Goldman’s human face

By Felix Salmon
November 17, 2009
Lloyd Blankfein's admission and apology that his bank "participated in things that were clearly wrong and have reason to regret", and secondly its $500 million 10,000 Small Businesses Initiative, under which it will team up with community colleges, business organizations, and Community Development Financial Institutions (CDFIs) -- all with the aim of removing barriers to growth in the small-business sector of the economy.

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Today the squid is showing its human face — you know, as opposed to wrapping itself around one. Goldman deserves to be applauded for two things today: first of all Lloyd Blankfein’s admission and apology that his bank “participated in things that were clearly wrong and have reason to regret”, and secondly its $500 million 10,000 Small Businesses Initiative, under which it will team up with community colleges, business organizations, and Community Development Financial Institutions (CDFIs) — all with the aim of removing barriers to growth in the small-business sector of the economy.

As a board member of a CDFI myself, I can attest that the kind of funding that Goldman is providing — some $300 million in loans and grants — can make a world of difference to our members. We’re happy to do a lot of work underwriting loans to small businesses, but by their nature these things are risky, and if someone like Goldman Sachs steps in to backstop losses on a portfolio of small business loans, there’s no shortage of borrowers we are eager to be able to help, often in conjunction with public organizations like NYC Business Solutions. All too often there’s lots of goodwill in such places but a serious shortage of lendable funds: initiatives like Goldman’s should help change that. And given that small businesses are a key driver of employment growth, there has never been a better time to do this.

I also asked Goldman which activities, exactly, Blankfein had in mind when he talked about doing “things that were clearly wrong”. They pointed me to his Handelsblatt speech:

The industry let the growth and complexity in new instruments outstrip their economic and social utility as well as the operational capacity to manage them. As a result, operational risk increased dramatically and this had a direct effect on the overall stability of the financial system.

So complex structured products would be one example of what Blankfein was talking about; another, I was told, would be cov-lite loans. Would that more bank executives went public in describing such things as “clearly wrong” in normative terms, rather than simply money-losing mistakes in hindsight.

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Comments
9 comments so far

So, let’s see; I can lay off $13 billion in losses on the U.S. taxpayers, promote & sell toxic derivatives at the same time I’m shorting them, front run clients, manipulate equity & commodity markets but I will be absolved if I just say I’m sorry & throw some money (relative pocket change) at your favorite cause.

Well at least now we know what your price is…

Posted by StevenKs | Report as abusive

Why not save CIT Goldman? Goldman is basically trying to steal CIT’s business when they are restructuring. This is stealing not charity.

Posted by tony | Report as abusive

what we’ve seen in the last few days, is that Goldman was not responsible for the 100 cents on the dollar AIG CDS payment(it was the foreign banks). The issue is that there are too many people in gov’t who formerly worked at Goldman, Goldman’s hubris and the lack of acknowledging how they are benefiting from the collapse of their competitors.

Posted by Sechel | Report as abusive

Felix:

Doesn’t your CDFI provide stationary for thank you notes?

Posted by maynardGkeynes | Report as abusive

Human face? Deserves to be applauded? You’re kidding right? Are they going to pay back the money they ripped? 23billion in bonus for 2009 is what I read… what percentage of that is 500million??

Posted by ptless | Report as abusive

The $500M Goldman is sort of giving away is over five years, so it’s $100M per year. Meanwhile, an estimate provided in the FT says Goldman will spend almost $22 Billion in compensation in 2009 (not sure if that means just the bonuses, or their entire compensation, but does that matter?.

So for those of you keeping score at home, that’s $100 million to atone for their sins, and $22 Billion, or 220 times $100 Million, for their compensation. Or in other words, the $100 Million is about 0.4% of this year’s compensation.

Now everybody should be able to understand why Goldman couldn’t possibly accept 98 cents on the dollar for the swaps they bought from AIG. They needed the $250 million or so to cover this gift.

Yes, they are so sorry.

Mr. Salmon,

You are fishy at best. Like rotted shark, your commentary is just as pungent. How you can vouch for a firm that drove the market into the ground, and in combination with its alumni, strong-armed the weakling Bernanke into giving trillions to Goldman and its evil ilk, is beyond any realm of conscience. Either you are truly a moron, naivete, or a Goldman alumnus.

Posted by Jeremy | Report as abusive

Given that they’re paying this out over time, do you know if they’re legally bound to fund the full amount, or if they can just as easily pull back when the media focuses on other issues and public pressure on Goldman subsides?

Posted by Sharon | Report as abusive

The $500 million though is really a drop in the bucket compared to the kinds of numbers this company throws around. Its almost insulting in a way, but at this point we are the dog underneath the table and are willing to take whatever scrapes these people want to toss our way.

So are we supposed to get excited about this? I wouldn’t exactly say that, but I wouldn’t completely scoff at it either. They didn’t have any reason or were mandated to do this in anyway. Of course its a blatant PR move, but its not a bad one. Its really in their best interest too for as the economy soars so do their profits. Its really just a win win situation for everyone involved. Some more money possibly in line with the kind of money they’ve been paying out in bonuses would have been nice, but who are we really to complain.

I don’t really blame Goldman Sachs for the financial crisis, they were simply going about their businesses. Looking back at it, things could have been done differently of course, but hindsight is always 20-20. Its refreshing to see someone step up to the plate and admit that they didn’t handle things as well as they could have. Is it sincere? Probably not, but at this point its all we’re going to get and its better than nothing.

Check out my blog on the Goldman Sach’s penance offering at…. http://www.thedebtgazette.com/2009/11/go ldman-500-million-penance/

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