Tuesday, November 24, 2009

Charitable Giving

"Guess what? I have flaws. What are they? Oh I dunno, I sing in the shower? Sometimes I spend too much time volunteering. Occasionally I'll hit somebody with my car. So sue me—no, don't sue me. That is opposite the point I'm trying to make."

"Do I need to be liked? Absolutely not. I like to be liked. I enjoy being liked. I have to be liked. But it's not like this, compulsive, need, to be liked. Like my need to be praised."

— Michael Scott, The Office

In an otherwise less than sympathetic piece on the public relations travails of the Vampire Squid everybody loves to hate, Financial Times journalist Chrystia Freeland credits the investment bank's recently announced 10,000 Small Businesses initiative as "cleverly conceived" and "designed for maximum effect." I have to disagree.

Like many of you, I am sure, I was impressed when I heard Goldman was going to donate $500 million to a myriad of small businesses, which are widely perceived to be the primary engines of job creation in our economy. Oh goody, I thought: half a billion bucks mainlined into the veins of those businesses best able to kick start the economy back into rude health. What a coup.

Then I read the blasted thing. It is not pretty. Sixty percent of the committed funds will be distributed for "lending and philanthropic support," but this will be directed through "Community Development Financial Institutions." Call me a skeptic, but this does not sound like high powered money coursing directly into the working capital accounts of productive enterprises which can use it. Instead, it sounds like a $300 million slush fund for the functional equivalent of community NGOs. The remaining forty percent—200 million clams—will go toward "education."

Oh great, Lloyd, that's just what every small businessman needs: an education. After all, everybody knows what the owner of a chain of dry cleaners or a machine tool factory really needs is "scholarships," greater "educational capacity," and mentoring by some half-assed social worker out of an abandoned storefront. Why stop there, though? Why not endow a hundred spots at Harvard Business School in perpetuity so Hmong immigrants can learn to apply CAPM and discounted cash flow analysis to their corner delicatessens? 1

Either that, or you could pull your head out of your ass and actually lend some money to these guys instead. Heck, set up a small business lender with half a billion in capital, lever it up ten to one, and loan five billion dollars out to struggling small businesses. You might actually spur some real economic growth, rather than employing an army of aspiring bureaucrats to fill out scholarship applications in triplicate. Plus, you might finally earn some respect from a country which suspects you and your peers are constitutionally incapable of taking a crap without consulting the Harvard Business Review or the McKinsey Handbook of Corporate Obfuscation for instructions. 2

This idea scales attractively, too: Put in a billion of equity, and loan out ten billion, and people might even stop whispering disparaging remarks about the size of your junk in the corridors of Capitol Hill. Now there's a return on capital.

* * *

On the other hand, given that you run an investment bank, if you want to raise some serious money for charity, you could always open a Swear Jar. Just make sure it's big enough.

1 Well, okay, that was a cheap shot. You and I both know doing any such thing would destroy the exclusivity and aura of an HBS education, which would be a societal catastrophe too terrible to contemplate. (Not to mention wasting two years out of the lives of otherwise productive elements of the economy.) Just kidding, bro.
2 I mean really, who comes up with this shit? I know you couldn't give a damn about tiny ass businesses which will never grow large enough to become paying customers of your firm, but you are theoretically announcing this program for public effect, no? Why not make it clear, simple, and understandable, instead of a convoluted, bureaucratic mess apparently derived from some EU functionary's wet dream? Bank? Lending? Ring a bell?

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