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Cooking Books and Limiting Responsibility: The Goldman Sachs Playbook

Managing a bank will always be a more lucrative criminal enterprise than raiding one but this Brechtian styled analysis only goes so far. A closer look at the extraordinary nature of Goldman Sachs and its operations reveals not merely a bank but a flesh-eating cult of considerable proportion, brazen in its operations and indifferent to authorities. While states have been surrendering their functions to banks with more regularity than unconscious organ donors, the catch-up was bound to happen. In Malaysia, a country at times irritable with the liberties taken by financial institutions, a retaliation of sorts is taking place.

The Malaysian government now claims that the bank’s subsidiaries, two ex-bankers from Goldman Sachs and Malaysian financier Low Taek Jho, engaged in an enterprise of misappropriation to the tune of $2.7 billion. To that can be added claims of bribery and supplying false statements. But Goldman remains an old hand at this, already doing what it is famed for: minimising any alleged role of impropriety and declaring the sort of innocence best expressed by hardened criminals.

Wherever one turns to this mercenary of the finance world, the pattern is tried and familiar. Clients of varying moral persuasions are targeted; books and accounts are cooked to order; loans and purchases are arranged. The result is often murky and often seedy.

Examples of this proliferate in the financial jungle. Greece stands out as one such client, entering into derivatives contracts with Goldman permitting a part securitisation of debt that evaded European Union rules on reporting. This came via cross-currency swaps on a historically implied foreign exchange rate, meaning that a weaker Euro rate was used to obtain more Euros in exchange for Greece’s Yen and Dollar reserves. The derivatives effectively functioned as loans from Goldman to the Greek government, enabling an easy fudge on deficit and debt figures.

Malaysia, with its suitable stable of malleable figures and functionaries keen for the quite literal steal, was also ripe for arrangements. “We cannot have an egalitarian society – its impossible to have an egalitarian society,” claimed former Malaysian prime minister Najib Razak in September 2013 before an audience at the Grand Hyatt in San Francisco. Najib is now chief target of Malaysia’s current Mahathir administration.

That meeting also had another addition. Tim Leissner, one of the anointed from the Goldman Sachs Group, was there. In his role as Southeast Asia chairman, he presided over a financial empire with smooth channels of access to those in power. Najib’s coming to office in 2009 saw an approval of Goldman’s application to conduct fund management and corporate finance activities. Then came the deals with the state fund 1Malaysia Development Bhd (1MDB). Goldman made a stunning $600 million in raising $6.5 billion for 1MDB in 2012 and 2013 on three bond sales. Its justification for such a figure lay in the underwriting of risks undertaken by the bank itself.

The matter with the 1MDB fund started going off. It was rumoured that money was not going to the necessary infrastructure projects but making its way into private accounts. Najib is now the target of a corruption case that has legs linking him to a former subsidiary of IMDB, namely SRC international. Swiss prosecutors are investigating suspected misappropriations from the 1MDB amounting to $4 billion.

Leissner, like Najib, is out of favour, pleading guilty to US bribery charges in August. Investigators are now interested to see whether Goldman Sachs had the temerity to mislead bondholders and break anti-corruption laws.

The bank is attempting to run by the old playbook of limited responsibility. (It should be rebadged limitless irresponsibility.) Isolate the virus; defer focus and accountability. The rogue employee argument becomes the default position in such a manoeuvre. Leissner and managing director Ng Chong Hwa, have been singled out as the villainous architects, while Andrea Vella has been put out to grass – for the moment.

Such a tactic is known and questionable. “No matter how senior you are,” opined an anonymous former Goldman employee to CNBC, “there’s always somebody above you. So a lot of people had to decide they were comfortable committing billions of dollars to this.” Individuals like chief financial officer Stephen Scherr would have had a say, not to mention current CEO David Solomon and his predecessor Lloyd Blankfein.

That approach is also supplemented by the added incentive of libelling the client. When things go wrong, the customer is not always right. How, argues the company, could they have known that the raised revenue would be misappropriated? In a statement from Goldman, “Under the Malaysian legal process, the firm was not afforded an opportunity to be heard prior to the filing of these charge against certain Goldman Sachs entities, which we intend to vigorously contest.”

The institution knows it will get into regulatory hot water and insures against it. That’s the Goldman way. It will bet against the very same derivatives it sells to clients while using mortgage investment schemes that are immune to success. It will engage in insider trading and, as happened in April 2012, be fined a mere $22 million.

The sheer audacity of this financial institution is finally captured by its confidence that failings, when not given minor punishment, might well be rewarded by the state. Goldman Sachs is the sort of institution which has thrived on the largesse of government assistance – the old socialise your losses but privatise your gains sort of philosophy runs through its operational philosophy. It knows, whatever the weather, it will always be guaranteed a safe place to moor.

As the financial crisis of 2008-9 began to bite with ferocity, the banking concern received some $10 billion, followed by $12.9 billion in credit default swap insurance via the bailout of AIG. As John Lanchester pointed out at the time, the sensitive, well-thought out response of gratitude duly followed: the bank paid itself $16.7 billion in pay and bonuses for the first three quarters of the year. That’s bankocracy for you.


11 comments

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  1. ChristopherJ

    Thank you, Binoy. Lot of research and work. Appreciated by me and others.

    GS, the original vampire squid. They’ll just get another fine. Move on, nothing to see…

  2. Diannaart

    Thankful for all your hard and excellent work throughout the year, Dr Binoy.

    We really need to keep up the outing of the finance sector.

  3. Sir Scotchmistery

    I have been buffeted by accusations of opinion standing as fact among the Breitbart’s of the political universe. Particularly among the libertarians.

    It’s wonderful to see facts pretending to be facts. Thanks Binoy.

  4. MattersNot

    When I read of Goldman Sachs, I think of Gary Cohn who was President and Chief Operating Officer of Goldman Sachs from 2006 to 2017. Cohn’s salary at Goldman Sachs was $22 million in 2014 and $21 million in 2015. He received a severance package worth around $285 million – mostly in stock – from Goldman Sachs upon leaving to join the administration of Donald Trump.

    He stayed long enough with the Trump administration to design and push through legislation that favoured the rich and powerful (him included) – the one percent – while on a salary of $30,000. (Wouldn’t have paid his bar bill.)

    After draining the financial swamp into the pockets of himself and other one percenters Cohn chose Trump’s tariff barriers as the excuse to leave. After all – there was nothing left to do. The con (Cohn) was complete.

  5. Diannaart

    Matters Not

    That $1million pay cut must’ve really hurt …

    We 90% live in a bubble, not comprehending how tough it is at the top.

  6. Diannaart

    Sir Scotchmistery,

    facts pretending to be facts 😏

    Expecting Trump to use above in a tweet as more of his legal scams are revealed.

  7. Diannaart

    LNP don’t do small corruption

  8. Michael Taylor

    ”LNP don’t do small corruption”

    I like it. 😀

  9. Andreas Bimba

    More on Goldman Sachs in this Rolling Stone article from 2010. A blood sucking squid that has latched itself onto the face of humanity.

    https://www.rollingstone.com/politics/politics-news/the-great-american-bubble-machine-195229/amp/

    More details here but with more envy than critique.

    https://www.afr.com/business/banking-and-finance/goldman-sachs-alumnus-malcolm-turnbull-runs-the-country-others-the-us-treasury-20161216-gtcb5k

    And our teflon coated former PM Malcolm Turnbull had a substantial involvement being a co-chairman of Goldman Sach’s Australian unit from 1997 to 2001. A very opportune period of history for investment bankers!

    One of Goldman Sach’s most successful scams was talking up the tech bubble, searching out willing buyers and leaving others with the losses following the Tech Wreck in early 2000. By some strange coincidence Malcolm Turnbull was also a substantial beneficiary selling his 1994 initial $500,000 investment in local Internet Service Provider – Ozemail for A$57 million to Worldcom in 1999. What fantastic timing – the man is clearly a genius!

    Malcolm Turnbull would also become entangled in the collapse of HIH, Australia’s then-second largest insurance company. In December 2000, on the back of bulging debts and marginal solvency, HIH would become the largest corporate collapse in the country’s history, with liquidators estimating losses of up to $5.3 billion. A Royal Commission was established to probe the collapse, and a portion of the inquisition was dedicated to Turnbull, who was the Goldman Sachs head and primary advisor to FAI, an insurance company that HIH took over for a sum of around $300 million in 1998. It was later revealed that FAI’s assets were grossly misstated, and Turnbull was accused of concealing from the FAI board of directors that he was working with FAI CEO Rodney Adler to take the company private. The Royal Commission later declared Turnbull and Goldman Sachs free from any wrongdoing.

    Malcolm Turnbull’s son Alex Turnbull, also worked for Goldman Sachs from 2010 to 2014 as an investment banker in its Asian special operations group which during this period has now been shown to have been heavily involved in the political corruption and scams surrounding a Malaysian state investment fund known as 1MDB and former Malaysian Prime Minister Najib Razak and his associates.

    Alex Turnbull may have a teflon coating as good as dad’s as he was apparently one of the good guys warning about the excesses of his Goldman Sachs’ one-time partner and South-East Asia chairman, Tim Leissner, at the time.

    https://www.afr.com/markets/market-data/world-markets/alex-turnbulls-1mdb-complaints-about-goldman-sachs-look-prescient-20180710-h12gxa

  10. paul walter

    Thanks again, Dr Kampmark.

    Paul Singers cruel Argentine swindle looks small beer compare to this. The US itself, or at least its wider public, is a victim of this sort of stuff as well when you consider what the Meltdown of a decade ago was about.

    Organisations like GoldSach and Wall St generally are Ghengis Khan like obscured nations within nations launching assaults against nations

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