Critics say having friends in high places gives the firm the vital edge. Key
government officials, they argue, discuss policy — privately — with Goldman
chiefs more than executives from other banks. In his new book, Too Big to
Fail, Andrew Ross Sorkin reports one meeting. Blankfein’s predecessor,
Paulson, had promised not to talk to Goldman when he moved from the bank to
the US treasury, but last June he happened to be in Moscow at the same time
that Goldman’s board of directors was having dinner there with Mikhail
Gorbachev. Paulson got approval from treasury lawyers to meet his old chums,
since it would be a "social event". Paulson proceeded to regale
them with stories about his time in the treasury and his predictions for the
global economy. Goldman’s board questioned him about the possibility of
another bank blowing up, like Bear Stearns. Recently released documents
reveal that a few months later, at the height of the crisis when Paulson was
working on the bail-out of AIG, Blankfein’s name appeared on his call sheet
24 times in six days. Big banks that held AIG insurance contracts, including
Goldman, were paid off in full, rather than at the 60 cents on the dollar
that AIG negotiators had been pressing for, prompting allegations of a "sweetheart
deal" between Paulson and Blankfein.
Goldman vigorously denies that having so many former staffers in top political
posts means it receives special treatment. "These people are highly
principled," says Sherwood. The Moscow meeting and the AIG deal call
into question Sherwood’s claim, to put it mildly.
The more time you spend in 85 Broad Street, the more you get the feeling that
Goldman is the overachieving child of globalisation. It has the best,
brightest and hardest-working in global finance and government in its
pocket. Even the critics agree. But they add that the well-greased machine
does other things that ensure its success, things that the bank is less keen
to talk about. While the whizzo teams might manage risk well and get out of
bull markets at just the right time, they play their part in inflating the
bubbles in the first place — and pocket a fortune doing so. Goldman has
benefited from the upside of all the recent booms — dot.com, commodities,
housing — and, critics say, was involved in stoking them by handling share
offerings for big clients and by trading securities and debt before pulling
back.
Detractors also accuse the bank’s trading and investment-banking arms of "playing
both sides" of the market. Goldman trades securities for big firms and
pension funds. It also acts as adviser to many of the companies whose
securities it trades. This means the firm has a view on what everyone in the
market is doing. Say an investor approaches Goldman and says it wants to buy
into the oil market. Goldman can offer an accurate view of what is likely to
happen in that market because it knows what its own corporate energy clients
are doing on its advice and what other big investors are trading. This also
means the bank can do well on its own oil trades. Critics liken this to a
huge casino in which the house knows every hand at the table and uses that
information to enrich itself at the expense of everyone else. Goldman
dismisses charges of "casino capitalism". The more market
information it has, it argues, the better it can advise companies and the
better it can match buyers with sellers and get the best prices in the
markets. It emphatically denies it misuses information or acts unethically.
Strict "Chinese walls" between traders and advisers prevent any
conflicts of interest. Regulations are so tight that if an investment banker
so much as tries to enter a trading floor using their electronic office
pass, not only will the pass not work, but he or she will be hauled in for
questioning.
Whatever alchemy it uses, one thing is certain: Goldman has dodged the
credit-crunch bullet and is emerging from the crisis stronger than ever. To
the victor, the spoils. But the patient might find cheating death easier
than pacifying the public. Many remain unconvinced that, while Goldman may
be big and clever, it is a force for good. Vince Cable warns: "If we’ve
learnt anything, it’s that banks have too much power over consumers and
governments. Goldman Sachs has never been more powerful. That should alarm
all of us."
World leaders and financial regulators are trying to draw up plans to limit
what bank like Goldman can do and how they can pay their staff. With his
bulldog-like belief in the purity and efficiency of the free market, you
would not imagine this would be a fight Blankfein would relish. But the
funny thing is, he’s up for it because he thinks it will make banking safer
and enable Goldman to make even more money in future.
"Those government pronouncements that have come out so far are on the
right track," he says. Paying staff for performance, and paying in
deferred stock awards as well as cash to ensure long-term success, is "desirable
and something we already do". "Greedy, but long-term greedy,"
is how Goldmanites describe the bank’s investment and payment policies.
Blankfein backs proposals to ensure banks are better capitalised. "If
we didn’t understand the limits of unfettered capitalism before, we sure do
now. Anything that makes the system better, safer, is good for us." He
might have added: just don’t impose any windfall tax on pay.
For Blankfein, in the end, it all comes down to one thing: finding the best,
fastest, and safest way to make money with money, then make some more money,
with money on top. He’s not interested in a reality check, just a bumper pay
cheque for his clients, for his firm, for his staff, for his shareholders
and, eventually, he believes, for us. His almost religious devotion to the
dogma of finance is thrown into stark relief just before I walk out of the
building with no name and find myself back in the autumn sunshine. I ask him
the question that, in these troubled times, you’d think anyone — from the
guy outside 85 Broad selling 99-cent chilli dogs to the gazillionaire King
of Wall Street sitting 30 storeys above — would pause before answering. And
then, perhaps, offer an equivocal, on-the-one-hand, on-the-other-hand
answer, whether he means it or not. Is it possible to make too much money?
"Is it possible to have too much ambition? Is it possible to be too
successful?" Blankfein shoots back. "I don’t want people in this
firm to think that they have accomplished as much for themselves as they can
and go on vacation. As the guardian of the interests of the shareholders
and, by the way, for the purposes of society, I’d like them to continue to
do what they are doing. I don’t want to put a cap on their ambition. It’s
hard for me to argue for a cap on their compensation."
So, it’s business as usual, then, regardless of whether it makes most people
howl at the moon with rage? Goldman Sachs, this pillar of the free market,
breeder of super-citizens, object of envy and awe will go on raking it in,
getting richer than God? An impish grin spreads across Blankfein’s face.
Call him a fat cat who mocks the public. Call him wicked. Call him what you
will. He is, he says, just a banker "doing God’s work"
How they make their money
Goldman Sachs’s name may not be on the high street, but if you bank with HSBC,
cook with gas, shop with Ocado, watch Big Brother, buy clothes at Gap, use a
TomTom satellite navigation system or simply enjoy the odd cheese-and-pickle
sandwich, Goldman is part of your life.
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