Goldman Sachs controversies
The company has been criticized for lack of ethical standards,[1][2] working with dictatorial regimes,[3] close relationships with the U.S. federal government via a "revolving door" of former employees,[4] and driving up prices of commodities through futures speculation.
[29] That same period, however, CEO Lloyd Blankfein and 6 other senior executives opted to forgo bonuses, stating they believed it was the right thing to do because they were part of the industry that caused economic distress.
[30] American International Group received $180 billion in government loans during the financial crisis, much of which was used to pay counterparties under credit default swaps purchased from AIG.
However, due to the size and nature of the payouts, there was considerable controversy in the media and amongst some politicians as to whether banks, including Goldman Sachs, should have been forced to take greater losses and should not have been paid in full via government loans to AIG.
Finally, the report said, an AIG default would have forced Goldman Sachs to bear the risk of declines in the value of billions of dollars in collateral debt obligations.
[44] Although many have said there is no evidence to support the claim,[45] some have argued that Goldman Sachs received preferential treatment from the government by participating in the crucial September meetings at the New York Fed, which decided AIG's fate.
Furthermore, Goldman Sachs CFO David Viniar stated that CEO Blankfein had never "met" with US Treasury Secretary Henry Paulson to discuss AIG;[47] however, they had frequent phone calls.
[50] While it is common for regulators to be in contact with market participants to gather valuable industry intelligence, particularly in a crisis, Paulson spoke with Goldman's Blankfein more frequently than with other large banks.
[52] On July 15, 2003, Goldman Sachs, Lehman Brothers and Morgan Stanley were sued for artificially inflating the stock price of RSL Communications by issuing untrue or materially misleading statements in research analyst reports, and paid $3,380,000 for settlement.
[59] Critics have argued that the reduction in Goldman Sachs's tax rate was achieved by shifting its earnings to subsidiaries in low or no-tax nations, such as the Cayman Islands.
[61][62] In September 2009, Goldman Sachs, among others, created a special credit default swap (CDS) index to cover the high risk of Greece's national debt.
[73] According to Mandis, there was an "organizational drift" in the company's evolution and Goldman came under a variety of pressures that resulted in slow, incremental changes to its culture and business practices.
[80] During 2008 Goldman Sachs received criticism for an apparent revolving door relationship, in which its employees and consultants have moved in and out of high level U.S. Government positions, creating the potential for conflicts of interest.
[82] In February 2011, the Washington Examiner reported that Goldman Sachs was "the company from which Obama raised the most money in 2008" and that its "CEO Lloyd Blankfein has visited the White House 10 times.
[86] In 1986, Goldman Sachs investment banker David Brown pleaded guilty to charges of passing inside information on a takeover deal that eventually was provided to Ivan Boesky.
[96] Authors Bethany McLean and Joe Nocera stated that "the firm's later insistence that it was merely a 'market maker' in these transactions—implying that it had no stake in the economic performance of the securities it was selling to clients—became less true over time.
"[103] Critics also complain that while Goldman's investors were large, ostensibly sophisticated banks and insurers, at least some of the CDO securities and their losses filtered down to small public agencies—"money used to run schools and fix potholes and fund municipal budgets".
[10] There were intricate links between a Goldman Sachs trader, Jonathan M. Egol, synthetic collateralized debt obligations, or C.D.O., ABACUS, and asset-backed securities index (ABX).
These were primarily IKB Deutsche Industriebank (US$150 million loss), and the investors and insurers of another US$900 million—ACA Financial Guaranty Corp,[111] ABN AMRO, and the Royal Bank of Scotland.
"[112] In reply Goldman issued a statement saying the SEC's charges were "unfounded in law and fact", and in later statements maintained that it had not structured the portfolio to lose money,[115] that it had provided extensive disclosure to the long investors in the CDO, that it had lost $90 million, that ACA selected the portfolio without Goldman suggesting Paulson was to be a long investor, that it did not disclose the identities of a buyer to a seller and vice versa as it was not normal business practice for a market maker,[115] and that ACA was itself the largest purchaser of the Abacus pool, investing US$951 million.
[120][121] Describing Bear Stearns's reasoning, one author compared the deal to "a bettor asking a football owner to bench a star quarterback to improve the odds of his wager against the team.
[126] According to an article in the Houston Chronicle, critics also worried that Abacus might undermine the position of the US "as a safe harbor for the world's investors" and that "The involvement of European interests as losers in this allegedly fixed game has attracted the attention of that region's political leaders, most notably British Prime Minister Gordon Brown, who has accused Goldman of "moral bankruptcy".
"[135] Since the passing of the laws, Goldman Sachs and other investment banks such as Morgan Stanley and JPMorgan Chase have branched out into ownership of a wide variety of enterprises including raw materials, such as food products, zinc, copper, tin, nickel and, aluminum.
Some critics, such as Matt Taibbi, believe that allowing a company to both "control the supply of crucial physical commodities, and also trade in the financial products that might be related to those markets," is "akin to letting casino owners who take book on NFL games during the week also coach all the teams on Sundays.
[139] Although it was described by others as just a conspiracy theory,[140][141] in a July 2013 article, David Kocieniewski, a journalist with The New York Times, accused Goldman Sachs and other Wall Street firms of "capitalizing on loosened federal regulations" to manipulate "a variety of commodities markets", particularly aluminum, citing "financial records, regulatory documents, and interviews with people involved in the activities".
[16][5] The premium on all aluminum sold in the spot market doubled, with industry analysts blaming the lengthy delays at Metro International, costing American consumers more than $5 billion from 2010 to 2013.
[5] Goldman's ownership of a quarter of the national supply of aluminum – a million and a half tons – in a network of 27 Metro International warehouses in Detroit, Michigan, was blamed.
[5] In August 2013, Goldman Sachs was subpoenaed by the federal Commodity Futures Trading Commission as part of an investigation into complaints that Goldman-owned metals warehouses had "intentionally created delays and inflated the price of aluminum".
[144] Columnist Matt Levine, writing for Bloomberg News, described the conspiracy theory as "pretty silly", but said that it was a rational outcome of an irrational and inefficient system which Goldman Sachs may not have properly understood.
Additionally, Goldman Sachs gave "incomplete and unclear" responses to information requests from SEC compliance examiners in 2013 about the firm's securities lending practices.
