Goldman Sachs

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Company Profile
Company Name Goldman Sachs
CEO Name Lloyd Blankfein
CEO Compensation $16,164,405
CEO Retirement Assets $11,878,839
Annual Company Revenue $28,811,000,000
Territorial Tax Break $3,320,000,000
Federal Lobbying/Political Donations ('09-'12*) $14,470,000
Click here for sources.
2011 data unless otherwise noted.
©2013 Center for Media and Democracy

Goldman Sachs, founded in 1869, promotes itself as a “leading global investment banking, securities and investment management firm that provides a wide range of services worldwide.” [1] Goldman Sachs has become “the most profitable securities firm in Wall Street history.” [2] In 2008, the New York Federal Reserve approved a change in Goldman Sach’s legal status from that of investment bank to bank holding company, enabling it to qualify for a government bailout. The extensive network of top government officials who previously worked for Goldman Sachs, including former Treasury Secretary Henry Paulson, has been called “Government Sachs”.

In 2011, Goldman Sachs reported $28,811,000,000 in net revenues.[3]

Ties to Pete Peterson's "Fix the Debt"

The Campaign to Fix the Debt is the latest incarnation of a decades-long effort by former Nixon man turned Wall Street billionaire Pete Peterson to slash earned benefit programs such as Social Security and Medicare under the guise of fixing the nation's "debt problem." Goldman Sachs is part of the Campaign to Fix the Debt as of February 2013.

This article is part of the Center for Media and Democracy's investigation of Pete Peterson's Campaign to "Fix the Debt." Please visit our main SourceWatch page on Fix the Debt.

About Fix the Debt
The Campaign to Fix the Debt is the latest incarnation of a decades-long effort by former Nixon man turned Wall Street billionaire Pete Peterson to slash earned benefit programs such as Social Security and Medicare under the guise of fixing the nation's "debt problem." Through a special report and new interactive wiki resource, the Center for Media and Democracy -- in partnership with the Nation magazine -- exposes the funding, the leaders, the partner groups, and the phony state "chapters" of this astroturf supergroup. Learn more at PetersonPyramid.org and in the Nation magazine.


Financial crisis and the bailout

Goldman Sachs Penalties and Fines for Wall Street Meltdown

Dirt Diggers Digest, a project of by Philip Mattera, director of the Corporate Research Project, presents an the following outline of the enforcement actions taken against Goldman Schachs:

"In April 2010 the SEC accused Goldman of having committed securities fraud when it sold mortgage-related securities to investors without telling them that the investment vehicle, called Abacus, had been designed in consultation with hedge fund manager John Paulson (no relation to Hank Paulson), who chose securities he expected to decline in value and had shorted the portfolio. The Goldman product did indeed fall in value, causing institutional customers to lose more than $1 billion and Paulson to make a bundle. Paulson was not charged, but the SEC did name Fabrice Tourre, the Goldman vice president who helped create and sell the securities.

In July 2010 the SEC announced that Goldman would pay $550 million to settle the Abacus charges. The settlement also required Goldman to “reform its business practices” but did not oblige the firm to admit to wrongdoing. In January 2011 Goldman announced that an internal review of its policies in the wake of the SEC settlement had found that only limited changes were necessary. Others apparently saw matters differently:

  • In November 2010 FINRA fined Goldman $650,000 for failing to disclose that two of its registered representatives, including Fabrice Tourre, had been notified by the SEC that they were under investigation.
  • In March 2011 the SEC announced that it was bringing insider trading charges against former Goldman director Rajat Gupta. He was accused of providing illegal tips, including one about Warren Buffet’s $5 billion investment in Goldman in 2008, to hedge fund manager Raj Rajaratnam. (Gupta was later convicted and sentenced to two years in prison.)
  • In April 2012 the SEC and FINRA fined Goldman $22 million for failing to prevent its employees from passing illegal stock tips to major customers.
  • In July 2012 a federal appeals court rejected an effort by Goldman to overturn a $20.5 million arbitrator’s award to investors in the failed hedge fund Bayou Group who had accused Goldman of helping to perpetuate a Ponzi scheme.
  • That same month, Goldman agreed to pay $26.6 million to settle a suit brought by the Public Employee’s Retirement System of Mississippi accusing it of defrauding investors in a 2006 offering of mortgage-backed securities.

Some good news for Goldman came in August 2012, when the Justice Department decided it would not proceed with a criminal investigation of the firm’s actions during the financial crisis and the SEC dropped an investigation of the firm’s role in a $1.3 billion subprime mortgage deal. All in all, Goldman has emerged largely unscathed from these controversies. Its reputation may be in tatters, but its rogue money machine keeps humming." [4]

Role in the crisis

Deregulation of Investment Banks

Goldman Sachs, with Henry Paulson as its CEO before he was named Treasury Secretary in 2006, campaigned successfully to eliminate any effective limits on the amount of leverage the largest investment banks could use. Under pressure from Goldman Sachs in particular, in 2004 the Securities and Exchange Commission removed the 12 to 1 debt to net capital ratio it had previously imposed. The SEC gave the five largest investment banks a special exemption so they could use their own risk models to determine their capital requirements. Goldman Sachs, Bear Stearns, Merrill Lynch, Lehman Brothers and Morgan Stanley were freed to leverage to extremely risky levels, in some cases reaching a ratio of 40 to 1. This piece of deregulation enabled the investment banks to substantially expand their businesses through borrowing, but left them fatally undercapitalized when they suffered losses. [5]

Barry Ritholtz and Aaron Task wrote in their book, Bailout Nation, that the deregulation of investment bank leverage made the financial crisis predictable. They state: “Thus we learn that the tragic financial events of 2008 and 2009 are not an unfortunate accident. Rather, they are the results of a conscious SEC decision to allow these firms to legally violate net capital rules…” The authors point out that none of the top US investment banks, despite their long history on Wall Street, survived this experiment with deregulation. Lehman Brothers shook global markets by going bankrupt. Merrill Lynch and Bear Stearns were on the verge of bankruptcy when they were bought out by commercial banks. Goldman Sachs and Morgan Stanley had to be quickly transformed into bank holding companies so that they could qualify for Federal Reserve loans and government bailout money. [6]

In their report - “Sold Out: How Wall Street and Washington Betrayed America” - Robert Weissman and Harry Rosenfeld explain that: “This superleverage not only made the investment banks more vulnerable when the housing bubble popped, it enabled the banks to create a more tangled mess of derivative investments — so that their individual failures, or the potential of failure, became systemic crises. Former SEC Chair Chris Cox has acknowledged that the voluntary regulation was a complete failure.” [7]

Dealing in Subprime Mortgage Securities

Goldman Sachs contributed to the financial crisis by selling subprime, mortgage-backed securities. Alternative Mortgage Products, the bank’s mortgage bond division, sold $12.9 billion worth of sub-prime mortgage bonds in 2006. This made Goldman Sachs the 15th largest subprime mortgage bond seller and represented an increase of 59% in its subprime business over the previous year. [8] From 2001 to 2007, Goldman Sachs sold $135 billion of bonds backed by risky mortgages. [9] The bank was also the largest creditor of New Century, which was the second biggest subprime lender in the US until it went bankrupt in 2007. [10]

Carl Levin, the Democrat senator chairing the Senate Permanent Subcommittee on Investigations, stated in an April 26, 2010 news release that: “From 2004 to 2007, in exchange for lucrative fees, Goldman Sachs helped lenders like Long Beach, Fremont, and New Century, securitize high risk, poor quality loans, obtain favorable credit ratings for the resulting residential mortgage backed securities (RMBS), and sell the RMBS securities to investors, pushing billions of dollars of risky mortgages into the financial system.”[11]

In 2007 when Washington Post columnist Allan Sloan asked mortgage experts to name the worst subprime mortgage product sold by a top bank, they picked a Goldman Sachs bond called “GSAMP Trust 2006-S3”. Within 18 months after Goldman Sachs sold this bond to investors, one-sixth of the mortgages underlying the bond had defaulted. Some investors lost their entire stake. Sloan explained how Goldman Sachs’ subprime bond related to the losses and foreclosures suffered in the financial crisis:[12]

“This issue, which is backed by ultra-risky second-mortgage loans, contains all the elements that facilitated the housing bubble and bust. It's got speculators searching for quick gains in hot housing markets, it's got loans that seem to have been made with little or no serious analysis by lenders, and finally, it's got Wall Street, which churned out mortgage ‘product’ because buyers wanted it.”

In 2009, the McClatchy newspaper group conducted a five-month investigation [13] into Goldman Sachs’ sub-prime business. The investigation concluded that, “Goldman had joined other Wall Street firms in creating a colossal secondary market for subprime mortgages, converting them to securities and selling many of those securities offshore to circumvent federal tax laws and securities regulations.” Pension funds and unions are now suing the bank, claiming Goldman Sachs did not inform them of the risks when it sold them subprime mortgage-backed bonds. [14] McClatchy found that in 2006 and 2007, Goldman Sachs sold $40 billion in securities backed by 200,000 risky mortgages. [15]

Profiting on the Downturn in the US Housing Market

Goldman Sachs expanded its involvement in the subprime market up to the end of 2006, but subsequently “sold their mortgage positions, sometimes at a loss, and then adopted a bearish stance, using large quantities of the company’s own money to benefit from a crash.” [16] In the third quarter of 2007, when other banks were announcing massive losses due to the housing downturn, Goldman Sachs trading division reported record profits. It earned $50 million in just one day by betting against the housing market. [17]

The bank’s third quarter report for 2007 stated: "Net revenues in [trading] mortgages were...significantly higher, despite continued deterioration in the market environment. Significant losses on non-prime loans and securities were more than offset by gains on short mortgage positions." [18] Chief Financial Officer David Viniar said in a December 15, 2006 email: “My basic message is let’s be aggressive distributing things because there will be very good opportunities as the markets goes (sic) into what is likely to be even greater distress and we want to be in a position to take advantage of them.” [19] A November 18, 2007 email from CEO Lloyd Blankfein to Goldman Sachs executives said: “Of course we didn’t dodge the mortgage mess. We lost money, then made more than we lost because of shorts.” [20]

The short mortgage positions that were so profitable for Goldman Sachs involved using complex financial products to bet that the US housing market would deteriorate. One such product, Abacus, became the subject of an SEC fraud charges.

The bank was unique among the large banks in the degree to which it speculated on the downturn. A financial analyst commented that only Goldman Sachs “had the chutzpah to short the very market in junk they'd given birth to.” [21] Phil Angelides, Democrat chair of the Financial Crisis Inquiry Commission, described what Goldman Sachs did in shorting the mortgage market as “like selling a car with faulty brakes, then buying an insurance policy on the buyer of those cars.” [22]

In an article entitled “A Wall Street Invention Let the Crisis Mutate,” New York Times columnist Joe Nocera explains how Goldman Sachs helped turn the US housing crisis into a full-blown financial crisis. The housing bubble had already begun to deflate by 2007, with lenders “starting to run out of risky borrowers to make bad loans to.” By creating packages of securities, “synthetic collateralized debt obligations”[35], Goldman Sachs allowed investors to bet on loans that had already been made. In this way, Goldman Sachs contributed to a whole new wave of speculative activity that ended with the near-collapse of the global financial system and government bailouts of banks. [23]

In its fraud case against Goldman Sachs, the Securities and Exchange Commission (SEC) that CDO’s of the type the bank was marketing “contributed to the recent financial crisis by magnifying losses associated with the downturn in the United States housing market.” [24]

Problems with other Goldman products have also come to light At the April 2010 Senate subcommittee hearings [[36]] looking into the role of investment firms in the financial crisis, Goldman Sachs’ internal emails were cited as evidence that traders were selling financial products they knew were bad. A senior Goldman executive said, “Boy that timeberwof (sic) was one shitty (sic) deal,” referring to a $1 billion CDO Goldman Sachs sold named Timberwolf. The trader responsible for Timberwolf said that the day it was issued was “a day that will live in infamy”. Five months later, Timberwolf had lost 80% of its value and resulted in major losses for Bear Stearns, an investment bank that subsequently collapsed. [25] In another email, the head of Goldman Sachs’ mortgage division said: "Need you to send message to peter ostrem and darryl herrick telling them what a great job they did. They structured like mad and travelled the world, and worked their tails off to make some lemonade from some big old lemons." In some cases, Goldman Sachs has packaged and sold products with itself as the only party betting them, which was the case with the $2 billion CDO named “Hudson Mezzanine 2006-1”. [26]

Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, is investigating “whether securities sold by Goldman Sachs Group Inc (GS.N) led to losses at AIG and if the American taxpayer was a victim of fraud.” [27] AIG, the world’s largest insurance company, was effectively nationalized in 2008 when the US government paid $85 billion (ultimately $180 billion) to rescue it from bankruptcy. [28]

Exposing foreign institutions to subprime risk

Goldman Sachs used offshore tax havens, often in the form of secret deals run through the Cayman Islands, to sell its mortgage-backed securities to institutions worldwide, including European and Asian banks. In at least one such offering, as documented in a September 26, 2006 investment circular, Goldman Sachs pitched supposedly high-grade bonds backed by residential, commercial, and student loans, but the ratings of many of the mortgage securities hid their true risks and, in some cases, Goldman's descriptions exaggerated their quality. The September 2006 offering, one of billions of dollars worth of such deals in 2006 and 2007, was made at a time when Goldman Sachs began to disengage from the subprime market. "One bond analyst who reviewed the 2006 Cayman deal dismissed it in a report to clients as 'a not so cleverly disguised way for Goldman Sachs & Co. to unload its unwanted exposures to the subprime real estate market onto foreign investors.'"[29]

Marketing what Goldman Sachs was simultaneously betting against

"In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting . . . . Only later did investors discover that what Goldman had promoted as triple-A rated investments were closer to junk."[30]

Bubble machine

A recent article in Rolling Stone, "The Great American Bubble Machine"[31], caused a great deal of controversy when writer, Matt Taibbi, placed Goldman Sachs at the center of every market manipulation since the 19th century including: The Great Depression, Tech Stocks, The Housing Craze, $4 a gallon oil prices, Rigging the Bailout, and future global warming derivatives trade.

Analysts have commented that the traditional investment bank functions Blankfein emphasizes make up a small proportion of Goldman Sachs’ operations. David Stockman, President Ronald Reagan’s budget director, estimates that 75 percent of Goldman Sachs’ revenues come not from serving clients but from trading for its own account in currencies, stocks, commodities, and fixed-income securities. Stockman said that it was “absolutely true” that Goldman Sachs could accurately be described as “a hedge fund masquerading as a bank.” [32]

The bank’s portrayal of the social utility of its business contrasts with Matt Taibbi’s oft-quoted comparison of it with a “great vampire squid wrapped around the face of humanity.” In his Rolling Stone article on Goldman Sachs, Taibbi puts the bank at the center of key economic crises – the Great Depression, the Internet bubble at the end of the 1990s, the housing craze that lead to the 2008 financial meltdown, and, most recently, the speculative surge in commodity prices.

Trading scandal

As a matter of practice, the Goldman Sachs Group Inc. has provided select clients with advice that contradicts what its traders tell the rest of its customers. Once a week beginning in 2007, Goldman analysts gathered in what is called a "trading huddle" to talk about short-term changes in individual stocks or the market at large. Marc Irizarry's published rating on mutual-fund manager Janus Capital Group Inc. was a lackluster "neutral" in early April 2008, but about 50 top customers got a phone call that the stock was likely to go up, according to company documents.[33]


Bailouts

Bailout amounts

TARP Bailout

On October 28, 2008, the US Treasury paid Goldman Sachs $10 billion in exchange for Goldman Sachs shares as one of the six large banks initially given funding from TARP intended to unfreeze credit markets. [34][35][36] This bailout was done through the capital purchase division of the Troubled Assets Relief Program (TARP). The congressional oversight committee for TARP calculated that the Treasury paid $3.5 billion more for stocks than they were worth. Around the same time Warren Buffett’s firm Berkshire Hathaway bought $5 billion in Goldman Sachs shares but paid less for them than the US government did. [37]

In its 2009 letter to shareholders, Goldman Sachs acknowledges that the bank and its shareholders benefited from government intervention during the financial crisis: “Looking back on 2009, it is impossible to know what would have happened to the financial system absent concerted government action around the world… Goldman Sachs is grateful for the indispensable role governments played and we recognize that our firm and our shareholders benefited from it.” [38]

Goldman Sachs’ Chief Financial Officer David Viniar said in February 2009 that the firm was eager to repay the TARP money because of the restrictions on executive pay that came with it. [39] In June, 2009 Goldman Sachs bought back its shares from the government for $10.04 billion. [40] It also paid the government an additional $1.4 billion to repay warrants and cover dividends. [41]

Goldman repaid the $10 billion TARP money it received in June 2009.[42]

In September 2008, as the financial crisis peaked, Goldman Sachs ceased to be an investment bank and became a bank holding company[43].

Goldman Benefits from Lehman Failure and AIG Bailout

Questions were raised about the federal government's decision to allow the collapse of Lehman Brothers, a Goldman Sachs competitor, and the decision to prop up American International Group, Inc.

Lehman Brothers Bankruptcy

Goldman Sachs is one of the firms being investigated for possibly helping to bankrupt Lehman Brothers, an investment bank competitor, by short selling Lehman shares. A bankruptcy judge has given Lehman subpoena power, and it is using this power to require Goldman Sachs and others to produce documents. Lehman representatives say they are assisting the investigation of the firm’s bankruptcy which might lead to “possible prosecution of certain litigation” against those that damaged its business. [44]

Another possible source of legal problems for Goldman Sachs relates to its purchase of Lehman’s trading positions when the firm went bankrupt in September 2008. CME Group, the world’s largest futures exchange, selected Goldman Sachs as one of a select group of companies allowed to bid on $2 billion worth of contracts held by Lehman Brothers Inc.(LBI) after it declared bankruptcy. According to a report by CNBC, this was “the first and only time the CME Group has conducted a forced liquidation of a member firm's positions, and left Lehman creditors with little to show for the valuable contracts.” [45]

The bank examiner’s report on the Lehman Brothers bankruptcy concluded that the sale of Lehman contracts by CME Group resulted in a $1.2 billion loss, and there may be a basis for those with stakes in Lehman to sue. The bank examiner found that: “The bulk sale process (including the Goldman Sachs sale arranged by LBCS) resulted in a substantial loss to LBI (Lehman Brothers Inc.) exceeding $1.2 billion over the close-of-business liabilities associated with the positions, and a net loss of close to $100 million over the SPAN Risk (margin) requirements. Thus, LBI may have a colorable claim against CME, or any of the firms that bought LBI’s positions at a steep discount during the liquidation ordered by the CME, for the losses that LBI sustained as a result of the forced sale of house positions held for the benefit of LBI and its affiliates.” [46]

AIG Bailout

After the $182.5 billion taxpayer bailout of AIG[47], Goldman received $12.9 billion from AIG in the form of collateral that Goldman already had in its possession and a cash settlement of ongoing margin disputes. $90 billion of the bailout money provided to AIG by the government went directly to banks, including this $12.9 billion to Goldman Sachs[48]. Foreign banks were also major recipients of the AIG bailout funds prompting an investigation by New York Attorney General Andrew Cuomo.

Benefits to Goldman Sachs of AIG Bailout

Some financial analysts have argued that in calculating Goldman Sachs’ government bailout, the total should include the $12.9 billion in government funds that flowed from the New York Federal Reserve through AIG to Goldman Sachs. Goldman Sachs was paid full-value for collateral calls on debt swaps it had made with AIG, and received more of AIG’s bailout money than any other firm. It also received AIG bailout money through deals it had with Societe Generale, a French bank that received $11 billion of the AIG bailout. [49]

According to a New York Times analysis, before the government was forced to bail out AIG “Goldman’s demands for billions of dollars from the insurer helped put it in a precarious financial position by bleeding much-needed cash.” AIG analysts believed that Goldman Sachs had pushed other banks, including Societe Generale, to demand collateral payments, an accusation Goldman Sachs denies. AIG disagreed that the securities in dispute had fallen as much as Goldman Sachs claimed, but Goldman Sachs refused to allow third parties to set a value on these securities. The Times reported that, “The federal bailout locked in the paper losses of those deals for A.I.G. The prices on many of those securities have since rebounded.” [50]

Without the bailout of AIG, Goldman Sachs might have had to wait and seek compensation through bankruptcy courts as just one of a number of AIG’s creditors. Instead, because of AIG’s government bailout Goldman Sachs was able to immediately recoup100% of what it claimed AIG owed the bank. Investment analyst Joshua Rosner commented: "It was the biggest crisis ever, if you're an investment bank. We didn't just save AIG. We saved the counterparties, the banks. It's true that it would have been a disaster, but it would have been a disaster for them." [51]

David Viniar, Goldman Sachs’ Chief Financial Officer, has revealed that the bank refused when AIG had asked Goldman to take less than it was demanding. In a media interview, he downplayed the potential impact on his firm of an AIG bankruptcy, saying it had hedged its AIG contracts. He did not address the implications of what AIG’s collapse would have meant for the financial system as a whole, and what would have happened to Goldman Sachs if an AIG bankruptcy had triggered widespread failures of other institutions. Viniar stated: “All we did is call for the collateral that was due to us under the contracts. So I don’t think there’s any guilt whatsoever.”[52]

The 2009 Goldman Sachs shareholder letter, however, recognizes the benefits Goldman Sachs got from the AIG bailout: “While our direct economic exposure to AIG was minimal, the financial markets, and, as a result, Goldman Sachs and every other financial institution and company, benefited from the continued viability of AIG.” [53]

A Wall Street Journal story draws on a report by the inspector general of TARP to rebut Goldman Sachs’ claim that it would not have suffered if the government had allowed AIG to go under: “If AIG collapsed and markets continued to swoon, Goldman would have had to make payments to the other trading firms and been unable to collect on protection it had bought from AIG.” [54]

AIG and Goldman Connections

Stephen Friedman was chair of the New York Fed and also sat on the board of Goldman Sachs in 2008 when the Fed organized the bailout of AIG. Between December 2008 and January 2009 Friedman bought over $1 million in shares in Goldman Sachs. [55] Goldman Sachs CEO Lloyd Blankfein was present at the September 15, 2008 New York Fed meeting where the bailout of AIG was discussed. [56] On September 17, 2008 Treasury Secretary Henry Paulson, the former Goldman Sachs CEO, endorsed the New York Fed’s bailout of AIG. Edward Liddy, a director of Goldman Sachs, was appointed by Paulson to head the nationalized AIG. [57]

Geithner and AIG

At the end of 2008, with AIG running out of cash, negotiations were underway to determine what percentage AIG would pay on its obligations to credit default swap (CDS) counterparties, including Goldman Sachs Group Inc., Merrill Lynch & Co., Paris-based Societe Generale SA and Frankfurt-based Deutsche Bank AG. Negotiations had reached discounts of as much as 40 cents on the dollar. However the government took over AIG on Sept. 16, 2008, and beginning November 3 negotiations were taken over by New York Fed President Timothy Geithner, the Treasury Department and the Federal Reserve. After less than a week of negotiations, the New York Fed instructed AIG to pay 100 cents on the dollar, costing taxpayers at least $13 billion[58].

According to an Oct. 27, 2009 Bloomberg report[58],

The deal contributed to the more than $14 billion that over 18 months was handed to Goldman Sachs, whose former chairman, Stephen Friedman, was chairman of the board of directors of the New York Fed when the decision was made. Friedman, 71, resigned in May, days after it was disclosed by the Wall Street Journal that he had bought more than 50,000 shares of Goldman Sachs stock following the takeover of AIG. He declined to comment for this article.

Actions as bank holding company

There are questions about appearances that Goldman Sachs continues to operate as an investment bank after transitioning to a commercial bank holding company. Simon Johnson, former chief economist of the International Monetary Fund, is a professor at the MIT Sloan School of Management and AIG, and question why they continue to act as investment bank a senior fellow at the Peterson Institute for International Economics, writes[59],

Goldman is also currently engaged in private equity investments in non financial firms around the world, as seen for example in its recent deal with Geely Automotive Holdings in China (People’s Daily; CNBC). US banks or bank holding companies would not generally be allowed to undertake such transactions - in fact, it is annoyed bankers who have asked me to take this up. [. . .] is it envisaged that Goldman will cease being a bank holding company, or that it will divest itself shortly of activities not usually allowed (and with good reason) by banks? Or will all bank holding companies be allowed to expand on the same basis.

Notable reactions to the financial crisis

Invoking religious themes

As Goldman's reputation in the general public suffered in late 2008 and 2009, several Goldman spokesmen began to invoke religious themes in their media appearances and public events. "The injunction of Jesus to love others as ourselves is an endorsement of self-interest," Goldman Sachs International adviser Brian Griffiths said on October 20, 2009, to a crowd in St. Paul’s Cathedral in London. "We have to tolerate the inequality as a way to achieving greater prosperity and opportunity for all."[60] Lloyd Blankfein similarly was quoted in the Sunday Times describing his company's work as having "a social purpose" and himself as "doing God’s work."[61] While he later said this was meant as a joke, he also told one of Vanity Fair’s editors that, “What’s good for Goldman Sachs is good for America.”[62] Blankfein has said that as an investment bank, Goldman Sachs does a lot for the economy by allocating capital, raising funds for companies, and launching new businesses. [63]

Apologies

Goldman chairman and CEO Lloyd Blankfein told a conference in November 2009, "We participated in things that were clearly wrong and have reason to regret. We apologize." Published accounts do not quote Blankfein having elaborated upon which "things ... were clearly wrong."[64]

Discouraging holiday parties

Goldman Sachs canceled its annual Christmas party in 2009, and it prohibited employees from paying for parties in their own homes. It also instructed employees not to gather in any parties of 12 or more people.[65]

Other controversies

Phoning in to White House meeting

President Obama summoned leading financial sector executives to the White House for a meeting on December 14, 2009, at which he implored the companies to cease opposing financial reform and cooperate with homeowners struggling with their mortgages. Goldman CEO Lloyd Blankfein was one of three who failed to arrive in person and instead participated via conference call.[66]

Seeking gun permits

Bloomberg News columnist and Warren Buffett biographer Alice Schroeder reported in December 2009 that some senior Goldman executives sought gun permits and were "loaded up on firearms and ... now equipped to defend themselves if there is a populist uprising against the bank."[67]

Earnings and bonuses

According to a report by the Attorney General of New York State Goldman Sachs paid $4.8 billion in bonuses to executives and employees[68] while earning only $2.3 billion after being a recipient of TARP bailout funds of $10 billion. Other reports claim the bonus pool was as high as 11.4 billion[69].

Breakdown of Goldman Sachs 2008 bonuses from the Attorney General's report[70];

  • Tarp funds received: $10 Billion
  • 2008 Earnings: $2.3 billion, or $4.47 a share.
  • 2008 total bonuses: $4.82 billion (includes $2.24 billion in cash)
  • The top four received a combined $45.9 million
  • The next four received a combined $40.81 million.
  • The next six received a combined $56.40 million.
  • Number of individuals that received more than $10 million: 6.
  • Number that received more than $8 million: 21.
  • Number that received more than $5 million: 78.
  • Number that received more than $4 million: 95.
  • Number that received more than $3 million: 212.
  • Number that received more than $2 million: 391.
  • Number that received at least $1 million: 953.
  • Total work force: 30,067.

In the first and second quarters of 2009, the Goldman Sachs earned $5.3 billion in net income, the most profitable six-month stretch in the company’s history. By August of 2009, Goldman's stock had more than tripled since its low in November of 2008, to more than $160 per share. Goldman Sachs set aside $11.36 billion in the first eight months of 2009 in total compensation and benefits for its 29,400 employees. In 2008, while Goldman earned $2.3 billion for the year, it paid out $4.82 billion in bonuses, giving 953 employees at least $1 million each and 78 executives $5 million or more (although Goldman's top five officers, including Blankfein, made a public show of declining to take bonuses).[71]

Coal issues

Coal investments

In November 2011, Goldman Sachs was listed as the number 11 top global financier of coal-fired power plants in a report complied by various environmental groups entitled, Bankrolling Climate Change: A Look into the Portfolios of the World's Largest Banks. The report noted that Goldman Sachs spent $5,392 million euros on coal plants around the world since 2005.[72]

Goldman Sachs is a major financier of new coal plant construction. New coal-fired power plants being funded by the company include:

Political influence

Lobbying

According to Center for Responsive Politics, Goldman Sachs spent $2,830,000 total in 2009 on lobbying. [73]

Decade-long lobbying expenditure total (1998-2008): $21,637,530 [74]

Goldman Sachs Group Inc. spent $630,000 in the second quarter of 2009 lobbing on automotive industry issues and legislation related to the financial bailout program. Goldman also lobbied on energy reform and issues relating to financial regulatory reform in the April-June period. Besides Congress, the company lobbied the Securities and Exchange Commission and the Federal Reserve, according to the report filed July 20th, 2009 with the House clerk's office[75].

Notable Goldman Sachs’ Lobbyists: [76]

  • Ken Connolly, a former staff director to the U.S. Senate Environment and Public Works Committee.
  • Todd Malan, formerly employed by the U.S. Trade Representative's office.
  • Michael Paese, a former top aide to U.S. Rep. Barney Frank, D-Mass.

2008 Lobbying Expenditure (Top 15) Total: $5,210,000[74]

2008 Top Lobbying Expenditure Recipients:[74]
1. Goldman Sachs $3,280,000
2. Duberstein Group $400,000
3. ML Strategies $280,000
4. Baptista Group $270,000
5. Capitol Tax Partners $240,000

The company spent $2,380,000 for lobbying in 2006. $1,031,250 went to nine outside lobbying firms with the remainder being spent using in-house lobbyists. The lobbying firms included DLA Piper Rudnick Gray Cary, The Duberstein Group, and Vinson & Elkins. [77]

Lobbying positions

Goldman Sachs lobbyists circulated in the Senate[78] a position paper on financial industry regulatory reform that argued, among other things, that some privileged institutions should be permitted to trade with less transparency than other market participants:

In traditional exchange trading, bids and offers are public, and this transparency helps buyers and sellers to achieve the best price.

For some market participants, however, the openness and transparency of the equity market actually mean they are unlikely to achieve the best price. The risk, particularly for large transactions such as those undertaken by pension funds or large mutual funds (where most small investors have most of their equity exposure), is that other market participants will use this transparency to undercut the intended transactions....

Alternative trading platforms –- so-called "dark pools" of liquidity -- have evolved to address this problem. They work by separating liquidity from information about the transaction -- the participants, lot sizes and transaction prices. Through the process of "non-displayed liquidity," information does become available to both regulators and the public market -- but not until the transaction is complete.[79] (Italics in original document)

Revolving door influence

There is a long list of people who previously worked for Goldman Sachs who have held senior positions in governments around the world, as well as of people who formerly worked for government who now work for Goldman Sachs. During the financial crisis, critics noted “that decisions that Mr. Paulson and other Goldman alumni make at Treasury directly affect the firm’s own fortunes. They also question why Goldman, which with other firms may have helped fuel the financial crisis through the use of exotic securities, has such a strong hand in trying to resolve the problem.”[80]

Goldman Sachs had strong connections to the government officials running TARP under the Bush administration. Henry Paulson had been CEO of Goldman Sachs prior to being named Treasury Secretary by President Bush. At the height of the financial crisis, Paulson hired Edward C. Forst, a Goldman Sachs executive and shareholder, to advise him on TARP. Paulson also hired Neel Kashkari, a Goldman Sachs vice president, to run TARP. Kashkari in turn hired former Goldman Sachs executive Reuben Jeffrey as TARP’s chief investment officer. [81]

According to the New York Times, during the peak week of the financial crisis Hank Paulson, Treasury Secretary and former Goldman Sachs CEO was in "very frequent contact" with Lloyd C. Blankfein, Goldman’s current CEO.[82] The extent of the contacts prompted Paulson to seek ethics waivers from the White House and the Department of the Treasury. During the week of the AIG bailout alone, Mr. Paulson and Mr. Blankfein spoke two dozen times, the calendars show, far more frequently than Mr. Paulson did with other Wall Street executives. On Sept. 17, the day Mr. Paulson secured his waivers, he and Mr. Blankfein spoke five times. Two of the calls occurred before Mr. Paulson's waivers were granted."[83]

In his 2009 book, Too Big To Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System—and Themselves, Andrew Sorkin reports that same week Paulson was trying to convince Goldman to buy Wachovia.

Jim Wilkinson, Paulson’s chief of staff, realized that such a deal would be a public-relations nightmare at the worst possible time—just as they were trying to pass TARP. “Hank, if you do this, you’ll get killed,” Wilkinson frantically told his boss. “It would be fucking crazy.” Paulson, he said, would lose credibility; he would be accused of lining the pockets of his friends at Goldman; the “Government Sachs” conspiracy theories would flourish.[84]

Throughout this time, Treasury Secretary Henry Paulson, formerly a Goldman Sachs chief executive was aided in his administration of the Treasury Department by numerous advisers who also had personal ties to Goldman Sachs.[85]

Political appointees and figures

  • Robert Rubin, Former United States Treasury Secretary
  • John Corzine, Governor of New Jersey
  • Henry Paulson, Chief Executive, U.S. Treasury Secretary under George W. Bush
  • Robert Zoellick - United States Trade Representative (2001-2005), Deputy Secretary of State (2005-2006), World Bank President. 2007-
  • Reuben Jeffery III, Under Secretary of State for Economic, Business, and Agricultural Affairs (2007-)
  • Joshua Bolten, Bush's chief of staff during the bailout
  • Mark Patterson, Obama’s Treasury chief of staff, former Goldman lobbyist
  • Ed Liddy, whom Paulson put in charge of bailed out insurance giant AIG, the former Goldman director
  • Neel Kashkari, Head of TARP
  • Gene Sperling, Deputy Dept of Treasury
  • Gary Genzler, CFTC Chair
  • Robert D. Hormats, Dept of State Under Secretary for Economic, Energy and Agricultural Affairs (2009 -)
  • Phil Murphy, Democratic Party’s national finance chairman, represents the United States in Berlin [14]

Other notable Goldman alums: [13]

  • George Herbert Walker IV - member of the Bush family and current managing director at Neuberger Berman
  • Robert Steel - Chairman and President, Wachovia.
  • Jim Cramer, MSNBC Commentator
  • Michael Cohrs, Head of Global Banking at Deutsche Bank
  • Mark Carney, Current Governor of the Bank of Canada [92][93]
  • Malcolm Turnbull, Australian politician, currently the federal leader of the Liberal Party of Australia.
  • John Thain,former Chairman and CEO, Merrill Lynch, and former chairman of the NYSE.
  • Romano Prodi, Prime Minister of Italy twice (1996-1998 and 2006-2008) and President of the European Commission (1999-2004)[94]
  • Mario Draghi, governor of the Bank of Italy (2006- )[94]
  • Massimo Tononi, Italian deputy treasury chief (2006-2008)[94]


Former Goldman Sachs Employees Hired by the Obama Administration

Mark Patterson: former Goldman Sachs lobbyist, currently Treasury chief of staff; [86]

Gary Gensler: former Goldman partner, currently chair of the Commodity Futures Trading Commission. [87]

Gene Sperling: former Goldman consultant earning $887,727 from the bank in 2008, currently Counselor to Treasury Secretary Timothy Geithner. [88]

Diana Farrell: former Goldman employee, currently deputy director of the White House’s National Economic Council. [89]

Former Goldman Sachs Employees Hired by the Bush Administration

Joshua Bolten: former Goldman Sachs executive, Chief of Staff to President Bush.[90]

Henry Paulson: former Goldman Sachs CEO, appointed Treasury Secretary in 2006 on Bolten’s recommendation.[91]

Neel T. Kashkari: former Goldman Sachs investment banker, hired as Interim Assistant Secretary of the Treasury for Financial Stability in 2006, headed the Office of Financial Stability during the financial crisis and given responsibility for TARP.[92]

Reuben Jeffrey: previously Under Secretary of State for Economic, Energy and Agricultural Affairs, Chairman of the Commodity Futures Trading Commission, worked for 18 years at Goldman Sachs, hired by Kashkari in 2008 as interim chief investment officer for TARP. [93] [94]

Dan Jester: former Goldman Sachs strategic officer, hired on contract to advise Henry Paulson during the crisis, advised on AIG, GSEs, TARP and other bailouts. [95]

Steve Shafran: former Goldman Sachs trader in Asian private equity, hired by Paulson to handle student loan and money market issues.[96]

Kendrick R. Wilson III: former Goldman Sachs executive, enlisted as unpaid adviser to canvass banks on reaction to Treasury initiatives during crisis.[97]

Edward C. Forst: former Goldman Sachs chief administrator, hired as advisor to Paulson during the crisis, became head of Goldman Sachs asset management division in 2010.[98] [99]

Robert K. Steel: former Goldman Sachs vice chairman, hired by Paulson Undersecretary of the Treasury for Domestic Finance in 2006. [100]

Ed Liddy: former Goldman Sachs director, appointed by Paulson as CEO of AIG.[101]

Former Goldman Sachs Employees Hired by the Clinton Administration

Robert E. Rubin: former co-partner of Goldman Sachs, where he worked for twenty six years. Appointed by Clinton in 1993 to be first director of the National Economic and then appointed as Treasury Secretary, a post he held from 1995 to 1999. [102]

Former Government Officials Hired by Goldman Sachs

Richard Gephardt: Goldman Sachs lobbyist, former House Democrat Leader. [103]

Harold Ford Sr.: Goldman Sachs lobbyist, former Representative, (D-Tenn.). [104]

Steve Elmendorf: Goldman Sachs lobbyist, former deputy campaign manager for John Kerry and aide to Richard Gephardt. [105]

Kenneth Duberstein: Goldman Sachs lobbyist, Reagan White House chief of staff. [106]

Eric Ueland: Goldman Sachs lobbyist, former Senate Majority Leader Bill Frist’s (R-Tenn.) chief of staff.[107]

Robert Zoellick: hired by Goldman Sachs as managing director in 2006, former US Trade Representative 2001 – 2005, Deputy of the US State State Department 2005 – 2006, , n became World Bank President in 2007. [108]

Goldman Sachs Connections with the Federal Reserve

William C. Dudley: former Goldman Sachs partner and managing director, hired by then President of the New York Fed Timothy Geithner to work at the New York Fed in 2007, became New York Fed’s President in 2009. [109]

Stephen Friedman: former Goldman Sachs chairman, appointed to the New York Fed in the category reserved for representatives of the public, chaired New York Fed, chaired President Bush’s Foreign Intelligence Advisory Board. Resigned from New York Fed in 2009 due to controversial purchase of Goldman Sachs shares. [110]

Gerald Corrigan: currently Goldman Sachs managing director, former CEO and President of the New York Fed from 1985 to 1993. [111] [112]

Other notable Goldman connections

South African officials

Prior to South Africa’s first democratic elections in 1994, Goldman Sachs trained ANC economists. Of those Goldman Sachs trained, Tito Mboweni became South Africa’s Reserve Bank Governor. On his retirement from the Bank Mboweni was hired by Goldman Sachs as an advisor. Lesetja Kganyagom, another Goldman Sachs trainee, is the director-general of the National Treasury. [113]

Personnel

Key executives

As of January 2013[114]

  • Lloyd C. Blankfein, Chairman of the Board and Chief Executive Officer,
  • Gary D. Cohn, President and Chief Operating Officer
  • John S. Weinberg, Vice Chairman
  • J. Michael Evans, Vice Chairman
  • Michael S. Sherwood, Vice Chairman
  • Mark Schwartz, Vice Chairman
  • Harvey M. Schwartz, Executive Vice President and Chief Financial Officer
  • Gregory K. Palm, Executive Vice President, General Counsel and Secretary of the Corporation
  • Alan M. Cohen, Executive Vice President and Global Head of Compliance
  • John F.W. Rogers, Executive Vice President and Chief of Staff and Secretary to the Board
  • Edith W. Cooper, Executive Vice President and Global Head of Human Capital Management

Board of Directors

As of January 2013:[115]

  • Lloyd C. Blankfein - Chairman and Chief Executive Officer, Goldman Sachs
  • M. Michele Burns - Executive Director and CEO, Retirement Policy Center, sponsored by Marsh & McLennan Companies, Inc. (also a director at Cisco Systems, Inc. and Wal-Mart Stores, Inc.)
  • Gary D. Cohn - President and Chief Operating Officer, Goldman Sachs
  • Claes Dahlbäck - Senior Advisor, Investor AB
  • Stephen Friedman - Chairman, Stone Point Capital LLC
  • William W. George - Professor of Management Practice, Harvard Business School (also on a director at Exxon Mobil Corporation
  • James A. Johnson - Vice Chairman, Perseus LLC
  • Lakshmi N. Mitall - Chairman and and CEO, ArcelorMittal S.A. (8th richest person in the world[citation needed])
  • Adebayo O. Ogunlesi - Chairman and Managing Partner, Global Infrastructure Partners (also a directors at Callaway Golf Company and Kosmos Energy Ltd.)
  • John F. W. Rogers- Secretary to the Board
  • James J. Shchiro - Lead Chair (also a director at PepsiCo, Inc., REVA Medical, Inc. and Royal Philips Electronics)
  • Debora L. Spar - President, Barnard College
  • Mark Edward Tucker - Executive Director, AIA Group Limited

  • David A. Viniar - Executive Vice President and Chief Financial Officer, Goldman Sachs


Former board members include:[116]

Campaign contributions

2010 1st Quarter Campaign Contributions: $259,400 (52% to Democrats, 48% to Republicans)[117]

Decade-long campaign contribution total (1998-2008): $25,445,983 [74]

Henry M. Paulson, Jr., then Chair & CEO of Goldman Sachs, was a Bush Pioneer having raised at least $100,000 for Bush in the 2004 presidential election. In 2006, Paulson was appointed by Bush to be Secretary of the Department of the Treasury. [118]

Goldman Sachs gave $478,250 to federal candidates in the 05/06 election period through its political action committee - 35% to Democrats and 65% to Republicans. [119]

2008 Campaign Contribution (Top 20) Total: $5,635,501 [74]

2008 Top Recipients:[74]
1.Barack Obama (D) $884,907
2.Hillary Clinton (D) $405,475
3.John McCain (R) $229,695
4.Mitt Romney (R) $229,675
5.Jim Himes (D) $140,448

2012 Campaign Contribution

Total contributions to PACs, parties and outside spending groups: $4,265,352 Total contributions to candidates: $3,641,772[120]

Contact details

85 Broad Street
New York, NY 10004
Phone: 212-902-1000
Fax: 212-902-3000
Web: http://www.goldmansachs.com

Articles and resources

Related SourceWatch articles

Featured SourceWatch Articles on Fix the Debt

References

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External resources

  • McClatchy newspaper group five-part investigation of Goldman Sachs: [37]

External articles

The McClatchy Series

External links