The unfolding events for Goldman Sachs exemplifies the grotesque trading culture that has invaded our banking system. Its probably better suited to generalize the behavior by calling the responsibles traders as opposed to bankers.
You see, the banking function is supposed to allocate capital from savers to investors (look for best uses). In doing that, it performs a key function in society and in the economy - providing the funds that ultimately fuel our economic growth. That function if combined by agents who are aligned with their shareholders (i.e. management who is aligned with its shareholders), can never be speculative in itself, because the future of the firm depends on its investment decisions. Clients become sacred, and the reputation of the firm is its most important asset to maintain its going concern value.
In the trading culture that has invaded Wall Street through periods of excess, the agent as a trustee of its shareholders has broken down, and thus the clients also lose value. Its a fee-based culture, buyer beware culture that would lend itself to excesses, bubbles and busts.
When "traders" are motivated by the turnover of transactions (because that's what generates fees) as opposed to their end result, and when the short-term gains are greater than the lost trust from their clients down the road, human greed will lead to situations in which there are a few fee-based unscrupulous winners, and a lot of losers (usually society as a whole, as an example - the current housing bubble).
Furthermore, this behavior doesn't add any value to society. The synthetic securities that were created didn't add anything to society - they didn't provide any funding to new industries or companies - they simply were financial creations that allow a double-sided bet. The bad part is that in these creations there is usually one side that has full information, whereas the other side is "searched for" in any corner around the world (even if they are accredited investors). These securities didn't really have a reason to exist other than making some fully informed parties very rich, and providing very good returns for their fee-based bankers in the middle. That industry grew to a size it should have never grown.
Another example of the fee-based, buyer beware culture that permeates every bubble (with a lot of fee-based middle men in the middle), we can also simplify the housing bubble. The allocation of capital to buy homes went from a simple party to party transaction (bank to borrower) to one in which there could be up to X layers in between the actual lender and a borrower (the transaction was essentially created by the middlemen, otherwise it would not have happened). Lets assume a future borrower was looking for a home and is enticed into buying a bigger home (with a bad loan) by a mortage broker (middlemen #1 - who collect a fee if a loan is made), who then connects that borrower to a bank (mmen#2 - who collects a fee for selling that loan to a Wall Street bank, only way they make the loan), who then sells the loan to Wall Street (mmen #3 - who collects a fee for packaging a lot of these loans), who then sells the loan to the end investor (in some cases, who never had full information about how loan was made). There could be examples of other transactions with even more middlemen (conduits that take loans from smaller banks to wall street, etc). We could keep on writing - like writing about the ratings agencies and how they were paid by wall street, providing clear conflicts of interest in their ratings.
The point is that whenever there are a lot of middlemen in the financial industry and its combined with perverse (and large) fee-based incentives, thats trouble brewing for the economy and society. In the housing industry, in the stock market, in the bond market, in the sovereign market you name it.
A lot of the profits that have been made by the financial industry in the past decade are not tied to real economic growth, but, rather to the bad intermediation that usually resembled gambling.
Its time we focus on those elements of the financial industry that help fuel real and sustainable economic growth in society. The % of profits that the financial industry takes should hold relevance to the economic output of that country. Whenever it gets out of whack, its probably that some danger is brewing - they are getting their profits from promoting gambling behavior outside of their basic function of channeling funds from savers to investors.
