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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