Goldman Sachs steps back from casino banking

The Vampire Squid launches a private bank for wealthy clients

Liz Rappaport, the Wall Street Journal:

Goldman Sachs is building an in-house bank to lend money to wealthy people and companies, in a significant shift that underlines the harsh business climate facing Wall Street since the financial crisis.

The New York securities firm, known for its aggressive trading and big corporate deal-making, is ramping up its activities to become a private bank to serve wealthy customers around the world. The new unit will also lend more directly to corporations, some of whom already make investments and do business with Goldman. Executives have set a goal of $100 billion in loans, up from $12 billion at the end of March.

Ever since the financial crisis, so-called "casino banking" has been a very unpopular area to be in. The actual practice itself was frequently condemened, for causing unsustainable booms in food and oil prices, as well as leading to the sort of attitude which caused the crash, where complex financial instruments were traded with little regard to fundamentals causing spiralling valuations which eventually got out of control.

But as well as casino banking being unpopular for what it is, it's unpopular for its relationship to regular banking. The idea is similar to that of "too big to fail", but the fear is that casino banks which also take consumer deposits are thus underwritten by the taxpayer, in the form of deposit insurance. It is for this reason that there are calls, in both Britain and the US, to split the former from the latter, or to allow banks to gamble, but not with customers' money. This latter requirement, the Volcker Rule, is what JP Morgan is suspected to have been bending in their disastrous "London Whale" trade.

Goldman Sachs' private bank is unlikely to fall on the retail side of any such divide, however. It's customers' deposits will be well in excess of the amount covered by insurance, so there will be little incentive for it to hamstring its activities. But its a long way to go to rehabilitate the Vampire Squid.

A vampire squid.

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Jeremy Corbyn challenged by Labour MPs to sack Ken Livingstone from defence review

Former mayor of London criticised at PLP meeting over comments on 7 July bombings. 

After Jeremy Corbyn's decision to give Labour MPs a free vote over air strikes in Syria, tonight's Parliamentary Labour Party (PLP) meeting was less fractious than it could have been. But one grandee was still moved to declare that the "ferocity" of the attacks on the leader made it the most "uplifting" he had attended.

Margaret Beckett, the former foreign secretary, told the meeting: "We cannot unite the party if the leader's office is determined to divide us." Several MPs said afterwards that many of those who shared Corbyn's opposition to air strikes believed he had mishandled the process by appealing to MPs over the heads of the shadow cabinet and then to members. David Winnick declared that those who favoured military action faced a "shakedown" and deselection by Momentum activists. "It is completely unacceptable. They are a party within a party," he said of the Corbyn-aligned group. The "huge applause" for Hilary Benn, who favours intervention, far outweighed that for the leader, I'm told. 

There was also loud agreement when Jack Dromey condemned Ken Livingstone for blaming Tony Blair's invasion of Iraq for the 7 July 2005 bombings. Along with Angela Smith MP, Dromey demanded that Livingstone be sacked as the co-chair of Labour's defence review. Significantly, Benn said aftewards that he agreed with every word Dromey had said. Corbyn's office has previously said that it is up to the NEC, not the leader, whether the former London mayor holds the position. In reference to 7 July, an aide repeated Corbyn's statement that he preferred to "remember the brilliant words Ken used after 7/7". 

As on previous occasions, MPs complained that the leader failed to answer the questions that were put to him. A shadow minister told me that he "dodged" one on whether he believed the UK should end air strikes against Isis in Iraq. In reference to Syria, a Corbyn aide said afterwards that "There was significant support for the leader. There was a wide debate, with people speaking on both sides of the arguments." After David Cameron's decision to call a vote on air strikes for Wednesday, leaving only a day for debate, the number of Labour MPs backing intervention is likely to fall. One shadow minister told me that as few as 40-50 may back the government, though most expect the total to be closer to the original figure of 99. 

At the end of another remarkable day in Labour's history, a Corbyn aide concluded: "It was always going to be a bumpy ride when you have a leader who was elected by a large number outside parliament but whose support in the PLP is quite limited. There are a small number who find it hard to come to terms with that result."

George Eaton is political editor of the New Statesman.