American Morning

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January 21st, 2010
06:35 AM ET

Goldman Sachs demystified

By Ronni Berke and Christine Romans

Goldman Sachs: some say it's the most revered – and feared – bank on Wall Street. But after more than a century of avoiding the media spotlight, the investment bank finds itself front and center – the focus of growing public scrutiny and scorn for its role in a mortgage meltdown.

Demonstrations are held outside its headquarters; newspapers and magazines criticize what they call a change in the "Goldman Ethos," or culture, of serving the client above all else. Rolling Stone's Matt Taibbi has ridiculed it as "a great vampire squid wrapped around the face of humanity."

Critics blame Goldman for selling toxic assets, like mortgage-backed securities, that contributed to the financial collapse. Like other banks, it got government bailout money, although it paid back the $10 billion with 23% interest. While the country is still reeling with skyrocketing foreclosures and 10-percent unemployment, Goldman ended 2009 with soaring stock prices and profits.

That leaves many competitors and critics wondering – are they gaming the system, or are they just the best at what they do?

"Goldman always brings to the table the attitude we're smarter than everybody else and we're better than everybody else, and that's why we make money," said former New York Governor Eliot Spitzer, who investigated Goldman's business practices while attorney general.

"To a certain extent, they're the New York Yankees of the investment banks," said Spitzer. "They have all the money, they keep winning, they have an arrogance, but people underneath it say 'boy, they're good.' And so you love them, you hate them, you resent them, you fear them, you feel the game is fixed, and sometimes it's probably all of the above."

But many Goldman advocates say the firm's "secret sauce" is based on the 141-year-old bank's tradition of grooming the best and the brightest.

"When I got to Goldman Sachs, I said this was the equivalent of getting to work at NASA," said Janet Hanson, who spent fourteen years at Goldman starting in the 70's. She was the first woman to manage the the money market sales desk. For her, Goldman's allure was simple. "The excitement of working with really smart people, I think, is really what attracted these very talented young people, particularly young people."

To begin with, the firm relentlessly recruits top students from the best graduate schools, says Charles Ellis, author of "The Partnership," a history of Goldman. "If you've got the very best people in large numbers and you discipline them and train them well and give them tremendous motivation to do great things and teach them to play as teams you get a very formidable organization," says Ellis.

They also pay well. Although final figures won't be announced until next week, Goldman's 2009 compensation pool is approaching $21 billion. In a company of nearly 32,000, that averages about $700,000 a piece.

Chris Whelan, a banking analyst at Institutional Risk Investors, says Goldman bankers are more nimble than their competitors. "Goldman bankers just work very hard, they try and get information before everyone else does and they try to act on it first."

They also rely more on complicated, high-tech trading over traditional investment banking to make money. In the third quarter, they pulled in more than 49-million in profit a day.

That allows for bonuses that Goldman CEO Lloyd Blanfein claims are justified. In October, he told Fortune's Andy Serwer, "I can't do too much that subordinates the interests of our shareholders in having a great franchise of Goldman Sachs and maintaining our people and being able to recruit other people." Yet, in December, after public outrage, the firm backed off and decided to offer thirty top executives bonuses in deferred stock instead of cash.

Filed under: Business
soundoff (9 Responses)
  1. momforpeace

    I do not know how these bankers go to bed at night knowing what big thieves they are.While everyone is struggling to put food on the table or pay their rent,mortgages and medical bills,they are having a great time from the pennies we are trying to put away for our older days.They are the ones who are enjoying our money,and is time our government do something about it.

    January 24, 2010 at 11:26 am |
  2. Craig Myles

    I am 100% for financial and banking executives earning a lot of money. However, there are many cases of CEO's receiving $50-70M during a year when the company lost hundreds of millions, and laid-off employees. Most companies pay directors only when adequate revenue and profits occur. The banking community has been coddled with no regulation, and made horrible toxic decisions without even doing their homework... is a fact, even admitted by them. So why should the public expect no changes? The only officials against regulation will again be the far-right wing Republicans with their hands in the "lobbyist cookie jar".

    January 21, 2010 at 8:52 am |
  3. Elizabeth

    Sorry producer Berke, but your story today did not answer Duane's questions. It simply reiterated what we already know, that GS top brass is entrenched in government. I like Christine Romans, but I am alittle tired of hearing that these highly sophisticated bankers simply 'didn't know' the toxicity of the investments. That is garbageand it's an outrage.
    They knew and they didnt care, because they were all making so much money, profiting from these same investments. People are not stupid. They have paid back some of the TARP money with interest, but have keep all of the profits flowing from that money for themselves. Many folks have had enough.

    January 14, 2010 at 7:58 am |
  4. B Moon

    "CNN – The most trusted name in news" should live up to it's name and do real investigative journalism: inform the public about all the facets of the Goldman Sachs story in an objective way, in the tradition of what great journalism.

    January 13, 2010 at 11:59 pm |
  5. Ronni Berke

    Hi Duane - this is producer Ronni Berke. Thanks for your comment. Be sure to watch our second part of this series on Goldman Sachs Thursday - where some of your questions are addressed.

    January 13, 2010 at 4:41 pm |
  6. Duane

    Why haven't you mentioned the favorable treatment Goldman Sachs receives from the government and the fed. Ex GS executives are in almost all the top financial positions of government, in control of the Fed and therefore the money supply, and of course in control of how the bailout money was (is) spent. They always get theirs, 100 cents on the dollar. You should also mention the international money cartel begun by the Rothchilds which seems to control the financial futures of most of the advanced countries. Let's have a real expose. It makes me sick to read only about the intelligent, hard working people. That is also true, but they have advantages that no one else has. Is CNN afraid to cover that?

    January 13, 2010 at 9:46 am |
  7. Rob P

    Every time CNN mentions Goldman Sachs on TV they state Goldman paid back their TARP money. Goldman paid back the Tarp money they received from the government. Goldman Sachs also received billions of dollars in TARP money from AIG. That money was not paid back! Why doesn't CNN report this?

    January 13, 2010 at 9:04 am |
  8. goldman mom

    what about the technology workers on call 24/ overtime, no they deserve a bonus? yes indeed......and not everyone makes a tremendous salary

    January 13, 2010 at 8:56 am |
  9. Hilroy

    Now is the time for these greedy bankers on Wall Street to make right with God. before they make it down to the burning pits of hell.

    The money you are stealing from the US taxpayers, give all you can to the poor people of Haiti. The earthquake has destroyed most of what little they have. I am a christian and until you make right with God you are doomed.

    I am not passing judgement but this is my sincere belief in what awaits you after death and may God forgive me for my anger towards you and your greedy kind.

    January 13, 2010 at 8:38 am |