If you’re in Washington right now, and you are engaged in public policy around Wall Street, if you are a regulator at the FCC, if you are at the Federal Reserve, if you are in the US Treasury, and you’re thinking, ‘What do I do next, after I stop doing my poorly paid public service job,’ there is an out! You get paid millions of dollars a year to go work at Goldman Sachs. I don’t know that the people engaged in trying to fix the problem are necessarily totally conscious of this — of how corrupt it all is — but it’s in the air they breathe. The existing institutional structure rewards the people who are making the decisions, so they don’t want to change it. They can’t imagine a different institutional structure. They can’t imagine a tamed financial sector that is just there to serve the economy.
— Michael Lewis
Goldman Sachs had collected $7.5 billion from its AIG credit-default swaps but had an additional $13 billion at risk—money AIG could no longer pay. In an age in which we’ve become numb to such astronomical figures, it’s easy to forget that $13 billion was a loss that could have destroyed Goldman at that moment.
Hank Paulson and then–New York Fed chief Tim Geithner called an emergency meeting for the following Monday morning at the Federal Reserve Bank, ostensibly to discuss whether a private banking syndicate could be established to save AIG—one in which Goldman Sachs and JPMorgan Chase, two of the ailing insurance giant’s clients, would play prominent roles. “It was in their interest to be part of the solution,” says Robert Willumstad, the CEO of AIG at the time, who was also part of the meetings. “Geithner called on those two banks specifically to be helpful. You get the sense that both of those guys had been close to Geithner and giving him advice.”
At the meeting, it was hard to discern where concerns over AIG’s collapse ended and concern for Goldman Sachs began: Among the 40 or so people in attendance, Goldman Sachs was on every side of the large conference table, with “triple” the number of representatives as other banks, says another person who was there. The entourage was led by the bank’s top brass: CEO Blankfein, co-chief operating officer Jon Winkelried, investment-banking head David Solomon, and its top merchant-banking executive Richard Friedman—all of whom had worked closely with Hank Paulson two years prior. By contrast, JPMorgan CEO Jamie Dimon did not attend. (Goldman Sachs has said that Blankfein left after twenty minutes, realizing he was the only chief executive present. But the person who was there says Blankfein was directly engaged in at least one full AIG meeting that Monday, appearing “ashen-faced” and “jumpy.”)
On the government side, Goldman was also well represented: Geithner himself had never worked for Goldman, but he was an acolyte of former Goldman co-chairman and Clinton Treasury secretary Robert Rubin. Former Goldman vice-president Dan Jester served as Paulson’s representative from the Treasury. And though Paulson himself wasn’t present, he didn’t need to be: He was intimately aware of Goldman’s historical relationship with AIG, since the original AIG swaps were acquired on his watch at Goldman.
— Joe Hagan
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Michael Lewis has it backwards. First, you make millions working for Goldman Sachs, then you go work for the government to ensure that the next group of GSers make millions. They pay it forward at Goldman Sachs.
— Andrew Berman · Aug 3, 08:50 PM · #
One thing that’s always bothered me about the Goldman-runs-the-Government narrative: if those bankers are so motivated by naked greed, pure love of money, then why would Goldman alumni, who are already richer than Cresus and don’t expect to make significant money from Goldman (I imagine a fairly awkward conversation if Paulson returns to Goldman and says to Blankfein: “Hi, I saved your asses, so now I’d like my old CEO seat back.”), would care to save/help Goldman?
— PEG · Aug 4, 08:34 AM · #
PEG, I’d say it isn’t about greed. It’s about:
(A) Loyalty and friendship. They’ve probably still got a lot of friends working at Goldman.
(B) Simple perspective. They worked at Goldman, and they’ve seen first-hand what business Goldman does. It was really important to them when they worked there. So in their minds, that’s still really important business, much more important than other businesses that they only know about in the abstract.
— Ethan C. · Aug 4, 09:27 AM · #
Michael Lewis is a good writer, and therefore very worth reading when he discovers and writes about something that I didn’t know about, such as pay structures for offensive linemen. But his skills consist in the production of pellucid prose and well-wrought anecdote, not analytic insight. So when he discovers something that I do know all about, he gets a bit of a gee-whiz air. I remember a piece he wrote some years back on some evangelical church where he reported breathlessly that there weren’t any crucifixes in the church. (I am guessing that, in his relatively privileged upbringing, he had never before visited a church that wasn’t Catholic or Episcopalian.)
Anyway, in this case, he seems to have discovered regulatory capture.
— y81 · Aug 4, 02:49 PM · #
Ethan: No, I agree these are reasonable and possible explanations. I’m just pointing out what I perceive to be a flaw in a certain narrative of Goldman-runs-the-Government.
— PEG · Aug 4, 06:44 PM · #