Goldman really benefits from the earnings ‘call’
GOLDMAN Sachs will knock the ball out of the park when it reports third-quarter earnings today — and newspapers and lawmakers alike will immediately wonder how many billions Washington’s favorite bank will pay out in bonuses.
But I’m more interested in what kind of consideration Hank Paulson and Tim Geithner are entitled to for putting Goldman in such a favorable position that it couldn’t help but make money?
I think we are past the point of mincing words.
This column has documented over the past few months how Paulson, when he was Treasury secretary, kept in such close touch with Goldman Chairman Lloyd Blankfein that it was inevitable that Goldman would receive valuable information that others on Wall Street didn’t.
Then, last week, other papers, including The Wall Street Journal, learned (after Treasury refused to give me this information) that Geithner continued the regular conversations with Goldman when he took over the top Treasury job in January.
The New York Federal Reserve refuses to release records of all of Geithner’s phone calls from when he headed that organization, which is known for its close contacts with Wall Street. But my guess is that he and Blankfein weren’t strangers then, either.
What I found particularly surprising is that Paulson, who once headed Goldman, seldom called Goldman before last year’s financial crisis. Then, suddenly, Paulson and Blankfein were talking to each other like two teenage girls coordinating their outfits.
We don’t know what was discussed in the dozens of conversations that Paulson and Geithner held with Blankfein. But even a stray word, much less actual information, from the lowest level official at the Treasury can be amazingly valuable to someone on Wall Street.
For instance, Goldman last year claimed that it used its own analytical work to determine that the housing market was about to collapse. And it made bets accordingly.
Was that true? Could Goldman have been that much smarter than everyone else on Wall Street, especially since it, too, eventually had to accept a bailout from the government? Or did Paulson say something — maybe even inadvertently — during one of his many phone calls that gave Goldman such amazing insight.
Another example: Goldman analysts, just prior to two recent employment reports, issued startlingly prescient calls on the number of jobs that would be lost for the month. One call brought Wall Street expectations of job losses down to lower levels; another raised the number of cuts that was expected.
Goldman said it based its reconsidered information — which went totally against Wall Street’s view — on insight culled from the weekly claims for unemployment insurance. Both revised calls prepared Wall Street for what was about to happen. And while Goldman did make those predictions public, the information would have been available internally beforehand.
There isn’t enough room here to chronicle the issues.
Issues such as flash trading — Goldman developed programs that gave it the ability to jump in front of stock trades that were about to happen, guaranteeing a profit. Washington is investigating, but don’t expect much.
Remember, Goldman knows what it learned from Paulson and Geithner. And if it was anything inappropriate, then the Bush and Obama administrations will be as embarrassed as Government Sachs.
Oh, sorry, I hear GS is a little touchy about that nickname.
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I’ll admit that I have a little bit of attention deficit disorder when it comes to corporate trials. And the Enron marathon in Houston back in 2006 gave me a case of severe ADD — call it SADD if you like.
Stick me in a courtroom for what seems like a thousand days of testimony — most of it involving numbers — and my mind starts to wander to more intriguing topics like, did Juror No. 4 shave her legs today?
Hell, by the time Jeff Skilling, the Enron chief executive accused of fraud, was finished testifying, I was wondering if Juror No. 10 had shaved his legs.
The Supreme Court said this week that Skilling might be entitled to a new trial. Skilling argued that in his first trial it wasn’t proven that he personally benefited from a scheme to inflate Enron’s earnings.
Quite frankly, the Supreme Court’s decision scares me.
Don’t get me wrong, I’m happy for Skilling. But let me say this right now: If Skilling does get a new trial, I’m not available.
For the record, when I was actu ally paying attention back then, I thought Skilling was going to get off. Sure, he finagled the company’s books, but if all the cor porate executives who did that were thrown in jail, there wouldn’t be enough vacant Miami con dos to house them.
And, yes, Enron was dastardly when it rigged the energy markets and caused folks in California to pay way too much for natural gas.
But the company was simply ahead of its time. Wall Street traders have been purposely causing the price of energy to go up for years. Nowadays, we simply shrug.