Last week brought three headline stories exposing some of the behind the scene dealings between our major financial institutions and the supposedly impartial regulatory bodies that monitor them. Not much of what I read surprised me, too jaded. However, I noted a common thread, Goldman Sachs draws long straws.
The September 29th issue of the New York Times (NYT) took a stroll down memory lane with a piece, by James Stewart and Peter Eavis, entitled, "Revisiting the Lehman Brothers Bailout That Never Was." Stewart and Eavis rehashed how three brilliant men -- Tim Geithner (then President of NY Fed), Hank Paulson (then US Treasury Secretary) and Ben Bernake (then US Fed Chairman) -- counter-intuitively stood aside for Lehman's September 2008 bankruptcy, a calamity causing "...a full-blown panic (which) by the time it was over nearly every other major bank had to be saved." The three "...have all argued...that Fed did not have the legal authority to rescue (Lehman)."
At the time I recall thinking, "Was this because Lehman was always gunning for Goldman Sachs?" After all, Hank Paulson had spent 32 years as a Goldman employee, the last eight as its CEO. Also the two firm's mutual distaste wasn't hidden. As BusinessWeek later reported, "Ex-colleagues describe [Lehman CEO Dick] Fuld's 'Goldman Envy' - his obsession with building Lehman into a firm that rivaled Goldman Sachs. He nearly got there" and "...Fuld's conviction that Henry Paulson is the true villain of the Lehman story and that the former U. S. Treasury secretary's refusal to bail out the firm was driven by Paulson's loathing for a former rival." Upon reflection, I decided it was likely just a poor decision in the midst of global mayhem. Now the NYT has me wondering, again.
The article recounts how at the crazed and critical moments of determining Lehman's fate a group of NY Fed appraisers thought Lehman solvent. A message they delivered, apparently to no avail, to Michael Silva, who was then Mr. Geithner's chief of staff. Mr. Geithner went on to succeed Mr. Paulson as US Treasury Secretary, in 2009, despite some tax problems that likely would have caused a 'common' man significant troubles. Meanwhile, Mr. Silva continued at the NY Fed and pops-up later -- in another of the three headline stories -- providing color around Lehman's collapse, most notably Goldman Sachs' behavior at a key moment.
The very same issue of the NYT contained our second headline article. This one by Aaron Kessler, entitled, "A.I.G. Trial Witnesses Will Be Central Cast From 2008 Crisis." Kessler discusses former AIG CEO Maurice (Hank) Greenberg's lawsuit against the US Government, for its September 2008, ham-handed bailout of his former firm. Aside: Mr. Greenberg was forced out of AIG in 2005.
According to Kessler's piece, Mr. Greenberg's lawsuit argues, "that the government lacked the legal authority to assume an 80 percent equity stake in AIG..." Note: The same three gentlemen -- Geithner, Paulson and Bernanke -- who let Lehman go under are the deciders who seized control of AIG, just days later; all are on Greenberg's witness list. Given the two extremes -- let Lehman collapse, save AIG -- the questioning around the ostensibly 180-degree "legal authority" concept could be enlightening.
I would note many believe no firm benefited more from AIG's bailout than Goldman Sachs, collecting $12.9 billon of the government funds funneled into AIG, as debt settlement pass-through. Interestingly, we later learned that at this crucial juncture Paulson was in frequent contact with his Goldman CEO successor, Lloyd Blankfein -- 24 times from September 16-21, 2008. What might the specifics of their many discussions have been? Color me curious.
Finally, the third article of note -- the one that should really open some eyes -- is courtesy of ProPublica and This American Life, dated September 26th, entitled, "Inside the New York Fed: Secret Recordings and a Culture Clash." Tapes famed author, Michael Lewis, listened to and called the "Ray Rice video for the financial sector."
One Carmen Segarra secretly made the recordings referred to in the article, during her seven-month, late-2011/early-2012, tenure as a NY Fed employee. Ms. Segarra was employed as a bank examiner assigned to monitor Goldman Sachs activities. According to a lawsuit filed last fall, Ms. Segarra believes she was fired from her job at the NY Fed for standing by her assertion that Goldman Sachs lacked an adequate conflicts-of-interest policy. A topic I commented on last November (Goldman Sachs 'Doing God's Work'). It appears, that as she interpreted the forces that be aligning against her steadfast conclusion, she savvily began taping her meetings.
Some surreal moments are on display in Segarra's tapes. My favorite captures her ultimate supervisor at the NY Fed, Michael Silva (the same man who received the NY Fed appraisers' view that Lehman was solvent just before it was refused rescue) -- now in the role of Senior Supervisor for the Goldman Sachs Group -- recapping Lehman's last gasps. From Jake Bernstein's ProPublica article: "Silva related how the top bankers in the nation were asked to contribute money to save Lehman. He described his disappointment when Goldman executives initially balked...'if Goldman had stepped up with a big number, that would have encouraged the others. It was extraordinarily disappointing to me that they weren't thinking as Americans.'"
According to Segarra, Silva (now at GE Capital) failed to support her conclusions, re Goldman. Perhaps not totally surprising, from a Daily Kos article quoting Segarra's lawsuit: "The current president of the New York Fed, William Dudley, is a former Goldman partner. One of his New York Fed predecessors, E. Gerald Corrigan, is currently a top executive at Goldman. At the time of Segarra's firing, Stephen Friedman, a former chairman of the New York Fed, was head of the risk committee for Goldman's board of directors." Maybe it's all innocent coincidence but one can surely see why the phrase "conflict-of-interest" pops to mind.
Lehman down, AIG up, Carmen Segarra out and a seemingly well-connected, three-peat winner, Goldman Sachs, motors on...
Jim Treacy Website: www.jimtreacy.com