It’s hard for us to tell if this is getting more boring, or more fascinating. Perhaps a bit of both. The latest disclosure about the seemingly endless tentacles and influence of “Goldman Squid”, as FT Alphaville dubbed Goldman Sachs after writer Matt Taibbi’s recent takedown of the US investment bank in Rolling Stone (a “great vampire squid wrapped around the face of humanity”) , is bound to unleash a new wave of hysteria about the bank’s influence on government.
The New York Times on Saturday, citing copies of Paulson’s calendars, reported that Paulson and Goldman chief executive Lloyd Blankfein had two dozen conversations over a single week last September in which rival bank Lehman Brothers collapsed and insurer AIG – closely connected to Goldman – was rescued with public funds.
Goldman was a major beneficiary of the AIG bailout, receiving nearly $13bn in counterparty payments ultimately funded by taxpayers, according to AIG disclosures in March. Goldman insisted it was fully collateralised and hedged against those positions in the event of an AIG failure, so it had no material economic exposure to the bailout. But of course, conspiracy theories abound.
Reuters reports on Monday that Paulson’s spokeswoman Michele Davis confirmed that frequent telephone conversations with Blankfein took place in that period, but denied Paulson had any intention of helping Goldman specifically. Of course not.
“Suggesting that AIG was saved for the sake of one firm is as ridiculous as saying firemen put out a fire in a skyscraper to protect just one of the thousands of people in the building,” David said in a statement.
It’s worth pointing out here, however, that it surely depends on who is in that skyscraper. What if, for example, one individual in the burning building were, say, the US president?
Paulson – unsurprisingly – was speaking to many bank CEOs in that period. But it was Goldman that has attracted more flack than any other bank from lawmakers and public interest groups for its close government connections. Reuters reminds us that it seemingly sailed “through a deep recession shortly after accepting $10bn of bailout money and benefiting from a host of other government programmes,” including instant approval to transform itself into a bank holding company and access the Fed’s borrowing window.
Still, Goldman spokesman Lucas van Praag told the NYT, “Lloyd Blankfein, like the CEOs of other major financial institutions, received calls from, and made calls to the Treasury to provide a market perspective on conditions and events as they were unfolding. Given what was happening in the world, it would have been shocking if such conversations hadn’t taken place.”
Yes. Shocking.
Paulson, it should be noted, did ask US Treasury and White House lawyers that week for a waiver from an ethics ban on contacting his former firm, amid fears of Wall Street’s total implosion. According to the NYT, that waiver was granted on September 17, the day after the AIG bailout was announced and the day after Paulson received a phone call from Blankfein. Paulson and Blankfein spoke three times before the waivers were granted and five times on September 17 alone, the NYT said.
Altogether, the two spoke 24 times between September 16 and 21st. And as Reuters blogger Rolfe Winkler noted, “that’s just on his office phone. It doesn’t include calls Paulson might have made from his cell or home phones”.
After all, David explained to the NYT, if the government needed to intervene on Goldman, Paulson “needed to be able to actively engage in finding a solution”. Paulson’s September 16-21 telephone records, obtained by the NYT under a Freedom of Information Act request, showed that Paulson spoke much more frequently with Blankfein than he did with other Wall Street executives in one of the most turbulent weeks in modern financial history.
He also spoke frequently with John Mack, Morgan Stanley chief executive, which was in a far more troubled situation than Goldman, although only 12 times in that Blankfein-filled week.
Paulson spent 32 years at Goldman and preceded Blankfein as CEO before becoming Treasury secretary in 2006, Reuters reminds us. At a July 16 congressional hearing, lawmakers angrily asked Paulson to explain changes in US policy during the crisis and said he had conflicts of interest in decisions involving Wall Street firms. “I operated very consistently within the ethics guidelines I had,” Paulson said.
Ultimately, we’d have to agree with Infectious Greed’s Paul Kedrosky as the “vampire squid” debate rages on. The weary sigh is almost audible – and yes, we’d have to say, “infectious” – as Kedrosky, noting last week’s strong defence of Taibbi in the Columbia Journalism Review, concludes:Fair enough, I suppose. But I’m soon going to need a program to keep track of who is scoring points off whom in all of this. Can’t we all just agree that Goldman has way too much influence for a firm happy to trade around that influence and leave it at that? No?
Related links:
Michael Lewis: Goldman Sachs is not a giant vampire squid – Bloomberg
Vampire squid, illustrated edition – FT Alphaville
Things do not always go Goldman Sachs’ way – FT Alphaville
What is Goldman Sachs? - FT Alphaville