Wednesday, March 3, 2010

Goldman Sachs: The Men Behind The Curtain

Don’t pay attention to the men behind the curtain!

Greece is undergoing a financial meltdown, and Goldman Sachs was a key player in helping them mask their huge budget deficits. The financial institution received $300 million in fees for arranging a derivative transaction in 2001.

Upon entering the European Union, member countries agreed not to exceed budget deficits of 3% of GDP; Greece is at 13%. Many suspect other members have engaged in similar practices.

Goldman Sachs was a huge player in the U.S. banking crisis. When the federal government was dispensing cash through the TARP program, Sachs converted to a bank holding company so as to qualify for funding.

Secretary of Treasury Henry Paulson called in former colleagues at Sachs to help manage the crisis:

Neel Kashkari – appointed to oversee $700 billion fund to buy toxic and bank assets
Steve Shafran – student loan problems, guarantee money market funds, etc…etc
Dan Jester – involved in the government takeover of Fannie Mae and Freddie Mac
Kendrick Wilson – worked with heads of banks to apprise them of treasury plans and gauge their response. He also worked with two other Sachs executives: Edward Frost and Robert Steele.

Treasury Secretary Timothy Geithner did not work for Goldman Sachs, but had close ties with Bob Rubin who was co-chair at the famed firm. Geithner became president of the New York Federal Reserve. The New York Times wrote of the relationship:

Some people say that all of these Goldman ties to the New York Fed are simply too close for comfort. “It’s grotesque,” said Christopher Whalen, a managing partner at Institutional Risk Analytics and a critic of the Fed. “And it’s done without apology.”

Bob Rubin became treasury secretary under Bill Clinton, and then senior counselor at Citigroup, which also received billions in bailouts.

Secretary Paulson appointed Edward M. Libby, Goldman Sachs director in 2003 to act as A.I.G.’s chairman of audit committee. Sachs had $20 billion in credit derivatives with A.I.G. who was the company’s largest trading partner. Market watch wrote the following:

Until it was fully extricated, Goldman always characterized its exposure to AIG as "immaterial," and that its $20 billion notional exposure to AIG was hedged. Turns out that it was -- through government bailouts that didn't exist when Goldman entered the contracts.

Even former New York Luv Guv Eliot Spitzer told journalist Fareed Zakaria on Sunday that he thinks something smells.
"The web between AIG and Goldman Sachs is something that should be pursued," Spitzer said. "Why did [those payments] happen, what questions were asked, why did we need to pay 100 cents on the dollar for those transactions if we had to pay anything, what would have happened to the financial system had it not been paid?"

Yes, it looks like Government Sachs has made out quite well. They have managed to make a profit, while their competitors went out of business or are greatly diminished. They are like the Colossus of Rhodes, whose stance strides over the financial harbors of the world. Hopefully, their foundation is more stable.


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