For reading the current financial tea leaves, the week’s most important event was Goldman Sachs’ announcement that it will devote $500 million to loans for small businesses and other good works. This noblesse oblige underscores just how much money Goldman has been raking in, in part thanks to the government’s bailouts.
The early reports have speculated that Goldman is trying to repair its reputation with the American people, to curry favor with Main Street. I think this is partly right, but that the real audience is government. Goldman’s decision seems to reflect a conclusion by the smartest bank on Wall Street that keeping the government happy is going to be the most important factor in business success in the coming years, even after the crisis is fully behind us. I suspect a lot of other banks and businesses will follow Goldman’s cue. Many of these measures may be quite desirable in themselves, but it can’t be a good thing if everyone’s principal focus is keeping government overseers happy.