Paul's World

It has not yet been declared a “tier one financial holding company” – a systemically important institution that the Fed is supposed to watch over carefully – but that is a foregone conclusion.

The US government wants to create a resolution regime that would permit even such banks to fail in an orderly fashion, but it suffers from a credibility problem in Goldman’s case. Few people believe that it would actually go through with dismantling the most powerful financial institution of all.

Not only is it reasonable to suspect that Goldman, which has entwined itself with governments around the world by sending partners out into “public service” when they leave, would not be allowed to fail by its alumnae network, but the bail-out was prima facie evidence.

Thus, at the heart of the financial system, now sits a professionals-only, high-risk Wall Street firm with its own private equity and hedge funds arrayed on top of a nonpareil corporate and government client list, which taxpayers reasonably assume is gambling with their money.