What Happened to Goldman Sachs: An Insider's Story of Organizational Drift and Its Unintended Consequences by Steven G. Mandis
Authors: Steven G. Mandis
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greater government protection as the nation’s financial crisis worsens. (Morgan Stanley, the only other remaining independent investment bank, takes the same step.) Just before Thanksgiving, Goldman stock reaches an all-time low of $47.41 per share after trading at about $165 per share in early September. The Federal Reserve Bank of New York agrees to pay Goldman 100 cents on the dollar for its trading position with American International Group (AIG). Warren Buffet invests $5 billion in Goldman, roughly a 10 percent stake, an action that gives a vote of confidence in the firm. Through the Troubled Asset Relief Program (TARP), the US government buys $10 billion in preferred shares from Goldman. Goldman is questioned about paying 953 employees bonuses over $1 million each after taking TARP funds. CEO Lloyd Blankfein and six other senior executives opted to forgo bonuses. It is later reported that Goldman was the company from which Obama raised the most money in 2008 and that its CEO Lloyd Blankfein had visited the White House ten times.
2009: A Senate panel, led by Senator Carl Levin (D.-Mich.) and Senator Tom Coburn (R.-Okla.), convenes under the auspices of the Permanent Subcommittee on Investigations to investigate the causes of the credit crisis. The investigation will continue for the next two years. By October, Goldman’s stock price has more than fully recovered, selling at about $194 per share. In June 2009, Goldman Sachs repaid the US Treasury’s TARP investment, with 23% interest (in the form of $318 million preferred dividend payments and $1.418 billion in warrant redemptions). Blankfein sends letter to Financial Services Committee members of the US House of Representatives thanking the government for its extraordinary efforts and the taxpayers’ patience; stating that it regrets that it participated in the market euphoria and didn’t raise a responsible voice; and stating that it has obligations to the public interest. Lloyd Blankfein is named CEO of the Year by Directorship magazine. Matt Taibbi publishes a scathing article on Goldman in Rolling Stone , which includes the often-quoted “vampire squid” analogy. 4 A Goldman subsidiary settles with the SEC for $1.2 million over improper proprietary trading by employees. The SEC charges a former Goldman trader and his brother with insider trading based on information the trader obtained while at Goldman (R). The Massachusetts attorney general announces a $60 million settlement with Goldman over the alleged role the investment bank played in the subprime mortgage crisis (R). Goldman, among others, created a credit default swap index to cover the high risk of Greece’s national debt. The firm is reported to have systematically helped the Greek government disguise the true facts concerning its national debt between 1998 and 2009.
2010: Goldman reports a record profit of $13.39 billion for 2009. The SEC charges Goldman with deception for selling clients mortgage securities secretly designed by a hedge fund being run by John Paulson. A number of civil lawsuits are filed against the firm. Blankfein and other Goldman employees are called to testify before the Levin–Coburn panel about the financial crisis. Rumors about Goldman’s behavior abound. Warren Buffet, Goldman’s largest individual shareholder, and other major clients defend Goldman’s ethical character and behavior. The Dodd–Frank Wall Street Reform and Consumer Protection Act is signed, implementing broad changes to the regulation of the US financial system. After several months of studying Goldman’s business standards and practices, the internal business standards committee issues its report, calling for a recommitment to the firm’s business principles. Goldman agrees to pay $553 million, the largest fine ever paid to the SEC, to settle fraud claims related to disclosure about the design of the mortgage security called Abacus 2007-AC1. Fabrice Tourre, an employee at Goldman, who is also
2009: A Senate panel, led by Senator Carl Levin (D.-Mich.) and Senator Tom Coburn (R.-Okla.), convenes under the auspices of the Permanent Subcommittee on Investigations to investigate the causes of the credit crisis. The investigation will continue for the next two years. By October, Goldman’s stock price has more than fully recovered, selling at about $194 per share. In June 2009, Goldman Sachs repaid the US Treasury’s TARP investment, with 23% interest (in the form of $318 million preferred dividend payments and $1.418 billion in warrant redemptions). Blankfein sends letter to Financial Services Committee members of the US House of Representatives thanking the government for its extraordinary efforts and the taxpayers’ patience; stating that it regrets that it participated in the market euphoria and didn’t raise a responsible voice; and stating that it has obligations to the public interest. Lloyd Blankfein is named CEO of the Year by Directorship magazine. Matt Taibbi publishes a scathing article on Goldman in Rolling Stone , which includes the often-quoted “vampire squid” analogy. 4 A Goldman subsidiary settles with the SEC for $1.2 million over improper proprietary trading by employees. The SEC charges a former Goldman trader and his brother with insider trading based on information the trader obtained while at Goldman (R). The Massachusetts attorney general announces a $60 million settlement with Goldman over the alleged role the investment bank played in the subprime mortgage crisis (R). Goldman, among others, created a credit default swap index to cover the high risk of Greece’s national debt. The firm is reported to have systematically helped the Greek government disguise the true facts concerning its national debt between 1998 and 2009.
2010: Goldman reports a record profit of $13.39 billion for 2009. The SEC charges Goldman with deception for selling clients mortgage securities secretly designed by a hedge fund being run by John Paulson. A number of civil lawsuits are filed against the firm. Blankfein and other Goldman employees are called to testify before the Levin–Coburn panel about the financial crisis. Rumors about Goldman’s behavior abound. Warren Buffet, Goldman’s largest individual shareholder, and other major clients defend Goldman’s ethical character and behavior. The Dodd–Frank Wall Street Reform and Consumer Protection Act is signed, implementing broad changes to the regulation of the US financial system. After several months of studying Goldman’s business standards and practices, the internal business standards committee issues its report, calling for a recommitment to the firm’s business principles. Goldman agrees to pay $553 million, the largest fine ever paid to the SEC, to settle fraud claims related to disclosure about the design of the mortgage security called Abacus 2007-AC1. Fabrice Tourre, an employee at Goldman, who is also
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