The death of Goldman Sachs

Steven G. Brant: The death of Goldman Sachs

Submitted by cpowell on Wed, 2010-04-28 01:06. Section: Daily Dispatches

By Steven G. Brant
The Huffington Post, New York
Tuesday, April 27, 2010

http://www.huffingtonpost.com/steven-g-brant/the-death-of-goldman-sach_b...

I saw something die today. It didn't die accidentally either. It was killed.

This was a very painful event to watch, not just because death is tragic and not because this death was intentional rather than accidental.

It was very painful to watch because the thing being killed didn't even know it was dying ... and it didn't know it was actually participating in its own death. It didn't know it was helping the hangman not just put the noose around its neck but helping the hangman open the trap door under its feet.

What died today was Goldman Sachs.

It has existed for 140 years. But today all that ended, as the head of Goldman Sachs, Lloyd Blankfein, in his prepared remarks before the Senate Governmental Affairs Subcommittee on Investigations, said, "We have been a client-centered firm for 140 years and if our clients believe that we don't deserve their trust, we cannot survive."

That was Lloyd Blankfein putting the noose around Goldman Sachs' neck.

And then -- in his opening exchange with subcommittee chair Sen. Carl Levin -- Blankfein proved that Goldman Sachs absolutely, positively does not deserve the trust of its clients.

That was Blankfein helping open the door under Goldman Sachs' feet.

In his Senate appearance, Blankfein participated in the death of his own company. It was really a stunning thing to watch.

I expect Goldman Sachs to be out of business by the end of this year and maybe before the November election. That's just my opinion, of course. But I'll justify it in a moment.

I will post C-Span's coverage of this testimony as soon as it's available. I predict it will be viewed for years to come not just by students of business ethics but also by students of famous moments in the civic life of America. I believe this moment will be seen on par with the famous incident in which Sen. Josephy McCarthy was brought down with the simple question: "Have you no sense of decency?"

Senator Levin's simple question -- the one that killed Goldman Sachs -- was: "Do you think it's proper for Goldman Sachs to bet against the security it is selling to a client without telling that client that it is making that bet?"

(I will check the transcript later, to make sure I have the wording of this question correct.)

Blankfein said over and over again that it was proper for Goldman Sachs to do what it had done. He even said at one point that the minute Goldman Sachs sells something to its customer, it no longer owns that security and has "the opposite interest" to its client regarding that security.

This was just one of many breathtaking moments, as I could tell that Blankfein had no idea what he was doing to his firm.

In late 2001 the collapse of Enron led to the death of the legendary accounting firm Arthur Andersen. Arthur Anderson's reputation was unmatched in the field. But in 2002 Arthur Andersen was found guilty of criminal charges related to its auditing of Enron and gave up its license to practice accounting.

Criminal behavior. No trust. Reputation destroyed. No customers. Firm dead.

Welcome to the Arthur Andersen reality, Goldman Sachs.

Criminal charges of fraud brought, and there may be more coming. No trust. Reputation destroyed. No customers. Firm dead.

What a fascinating time we are living in. If things really do play out the way they did with Enron and Arthur Andersen -- and I think they will -- I guess we'll be able to say that there is such a thing as white-collar justice in America.

UPDATE: Blankfein just admitted to Senator Levin that he never thought about the fact that there are certain investors (such as universities and other institutions) that can invest only in Triple-A-rated securities. This is in a discussion of Goldman's desire for rating agencies to make sure that more securities are rated Triple A than any other rating. By creating a Triple A rating where such a rating is not deserved, the rating agencies -- and Goldman by then selling them -- put at risk those institutions that must invest conservatively (because their investments go to supporting things like education).

This is further proof that clients cannot trust Goldman Sachs. The head of Goldman Sachs has admitted that he never knew that some of his company's clients have to be protected from investing in risky investments. As a result he did not make sure that Goldman Sachs did not sell risky investments that look like Triple-A-rated investments without actually being Triple A.

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Steven G. Brant is an independent researcher and writer.