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March 19, 2012


Muppet budgets

Nicole Gelinas

U.K. Prime Minister David Cameron and New York Mayor Mike Bloomberg paid separate visits to Goldman Sachs chief Lloyd Blankfein in New York last week. The visits highlight a big risk to both Britain and New York’s recoveries. Top leaders of both Britain and New York cannot imagine Wall Street or the City shrinking permanently.

The visits may have seemed odd. They came just days after a top Goldman employee, Greg Smith, had quit. Smith said the bank was “toxic and destructive.” Goldman, he says, thinks of its clients as “Muppets” to be manipulated for money.

Maybe true; maybe not. All companies have unhappy workers. Yet either way, Goldman is hardly popular with those other Muppets, the voters. Both politicians risk public anger in being seen with Blankfein. So why did they do it?

Bloomberg said it best: “it’s my job to stand up and support companies that are here in this city that bring us a tax base.” Bloomberg cannot conceive of Goldman doing poorly, and bringing in less tax to New York.

Likewise, Cameron is in awe of Goldman’s power, or he would have asked Blankfein to stay away from the PM’s meeting with top Wall Street execs.

Of course, it is good for both New York and Britain for Goldman to do well. Both places are heavily dependent on the investment industry for money and jobs.

But both men have to consider the possibility that Wall Street and the City won’t be as profitable as they once were. Banks’ business mis-steps — plus bad regulation as government mis-steps in response to those mis-steps – may have damaged the financial industry. The damage won’t last forever, but it could last for a long time.

Hoping that Lloyd Blankfein can save himself and the City may only be natural for the top leaders – and it may work out in the end. But it may not.

The Blankfein visits show that Cameron and Bloomberg don’t get that risk yet. As they do their budgets, both men harbor secret hopes that the City and Wall Street will be back to rescue them from deficits – and voters should remember that.

It’s as if you know you can’t pay your mortgage, but expect a rich uncle who has left town to come back and save you. You’re not really serious about your spending cuts until you really believe he may not come back.

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1 Comment »

  1. Revenue and expenses, taxes and payroll, fees and costs. No matter how general or specific the example, there are two sides to the equation. Estimating either side is not a science. It would seem easier to estimate expenditures by correlating contractual obligations of all types. Estimating revenue on the other hand is dependent upon hundreds if not thousands of variables over which government has little or no control.

    Sure we can periodically readjust our estimates of both expenses and revenue but there is little we can do to increase revenue other than raising taxes and fees. As much as we would like to run government by employing business principles government is not a business. The consumers of services do not all pay the same amount for those services. Also, the consumption of services has no relation to the contribution made to pay for them.

    For the most part the services provided by government are not chosen by citizens from a menu. We all use some services but not all use every service provided. The quantitiy and quality of each service is dictated by the budget process as implemented by the executive and legistative branches. Government can never hope to turn a profit and shouldn’t. The mere idea of a surplus at this point in history seems alien. It is the obligation of government to be efficient and to avoid fraud and waste. Making the necessary adjustments to fiscal policy and fine tuning the size and deployment of the workforce is the true art. Counting on that rich uncle to return, not a strategy. Encouraging him to stay here, well worth the effort.

    Comment by Joe Farneti — March 23, 2012 @ 11:08 am

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