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Banking

Under attack, Goldman hits back

Blankfein interview: Goldman pays the price of success    Goldman stands by its governance

Lloyd Blankfein must be starting to see that damn squid in his dreams. On the last weekend in October, it appeared in papier-mâché form, held aloft by protesters dangling its red tentacles outside his central park apartment building in New York. Two days later, there it was again in Chicago, a more rubbery looking version this time, seeming to swallow the head of one poor protester marching towards Goldman’s offices.

When you’re under attack and you’re scared, you hit back. And Goldman is both. Publicity has long been anathema to this most private of the world’s largest financial firms which still clings to the culture of a partnership more than ten years after floating on the public stock markets.

It operates best through private networks, in ways it has reduced to a management science. The firm identifies key decision-makers in politics, business and finance and schedules its own people to meet them at regular intervals, talk to them, understand their thinking and then report back. This is not a business approach that lends itself to the hard public sell. And as a firm with only institutional clients, plus a very few supremely wealthy individuals, Goldman has no need to mass market its brand.

Yet suddenly, the firm is everywhere in the press. Chief executive and chairman Lloyd Blankfein grins out scarily from the cover of the Sunday Times magazine, looking like a demented pub comedian. The accompanying 7,000 word article earns instant notoriety for its last three, Blankfein’s extraordinary claim to be “doing God’s work”. 

In an opinion piece in The Times, Michael Sherwood, vice chairman, defends Goldman’s management against the charge that it somehow contributed to the financial system crisis. He explains that the risks Goldman takes are all to help firms grow and create jobs.

Woody’s mates must have been chortling away when they read that one.

This all conveys one message. No, not the one that Goldman is clumsily trying to put across: that its mission is to do social good. It can lodge that appeal that in matching up investors of capital and users of capital it enhance peoples’ savings, enables companies to grow and governments to fund provision of services. Any bank could make the same claim. Of course there is a purpose to banking, finance and the intermediation of capital flows. If there weren’t, firms wouldn’t get paid for doing it. But Goldman is wasting its breath if it wants to convince the world it is an altruistic organization. No, it has one real purpose: to make money.

That’s nothing to be ashamed of. The firm is very good at its job and indeed stands out in a rightly vilified industry. While many of its competitors crumpled shambolically through the crisis, Goldman stood on its own feet, only taking the government’s helping hand very briefly at the worst moment of crisis.

In the long litany of villains in this fiasco, Goldman Sachs stands proudly as one of the least bad.

The only message Goldman is now conveying through its media blitz is just how rattled it has been by the outburst of public anger. Rage is rarely directed with precision. Goldman may feel it is unfair that it should be on the receiving end: but whoever said life is fair?

It is a probably a mistake for the firm to wander off its area of expertise into a debate on morals and ethics. The public will only react with greater outrage to its every claim to be acting out of high moral purpose. It risks throwing petrol on the flames. Unemployment is rising, people are losing their homes, Goldman will pay huge bonuses at the end of the year. What’s not to understand about the anger?

The real worries for Goldman are two-fold: that clients may turn against it and that policymakers might go out of their way to punish it.

There is no sign of the first happening at all. The second is a possibility: witness the US Treasury’s recent withholding of permission for Fannie Mae to sell Goldman its unused tax credits.

It is extraordinary how many normally sensible people spout ludicrous conspiracy theories about Goldman and its supposed inside track. The one now doing the rounds is that the firm was only able to produce so many consecutive days of trading gains in its FICC business over the last two quarters because the Federal Reserve was somehow tipping it off. This is arrant nonsense.

But there is a danger that politicians might seek to ride the wave of anger at Goldman and, in trying to demonstrate their own independence of its influence, err on the side of decisions that appear to harm it.

Wise policymakers should be above such silliness. And they should, in general, be very wary of imposing anything on the surviving big banks that impedes their ability to lend or to contribute to efficient capital formation and mobilization. The small banks are dropping like flies. So, having saved the big banks, regulators must now let them do their work.

This is a time for people in finance to get back to what they do well. They shouldn’t expect any thanks or pats on the back for behaving prudently or ethically, nor for performing their core function of matching savers and users of capital.

Goldman Sachs is getting back to what it does best. It’s not about social purpose or divine mission. Goldman is doing well not by doing good, but by doing its job.

Blankfein interview: Goldman pays the price of success  

Assailed on all sides for preparing to pay huge bonuses from a financial market kept alive by systemic government support, Lloyd Blankfein is having to fight Goldman’s corner almost as fiercely as when the crisis was at its worst. He tells Peter Lee that it is not business as usual.



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