My FT column this week this week is on Goldman Sachs, recipient of $5bn from Warren Buffett, and whether it can keep combining private profit and public service:
A lot of people used to think that Goldman Sachs ran the US economy. Now we know it does.
On Tuesday morning, Hank Paulson, the US Treasury secretary and former chairman and chief executive of Goldman, testified to Congress about his plan to buy $700bn of mortgage securities. He wants to scoop up these assets as rapidly, and with as little interference, as possible in a manner yet to be fixed.
On Tuesday evening, Goldman declared that Warren Buffett, the legendary investor, was handing it $5bn of new capital in the form of preference shares and the bank would follow up with a $5bn equity sale. For investment banking rivals that have fallen by the wayside, or had to hunt overseas for funds, it showed who is top of the heap.
Mr Paulson’s stewardship of the crisis-hit economy – despite the role that investment banks have played in bringing it down – and Goldman’s bravura capital-raising are typical. Goldman partners are not only smarter than the average Wall Street bear, but often turn up in “public service”, running finance ministries and central banks.
They have been very adept at first making money for themselves and then trading the financier’s life for that of the power broker. Even in a Wall Street-induced crisis, it feels safer to have Mr Paulson at the US Treasury than Paul O’Neill, or John Snow, his Main Street predecessors. His bald pate and manner are scary but he is no ingenue.
This Wall Street crash, however, has made the latent conflict of interest between Goldman’s public and private faces uncomfortably real. Mr Paulson insists that, in his current job, he cares only about “the American taxpayer”, yet Goldman has been one of the prime beneficiaries of recent interventions by the Treasury and the Federal Reserve.
Even if you accept, as I do, that Mr Paulson is a man of principle who tries his best to put his country first, this is troubling.
You can read the rest here and comment below.
