The Goldman Sachs Empire

Thursday, January 17, 2013

Page 6

IN MY OPINION (Column)

The Goldman Sachs Empire

By GERT K. HIRSCHBERG

(The writer is a retired trial lawyer, an American Board of Trial Advocates member since 1978 and a former professor of torts at five California law schools. He counts 4,000 of his former students among California’s lawyers and judges. He was presiding referee of the Disciplinary Board, later called the State Bar Court. He is a former member of the State Bar Board of Governors—1980 to 1983—and the Judicial Council of California.)

Oh what a tangled web our junior high school teacher wove when she told us there were three branches of our government, the executive, the legislative and the judiciary.

There are actually four. What she had forgotten was the powerful Goldman Sachs empire. Lodged high in financial centers all over the world, it engages in market making and is a primary dealer in the United States Treasury market. It is one of the premier investment banks in the world. Two of its employees (Robert Rubin and Henry Paulson) served as United States Treasury Secretaries under presidents Bill Clinton and George W. Bush, respectively. It is unfortunate that its ethics record has not kept pace.

The hallmark of a banking or agency relationship is a fiduciary duty. Were an attorney to violate this duty, he or she would properly face the most severe sanctions. Banks are fiduciaries. Those who manage our banks are fiduciaries. Is there any human being alive today who earns and deserves a salary of twelve million dollars? Goldman chief Lloyd Blankfein’s total compensation for 2011 was $16.2 million, up 14.5% from 2010. His 2012 compensation tripled from 2010.

The weekly news media abound with Goldman misconduct.

Consider Rajar Gupta, a former Goldman Sachs director convicted of giving hedge fund manager Raj Rajaratnam inside information. Letters of recommendation for leniency by Bill Gates and Koffi Annan (properly) fell on deaf judicial ears. His lofty boardroom has been exchanged for a lowly jail cell.

Consider payment by Goldman Sachs of a settlement with the U.S. Commodity Futures Trading Commission for allegations that it had failed to supervise a trader who hid an 8.3 billion dollar position.

Consider Goldman Sachs’ agreement to pay $22 million to settle charges that its analysts shared confidential research with favored clients. These arose, according to regulators, from weekly huddles between 2006 and 2011. This settlement was announced by the Securities and Exchange Commission and the Financial Industry Regularity Authority.

Goldman’s misconduct was clearly unabated in the last few years. First articulated by Senator Carl Levin in the movie “Inside Job” in rather strong language, it caused no other repercussions. Amazing. Goldman Sachs sold derivatives to the gullible community but failed to mention that its own arm in a separate transaction sold the same stock short. This fact, of course, was conveniently concealed from its other clients.

The settlement agreement with the Securities and Exchange Commission called for a $550 million payment, a pittance as a result of which, guess what, Goldman stocks rose 95 cents, or 0.7 percent, to $146.17. Apparently, it paid off to mislead one’s investors. Breaking up the big banks on Wall Street was just too much to handle and, oh yes, there was a promise in a written statement that the Department of Justice would not prosecute Goldman Sachs in a financial probe. Apparently, being Romney’s number one contributor with $994,139 paid off well.

German born Marcus Goldman in 1869 founded the firm. In 1882, his son-in-law Samuel Sachs joined the firm, and it has been Goldman Sachs ever since. What is that old statement : power corrupts but absolute power corrupts absolutely?