonuses...and a sense among those hearing this that, hey, wait a minute, this just doesn't seem right. One hedge fund manager, not connected to Goldman Sachs, told Solman that the solution was either to raise interest rates or pass a lot of new laws and regulations "as thick as a phone book." Given what seems to be occurring, I think the right phone book might not be unwelcome just about now. But don't hold your breath.

Not long ago, one of the political science journals carried a piece called "Oligarchy in the United States?"* I haven't read it, but here's a sentence from the abstract: "Data on the US distributions of income and wealth are used to construct several Material Power Indices, which suggest that the wealthiest Americans may exert vastly greater political influence than average citizens and that a very small group of the wealthiest (perhaps the top tenth of 1 percent) may have sufficient power to dominate policy in certain key areas."

To paraphrase Claude Rains in Casablanca: I'm shocked, shocked to find oligarchy going on here.
Or Rains as an appropriately cautious academic: I'm shocked to find that oligarchy may be going on here.
*Jeffrey A. Winters and Benjamin I. Page, "Oligarchy in the United States?," Perspectives on Politics (December 2009), pp.731-751.

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