Bringing Up the Rear: Lloyd Blankfein, CEO, Goldman Sachs
This column made possible by the people who brought you the end of the world as you knew it.
At the risk of being accused of going after the obvious choice for this monthâ€™s posterior player, this â€śRearâ€ť just had to be Mr. Llyod Blankfein, CEO of Goldman Sachs.Â I mean reallyâ€¦ who would you have chosen?Â Did you watch his testimony in front of the Senate Subcommittee?Â Can you say â€śsynthetic CDOâ€ť?
Lord Blankcheck testified that Goldmanâ€™s clients’ trusting the firm was essential to the firmâ€™s success. He then went on to reject any suggestion that Goldman might have the teensy tiniest obligation to disclose the fact that it was betting big against the bonds, and I use that term very loosely, it was selling to investors.Â After that, Baron Blankcheck went with the all-too-familiar refrain that he just couldnâ€™t answer any other questions about the â€śins and outsâ€ť of the situation, under the rationale: â€śBecause I just donâ€™t know more than what Iâ€™ve heard from Mr Tourreâ€™s testimony.â€ť
He doesnâ€™t know more than that?Â Wow.Â See, now I would have thought that in order to be in the running for Goldmanâ€™s Chief Executive slot, you would need to know at least a scosh more about how the firm was making billions of dollars while the housing market was causing the entire U.S. economy to circle the drain, than what we heard during one dayâ€™s testimony by some 31-year old, junior banker known as Fabrice â€śFabulous Fabâ€ť Tourre.Â But, apparently not.Â Oh well, live and learn, as my mother likes to say.
It was truly something to behold.Â The Senators grilled various Goldman execs about the firmâ€™s role in the financial crisis, but Baron Blankcheck remained steadfast in denying that Goldman had taken a â€śshortâ€ť position against the mortgage market in 2007.Â He also denied that there was any fraud involved on Goldmanâ€™s part.
So, let me get this straightâ€¦ he doesnâ€™t know anything about the â€śins and outs,â€ť as he put it, but yet heâ€™s absolutely positive that the firm didnâ€™t take a short position against the mortgage market in â€™07, and knows for sure that there was no fraud involved.
Senator Levin, the Committeeâ€™s Chair said: â€śAnd you want people to trust you?Â I wouldnâ€™t trust you.â€ť
Well, sureâ€¦ Carl wouldnâ€™t trust him, but thatâ€™s only because a 10-year old could tell you that the man is lying through his teeth.Â This is why I think that weâ€™ve gotten too civilized over hereâ€¦ weâ€™ve let decorum grow out of hand.Â Iâ€™m thinking of starting a movement called: â€śPeople in Favor of Hitting Bankers With Sticks.â€ťÂ We could call it: PIFOHBWS.
Just think how it would have lookedâ€¦ Blankcheck would have said: â€śGee, I couldnâ€™t tell you about the ins and outs of those billions we made,â€ť and someone would have walked over and whacked him with a good size stick.Â Now thatâ€™s what I call compelling television.
Remember a few years backâ€¦ when Pakistan was having all the political turmoilâ€¦ bad.Â And there was civil unrestâ€¦ bad.Â And they disbanded the countryâ€™s Supreme Courtâ€¦ also very bad.Â But, if you remember the footage on CNN, you had to kind of envy a country where they get to hit their politicians with sticks, right?
Days after their day in the Senate, in an interview with Michelle Norris, Blankcheck said, referencing Goldmanâ€™s buying and selling of securities, “we are the market maker, helping people to acquire the kinds of risks they want to have,” he said. “The clients we have are not deciding to buy or sell something because of what our position is.”
Oh really, Lloyd?Â Okay, letâ€™s say heâ€™s right, Goldman clients arenâ€™t deciding to buy or sell having anything to do with what position Goldman is taking.Â Then why not disclose Goldmanâ€™s position, Lloyd?Â You knowâ€¦ in the spirit of disclosure, and all.
My favorite line of the day, unquestionably, came from Democratic Senator, Claire McCaskill, when she said quite seriously to Blankcheck and the Boys from the Bank: â€śYou are the bookie, you are the house. You have less oversight than a pit boss in Las Vegas.â€ťÂ And that would be funny, if it werenâ€™t so monumentally sad.
Hereâ€™s whatâ€™s so frustrating about Lloyd Blankfein and the bankers that broke the world: They made inconceivable fortunes on the downfall of our entire economy.Â Millions have lost jobs, millions more have lost their homes, taxpayers are on the hook for an amount thatâ€™s in the trillionsâ€¦ and these guys got bonusesâ€¦ cashed outâ€¦ Ka-ching!Â And they did so on the backs of U.S. taxpayers.
Howâ€™s this for insult to injury: While Blankfein was testifying to the Senate Sub-Committee, he made $2.8 million!Â Yes, itâ€™s true, according to the New York Daily News.Â He owns 2,035,364 shares, so every time Goldman stock goes up a penny, the man earns roughly $20,000, and the day he testified, the stock went up more than a buck, from $151.63 to $153.04.Â By Wednesday of that week, the stock was up by $5.38, so thatâ€™s about $10 million, which is not bad for a boy from a working class neighborhood of Brooklyn.
Look, Goldman and Blankfein can claim until the cows come home that they didnâ€™t bet against the housing market, and their clients, butâ€¦ they did precisely that.Â I know it, Senator Levin and the rest of his committee knows it, and everyone else should know it too.Â They werenâ€™t alone, all of the Wall Street bankers did the same, and they all got richâ€¦ at the taxpayersâ€™ expense.Â Because the fact is that without us taxpayers, Goldman would have very likely gone bye-bye in 2008.
In October of 2008, after getting $12 billion from the taxpayers in bailout funds, they paid out more than $14 billion in bonuses at that yearâ€™s end.Â Last year, they set aside something like $90 billion for bonuses.Â And how much did they get from our bailout of AIG?Â I donâ€™t even care to count it anymore.
What the bankers have done here is inestimable in terms of the harm theyâ€™ve caused, and yet they continue to have political clout at the highest levels of our democracy. Goldman Sachs Chief Lobbyist is now Treasury Secretary Tim Geithnerâ€™s Chief of Staff. Goldman Partner, William Dudley, replaced Geithner as President of the New York Federal Reserve.
During the first seven months in office Geithnerâ€™s calendar shows more than eighty contacts with Lloyd Blankcheck, Jamie Diamonds of JPMorgan Chase, or Citigroupâ€™s CEO Vikram Pandit, whoâ€™s name sounds like a Bond villain.Â (I picture him petting his cat as he speaks.)Â Geithner had more contacts with Blankcheck than he did with Senate Banking Chair, Christopher Dodd.Â As Simon Johnson wrote in his recently published book, Thirteen Bankers, which I absolutely loved, by the way, â€śIn a world where access is a prerequisite for influence, Wall Street had the access to the people that mattered, when it mattered.â€ť
Credit default swaps (â€śCDSsâ€ť) became a way to â€śgo shortâ€ť on the sub-prime mortgage market.Â You could package bonds you knew would default and then buy credit default swaps on those bonds.
For $200,000 a year for ten years, you could buy a CDS on a $100 million AAA rated bond.Â The most you could lose was a few hundred grand, but when the bond defaulted, and you knew it would because you built it, you hit the $100 million jackpot.!Â Woohoo!Â You didnâ€™t even need to own the bond to insure against its default.
And if that wasnâ€™t bad enough, the Wall Street crowd didnâ€™t stop at that perverse level of financial innovation, as they like to call it.Â Oh, no.Â They securitized everything they could get their hands on, turning almost pure crap into triple A rated mortgage backed securities, turned those mortgage backed securities into CDOs, thus turning garbage into triple A rated gold once again, and then they created â€śsynthetic CDOsâ€ť that had nothing inside them but CDSs.
They built a house of cards, placed huge bets on the cards falling down, and then went and switched on a giant fan.Â Senator Levin made that as clear as could be, and I salute him and his fellow committee members.Â At the time of this article going to print, the SEC has referred the Goldman case to the Justice Department for criminal prosecution. Perhaps someone can now be held accountable, instead of the borrowers accused of buying homes they couldnâ€™t afford.
â€śIf theyâ€™re too big to fail, theyâ€™re too big,â€ť says Alan Greenspan on October 15, 2009, who, after reading his book, I still likeâ€¦ so sue me.