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Money managers under the microscope

Goldman’s Blankfein readies to bare all

October 13, 2009

Blankfein in full flow

Goldman Sachs chief executive Lloyd Blankfein has been holding forth in the FT with a comment piece entitled: “To avoid crises, we need more transparency”.

It’s not the sentiment that raises eyebrows; It’s the pulpit it comes from. Goldman’s recent past is scattered with events that can be described as anything but transparent.

Try asking Goldman about the bank’s exposure as an AIG trading counterparty immediately prior to the American insurer’s near-death experience last autumn. There hasn’t been much voluntary transparency so far, and what has emerged has had to be squeezed out like the remnants of a toothpaste tube.

What of the frantic behind-the-scenes negotiations which led to the then Treasury Secretary Hank Paulson, Goldman’s ex-CEO, to ensure the insurer was bailed out — to date to the tune of $170 billion-plus of US. taxpayer’s money.

In August the New York Times said it obtained, through the Freedom of Information Act, a copy of Paulson’s calendars showing he spoke two dozen times with Blankfein during the most critical week of the AIG crisis, far more than with other concerned parties on Wall Street.

Said the NYT: “…according to two senior government officials involved in the discussions about an A.I.G. bailout and several other people who attended those meetings and requested anonymity because of confidentiality agreements, the government’s decision to rescue A.I.G was made collectively by Mr. Paulson, officials from the Federal Reserve and other financial regulators in meetings at the New York Fed over the weekend of Sept. 13-14, 2008.”

The article continues:

“These people said Mr. Paulson played a major role in the A.I.G. rescue discussions over that weekend and that it was well known among the participants that a loan to A.I.G. would be used to pay Goldman and the insurer’s other trading partners.”

Other areas of the bank’s operations also remain opaque.

For example, Goldman’s outstanding proprietary trading profits so far this year, the role of flash trading and the expenses paid by trading clients in the name of “best price”–which according to a recent paper by Jill Eicher of Adaptive Alpha, a Chicago-based quantitative analytics firm, often comes at the expense of best execution.

Eicher raises the question, why is it that the trading profits at major banks almost always outstrip those of their clients? Are they simply that much better at it?

Perhaps it is time investors were told. Now that would be transparent.

Comments

Never invest in things that you do not know and do not understand. What the banker knows does not equate to what you understand from what he says. Stay wise and smart!

 

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