Economic Intelligence: Goldman Sachs, an investment bank at the centre of world power.

Double explosure with businesss charts and financial district of

Goldman Sachs, a bank hated and adored at the same time, a CEO Lloyd Blankfein unsinkable in different crises… Here are some words that can characterize the establishment. A constant search for excellence and the best advice to the client. However, the various past crises have shown a different face of the bank, more greedy and more offensive in its perpetual quest for profit. The trial of Fabrice Tourre, who handed down his judgment at the beginning of August, still leaves a bitter taste as to the real implications of the bank and tends to validate the group’s excesses. Anyway, the SEC settled its dispute with the SEC by paying $550 million in 2010.

1- Strategic links in the last great Crises.

a. The “Subprime” crisis

In a context of unprecedented crisis, economic intelligence at Goldman is “terribly” present. The institution known as “The firm” is accused by many observers of using its powers of influence to promote its sole benefit to the detriment of all other economic stakeholders.

In April 2010, the SEC attacked Goldman Sachs for widespread fraud and conflicts of interest, the “Abacus” case. Indeed, the bank deliberately speculated downwards on real estate debt securities ( “Mortgages” in English) while recommending them as much as possible to these clients.

In addition, it would have favored Le Hedge Fund Paulson & Co by illegally transmitting this strategic information so that John Paulson, manager of this fund, could sell these debt securities massively short. (http://www.lemonde.fr/economie/article/2010/04/17/le-systeme-goldman-sachs-en-accusation_1335177_3234.html)

The latter made $1 billion in profits on this transaction. (John Paulson is known to be one of the first to speculate downward in the U.S. real estate market. In addition, he is one of the holders of the 360-day compensation record with a $3.7 billion bonus in 2007, the absolute record being $4 billion in 2009 for a Hedge Fund manager (http://www.lefigaro.fr/bourse/2010/04/02/04013-20100402ARTFIG00357-revenus-record-en-2009-pour-les-patrons-de-hedge-funds-.php).

In the United States, the border with conflict of interest is very thin. The best example by far is that of Henry Paulson, former Secretary of State for the Treasury under the presidency of George Bush and former CEO of Goldman Sachs from 1999 to 2006, who, particularly at the initiative of the American stimulus plan, would have very clearly favoured Goldman Sachs, particularly in the rescue of AIG on the one hand and in the failure to rescue Lehman Brothers, Goldman Sachs’ formidable competitor on the other hand. In addition, a New York Times study shows that (the last weekend before the announcement of AIG’s federal support) he spent much more time on the phone with Goldman Sachs CEO Lloyd Blankfein than with all the other major banks on Wall Street (http://www.nytimes.com/2009/08/09/business/09paulson.html?scp=2&sq=paulson&st=cse), to promote a CDS payment by AIG for Goldman Sachs, the detractors say so.

Goldman Sachs still has former employees in key positions such as Mark Carney, current Governor of the Bank of England (he was Governor of the Bank of Canada until a few months ago) or one of the leaders of the Ben Broadbent Bank of England (http://en.wikipedia.org/wiki/Ben_Broadbent) who is a former economic director of the European sector at Goldman Sachs. What can we conclude about this vast game of chess where the goal is to place your pawns as well as possible? Goldman Sachs is a model of strategic intelligence since their main strategy of influence is to put in place people capable of taking sides with them at the right time, (Henry Paulson’s example is very realistic).

Pierre Genechesi

BONDS & SHARES

BONDS & SHARES is a participatory non-Profit information platform for, through and by experts in finance and business. For more information please visit www.bonds-and-shares.com


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