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The Rise and Fall of Goldman Sachs

Is Goldman Sachs becoming a victim of its own success?

Takeaways


  • "Goldman Sachs Group has proved that the rich do indeed get richer." (Rob Cox and Una Galani, breakingviews.com reporters, December 2007)
  • "It used to be the most respected investment bank in the world. Now, it seems to be a part of more conspiracy theories than the Central Intelligence Agency." (Floyd Norris, New York Times columnist, April 2009)
  • "Complexity got the better of us. The industry let the growth in new instruments outstrip the operational capacity to manage them." (Lloyd Blankfein, CEO of Goldman Sachs, February 2009)
  • "The U.S. government would not look fondly on Caesar's Palace if it opened a table for wagering on corporate failure. It should not do so Goldman Sachs." (Roger Lowenstein, author of "The End of Wall Street", April 2010)
  • "Goldman is very good at what it does. Unfortunately, what it does is bad for America." (Paul Krugman, New York Times columnist, July 2009)

What must be stunning to Goldman Sachs?

"It used to be the most respected investment bank in the world. Now it seems to be a part of more conspiracy theories than the Central Intelligence Agency."

(Floyd Norris, New York Times columnist, April 2009)

What is still remarkable about Goldman Sachs?

“They embody the best of Wall Street. They’re smart, well-educated, thoughtful, professional and hard-working.”

(James Stewart, columnist and editor-at-large for SmartMoney magazine and smartmoney.com, April 2010)

And so regrettable?

“Goldman Sachs, a name once synonymous with professionalism and integrity, is now known as the bank that failed to disclose to clients to whom it sold those CDOs that it had, if effect, let the fox into the henhouse.”

(James Stewart, columnist and editor-at-large for SmartMoney magazine and smartmoney.com, April 2010)

Why should anybody outside of the financial markets care?

“The U.S. government would not look fondly on Caesar’s Palace if it opened a table for wagering on corporate failure. It should not give greater encouragement for Goldman Sachs to do so.”

(Roger Lowenstein, author of “The End of Wall Street”, April 2010)

What is objectionable about Goldman’s business practices?

“It is a bit like selling tickets for a ride to the moon on a rocket designed by an engineer who has bought insurance that will pay off when the rocket explodes — and the rocket explodes on the launching pad.”

(James Saft, Reuters columnist, April 2010)

Are there other takes on the SEC’s recent charges against Goldman?

"Is that all there is? Far from being the smoking gun of the financial crisis, this case looks more like a water pistol."

(Wall Street Journal editorial page, April 2010)

Why is that?

“The securities in question, so-called synthetic collateralized debt obligations, cannot exist unless somebody is betting that they will lose value. The firms that bought Goldman’s securities knew perfectly well that some other investor must be taking the opposite position. It was their job to evaluate the Goldman offer and make up their own minds.”

(Sebastian Mallaby, Director of the Center for Geoeconomic Studies and Fellow for International Economics at the Council on Foreign Relations, April 2010)

Has Goldman changed in light of the financial crisis?

“Our model never really changed. We’ve said very consistently that our business model remained the same.”

(David Viniar, Goldman Sachs’ CFO, July 2009)

What does "business as usual" entail?

“Goldman intends to operate as an institutional Wall Street firm — complete with its own hedge and private equity funds — while having government and Fed support. Second, it seeks to maintain its tradition of setting aside half its revenues each year for employees.”

(John Gapper, Financial Times columnist, October 2009)

Is Goldman "too big to fail"?

“Goldman Sachs and virtually every other bank and investment bank around the world are creatures of government. They exist — whether they want to or not — only by grace of the taxpayers who, it has been demonstrated, stand ready to pick up the pieces when risk management fails.”

(James Saft, Reuters columnist, July 2009)

Should Goldman take its government support for granted?

“Why isn’t the government charging Goldman Sachs and JPMorgan a large insurance fee for classifying both firms as ‘too big to fail’ — and therefore automatically bailed out if the risks they take turn sour?”

(Robert Reich, former U.S. Secretary of Labor and professor at the University of California, Berkeley, July 2009)

Is what's good for Goldman good for the United States?

"Goldman is very good at what it does. Unfortunately, what it does is bad for America."

(Paul Krugman, New York Times columnist, July 2009)

Why is that?

"Goldman, famously, made a lot of money selling securities backed by subprime mortgages — then made a lot more money by selling mortgage-backed securities short, just before their value crashed. All of this was perfectly legal, but the net effect was that Goldman made profits by playing the rest of us for suckers."

(Paul Krugman, New York Times columnist, July 2009)

How does one of Goldman's harshest critics characterize the firm?

“Goldman Sachs is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”

(Matt Taibbi, Rolling Stone columnist, July 2009)

Has Goldman long been the company the rest of Wall Street loves to hate?

"Goldman's aura goes back at least a generation. When I was in business school in the early 1980s, getting a job there was viewed as the ultimate accomplishment."

(Floyd Norris, New York Times columnist, April 2009)

What was the consequence of this?

"It should be no surprise that the firm that often got first choice in hiring ended up with some very good people. Nor should anyone be surprised by the jealousy and resentment Goldman had aroused, especially when it seemed to have been willing to trade aggressively to exploit others' weaknesses."

(Floyd Norris, New York Times columnist, April 2009)

What explained the company's success?

“When a company is doing noticeably better than competitors in its industry, there are three possible explanations: skill, luck or edge. Which of these factors explains the success of Goldman Sachs? The answer is: all three.”

(John Gapper, chief business commentator for Financial Times, December 2007)

How does the company's CEO explain Goldman's role in the crisis?

“Complexity got the better of us. The industry let the growth in new instruments outstrip 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.”

(Lloyd Blankfein, CEO of Goldman Sachs, February 2009)

What else does he have to say about his company’s practices?

“Goldman Sachs has never condoned and would never condone inappropriate activity by any of our people. On the contrary, we would be the first to condemn it and take immediate and appropriate action.”

(Lloyd Blankfein, CEO of Goldman Sachs, April 2010)

In his view, who else played a role?

“Too many financial institutions and investors simply outsourced their risk management. Rather than undertake their own analysis, they relied on the rating agencies to do the essential work of risk analysis for them.”

(Lloyd Blankfein, CEO of Goldman Sachs, February 2009)

What is unique about Goldman's corporate culture?

“Goldman has a fascinating culture. It is sort of like what I imagine the culture of the KGB to be. You always put the firm first.”

(Ben Stein, writer, actor and economist, December 2007)

What about its origins?

“Goldman wasn’t always a too-big-to-fail Wall Street behemoth. The bank was founded in 1869 by a German immigrant named Marcus Goldman, who built it up with his son-in-law Samuel Sachs. They were pioneers in the use of commercial paper and made money lending out short-term IOUs to small-time vendors in downtown Manhattan.”

(Matt Taibbi, Rolling Stone columnist, July 2009)

What old adage has Goldman Sachs proved true?

"Goldman Sachs Group has proved that the rich do indeed get richer."

(Rob Cox and Una Galani, breakingviews.com reporters, December 2007)

And finally, how is Goldman Sachs viewed in the eye of its detractors?

"Government Sachs."

(Time magazine, on Goldman Sachs, August 2009)

Why is this?

"The power and influence that Goldman wields at the nexus of politics and finance is no accident. Long regarded as the savviest and most admired firm among the ranks — now decimated — of Wall Street investment banks, it has a history and culture of encouraging its partners to take leadership roles in public service."

(Julie Creswell and Ben White, New York Times reporters, October 2008)

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