TMFDeej (99.47)

The United States of Goldman

October 20, 2008 – Comments (4) | RELATED TICKERS: GS

If you're like me, you are probably aware of and somewhat disturbed by the amount of power that the Treasury and the Federal Reserve have right now.  They basically seem to be calling all of the shots for the government during this "credit crisis."  You are probably also aware that one of the dynamic duo who are in charge of these institutions, Treasury Secretary Hank Paulson is a Goldman Sacks alum.  What I was not aware of however, but thinking about it now am not that surprised, is how many other Goldman people Paulson has appointed to important positions.

The New York Times published a great, disturbing article on the subject a few days ago.  Practically every important figure involved in the bailout process has some sort of tie to Goldman.  No wonder Buffett was comfortable giving them money.  They have the ability to set all of the rules.  It almost seems like the secret societies from Fight Club (interestingly one of the chants that they use in the move is "His name was Robert Paulson") or that movie the Skulls.  That's why, while I have hated investment banks as an investment for a long time, I have given GS the green thumb in CAPS.

Look, I usually believe that conspiracy theories are a bunch of bunk.  I actually think that we landed on the moon and I highly doubt that the government has aliens cooped up in Area 51 (though there may have been a shooter on the grassy knoll).  But even if there is no nefarious plot to enable Goldman to rule the world, the massive number of connections that a public company like Goldman has to the Treasury has to be considered a conflict of interest, it looks terrible, and there's no need for it.  Isn't anyone in the government looking at this objectively?

Here's an example of how even if it was not done intentionally, Goldman's ties to the bailout look awful.  Just a few months ago when it was fighting for survival, the CEO of Lehman Brothers, Dick Fuld (who is a moron that I certainly am not defending), requested that the government allow him to turn Lehman into a bank holding company so that it could have access to federal funding.  You all know the rest of the story, he was told no and Lehman ultimately had to file for bankruptcy.  Yet only one week after Lehman went bankrupt, Goldman Sachs and Morgan Stanley were allowed to convert to bank holding companies.  Hello?  Even if nothing shady went on here, and the government had no choice because while they didn't want to allow this the market had deteriorated to the point that they had no choice, the conflicts of interest here are tremendous and it looks terrible.

Don't give me the whole, but there was no time to find smart, independent people, Paulson had to go with who he knew ASAP.  There are plenty of smart people out there.  I can't believe that no one in the government has pointed out or done anything about these conflicts of interest (OK, I suppose that I can).  I would probably do the same thing if I was Paulson if I had so much power.  They guy who used to buy beer for me in college would be allowed to oversee the $700 billion fund, a guy who I play poker with would be the head of Federal Reserve Bank of New York, etc...  That doesn't make it right.

Deej