Shares Goldman Sachs (NYSE: GS) are still 20-plus percent off of their recent lows.



Chart Courtesy of StockCharts.com

We've asked this before, but it's worth asking again. Is Goldman Sachs still a bellwether for the U.S. stock market? If it is, then the bulls should be wary of the current market. If it's not, then everyone should be worried, as the government has broken the back of a major institution whose ability to create wealth was unparalleled.

Warts and all, Goldman is a key cog in the global economy. No excuses, Goldman did some bad things during the subprime mortgage bubble, and their actions contributed to the current economic situation. Yet, Goldman was also a key cog in the capital formation machine that prods Capitalism forward. And if that function has been hampered to any significant degree, it's a very bad situation.

Think of it this way. If Goldman is effective neutered, then there are few insitutions at this point that can wield the kind of deal making, and IPO gendering muscle that Goldman could at its peak. That means that the government is now effectively in charge of making the economy run. And as we've seen from the government's paltry return on its stimulus package, it can't tie Goldman's shoes, when it comes to redistribution of wealth.

Yes, we said redistribution of wealth. That's what Goldman's job is, to redistribute wealth, to its shareholders, and to the participants in the deals that it put together. The difference is that those who Goldman redistributes wealth that it creates, put that money back to work somewhere else, creating jobs, and or fomenting other deal opportunities, leading to a greater spreading of the wealth.

When the government redistributes wealth, it seems to disappear, not reappear anywhere else with any kind of influence.

What's our point? If Goldman has lost its touch, then the global economy has lost a significant wealth generator. Is this an endorsement of Goldman's tactics and ethics? No. Is this a pro-Goldman, ends justify means piece? Absolutely not.

But, you can't argue with the fact, that warts and all, Goldman, and other investment banks, serve a useful function in the world of business, capital formation, and wealth redistribution, of a different kind than that proposed by the White House.

The reader can decide what choices to make, moral, ethical, and political about what Goldman did, or didn't do, right or wrong. We're not condoning wrongdoing, or the creation of self-enriching, cloak and dagger schemes. We're for fair markets, and transparency. And we don't like dark pools and secret credit default swaps concocted between rich guys in secret meetings. We're just pointing out a fact that seems to have been lost in all of the noise, Capitalism needs companies like Goldman to run and to create opportunity for those who understand the rules of the game.

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