It is a universal phenomenon that when you have power you can control the entire universe. Goldman Sachs as an investment bank has its origin in the United States and has influenced the business world as well as strongly spreading its tentacles to influence the political orientation of the United States. In the recent past, the company has been viewed just as an entity having no interests of the people in the United States and abroad.
The company has been placed at a very advantageous position owing to the closeness in its continued deals with the US government. It has had a very influential leadership with majority of its management employees taking offices in Whitehouse. We can look briefly how this powerful investment bank came into being. The company started its operations in the year 1869 in the United States of America. It is one of the top companies in the global investment banking. It is a securities, banking and investment management company providing a variety of services worldwide. It is now one of the most recognized securities firms in the Wall Street. In the year 2008, a change was approved by the New York Federal Reserve on the legal status of Goldman Sachs. This saw the transformation of the firm from an investment bank to that of a bank holding company. This move enabled the qualification of the firm regarding the government bailout.
The firm under the leadership of Henry Paulson campaigned for the elimination of the effective limits of the leverage amounts that could be used by large investment banks. This campaign was eventually successful. In the year 2004, Goldman Sachs pressured for the removal of the net capital ratio of 12:1 that had been previously imposed by the commission for securities and exchange. A unique exemption was given to the five biggest investment banks enabling them to determine own capital requirements through the use of customized risk models. Goldman Sachs, Merrill Lynch, Bear Stearns, Morgan Stanley and Lehman Brothers were at liberty to leverage so badly, sometimes going even to abnormal ratios. This whole process necessitated a substantial expansion of the investment banks businesses via borrowing but this had dire repercussions for it left undercapitalized badly when losses occurred.
The firm contributed to financial crisis by the close of 2006 through the sale of Subprime Mortgage Securities. During this period, the company sold a lot of mortgage-backed securities making it the 15th largest biggest mortgage bond seller. It continued to be a best performer until the year 2007 when it went bankrupt.
Worth noting is how Goldman Sachs benefited while the US housing market was on a down turn. The other investment banks were recording losses as the housing market was deteriorating and Goldman was making profits. This case was happening in third quarter of the year 2007. The banks approach to business matters seemed so corrupt in the eyes of many. They used mortgage positions, which were short-lived and very profitable. It is as if they had already speculated a down fall of the housing market in the US so they used complex financial models to authenticate their speculations. Abacus was one such model, which eventually was placed under fraud charges by the SEC. The bank was very unique in the way it speculated on this downturn. The firm allowed its investors to place bets on already existing loans creating a new wave of the speculative activity that nearly led to the disintegration of government’s bail out for the banks as well as global financial system. The SEC said that the firm was magnifying the losses associated with the downturn of the housing market and this brought about financial crisis.
Goldman’s products were also scrutinized by the subcommittee of the senate that had a hearing in April 2010. The committee was trying to look at the role that was being played by the investment banks in the financial crisis. When the internal mails for Goldman Sachs were verified, it was discovered that they knowingly sold bad financial products. The case regarding Timberwolf was revealed here. It was a deal worthy many dollars which after five months Timberwolf recorded 80% loss. This subsequently saw to the collapse of an investment bank known as Bear Stearns. Many instances were discovered whereby Goldman Sachs sold many products being the only party betting on them. Between the year 2006 and 2007, Goldman Sachs made over $40 billion from securities supported by almost 200,000 home mortgages, which were risky, but never disclosed to the buyers that it was betting in secrecy and that the sharp fall in the housing prices within the U.S. market was to cause a very unfriendly changes in the securities. The buyers only came to find out later that the company had promoted fake deals.
A part from the short history in the firm’s dealings as discussed above, the greatest influence of this investment bank was on the United States government. It seems that the seemingly successful deals the company was dealing with propelled its status to a very great height that the federal government saw it worth letting the banks leadership into the highest political offices.
The credentials date back ever since the founder of the investment bank stepped into the United States. Marcus Goldman who was a German immigrant started to lean towards power in New York by dealing with the diamond merchants. Through this, he cultivated a culture of power network and its influence in business. From that period, Goldman Sachs employs former politicians as well as civil servants at the same rate as it gives them to the public offices. I can quote an example by mentioned men from Goldman Sachs who got hired by the George Bush administration. Hank Paulson was taken in as the Treasury Secretary, Joshua was the chief of staff among others.
Many people thought that after Obama administration things would at least improve. They thought that majority of the officers in the Whitehouse would go back to their former companies in the Wall Street and Goldman Sachs was not exempted in this. However, things turned out differently. Many influential leaders saw this coming and had acted early enough to make things remain the same as they used to be and in this case act on their favor. They knew that letting issues slide out of control would be tremendous to their side and this would mean collapsing of the powerful institutions in the Wall Street.
Through a continued support, we are able to offer commendable support for something to be relevant in achieving set goals. Goldman Sachs investment bank did play a major role in the Obama campaigns. They already predicated the winning side and they had no option than to support Obama so that their interests remain intact after Obama took office. This came to be real as it is exhibited by the number of Goldman Sachs’ former employees in the state house holding very influential positions. They are always in the positions that enable them to make decisions on crucial matters affecting trade and politics and how the two relate.
The change that was expected with the Obama administration never occurred. People thought that majority of the Goldman Sachs’ affiliated officers in the George Bush’s administration would be shed off. What happened instead were promotions of them and an addition of some more into the running of the government’s business.
Important to know is that, the ruling party was immaterial, whether Democrats or Republicans, the company excelled. It did make contribution to both parties as well as controlling both parties. It is now clear that by controlling money in the country the company can comfortably control the government. The Obama administration saw to the appointment of some of the Goldman Sachs big names as discussed below:
Lael Brainard: Works as the Under Secretary of International Affairs Treasury.
Thomas Donilon: Deputy Adviser of the National Security. He initially worked as a lawyer at O’Melveny & Myers he represented meltdown clients, which included Penny Pritzker as well as Goldman Sachs.
Gregory Craig: Worked as the Former Counsel of the White House, he was recently appointed by the Goldman Sachs.
William C. Dudley: President as well as the Chief Executive Officer for New York Federal Reserve Bank , works also as the managing director as well as a partner of Goldman Sachs .
Rahm Emanuel: He is the Chief of Staff in Obama’s administration. He also works for Goldman Sachs acting as the link between the firm and the government.
Dianna Farrell: National Economic Council Deputy Director. She formerly worked as the Financial Analyst for Goldman Sachs.
Douglas Elmendorf: Was the Congressional Budget Office Director in January 2009. He replaced Furman as the Hamilton Project Director. This project received funds from Goldman Sachs and Robert Rubin.
Stephen Friedman: He is the chair of the President’s Foreign Intelligence Advisory Board. He used to work in the capacity of Board Chairman Goldman Sachs investment bank.
Michael Frohman: He was Chief of Staff of Robert Rubin when he served in the capacity of Secretary of the Treasury.
Anne Fudge: She was appointed into budget deficit reduction committee put in place by Obama. Fudge has worked in different capacities in some of the largest corporations in America. She is a Trustee of the Brookings Institution, which supports Hamilton Project.
Jason Furman: He was vibrant in the Presidential Campaign for Obama directed the economic policy. He also served as second Director of Hamilton Project taking after Peter Orszag’s after the latter departed for a position in Obama administration.
Mark Gallogly: He is a member in the advisory council of Hamilton Project. He is a member of the Advisory Board of Economic Recovery in the Obama Administration.
Geithner Timothy: He serves in the capacity of Treasury Secretary; he used to be the managing director at the Goldman Sachs investment bank.
Michael Greenstone: He was the fourth Director for the Hamilton Project. He worked tirelessly to defend Goldman Sachs SEC complaint. He has also worked as Obama’s advisor and through this; he has created strong ties between Goldman Sachs and the government
Robert Hormats: He works in the Obama Administration as the Economic, Energy and Agricultural Affairs Undersecretary for the State Department. He formerly worked for Goldman Sachs as the Goldman Sachs Group Vice Chairman.
Gary Gensler: Commissioner in the Commission for Commodity Futures Trading. He formerly worked as a Partner as well as Co-head of Finance at Goldman Sachs.
Neel Kashkari: He worked under Paulson when the latter was the Treasury Secretary. Paulson was a former CEO for Goldman Sachs. Neel was retained by Obama to work as an oversight officer of the TARP for some time.
Karen Kornbluh: She works as Obama’s Ambassador to OECD. She formally worked as the Deputy Chief of Staff under Robert Rubin who was from Goldman Sachs.
Jacob "Jack" Lew: The State for Management and Resources Deputy Secretary. He also sits in the Advisory Board of the Brookings-Rubin Project which is the Hamilton project. He also
David Lipton: He is in the National Economic Council as well as the National Security Council. He had formerly worked hand in hand with Timothy Geithner and also Larry Summers on the response to financial crisis by United States in Asia in the 1990’s. He worked closely with Goldman Sachs’ Robert Rubin.
Emil Michael: Works as a White House Fellow. Formerly worked as an investment banker at Goldman Sachs
Eric Mindich: He used to serve as the Chief strategy officer at the Goldman Sachs investment bank.
Murphy Philip: He works in the Obama Administration as the Ambassador to Germany. Formerly worked as the Goldman Sachs’ head in Frankfurt
Peter Orszag: Budget Director for Obama. He is the Hamilton Project founding director, a project funded by Goldman. It is also noted that Rubin was his mentor.
The above and some others are very influential in the day-to-day workings of the federal government and due to their close ties with Goldman Sachs; they strengthen the firm and thus make it immune from harsh regulations from the government. Nothing changes for all that happen seems like a rotation and it happens that the former public servants who hailed from Goldman Sachs were mentors to some of the new entrants into the public offices.
References
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Michael, ‘11 Reasons Why America Would Be A Better Place without Goldman Sachs’, Web, http://theeconomiccollapseblog.com/archives/11-reasons-why-america-would-be-a-better-place-without-goldman-sachs, 2012.
Moore J., ‘Goldman Rejects Proposal That Firm Run for Elected Office’, Web, http://www.bloomberg.com/news/2013-03-25/goldman-rejects-proposal-that-firm-run-for-elected-office.html, 2013,
Source watch, ‘Goldman Sachs’, Web, http://www.sourcewatch.org/index.php/Goldman_ Sachs, April 5 2013
Taylor C., ‘Goldman Sachs May Be Losing Influence in Washington’, Web, http://www.cnbc.com/id/39540098, 2010.
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