Goldman’s Washington relations hit a new low

By Felix Salmon
June 7, 2010
lashes out at its "you want documents? We'll give you documents" approach to cooperating with the government:

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Goldman Sachs has lost another $2 billion in market capitalization today, as the Financial Crisis Inquiry Commission lashes out at its “you want documents? We’ll give you documents” approach to cooperating with the government:

“We did not ask them to pull up a dump truck to our offices to dump a bunch of rubbish,” Angelides said during a conference call following the announcement that the FCIC had sent Goldman a subpoena Friday.

The tone of both Angelides and FCIC Vice Chairman Bill Thomas was notably angry…

Thomas said Goldman was deliberately delaying because it knows the FCIC must wrap up its investigation and deliver a report on the crisis at the end of the year. Angelides agreed, describing Goldman as making a “very deliberate effort to run out the clock.”

It’s hard not to be reminded, here, of the way in which the SEC came out swinging at Goldman Sachs with its Abacus complaint, without giving the bank the opportunity to respond or settle privately: it seems that Goldman is making a habit of rubbing Washington types the wrong way.

This comes as some surprise, from the bank often referred to as “Government Sachs” – whatever happened to the days in which one could barely tell the difference between government technocrats and Goldman executives? Goldman seems happy to jettison decades of goodwill in DC just out of spite: either that, or it really does have something to hide.

There is one other possibility, of course: that Goldman is being whiter than white here, and fully cooperative, and that Washington types are grandstanding and picking on Goldman because it’s the easiest target. I don’t believe it. Angelides and Thomas aren’t running for elective office: they’re just trying to get to the bottom of things. And Goldman is obstructing them. Which can’t be in its best interests. The echoes here of the Pecora hearings are very strong indeed; Charles Mitchell, the head of the supercilious and obstructive City Bank, didn’t survive those. Will Blankfein survive these?

Update: The FCIC has released more details (PDF). Essentially, Goldman stonewalled, and delayed, and produced incomplete data — until eventually they dumped five terabytes of data onto the commission. OK, now they have no benefit of the doubt whatsoever.

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10 comments so far

Which brings us back full circle to Warren Buffett’s PR disaster post from last week. If not Blankfein, then his twin.

Posted by Curmudgeon | Report as abusive

Ha, talk about no win situation. They provide too few documents, GS gets rolled over the coals for evading the panel; if they offer full disclosure and give up everything, they are being obstructive! What should they do? Is there a right answer?

On the flip side, the word was that Uncle Lloyd is/was really pissed royally at Washington in general over all the bad press and finger pointing from that direction… this could be his way of thumbing his nose at ‘em.

Just for giggles, I hope Blankfein goes to the Congressional panel wearing a black mock turtleneck, Blue jeans and ratty white sneakers… might buy him some easy credibility with the public

Posted by CDNrebel | Report as abusive

What Goldman ought to be doing, as I’ve been saying for a long time, is to get ahead of this by kicking their own butts before anyone else can, proclaiming themselves disgusted at things that have apparently occurred at their company which go against their true values of integrity and putting the customer first.

Any time a celebrity gets caught in a bad situation, they go through this cathartic process of self-flagellation and repentance and rediscovery of their true inner something and they are back on the top of their game in weeks or months, as if nothing happened.

I have no idea why Goldman is so recalcitrant given how much they have done that looks bad, from rotten CDOs to Greek debt shenanigans to front-running through HFT to Washington influence peddling, borrowing for free from the Fed and enjoying Fed asset purchases, to name a few. It is obviously making their opponents (and there are many) so much more determined.

Buffett’s recent praise was probably bad for them because it makes it less likely they will clean house in a way that the public expects.

Posted by DanHess | Report as abusive

Aww, cut Goldman some slack willya… They’re just not used to cooperating with the government. For years, it’s always been the other way round.

Posted by HBC | Report as abusive

Wow, these goverment types are getting lazy. Surely it is part of their job to cherry pick quotes and documents to make GS look bad not GS….

Posted by Danny_Black | Report as abusive

DanHess, mate, step back and actually educate yourself about these topics.

1) No one is front-running with HFT. Start by learning what front-running actually means.
2) No one has actually accused GS of making “rotten” CDOs. What they are actually accused of is selling to people who were up to their gills in exactly the same investments more of the same whilst – allegedly – neglectly to correct an impression that Paulson was long a non-existent slice of the transaction. Maybe you are confusing what GS is accused of with what Levin claimed they did. I admit his nonsense was hard to decipher but then rambling BS usually is.
3) The amount of debt “hidden” by the Greek goverment under the currency swap is trivial compared to the debt issues Greece has.
4) What influence peddling? Is this yet another one of those long words you don’t understand what it means?
5) “Borrowing for free” is the government’s brilliant idea to reinflate that bubble, not GS’s.
6) Fed asset purchases imposed a haircut on the repos. You know what the P&L is for the Fed on those transactions? No? Didn’t think so.

Learn from HBC and keep your moaning nice and vague.

Posted by Danny_Black | Report as abusive

@Danny_Black –

I said that what Goldman has been doing looks bad. I stand by each one of those statements.

Let’s go over it.

1) If by front-running you mean narrowly trading ahead of orders clients place with you, I didn’t accuse Goldman of that. But it is not a secret that through HFT, a number of firms including Goldman are profiting by ferreting out buying or selling activity by large institutions and getting ahead of that. It is not illegal, and specialists have done this manually for years, but it leaches from the institutions to no economic purpose.
2) Well the CDOs were proved rotten by their performance in the marketplace. And Goldman, is investigations have shown, suspected they were rotten as they assembled them. Legality, TBA.
3) The amount of debt hidden by the Greek government with the help of Goldman is not the issue. Admittedly it was only in the low billions :/. Goldman hid this debt, and used false ‘historical’ exchange rates to do it, and, good for them, they successfully tricked some of the market, for a while.
4) Influence peddling? You are right, probably not the best choice of words because this describes the crime from the perspective of the payee (Congress) rather than the payer, Goldman. Thank you for correcting my error.
5) It’s true that zero interest money is the Fed’s idea, but Goldman changed into a bank (preposerous) to take advantage, and that does not look good. Borrowing from the government to lend back to the government? What pathetic welfare.
6) Fed asset purchases? Let’s see… bonds? MBS’s? I’d love to see Goldman take a haircut on that. No actually, that’s more welfare to Goldman.

I think I actually have a higher opinion of the real Goldman than you do. I think they have a lot of potential and are far better than this. I think they are brilliant and can make money in cleverer ways than just lining up for handouts from the Fed.

You seem to want to just accept Goldman for it is, festering sores and all.

Posted by DanHess | Report as abusive

Dan,

1) Front-running is exactly that. “Ferreting” out what other market participents are doing and attempting to make money off it is what a traders job is and as long as they use publicly available information – and there is no suggestion by anyone that GS doesn’t do that – then it is perfectly ethical/legal.
2) Does that mean that the CDOs were fine during the bubble then? Or do we require banks to have perfect clairvoyence now? Big difference between parts of the banks having doubts about the market and “peddling rotten CDOs”.
3) There was no tricking of the market. Anyone who could read knew about these transactions AT THE TIME. GS was openly boasting about doing them AT THE TIME. Again the fact that people decided that Greece was a great bet until one day, some seven years after the event they don’t is suddenly GS’s fault?
4) GS changed into a holding company because as fiduciaries to their shareholders they had to guarantee they took every single measure possible to ensure their survival in a credit crunch.
5) In is in the repo structure for the asset purchases, when they repo the asset with the Fed then the fed doesn’t pay full whack and they charge a fee. Ditto BoE facility.

I have no view on GS. I think they are being used as an easy target to pass ill-adviced legislation – unless you think more boilerplate that no one reads on derivatives transactions will stop the next crisis. Focus should always be on the demand not supply side – ie they should be targetting the people who BUY these assets, collect big bonuses for taking risks with your money and then sue banks who apparently took them for fools. In other words the buyside.

Posted by Danny_Black | Report as abusive

The difference between behaving cooperatively and delivering a snow job is clear enough to most people including the FCIC. I could see how cooperation might be of advantage to Goldman Sachs but they apparently can’t, or won’t. Nor will individuals like Danny Black, whom I don’t expect to understand any of this.

The government has never been exactly adversarial toward Goldman Sachs, but the risk of this occurring is exactly what they’re running right now.

An arrogant wild man strategy only works for so long, especially for crooks. When the book gets thrown at them, as now well it may, it will come with a bill that Goldman better be prepared to foot by means other than at further taxpayer expense.

Posted by HBC | Report as abusive

@DB –

1) “As long as they use publicly available information” … that’s just it; they are getting instantaneous information that is not available to most members of the public. Legal = ethical? Do you derive your ethics from Congress? Nice!
2) This one is the subject of a criminal inquiry. I’ll wait for te courts on this.
3) Cohn went back to Greeece only this November, allegedly to try to help them hide more debt in the same way. So it’s not all ancient history.
4) Borrowing at nil from the Fed is at the center of GS profitability. You are right that this is arguably not Goldman’s doing, but it amounts to a gargantuan bailout. To hear GS tell us they paid back everything to taxpayers with profit and never wanted a bailout is funny.
5) Regarding Fed asset purchases, the big enchilada is buying of Treasuries… no haircut there.

I am not in favor of the jokers running Congress now and this bill will have problems, but somewhere along the line, the Fed became the main source of bank profits via asset purchases and interest-free money.

There was another answer. The Friedmanite solution would have featured direct money printing to the people in response to deflation, which would have reflated the economy and boosted underwater assets, indirectly helping Wall Street. The dollar would have devalued and unemployment would have gone down.

Here we are still mired in a mess, with more crushing debt than before, only moved over to the government balance sheet.

Posted by DanHess | Report as abusive
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