Blankfein leads Goldman Sachs to new heights

WSJ AND NYT have news about Goldman driving down Bear and Lehmans stock prices but it is not news. It was something the market knew in 1998 when Goldman first tried to drive Lehman and Bear out of business.

The real scandal is how Goldman got away with it with Bear Stearns. It is very obvious that on Sunday night a few months ago, Hank Paulson insisted on Bear going out of business as a precondition to giving Treasury aid. That is apparent from the Congressional testimony of Bob Steel, Hank Paulson’s right hand man, who got nervous when they directly asked him the question.

He of course is the Secretary of the Treasury who accepted a $35 million payout from Goldman after (repeat after) his appointment had been announced. The money was well spent when on Monday morning, having ensured that Bear had been taken out, Goldman was extended the full faith and credit of the American taxpayer. Of course, for a man of $900 million dollars to accept $35 million is a clear conflict of interest but not for a Goldman partner, Hank Paulson, the man who demanded from Treasury a tax break of $80 million as a precondition to becoming Secretary of the Treasury. All this is public record.

The bigger scandal though is the self dealing at Goldman. Lloyd Blankfein is the head of the proprietary trading businesses at Goldman Sachs, and thus invests on his own account. Yet he is also the head of the trading groups, so he watches what the clients are buying and selling. Now that he is no longer at the operational level, his self dealing is made worse by the fact that he sits on the Management Committee. There he and others can hear from the proprietary guys and the trading guys and the underwriters and the private equity guys of the firm and thus TRADE AHEAD THE CLIENT AND SOMETIMES TRADE AGAINST THE CLIENT. That is the classic definition of those terms and the membership of the Management Committee is available on the company’s website.

Also obvious is how the bad news at Goldman has been ignored in the press. It is the firm which lost $4 billion on the real estate market, even though it was the one bank that had no business to be in it, being neither a broker nor a commercial bank, both of which have to pay money on accounts. Yet it became the hero of the hour principally because of a poorly researched article by Nik Deogun of the Wall Street Journal. Nik’s hyping Goldman was so blatant the whole market was laughing at how the hedges cited therein were in markets where the liquidity is so low and the trades so few you CANNOT HEDGE BILLIONS so quickly. Certainly the heroes who did do some hedges, including Dan Sparks, a partner, have all been pushed out. Why would the three people, including a partner, who are the reason Goldman’s stock did not go into meltdown mode, be the only three who are no longer at the firm?