Why Goldman Sachs will survive this crisis
posted at 1:30 pm on September 26, 2008 by Ed Morrissey
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So far, Goldman Sachs has managed to ride out the crisis while a number of its competitors have vanished into failure. Perhaps GS has more luck, or better management, but they have another asset going for them — lots of allies in Congress. ABC News reports that GS spent more than $43 million in lobbying and contributions to political races over the last twenty years, and have been especially active in this cycle:
The embattled Goldman Sachs investment banking firm and its employees have spent more than $43 million dollars on lobbying and campaign contributions to cultivate friends and buy influence in Washington, D.C. since 1989, according to an ABC News analysis of campaign finance records compiled by the Center for Responsive Politics.
As a group, Goldman Sachs bankers have been the country’s top political campaign contributors this year and have given $29.5 million in contributions since 1989, according to the Center.
“They are almost in a class by themselves,” said Sheila Krumholz, the executive director for the Center for Responsive Politics.
How much has GS “invested” in the race this year? John McCain took $208,000 from GS employees, making GS his fourth-largest source of income, and his top 5 contributors all come from Wall Street. However, Barack Obama has more than tripled McCain’s take, hauling in over $690,000, making GS the largest single source of contributions for Obama. Citigroup and JP Morgan Chase come in #3 and #4 for Obama as well. Interestingly, over the last 20 years, Goldman Sachs has favored Democrats over Republicans by almost 2-1. They’ve produced over $4 million in this cycle alone, 73% of which went to Democrats. Over $1.1 million of that went to Obama and Hillary Clinton alone.
Why is this the case for both candidates and the rest of Congress? Until recently, Wall Street was rolling in money — and wanted to protect the golden goose. That didn’t save Merrill Lynch, but ML only spent $14 million in that time, too. Merrill Lynch favored Republicans 2-1. I guess that was a bad bet.
How well connected is Goldman Sachs? Current Treasury Secretary Henry Paulson ran it as CEO from 1998 until he took his current position. Clinton’s Treasury Secretary, Robert Rubin, was co-chair at GS. The White House chief of staff, Josh Bolten, was an executive in their international offices in London.
What does this mean? Perhaps nothing, but with Congress deliberating about putting $700 billion in taxpayer money at risk, the contribution patterns of the beneficiaries of those contributions certainly seems interesting.
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Cockroaches always survive.
tarpon on September 26, 2008 at 1:32 PM
I am beginning to get overloaded with information – is everyone feeding at the trough? Where’s mine?
I’m grumpy today –
I sure hope McCain mops the floor with Obama at the debate tonight and rescues this week.
HawaiiLwyr on September 26, 2008 at 1:34 PM
BTW, here’s an intersting take on the wall street situation from “Splicetoday”, which appears to be the latest venture of Russ “Mugger” Smith
http://tinyurl.com/3fqrx2
BuzzCrutcher on September 26, 2008 at 1:34 PM
Who needs connections when you got Buffet handing you $5b in cash?
Dr. Dog on September 26, 2008 at 1:34 PM
i dunno, mebbe they didn’t take on multiple billions of dollars in mortgages that should never have been granted …
/jus’ spitballin’ …
Buckaroo on September 26, 2008 at 1:34 PM
Along with Twinkies.
*doesn’t eat*
Grue in the Attic on September 26, 2008 at 1:34 PM
“I sure hope McCain mops the floor with Obama at the debate tonight and rescues this week.”
it’s surely starting to have a “bottom of the 9th” feel to it, huh?
[!]
Buckaroo on September 26, 2008 at 1:35 PM
Am I the only one who isn’t getting preferential consideration from my “public servants”?
I’m tired of these fools.
Bishop on September 26, 2008 at 1:36 PM
But I thought all the evil capitalists voted republican to screw the little guy. Where’s John Edwards to tell us all about two Americas?
VolMagic on September 26, 2008 at 1:38 PM
You’re grumpy, I am tired… what a pair we make for being fake States.
upinak on September 26, 2008 at 1:40 PM
For a long time GS has been regarded as the top Wall Street bank by people who work on Wall Street. They are smart with their investments. It is too bad that campaign contributions are regarded as a good investments.
dedalus on September 26, 2008 at 1:41 PM
“upinak on September 26, 2008 at 1:40 PM”
ahem — as another “fake stater” i resent that!
:-)
:-)
Buckaroo on September 26, 2008 at 1:41 PM
Begging his wife not to leave him out of both sides of his mouth.
HornetSting on September 26, 2008 at 1:42 PM
Remember that GS is the original investment bank to leap into the hedge fund pool. They are the model that other failed banks attempted to emulate, and Hank Paulson was their CEO when they made the jump. Ya think they just might survive with an ally like that?
Fletch54 on September 26, 2008 at 1:42 PM
Alaska and Hawaii don’t exsist in BHO’s eyes. Which State are you in again?
upinak on September 26, 2008 at 1:42 PM
They know how to game the system.
Dr.Cwac.Cwac on September 26, 2008 at 1:42 PM
So does that make 59 or 60 states all together?
Dr.Cwac.Cwac on September 26, 2008 at 1:43 PM
i live on o’ahu …
Buckaroo on September 26, 2008 at 1:43 PM
not sure… lets ask BHO
upinak on September 26, 2008 at 1:43 PM
at least it is warm in your fake state!
upinak on September 26, 2008 at 1:44 PM
Shelby said the 700 billion will be used to bail out 3-5 banks. I’m sure it’s those ones with the tasty contributions.
lodge on September 26, 2008 at 1:45 PM
A much better indicator of this situation. So much emphasis on companies that may die trumped by all of those that will survive, even thrive because of it.
We only need to make sure Foreign banks don’t take advantage, and buy America.
Agrippa2k on September 26, 2008 at 1:45 PM
yes, but you vote the right way more often than not instead of 50 years of one party rule [!!]
Buckaroo on September 26, 2008 at 1:45 PM
That and Paulson is dirty on this up to the top of his bald head. Bush was an idiot for having this guy around.
If ACORN and La Raza were going to get handouts then you can bet Lehman and GS were going to get theirs too! The House must rat on the rats on these earmarks! NAME NAMES! MAKE THEM FAMOUS!
freeus on September 26, 2008 at 1:46 PM
google Goldman Sachs… and then say that again. Look at “Toll Booth”
upinak on September 26, 2008 at 1:47 PM
I’m not convinced that has anything to do with it. They all lobby through their employees both sides of the aisle those in senior committee assignments. I think it’s probably more likely GS is still afloat because of management:
Texas Gal on September 26, 2008 at 1:48 PM
No, no, no, no no. Bambi doesn’t take any money from “lobbyists” didn’t you see his commercial. He certainly hasn’t taken any money from employees of the evil Wall St.
rockhead on September 26, 2008 at 1:49 PM
Hopefully, Treasury will continue to let banks like WaMu fail in an orderly manner–insure the deposits, move the assets to another private institution, wipe out the investors.
dedalus on September 26, 2008 at 1:50 PM
Yep, all this cash will go to 3-5 banks, who will be chosen by the Fed… who then, being able to get capital because of clean books, will buy up the rest of the smaller banks, who are not getting bailed out.
Like the WaMu deal, where the bank was SEIZED, and then SOLD, this is all about bank consilidation and power.
Another aspect no one has looked at yet. With this bank consolidation going forward, funded by the taxpayer, the “winning” banks will control more seats on the Federal Reserve Board… and thus be able to make rules about how they will regulate themselves.
Romeo13 on September 26, 2008 at 1:50 PM
Anyone else have problems getting through to the congressional offices website? It won’t go for me.
Bishop on September 26, 2008 at 1:50 PM
“rockhead on September 26, 2008 at 1:49 PM”
tee-hee!
Buckaroo on September 26, 2008 at 1:51 PM
Oh yeah, wipe out the investors, most of whom are American Citizens, and transfer that wealth to other, more wealthy Banker types…
Yeah… good move on the Governments part…. choosing winners and loosers.
Romeo13 on September 26, 2008 at 1:51 PM
Who do you think is orchestrating things behind the scenes? Duh, the Demorats favorite investment bankers Goldman Sachs of course!
bill30097 on September 26, 2008 at 1:51 PM
“Bishop on September 26, 2008 at 1:50 PM”
“oh crap, the voters are pissed! the servers are gonna blow!”
:-)
Buckaroo on September 26, 2008 at 1:52 PM
Goldman Sacks just changed their status from an investment bank to a bank holding company. That severely limits the leverage they may now use. While this will make them more stable in the long run it also reduces the liquidity which they can provide to the market. Since we are in a credit crisis right now this reduction in liquidity is no small thing. Banks and ibanks are failing, contracting the money supply. That the suvivors must delever and will not be able to provide the same amount of liquidity makes it worse. We are in a credit meltdown. This is why inaction is no longer an option.
phronesis on September 26, 2008 at 1:55 PM
I’m no conspiracy theorist, but could be one.
lodge on September 26, 2008 at 1:55 PM
phronesis on September 26, 2008 at 1:56 PM
Uh, why can’t the FED open up its spicots and loan companies the needed funds at the Prime lending rate?
Won’t this give the markets liquidity without putting the Taxpayer in the middle of it?
Romeo13 on September 26, 2008 at 1:57 PM
The investors were free to invest in any publicly traded bank or other security. If they picked WaMu or Lehman they picked a bank with bad management. The government has an obligation to ensure the depositors, but shareholders get the gains and losses.
dedalus on September 26, 2008 at 1:57 PM
Ed, I just sent you a link to this post by Zywicki at Volokh.
I doubt GS will try to take bailout route, and I’d be surprised if Paulson accepted them. I’ve also become more doubtful that Buffet decided to buy some $5B of GS based on sound financial reasons.
Dusty on September 26, 2008 at 1:58 PM
I think I need to start a bank.
moonsbreath on September 26, 2008 at 2:01 PM
You mean they only donated, and didn’t go with the entire Democratic program of flushing money down the toilet?
unclesmrgol on September 26, 2008 at 2:01 PM
The Fed cannot replace the entire banking system at once. It just wouldn’t be able to make of for the liquidity being drained when all private banks are unwilling or unable to lend. Even if it were possible, how is letting the private banking system collapse and having the Fed become the only lender in America not far more “socialism” than the Bernanke/Paulson plan, which will preserve the private banking system?
phronesis on September 26, 2008 at 2:02 PM
thedudesblog on September 26, 2008 at 2:04 PM
But the Government is now picking who they will bail out, and who they won’t, sometimes based on how large they are… and sometimes even after saying they wouldn’t bail them out.
The Government is now choosing one set of investors, over another. When they forced the WaMu sale, they totaly destroyed the WaMu investment, while giving a HUGE potential windfall to JPMorgan/Chase. JP received those assets at a real fire sale price.
This is NOT free enterprise… this is the Government, for some reason, consolidating the entire financing industry at Taxpayer expense.
Romeo13 on September 26, 2008 at 2:04 PM
Barney Frank: I Tawt I Taw a Putty Tat
thedudesblog on September 26, 2008 at 2:05 PM
That was what they were doing before they came up with the Bernanke/Paulson plan you dislike. The ad hoc basis by which they were bailing companies out clearly wasn’t working. They realize this, hence the new plan to avoid it.
phronesis on September 26, 2008 at 2:07 PM
It wouldn’t have to… it would only have to “prime the pumps”.
According to Paulson, this is a crises of confidence, which caused a freeze of liquidity as people were afraid to loan money… keeping it for themselves in case of trouble…
If the FED used its already existing power to prime the pumps, showing that it could, and would, step in, then confidence would be restored, and others would start to loan money.
Romeo13 on September 26, 2008 at 2:07 PM
Romeo13 on September 26, 2008 at 2:11 PM
The regulators seized WaMu in a manner that kept their liabilities away from taxpayers. It also keeps safe the $2.5B in deposits that were uninsured by the FDIC. The biggest loser was a private equity firm that has seen its $1B+ investment wiped out.
dedalus on September 26, 2008 at 2:17 PM
Um, question, why put Fannie and Freddie essentialy into government hands… and HOLD IT…
But upon seizing WaMu IMMEDIATLY sold it at a real fire sale price, to a favored bank? One who in the past had expressed an interest in WaMu, but didn’t like the price?
Why did they not give them a line of credit, like they did to AIG?
Government is PICKING winners and loosers, which is not their job.
Romeo13 on September 26, 2008 at 2:27 PM
We will not have false gods. It is a mistake to think that a green piece of paper, based on debt, will solve our nation’s problems. There is only One who has the power to care for us.
saved on September 26, 2008 at 2:28 PM
Barack Obama 2003 – 2008
Goldman Sachs $748,880(Obama’s Largest Contributor)
————————————
John McCain 2003 – 2008
Goldman Sachs $234,345(McCain’s largest was $306,813)
—————————————–
Top Contributors
Senator Barack Obama 2003 – 2008
Goldman Sachs $748,880
University of California $625,911
JPMorgan Chase & Co $491,469
Harvard University $473,669
Citigroup Inc $467,849
Google Inc $426,174
University of Chicago $424,539
UBS AG $419,245
Skadden, Arps et al $394,335
Lehman Brothers $393,324
National Amusements Inc $382,303
Microsoft Corp $380,735
Sidley Austin LLP $379,802
Kirkland & Ellis $376,164
Moveon.org $347,463
Morgan Stanley $341,320
Time Warner $338,677
Wilmerhale Llp $335,398
Exelon Corp $314,063(Obama’s 19th highest contributor larger than McCain’s 1st)
Latham & Watkins $299,650
———————————-
Top Contributors
Senator John McCain 2003 – 2008
Merrill Lynch $306,813
Citigroup Inc $277,251
Goldman Sachs $234,345
Morgan Stanley $234,272
AT&T Inc $192,557
JPMorgan Chase & Co $185,325
Credit Suisse Group $165,575
Blank Rome LLP $150,426
Greenberg Traurig LLP $148,787
UBS AG $138,665
PricewaterhouseCoopers $138,320
US Government $137,842
Bank of America $133,975
FedEx Corp $123,953
Wachovia Corp $123,096
Pinnacle West Capital $123,050
Lehman Brothers $120,600
Gibson, Dunn & Crutcher $104,250
US Army $103,613
Bear Stearns $99,300
Chakra Hammer on September 26, 2008 at 2:30 PM
Obama Got more from moveon.org than McCain got from his TOP CONTRIBUTOR!
Chakra Hammer on September 26, 2008 at 2:32 PM
Yeah, McCain is taking smaller bites, but still feeding from the same trough.
Gotta LUV our politics.
Romeo13 on September 26, 2008 at 2:33 PM
Because James Johnson’s on the board? GS employees better hide their wallets and purses.
baldilocks on September 26, 2008 at 2:46 PM
That must have been some seriously potent crack he was smoking in his teen years to have blotted out his home state.
baldilocks on September 26, 2008 at 2:51 PM
Um, question, why put Fannie and Freddie essentialy into government hands… and HOLD IT…
I’m guessing because they are reacting and each case is different. The GSE’s were taken over because no one but the government was big enough. LEH failed because they weren’t interconnected enough for the government to care. The government intended to let AIG fail but then realized that it would be catastrophic, so they backstopped them and took 80% of the company.
In the case of WaMu they had a deposit base that was bigger than what the FDIC could handle. Dimon was willing to take the deposits along with the toxic assets. His company is strong enough to handle the billions in write downs and also raise $10B in new equity.
Look for US Bancorp, Wells Fargo, or other strong banks to pick up a few failed banks themselves soon.
dedalus on September 26, 2008 at 2:58 PM
Senator Barack Obama 2003 – 2008 Top 20 Contributors
Brack Obama
Assumed office
January 4, 2005
How did he raise more money than McCain when he was in office, such a short time?
Chakra Hammer on September 26, 2008 at 2:59 PM
Obama: Since Being Sworn In As A Senator In January 2005 Barack Obama Requested 330 Projects Totaling Almost $1 Billion(($935.7 Million) in Pork-Barrel Earmarks.
————-
John McCain Has Requested $0 in Earmarks and Pork-Barrel Projects.
Chakra Hammer on September 26, 2008 at 3:03 PM
Obama has been eating Pork and taking bribes hand over fist since he has been in office.. he’s been doing since his days in Chicago taking bribes from Rezko and Hanging out Ayres living room, now it’s on a larger scale..
Chakra Hammer on September 26, 2008 at 3:07 PM
Please explain to me how you can treat different sets of taxpaying investors differently under the equal protection clause of the Constitution?
Remember, these are not just business entities… real American citizens are getting hurt by their investments becoming worth nothing… and by Government whim.
Many of these “investors” are in 401ks and 403Bs, and have NO idea where there money is on a day to day basis.
Its going to be interesting to see how this all plays out in the courts eventually. How can a Government entity pick and choose winners and loosers under the Equal Protection Clause…. I see class action lawsuits coming…
Romeo13 on September 26, 2008 at 3:11 PM
Ya think!
upinak on September 26, 2008 at 3:12 PM
Yes, Barry is much worse, but the system is flawed when you can give campaign contributions to someone who is overseeing the laws which impact your business, especialy if they are on the Committee with oversees your industry.
Romeo13 on September 26, 2008 at 3:13 PM
Corporations don’t have Constitutional rights. In the case of WaMu, Kerry Killinger turned down $8/share from JPM in April. Shareholders should be angry at him in the same way that Lehman shareholders should be angry with Dick Fuld who ran the company into bankruptcy. AIG, Bear and the GSE shareholders got clobbered even with the government stepping in.
dedalus on September 26, 2008 at 3:22 PM
Corportations do not, but investors do. The way the Feds are acting is picking economice winners and loosers amongst INVESTORS, not just corporations.
307 Billion in assets were sold to JP for 1.9 Billion… by the government forcing it. Giving the company a loan in order for it to peacefully breakup, the investors could have gotten MUCH more of that money back… instead the government chose winners and loosers AMOUNGST INVESTORS. Thats a forced 305 BILLION DOLLAR transfer of wealth.
Romeo13 on September 26, 2008 at 3:34 PM
If something like the Paulson plan had passed earlier, WaMu might have been able to limp along. If Congress can pass something this weekend it will probably stop some other bank failures.
The government didn’t encourage WaMu to get into the risky products it did. Their responsibility is to the depositors who Killinger had put in jeopardy.
dedalus on September 26, 2008 at 3:45 PM
When it comes down to crunch time it’s always a comfort to have “friends” you can count on. These Goldman Sachs folks sure do stick together, don’t they?
http://www.spectator.org/blogger.asp?BlogID=14879
Skull on September 26, 2008 at 4:16 PM
WaMU failed because of 3 things…
They didn’t sell all their bad mortgages to Fannie and Freddie, like others did.
They continued in the risky loan business, at the governments behest, thinking they’d get bailed….
AND MOSTLY, because Government people started talking about it failing, which caused a run on its banks.
Wachovia will fail next, and it’ll be another shotgun sail… another bank consolidation… as people are already talking about it failing.
Romeo13 on September 26, 2008 at 4:16 PM
Maybe. I think Wachovia CEO Robert Steel is capable, though he inherited a mess. Apparently much of their real estate exposure is direct, rather than through securities. That gives them some flexibility. They were talking to Morgan Stanley, now Citi. Looks like Steel will try to emulate the John Thain model.
dedalus on September 26, 2008 at 4:37 PM
That “Burning Down the House…” YouTube is EXCELLENT.
I just forwarded the link to everybody I know.
You should ALL do the same. It will actually GET votes for McCain. It WILL. Especially those voters who are undecided or leaning towards Obama simply because the economy is dicey and they don’t want to vote Rep.
Sapwolf on September 26, 2008 at 7:26 PM
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