Monday, October 20, 2008

"Government Sachs"

In Sunday's New York Times, reporters Julie Creswell and Ben White notice the ubiquity of Goldman Sachs alumni in government ("The Guys from 'Government Sachs'"). Does this represent potential conflicts of interest, or are these just the latest examples of selfless public service by Goldman Sachs alumni? The article is more even-handed than is typical for the Times. On the one hand,

“To the extent that they have a portfolio or blind trust that holds Goldman Sachs stock, they have conflicts,” said James K. Galbraith, a professor of government and business relations at the University of Texas. “To the extent that they have ties and alumni loyalty or friendships with people that are still there, they have potential conflicts.”

On the other hand,

For every naysayer, meanwhile, there is also a Goldman defender who says the bank’s alumni are doing what they have done since the days when Sidney Weinberg ran the bank in the 1930s and urged his bankers to give generously to charities and volunteer for public service.

“I give Hank credit for attracting so many talented people. None of these guys need to do this,” said Barry Volpert, a managing director at Crestview Partners and a former co-chief operating officer of Goldman’s private equity business. “They’re not getting paid. They’re killing themselves. They haven’t seen their families for months. The idea that there’s some sort of cabal or conflict here is nonsense.”

On the first hand again,

THIS summer, as he fought for the survival of Lehman Brothers, Richard S. Fuld Jr., its chief executive, made a final plea to regulators to turn his investment bank into a bank holding company, which would allow it to receive constant access to federal funding.

Timothy F. Geithner, the president of the Federal Reserve Bank of New York, told him no, according to a former Lehman executive who requested anonymity because of continuing investigations of the firm’s demise. Its options exhausted, Lehman filed for bankruptcy in mid-September.

One week later, Goldman and Morgan Stanley were designated bank holding companies.

“That was our idea three months ago, and they wouldn’t let us do it,” said a former senior Lehman executive who requested anonymity because he was not authorized to comment publicly. “But when Goldman got in trouble, they did it right away. No one could believe it.”

The article notes that although NY Fed president Geithner isn't a Goldman Sachs alumnus, "Goldman alumni have figured prominently in his ascent", including former Goldman Sachs chief Robert Rubin, who mentored Geithner when Geithner worked in the Treasury Department and Rubin was Treasury Secretary, during the Clinton Administration.

1 comment:

jk said...

JPM also demanded billions more in collateral to be put up, which put them (Lehman) over the brink. Competition for newly acquired Bear Stearns had to be dealt with!

Speaking of Bear, a counterparty boycot was also organized against Bear Stearns to push them over the edge. Bear Stearns deserved this though because they shafted their counterparties as soon as things went south and were unpleasant to work with.

The financial system is just like any other area of life, its "who you know" more than anything else. Thats why Goldman and JPM can move in this market like no others. Keep good personal relationships with your colleages and they'll look out for you. Be a d--k, or forgo building relationships and you're on your own (or worse) when things get rough.