Friday, December 2, 2016

United States of Goldman Sachs: Wall Street's Revolving Door




It is truly amazing how often Goldman Sachs' former high level executives take positions in government regulating the financial industry.

There is a REVOLVING DOOR between the company and the US government, as illustrated in this article published in the Wall Street Journal:

Liz Hoffman November 30 2016. Another Link in Goldman’s DC Chain. The Wall Street Journal, A5.
“Donald Trump is set to name Steven Mnuchin, a Goldman alum, as Treasury Secretary. . . . Mr. Mnuchin work at the company for 17 years. Most of his time was spent in Goldman’s mortgage-trading business in the early 1990s, though he also oversaw its internet strategy, which resulted in a flopped online wealth-brokerage effort in the early 2000s. … he will be the third former Goldman banker to hold the position in less than 25 years” [following Robert Rubin and Henry Paulson both former Goldman execs)
OTHER former Goldman execs moving through revolving door cited in the article include:
Robert Steel as G. W. Bush’s 2nd term deputy

William Dudley President of Federal Reserve Bank of New York

Joshua Bolten Chief of Staff G. W. Bush

Steve Friedman senior economic counselor G. W. Bush

Gary Gensler head of the Commodity Futures Trading Commission under B. Obama

Mark Carney head of Canada’s central bank (previously)

Mario Darghi head of European Central Bank
The Wall Street Journal article notes in italics:
Goldman partners view public serve as an important coda to a finance career”
Goldman views the revolving door with favor and sacrifices key officers to it.
 
Trump's candidate for Treasury Secretary worked for Goldman in its mortgage division. I investigated mortgage fraud in derivatives in my past research on the financial crisis. 

Here are a few notes about Goldman’s conduct in the mortgage arena leading up to the financial crisis that are excerpted from my book on liberal democracy (https://rowman.com/ISBN/9780739194959/Crisis-Communication-Liberal-Democracy-and-Ecological-Sustainability-The-Threat-of-Financial-and-Energy-Complexes-in-the-Twenty-First-Century):
 
Savvy financial players, such as Goldman Sachs, knew that many of the Collateralized Debt Obligations (CDOs) were backed by junk and yet they sold these to the staid institutional investors – particularly public pension funds – while betting on their default using credit default swaps (CDS). 

Goldman Sach’s Vice President Fabrice Tourre’s division developed Abacus, a synthetic CDO, sold to unwitting clients who had no idea mortgages making up the CDO were expected to default.[i] Worse, Goldman Sachs and the hedge fund, Paulson & Co collaborated in betting that Abacus would default by purchasing credit default swaps on Abacus from the Royal Bank of Scotland. 

The Royal Bank of Scotland suffered significant losses from its sales of credit default swaps, including an $850 million liability from backstopping securities designed by Goldman Sachs.[ii] The Royal Bank of Scotland was subsequently bailed out by the U.K. Government, illustrating the transfer of private losses to the public. 

In an email to his girlfriend, Goldman's Tourre referred to himself "fabulous Fab" and described creating "Frankenstein" products that were nothing more than "pure intellectual masturbation" sold to naive widows and orphans.[iii] Goldman Sachs profited from selling CDOs it knew were infused with fraud. After selling the fraud-infused CDOs, Goldman then bet the underlying debt would default, rendering the securities valueless, by purchasing credit default swaps. In 2007 and 2008 Goldman and other CDS holders were profiting as the CDOs lost value in the torrent of home foreclosures.

Although tepid, the market-recovery of 2010 allowed Wall Street executives to congratulate themselves with outrageous Christmas bonuses. Indeed, Wall Street bonuses soared 17 percent in 2009 while compensation at three leading firms—Goldman Sachs Group, Morgan Stanley, and J.P. Morgan Chase and Co.—rose 31 percent from 2008.[iv]

....
References
[i] Andrew Clark, "Lloyd Blankfein Admits Goldman Sachs Failed to Raise the Alarm," The Guardian, April 27, 2010, accessed April 28, 2010, http://www.guardian.co.uk/business/2010/apr/26/goldman-sachs-sec-senate-hearing.

[ii] Zachary A. Goldfarb and Tomoeh Murakami Tse, "SEC Sued Goldman Sachs to Break an Impasse," The Washington Post, April 20, 2010, A1.

[iii] Andrew Clark, "Goldman Sachs Banker Fabrice Tourre Faces the Music," The Guardian, April 27, 2010, accessed, May 1, 2010, http://www.guardian.co.uk/business/2010/apr/27/goldman-sachs-fabrice-tourre.
 
[iv] Nathaniel Popper, "Wall Street Bonuses Soar 17% in 2009, Even as Banks Reduce Pay for Top Executives," The Los Angeles Times, February 23, 2010, http://articles.latimes.com/2010/feb/23/business/la-fi-wall-street-jobs24-2010feb24.

2 comments:

  1. http://www.alternet.org/economy/steven-mnuchin-and-wilbur-ross-slither-trumps-swamp

    ReplyDelete
  2. How can people be so moronic and self deprecating. To vote for psychopaths who will destroy their lives and their children's lives.

    ReplyDelete