Monday, December 11, 2006

Goldie as political hedge fund

Most people with a bit of attention span will remember Democratic President Bill Clinton's Treasurer and Chief Financial Head Kicker Robert Rubin. He of "Rubinomics" fame. Now the Biggie at Citigroup. He has managed a fair bit of media attention in his time, which is far from over, but he really sprang to the world stage by leading the Clinton economic charge: "it's the economy, stupid".

Much has been said of Rubin, but this is where Guambat is going in this post, taken from a John Quiggin post from years gone by:
"If you recall, he was the one who initially dismissed Greenspan’s “irrational exuberance” comments, and I believe he virtually created government for and by Goldman Sachs during his tenure in office.

He frustrated the development of legislation to make the derivatives market more transparent (along with Phil Gramm), which could have prevented the Enron bankruptcy, and managed to get Brooksley Borne of the CFTC sacked when she pressed for such derivatives to be regulated by the Comex. He also cut the SEC’s budget by 60% when he was in office, which frustrated the fine work of Arthur Levitt and enabled many of the unsavoury practices now coming to light to be perpetuated. He was the architect of the strong dollar policy which helped to create such huge imbalances in the US current account in order to attract more money into the US capital markets and thereby create a hugely destabilising bubble."

Now, most people think of Goldman Sachs as a big investment bank, though the scale of their proprietary trading in recent times has led some to characterize it as more of a hedge fund (see, e.g., Risque Business).

But at least since, if not before, Robert Rubin "created government for and by Goldman Sachs", Goldman has been hedging its political bets around the globe to make the world a better place for it to do business the way that best works for it. Indeed, now Republican President George W. Bush's Treasurer, Hank Paulson, is also from Goldies, stepping down from leadership at Goldies to guide the US financial ship of state.

And this is not just a happy coincidence that Goldies has placed the heads of treasury in America's last two presidents, from opposite sides of the aisle. Rather, it appears to be part of the way Goldies consciously "manages" its business, in the broadest sense of the word. They refer to it as "public service".

The Financial Times recently pointed out, "Goldman's top alumni wield White House clout" by Stephanie Kirchgaessner in Washington and Ben White in New York:
America's corporate elite has long upheld a tradition of joining Washington's corridors of power for a new career. JPMorgan executives gave counsel to President Woodrow Wilson during the first world war. President John F. Kennedy asked Robert McNamara, a war veteran who had risen to the top ranks of Ford (NYSE:F) , to become secretary of defence in 1960.

But the appointment last week of Goldman Sachs (NYSE:GS) 's William Dudley to head the Federal Reserve Bank of New York market's group raised to an unprecedented level the number of top positions in public service that former executives from any one company have held during a White House administration.

Today, former Goldman Sachs executives control or influence the oversight of key aspects of the US financial system and hold prominent positions throughout the Bush White House.

They include: Hank Paulson, the Treasury secretary and former Goldman chief executive; Reuben Jeffrey, a former Goldman managing partner who is the chief regulator of commodity futures and options trading; Joshua Bolten, White House chief of staff who served as a Goldman executive director; Robert Steel, the former Goldman vice-chairman who advises Mr Paulson on domestic finance; and Randall Fort, the ex-Goldman director of global security who advises Condoleezza Rice, the secretary of state.

Mr Dudley would also play a crucial role in stabilising the markets in the event of a meltdown, as one of his predecessors, Peter Fisher, did following the near collapse of Long Term Capital Management, the hedge fund. The former executives will also be influential in issues ranging from the regulation of Fannie Mae (NYSE:FNM) and Freddie Mac, the housing giants, to tax policy, to how heavily the energy markets should be regulated; all issues that Goldman Sachs lobbies heavily on in Washington.

"I don't think anybody else even comes close [to holding the number of top positions in Washington]," says Charles Geisst, a Wall Street historian and professor at Manhattan College, who points out that Goldman's reach is even more impressive because it comes at a time when there is no single dominant bank or brokerage in the US.

Unlike other companies that are targeted for being too cozy with the White House, neither Mr Bush nor Goldman have been criticised by Democrats for holding too many powerful jobs, in part because the investment bank also has deep ties to Democrats.

Goldman represented the biggest single donor base to the Democratic party ahead of this year's mid-term elections, according to the Center for Responsive Politics, and at least two Democratic political heavyweights Jon Corzine, the New Jersey governor, and Robert Rubin, the former Treasury secretary, are Goldman alumni.

Goldman says it is proud of its long record of public service....
I'd love to point out a smoking gun in their direction but I can't," said one senior executive at a rival bank. "They've created this tradition of public service and it does accrue benefit to the Goldman brand. That's not a conflict. It's just what it is. It's something people are envious of."

Orin Kramer, chairman of the New Jersey State Investment Council and a close friend of Mr Corzine, says life can sometimes be made more difficult for Goldman because of its ties to public life. Mr Paulson, for example, has vowed to recuse himself from any matter that pertains specifically to Goldman over his tenure. Last month, he removed himself from the national security review of Lucent's merger with Alcatel (NYSE:ALA), which was being advised by Goldman.

And Goldies doesn't restrict its influence to the US (see, Golding the Tiger Lilly). After all, its a global company and there are global politics to influence.

In Australia, one of the leading movers and shakers, Malcolm Turnbull, is reported to have had trouble deciding whether he would be part of the Labor party or the (conservative) Liberal party. But he had no trouble at all determining that he would be part of Australian politics in the inner circle. It's public service, don't you know.

Malcom Turnbull made partner at Goldman Sachs at the same time as the main bull of the tech boom, Abby Cohen.

Goldman picks 57 new partners, Independent, The (London), Oct 21, 1998
GOLDMAN SACHS, the US bank, has named 57 new partners - more than had been expected - including Abby Cohen, one of Wall Street's most famous bulls.

The new partners have the opportunity to share in flotation windfalls if and when Goldman Sachs, one of the oldest banking partnerships, decides to come to market.

The bank had planned to float towards the end of the year, but recently shelved the move because of the volatile conditions in the global financial markets. Becoming a partner at Goldman Sachs is one of Wall Street's most coveted prizes.

Being a partner at Goldman Sachs - a privilege enjoyed by 246 of the bank's 12,500 employees - is immensely lucrative. Back in the summer, when the firm announced plans to float, the equity stakes of the most senior partners were valued at more than $100m.

Most of the new partners are US based, and many come from the investment banking side. Nine of the new appointees are from London, and two are from Frankfurt. Aside from Ms Cohen, other notable additions to the partnership include Andrew Chisholm and Christopher French, co-heads of financial institutions. Malcolm Turnbull, head of Goldman's Australian business and leader of the Australian Republican movement, also made partner.

Guambat has always held a grudge against Turnbull's performance in the Australian Republican Movement. Here was an opportunity for Australians to ditch the British monarch and choose to be a republic. Guambat has always felt that Turnbull strong-ARMed the "movement" to steer it away from an elected head of state, which had the greatest popularity of all the choices, with the intent to derail the whole republican momentum. That certainly has been the result of his efforts, if not the design.

But Turnbull is not Goldie's only Australian Golden boy:

Mr Fixit finds himself in a bankable position by Mark Metherell
THE nation's most influential backroom political player, Arthur Sinodinos, has spoken of the tough times he dealt with as the Prime Minister's chief of staff for nine years.

Mr Sinodinos - known to few outside Canberra, but whose influence as John Howard's principal gatekeeper was unrivalled - quits next week to join the merchant bank Goldman Sachs JBWere as a senior director.

Political advisers flock to finance by Robert Clow
THE surprise appointment of John Howard's chief of staff Arthur Sinodinos as a senior director of Goldman Sachs JB Were's investment banking team adds to a growing number of politicians or political staffers making their way into finance.

Goldman was one of the joint global co-ordinators of the final privatisation of Telstra, and The Australian understands Mr Sinodinos's appointment was delayed until the T3 sale was out of the way. He will join Goldman early next year.

Goldman was also one of the joint lead managers earlier this year in the abortive sale of Snowy Hydro and doubtless in 2008 it will hope for a role in the $1.8 billion privatisation of Medibank Private, set for 2008.

Goldman head of investment banking Keith Tuffley said there were three things that made Mr Sinodinos attractive to Goldman: his ability to act as a trusted adviser, his well-honed negotiating skills and the fact that he had complementary skills to his existing team.

"A key priority of our client offering is to act as a trusted personal adviser to CEOs and non-executive directors of Australian corporations. Arthur's experience as the Prime Minister's personal adviser will strengthen his value proposition for our clients," he said.

But his "complementary skills" clearly include his knowledge of and ability to deal with government in the growing number of investment banking deals where government is somehow related, such as privatisation of public assets.

Government is also more important to investment banking. The small Australian market and high earnings expectations have combined to push Australian companies into deals which have really tested Australia's regulatory framework. Toll Holdings' combination with Patrick was one example. Alinta's restructuring and partial merger with AGL was another.

Those deals closely concerned the Australian Competition and Consumer Commission but the $11 billion Qantas acquisition that Macquarie Bank, Texas Pacific Group and others hope to announce next week could run afoul of the Foreign Investment Review Board or federal Government.

One investment banking spokesman noted that in cases where the public interest was concerned, like Qantas or a large infrastructure deal, it helped to have someone who had some insight into community goals.

In the case of Citigroup and Goldman Sachs, Australia also appears to be importing the US model. Goldman has also hired Robert Zoellick, a former US deputy secretary of state and chief trade negotiator, as well as Faryar Shirzad, a former deputy assistant to President George W. Bush and deputy national security adviser for international economic affairs.

Malcolm Turnbull, Liberal MP for Wentworth and a former head of Goldman Sachs Australia, has taken the other route.

Barry Ritholtz on Friends in High Places?

Somewhat related post: Thick as Thieves


Blogger Davo said...

Keep an eye on Mr Turnbull .. if ya can't change the system from the outside, work it from the inside.

Have to admit, though, that am definitely anti-republican. Hopefully will be dead before Turnbull becomes Prime Minister and sets up the next referendum.

11 December 2006 at 7:38:00 pm GMT+10  

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