Goldman Sachs, The Sulking Boy

Power makes you do silly things. What, you did not include Goldman Sachs in your mega-IPO?? What a travesty! I will teach you all a lesson then. We are Goldman Sachs, we can make or break you, just you watch, don't you know we get a slice of all major deals globally or were you born yesterday. We can even get our government to bailout the very companies who then graciously promptly pay us back with the bailout funds.



Goldman Sachs, which ranks first in managing global share sales this year, is sulking after it didn't get an invitation to Glencore's coming-out party.

The giant Switzerland-based commodities trader is set for a dual listing in Hong Kong and London and may raise as much as US$12.1 billion (HK$94.38 billion). But Goldman is the only one of Wall Street's big investment banks not to be included in the syndicate of nine handling the float. The syndicate is expected to share in a large cake - US$300 million in fees. Goldman was left out because Glencore's board felt there was "no need" to involve it.

So, what did Goldman Sach do ... Goldman said last week that the risks of investing in commodities outweigh potential gains, dropping its recommendation to buy a basket of raw materials including crude oil, copper, cotton and platinum.

"Sell oil, cotton, copper, soybeans and platinum!" urged the commodities oracles at Goldman Sachs, in a surprise note last week.

Well, do you know why Goldman Sachs was left out? I guessed its because Glencore is a huge commodities trading outfit, and Goldman Sachs is also the world's biggest trading unit in everything, including wayward human souls. I am sure they have crossed swords many times in the past, loading big, unloading big positions and is bound to ruffle each other's gilded gold feathers. You fuck me every now and then as a trading competitor, and now you want a share of my US$300m fees in my IPO, go fly your own kite Goldman.

Basis Capital Fund, A Drunk Without A Cabfare To Go Home

You are a hedge fund manager, you have stewed in the hotpot of greed, filth and slime for years, you should understand that you can never trust your brokers, you know very well the ethics in the industry is at the same level as the acceptability of eating cats & dogs, you know these are not publicly traded instruments and are bound to be mis-priced with a great range for volatility, you should realise that you can be screwed in the deal as much as you were intending to screw the other party, no one bribed you to do the deal, in the end you buggers were just not very good ... were you

* Settlement talks between Basis fund and Goldman heat up

* Basis claims it was misled on Timberwolf CDO

* Basis invested in deal in June 2007 (Attention language in paragraphs 19-20 that may offend some readers)

NEW YORK, May 18 (Reuters) - An Australian hedge fund's former independent director has been complaining to U.S. regulators for more than two years about how Goldman Sachs Group contributed to the fund's collapse by selling it a toxic mortgage-linked security.

Now, in the wake of a recent U.S. Senate hearing on Goldman's role in the U.S. mortgage mess, during which the security -- called Timberwolf -- was repeatedly singled out by lawmakers as a particularly egregious transaction, David Mapley said he's finally getting a measure of satisfaction.

But Mapley, a former independent director for the Basis Yield Alpha Fund, said what he really wants is for Goldman to give back the $100 million the Basis Capital fund and its investors sank into the Timberwolf collateralized debt obligation.

There are signs the persistence of Mapley and others connected to the defunct Australian hedge fund may be about to pay off.

A Washington, D.C., law firm that represents the Basis fund is negotiating with Goldman over a possible settlement to the hedge fund's $100 million claim, people familiar with the situation said.

The fund's representatives initially hired Washington's Baach Robinson & Lewis more than a year ago to look into suing Goldman over the Timberwolf deal. The law firm did work on a draft complaint, but a lawsuit was never filed for reasons that remain unclear.

'BEYOND THE NORM'

Mapley, who resides in Switzerland but also has homes in the Cayman Islands and the United States, said he met with lawyers from Baach Robinson when he was still serving as one of the fund's independent directors and urged them to sue Goldman.

He stepped down from the fund's board last summer and hasn't been involved in any settlement talks with the investment bank.

"We found this aggressive behavior by Goldman," said Mapley, who still serves an independent director for a number of other offshore hedge funds. "We started uncovering certain practices that were beyond the norm."

The Basis fund's main contention is that the fund's managers were misled by Goldman when it purchased two $50 million tranches of Timberwolf, a $1 billion CDO that Goldman took to market in March 2007, according to Mapley and other people familiar with the situation.

The Basis fund sank money into Timberwolf in June 2007, after the one-time $500 million fund claims it got assurances from Goldman's mortgage trading desk that the market for CDOs had stabilized after falling sharply.

In fact, the hedge fund initially passed up an opportunity to invest in Timberwolf in April 2007 because Basis' managers were concerned about the health of the CDO market.

Mapley said he has been told Goldman sold the Timberwolf securities to the hedge fund at a significantly higher price than what similar mortgage-linked securities were selling for at the time. Basis' managers were not aware that Goldman's mortgage trading desk was actively shorting CDOs and other subprime mortgage-linked securities at the time of the Timberwolf deal, he said.

Michael Duvally, a Goldman spokesman, said, "Basis advertised itself as a highly experienced, professional CDO manager and investor." He added that the hedge fund "had access to the same information regarding the underlying portfolio as Goldman Sachs."

DEAL'S NOTORIETY

Mapley, however, said he found Goldman's conduct in marketing and selling Timberwolf so disturbing that he contacted the U.S. Securities and Exchange Commission about the deal in December 2007. He subsequently sat down with SEC lawyers several times in early 2008 to discuss the transaction, which he said securities regulators were already looking into.

In light of the SEC's early interest in Timberwolf, Mapley said he was surprised the commission's civil fraud claim against Goldman focused on another CDO -- Abacus 2007.

"When I saw the SEC action against Goldman I thought it was going to be Timberwolf," he said.

An SEC spokesman declined to comment on whether its lawyer met with Mapley and if regulators are looking into the Timberwolf transaction.

However, the Timberwolf deal drew considerable notoriety during last month's hearing by the Senate Permanent Subcommittee on Investigation when lawmakers revealed that a former Goldman executive had described the transaction as "one shitty deal" in an internal Goldman email.

Former Goldman mortgage executive Thomas Montag, who now works for Bank of America, penned that "shitty deal" email on June 22, 2007. A week earlier, Basis invested in the Timberwolf deal by plunking down about $11 million in cash and financing the rest of the transaction with a margin loan from Goldman.

The Timberwolf deal, which referenced a pool of other subprime-backed CDOs, quickly soured. By the end of August, the deal had lost 80 percent of its value and the CDO was liquidated in June 2008.

In buying Timberwolf on margin, Basis agreed to let Goldman re-price the value of the securities as it saw fit. And within weeks of closing the transaction, Goldman began marking down the securities and demanding cash collateral from Basis.

In August 2007, the hedge fund told its investors it was planning to liquidate. Basis contends the liquidation was prompted in part by the demands for collateral payments by Goldman, said people familiar with the hedge fund and information reviewed by Reuters.

TOKIO MARINE ROLE

Basis was not the only hedge fund that purchased Timberwolf securities and went belly-up in summer 2007.

The single biggest buyer of Timberwolf securities was the once giant Bear Stearns group of hedge funds, which invested $300 million in the CDO. The Bear funds, which once controlled nearly $30 billion of CDOs and other subprime mortgage-linked securities, imploded in June 2007 after the funds could not meet a series of margin calls from a dozen Wall Street lenders, including Goldman.

Another buyer of Timberwolf securities was a division of Tokio Marine Holding Inc, one of Japan's largest property and casualty insurers, said people familiar with the Timberwolf deal. The insurer did not return phone calls seeking comment.

Basis for claim?

The rather ambitious attempt by Australian hedge fund Basis Yield Alpha Fund to win more than $US1 billion in damages from Goldman Sachs over the $US56 million it lost investing in a portfolio of 'toxic' sub-prime mortgage securities promoted by the bank will, if it fully runs its course through the courts, help provide a better understanding of the limitations of the caveat emptor principle.

Basis, described by Goldman as one of the world’s most experienced investors in collateralised debt obligations, was forced into insolvency in 2007 after failing to meet a series of margin calls made by Goldman.

Two and a half weeks before that happened, Basis had invested in the now notorious Timberwolf CDO product – securities described famously by a senior Goldman executive involved at the time as "one shitty deal." At the time Goldman was promoting Timberwolf, its house view was that the sub-prime market was likely to become distressed and it held a net short position against that market.

The Basis case appears to have grown out of the Securities and Exchange Commission’s civil action against Goldman, in relation to a similar transaction in which it sold a synthetic CDO developed in conjunction with hedge fund Paulson & Co to a German bank without telling the CDO manager or the bank that Paulson – which was on the "short" side if the transaction – had a role in choosing the underlying securities in the portfolio. Goldman and the SEC have been in negotiations for a settlement of that action.

Both cases raise the issue of the extent to which sophisticated institutional investors are responsible for their own investment decisions and the due diligence associated with them. The corollary to that question is the extent to which promoters of a product offered to a sophisticated investor have a duty to fully explain the nature of the risks involved and express their own opinion of the product and the securities and market conditions underlying it.

In its statement of claim, filed in the US courts, Basis says it would never have invested in Timberwolf had it know Goldman played a significant role in the collateral selection process. It says Goldman’s knowledge of the market and price for Timberwolf was superior to its own and, because Timberwolf and similar CDOs were not publicly traded and were illiquid, it had little ability to obtain information about prevailing prices in the sector and, in particular, the pricing of the securities in Timberwolf.

It says that, at the time, it was reluctant to purchase an interest in Timberwolf because of its concerns about the CDO market, but sought assurance from Goldman that the price being offered (it bought securities with a face value of $US100 million for $US80 million) was good in the existing market and that the market for that type of security was stable. It is self-evident that it relied upon those assurances, to its detriment.

Goldman itself says that, in entering the transaction, Basis specifically stated that it would place no reliance on Goldman – and signed off on that statement.

If Basis were a "mum and dad" retail investor, Goldman would no doubt be in strife. But it wasn’t. It was an experienced hedge fund managed by very experienced market professionals.

In its own product disclosure statements, Basis described its investment process to prospective clients. Its first step was to identify miss-priced securities. The second was to research the opportunity and analyse perceived up-side and the potential down-side. The third was for the investment team to review the risk/reward attributes.

The disclosure went on to say that the Basis process started with a search for "compelling" opportunities, using "detailed models" maintained by the group to look at each security based on macro and micro factors considered relevant to making an informed investment decision, drawing heavily on the "extensive experience" of the investment team.

With all its sophistication, experience, process and technology – and its own reservations about the sub-prime market and its understanding of what was occurring within it – Basis, a leveraged investor, invested in a leveraged product exposed to that market… because Goldman said it was a good idea!

One wonders how Basis' own investors would feel about that insight into the level of due diligence taken before investing their funds.

If Goldman had an obligation (as much of the US discussion of the bank’s dealings would suggest) to disclose more information about the products it was offering and its own dealings in those and similar products to substantial and supposedly sophisticated professional investment institutions – institutions charging their own clients for their expertise – what obligations did the buyers of the products have to properly inform themselves of the nature and value of what they were buying?

If the case lasts the distance, we may find out where the balance of obligations lies and whether the caveat emptor principle still applies to deals between sophisticated consenting adults.

Goldman Sachs & God

In financial markets, Goldman Sachs is like a god. Goldman Sachs was about the only big investment bank that did well during the subprime financial crisis, JP Morgan did OK as well. But both went about doing alright in very different ways. Now people are complaining that Goldman Sachs cooperated (conspired?) with a hedge fund hustler in John Paulson (maverick or genius depending on whom you are talking to) to assemble and sell "synthetic collateralized debt obligations" that everyone involved, except maybe the purchasers knew would probably fail. The hedge fund hotshot made $1 billion.



I think Goldman Sachs did what a great investment bank should have done anyway. If you are smarter than the rest, you do the smart thing. Its a for profit entity, Goldman Sachs made most of its money by trading anyway, not by marrying trades.

Goldman Sachs is a convenient pinyata for those wanting to point out and punish those who behaved unethically and profited from the crisis. What GS did was not illegal but probably unethical. The basis for saying that is that most of the buyers of synthetic CDOs did not know the full extent of what they were buying - or did they? You don't go around buying billions of that stuff and then claim that you don't know what you were buying!!?? So what if GS knew that it was probably a bad trade for those who bought the CDOs. If you bought IOI Corp via GS, and then 6 months later IOI fell by 50%, is GS culpable?

GS, John Paulson, Steve Eisman, Mike Burry and the others in the brilliant new Michael Lewis book, The Big Short, basically got the right read on the subprime markets. Its never ethical to make money when you are short the markets, you can try to justify it but its not ethical. Its a profitable bet, its a calculated bet, its a knowledge bet, you are betting that the majority of the markets are wrong. In any crisis, its the majority who will suffer.

If you read The Big Short, you will fully understand how little GS and John Paulson knew of what they were doing. Those who were really the geniuses were people like Mike Burry and Steve Eisman, who were vilified and laughed at for a couple of years when they tried to short the subprime markets.

Dimon steered JP Morgan away from the subprime market early enough with an edict to his employees not to touch the stuff, but JP Morgan did not make bets against the subprime market. But then again, JP Morgan is not a big player in proprietary trading.

What was stupid was the GS CEO Blankfein saying that they are doing God's work. Just run GS as what we all know it is, a devil's playground where money is God. You do not need to make excuses on how you made money as no one expects you to be saintly or even ethical (really). Those who now trumps the word "ethical" as an absolute requirement for the character of the firm are deluding themselves. Ethics are just classes you take for GS to appease the lawmakers. It will never be allowed to conflict with money making motives. In fact, if you read The Big Short, you will know that GS was just like Bears Stearns, Citigroup and Merrill Lynch, holding the stuff on their books. It wasn't till late into 2006 that someone wised up at GS and said this was pretty stupid stuff if more than 7% of the loans defaulted - they actually went to 30% default rate in the end. Thats a risk they measured and a risk they acknowledged, the rest of the investment banks and AIG never put into their model that property prices could stop rising or that defaults could ever be higher than 3%.

If fact, if the subprime crisis imploded 6 months earlier, GS would have lost billions just like the rest. I guess, that is what people want, to have GS suffer alongside with all of them. Do any of those who shorted subprime (John Paulson, Mike Burry, Steve Eisman, GS, etc.) really have an edge - no, they just figured it was a better bet to go the other way. No one will know for sure that their bets will turn out exactly the way they wanted. We all buy and sell stocks with the information we have and the big picture beliefs that we hold. Some will be better at it but it does not mean they will be right. Just because they better correctly in a big way, is that a crime? Just be better consumers, be better investors - the only thing was that were some people DUPED, like in a Ponzi scheme? GS is not big enough to do that, and if you read the still excellent book The Big Short, you will know that GS was probably a bit lucky.

Can you really put in ethics into the mantra of an investment bank? Seriously folks, ... its a nice to have, but its never going to happen in reality. Should it be something we should work towards to, yes, by all means ... are we going to get there, I seriously doubt it, not when the people are paid by how much they bring into the bank and not by whether they had been ethical. Can we penalise them, probably, but will it be big and hurting enough to bring about a change in behaviour? I doubt that, not when people are making hundreds of thousands a year in bonuses or more.



Sydney Morning Herald, April 26, 2010

AS THE mortgage crisis in the United States gained momentum and many banks were suffering losses, Goldman Sachs executives traded email messages saying they would make ''some serious money'' betting against the housing markets.

The messages, released on Saturday by the US Senate Permanent Subcommittee on Investigations, appear to contradict statements by Goldman that left the impression the firm lost money on mortgage-related investments.

In the messages, Lloyd Blankfein, the bank's chief executive, acknowledged in November 2007 that it had lost money initially. But it later recovered by making negative bets, known as short positions, to profit as housing prices plummeted. ''Of course we didn't dodge the mortgage mess,'' he wrote. ''We lost money, then made more than we lost because of shorts.''

In another message, dated July 25, 2007, David Viniar, Goldman's chief financial officer, reacted to figures that said the company had made a $US51 million profit from bets that housing securities would drop in value. ''Tells you what might be happening to people who don't have the big short,'' he wrote to Gary Cohn, now Goldman's president.

On Saturday Goldman denied it had made a significant profit on mortgage-related products in 2007 and 2008. It said the committee had ''cherry-picked'' email messages from the nearly 20 million pages of documents it provided.

This sets up a showdown between the committee and Goldman, which has aggressively defended itself since the Securities and Exchange Commission filed a security fraud complaint against it nine days ago. Tomorrow seven current and former Goldman employees, including Mr Blankfein, are expected to testify at a congressional hearing.

Carl Levin, head of the committee, said the email messages contrasted with Goldman's public statements about its trading results.

''The 2009 Goldman Sachs annual report stated that the firm 'did not generate enormous net revenues by betting against residential related products','' Senator Levin said. ''These emails show that, in fact, Goldman made a lot of money by betting against the mortgage market.''

On October 11, 2007, a Goldman executive, Donald Mullen, predicted a windfall because credit-rating companies had downgraded mortgage-related investments, which caused losses for investors.

''Sounds like we will make some serious money,'' Mr Mullen wrote, and received the response, ''Yes we are well positioned.''

Documents released by the committee appear to indicate that in July 2007 Goldman's accounting showed losses of $US322 million on positive mortgage positions, but its negative bet - what Mr Viniar called ''the big short'' - brought in $US373 million.

Messages from as early as 2006 show Goldman executives discussing ways to get rid of the firm's positive mortgage positions by selling them to clients. In one, Mr Viniar wrote: ''Let's be aggressive distributing things.''

On December 14, 2006, he called Goldman's mortgage traders and risk managers to a meeting and concluded they would reduce overall exposure to the subprime mortgage market. This was largely done by making bets against the market to cancel out bets it had placed that the market would rebound. A day after the meeting Mr Viniar wrote to Tom Montan, co-head of the securities division, saying, ''There will be very good opportunities as the market goes into what is likely to be even greater distress and we want to be in position to take advantage of them.''

This typified exchanges on whether to continue to neutralise Goldman's exposure to subprime mortgages or expand investment in them well into 2007. By November 30, 2007, Goldman had largely cancelled out its exposure to subprime mortgages by increasing its bets that the market would continue to slide, according to the document.

Goldman also released statements for its mortgage trading unit which showed traders in what was known as the structured products group made a profit of $US3.69 billion as of October 26, 2007, more than covering losses in other parts of its mortgage unit.

Several traders from that group will testify tomorrow and their profitable short positions are likely to be of interest to the committee.

Looking For Mr Goodreason

Markets are dwindling not because of the Goldman Sachs issue. The markets were all waiting for a good reason to correct, they certainly found it in the Goldman Sach case, plus in itself will drag down financials, which makes up most of the gains in US markets. Its likely to be localised in the US, which will not hamper financials in other markets, but once the tide has turned, better to wait for a proper rally rather than to hope and pray that suddenly things will turn very bullish overnight. Ties in well with Sell In May & Go Away mantra.

Goldman Sachs is facing fraud charges for the first time in its history as a public company, setting the stage for the Wall Street powerhouse's biggest-ever showdown with the US government.

On Friday, the US Securities and Exchange Commission charged Goldman with hiding from investors the involvement of a prominent hedge fund manager in helping it structure a subprime mortgage debt product that he was betting against.

The incipient swoon in the synthetic collateralised debt obligation - created as a way for hedge fund manager John Paulson to bet against the housing market - cost investors more than $US1 billion ($1.1 billion), according to the SEC complaint.

Goldman vowed to vigorously defend itself against the charges and denied that it had structured a portfolio that was designed to lose money, claiming that the firm itself invested in the equity portion of the deal.

The news sent Goldman's shares tumbling and cast a shadow over the dominant Wall Street firm.

The charges follow a very profitable 15-month stretch for Goldman in the aftermath of the financial crisis. But the bank's prosperity during a period of wider economic pain has come at a cost: rising public anger over gold-plated bonuses even as the firm benefited from government rescue programs.

The charges filed against Goldman could take months or even years to be resolved. But here are some possible outcomes:

A quick resolution

Goldman may look for a quick resolution to its SEC problems.

A settlement within a few months, even one which could cost Goldman hundreds of millions of dollars, would be one way for Goldman to try to move on quickly and seek to avoid long-term damage to its brand.

Even if the firm seeks such a settlement, the authorities may not want to risk it given how much of a political hot potato Goldman has become. All parties will also be fully aware that a judge rejected an initial settlement between the SEC and Bank of America over the disclosure of bonuses paid in the bank's takeover of Merrill Lynch.

And, this will not prevent the potential for lawsuits from clients who feel they have suffered losses because of Goldman's actions.

Goldman fights and wins

Such vindication would likely take many months and probably years - and wouldn't be without damage to Goldman, its management and its brand. Media scrutiny would be even more intense over this period.

In a sign of trouble to come, British Prime Minister Gordon Brown on Sunday said he wanted Britain's financial watchdog to investigate Goldman, while in Germany, a government spokesman said its regulator would also seek information.

Goldman would not only face a big legal bill, and additional compliance costs as it sought to prevent any other problems from surfacing, but it might also impose more restrictions on its bankers and traders, which could reduce making money.

Jesse Derris, a crisis communications consultant with Sunshine, Sachs & Associates, said the charges are already "incredibly damaging."

"To me, it doesn't feel like a PR problem anymore," said Derris, who represents John Thain, a former Goldman executive and former Merrill Lynch chief executive whose stewardship of the firm during the financial crisis drew widespread criticism. Thain is now CEO of CIT Group, a commercial lender that recently emerged from bankruptcy.

"There is a structural problem that has led many people, including some in government, to think they weren't just actively trying to make money, but they were trying to do it on the backs of regular people who were invested in pension funds. You can't have much worse imagery."

Fighting a long battle could also expose Goldman to a greater extent to lawsuits from investors who feel they were wronged. It will create a public record of its transactions that could help would-be plaintiffs.

Goldman fights and loses

The worst case scenario is that Goldman fights the authorities, and investigators discover more problem transactions and charge more executives. Lawsuits from clients pile up and get very expensive to settle or fight. And while criminal charges are seen as unlikely they cannot be completely discounted.

In these circumstances, some question whether Goldman will be permanently damaged and lose a lot of its power and status, especially if it faces a major exodus of clients worried about the reputation questions.

Most think this unlikely but it can't be discounted.

"The $US64 million question would be is there some sort of unraveling of Goldman that will be coming down the pike, and I'd rather doubt it," said Joseph Battipaglia, a market strategist with Stifel Nicolaus.

Under the worst case, the future of CEO Lloyd Blankfein and other top executives would be in doubt. Veteran banking analyst Richard Bove, of Rochdale Securities, said on Friday that the charges could lead to Blankfein's resignation.

"People wonder how Goldman was able to make as much money in trading as they did at a time when nobody else was doing anything and maybe this is a reason why," said Malcolm Polley, chief investment officer, Stewart Capital Advisors. "How widespread this is, time will tell. If the SEC has brought charges on one instance my guess is it will open a can of worms."

Wider implications

The impact goes well beyond just Goldman - here are some of the implications for Wall Street as a whole and the broader financial markets:

- Advocates of tougher Wall Street regulations are already citing the Goldman fraud allegations to bolster their case for tighter oversight of derivatives and other financial products.

"That's the question," said Jason Tyler, senior vice president and part of the investment committee at Ariel Capital Management. "Will this fuel a fire and get a more aggressive form of financial reform in Washington? The timing of this works out well to get some legislation done ... it gives (lawmakers) another arrow in the quiver.

- Goldman could be just the first Wall Street player to be targeted in what could become a much larger investigation.

SEC investigators may see the Goldman case as a shot at redemption after they missed the boat on Ponzi-schemer Bernard Madoff and alleged swindler Allen Stamford. Indeed it hardly seemed like a coincidence that the Goldman charges were filed hours before - and largely overshadowed - a government watchdog's report excoriating the agency for failing to go after Stamford years earlier.

A resurgent SEC eager to restore its credibility could prove a major risk for Goldman and the rest of Wall Street in the coming months.

"The SEC is on the hotseat," plaintiffs Lawyer Jacob Zamansky said. "They missed Madoff ... It's a big moment for the SEC to see if they can stand up to Goldman Sachs and the best lawyers and experts on Wall Street."

Reuters

p/s photos: Jessica C (of Wacoal fame)

Banks Bonuses & The Surrounding Anger

Who isn't appalled by bankers' bonuses!!! The underlying resentment is that they needed tons of taxpayers' money to steady their ships, and now that things are better, they want things back to normal?!

The general public is pissed off as there was no penalty when banks were raking in big profits pushing the very instruments that caused the financial decimation, if the financial crisis was caused by something or someone else, we may understand, but the culprits were themselves ... and when things go belly up, they go pleading to the governments for help, with a wink, wink... hidden threat that "if you don't, things will be a lot worse for everybody". You cannot hold the people to ransom, heads you win, tails you also win but a bit later.

Goldman has provided forty over percent of profits for bonuses to be paid in January 2010. Granted, Goldman is a different kettle of fish as they largely avoided the CDOs fallout, in fact they even profited from it by shorting the relevant instruments. Goldman also make most of its profits from proprietary trading, so one cannot really begrudge their hefty bonuses.

By right, its the shareholders who should be voting or complaining, if they wish to. If shareholders are not complaining, seriously, the rest of the world should not... really!!?? You can do what you like if you are a private company. When you are listed, you have added responsibilities. Naturally, one could say if a company behaves badly, shareholders should sell their stocks. If Warren Buffett were to pay himself 50% of all profits, I am sure Berkshire Hathaway shareholders would try and burn down his house, and sell down the shares.

So, where is the reality and principles involved here. I would tend to side with market forces on this. As a listed company, I do think shareholders have a role to play - if you think Goldman pays too much bonuses, then sell the shares, why protest.

The other side of it is, if you actually relied on taxpayers money to keep afloat when things are bad, then you are not really just a normal listed firm, you are a firm that have been "bailed-out" by the people... when you most needed it. If you can operate without any help from the government or the people, then by all means do what you like. But when you are intrinsically somehow dependent on the people to save your butt every time you fuck up royally, then you have to NOT pretend that you deserve all the profits you made because its the people that sustained and resurrected the fucking markets for you.

Shareholders may not be so legalistic as to SELL on principles alone, unfortunately we are not in an egalitarian society, even though that would a lot nicer. Hence on principle, on fairness and the greater good ... banks should be more circumspect and practice self-restraint, because seriously... the next time you buggers go to the well, we are going to say fuck you too, and let a few more of you go belly up like Lehman.

The trouble with all this is that investment banks have become too big, and their flow on effects and consequences are very nasty if any of them fail. The G20 should try to cut them down to size. Bring back the Glass Steagall, separate the investment banks from the consumer banking side. Then limit the exposure each bank have to each investment bank in terms of funding. Then kill off the OTC markets on derivatives, all derivatives MUST be transparent, listed and properly regulated. There must be a regulator with teeth to watch the capital requirements on these transactions. Regulation on hedge funds must be increased manifold - sigh... I hate to be a financial policy strategist, its such a thankless task.

Anyway, at least some firms are trying to behave better, read the Finance Asia article on bank bonuses:

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FinanceAsia: Credit Suisse on Tuesday announced revised compensation practices effective January 1, 2010, that will also be applicable to 2009 bonuses.

Credit Suisse is changing the mix of bonus and salary payable to managing directors and directors, such that fixed salaries will be a larger component of the overall payout for employees at these senior levels. Vice-presidents and below will not be affected. Bonuses up to $100,000 will continue to be paid in cash. Higher amounts will be subject to deferral.

For deferred compensation Credit Suisse is introducing two new instruments: scaled incentive share units (sisu) and adjustable performance plan awards (appa). Deferred compensation will be paid half in sisu and half in appa. Up to 50% of bonuses for MDs and directors will be payable in these two forms.

Sisu are similar to the incentive share units that Credit Suisse has been using for the past three years. Sisu are linked to a base share amount on a four-year pro-rata basis, which vests annually. The difference is that the holder is also entitled to additional shares, which vest after four years based on Credit Suisse's average share price over a four-year period as well as the return on equity (ROE) the bank has achieved. If Credit Suisse's average ROE over the four-year period is higher than a pre-set target, the number of additional shares will be adjusted upwards, and if it is below the target, the number of additional shares will decrease.

The appa has a notional cash value and vests pro-rata over three years. This is also linked to ROE -- it has a notional value that adjusts upward annually using Credit Suisse's ROE for that year as a multiplier. If the employee works in an area of the bank that has made losses, the appa will be adjusted downwards. For divisions that earn revenues, payouts will be linked to financial contribution. For shared services and support functions, payouts will be based on the financial performance of Credit Suisse as a whole.

This Swiss bank is also introducing minimum share ownership requirements for members of management committees and for the executive board, presumably to ensure that the net worth of senior decision-makers is linked to the performance of the firm.

Credit Suisse said the new guidelines are consistent with discussions at the Group of 20 summit which was held in Pittsburgh in September.

"At a time of strong focus on executive compensation, we are announcing a compensation structure that enables us to strike the right balance between paying our employees competitively, doing what is right for our shareholders and responding appropriately to regulatory initiatives and political as well as public concerns, " said Brady Dougan, chief executive officer of Credit Suisse Group.

Compensation for bankers is becoming a heated debate, especially in the US, where much of the population is reeling under recessionary conditions.

Earlier this year Morgan Stanley outlined a compensation plan that pays bonuses to executives over three years based on defined performance parameters for the individual and the firm.

On its third quarter earnings call on October 15, Goldman Sachs told analysts, according to a transcript posted on seekingalpha, that it was providing $5.4 billion, or 43% of revenues, for compensation and benefits for its 31,700 employees. Goldman highlighted that this was just a provision and bonus decisions would be made at year-end, but said the "accrual reflects our record year-to-date revenues in 2009".

"We're also cognisant of what's going on in the world and the pressures we're under and so we're going to try and balance those things as we work through the end of the year and we'll make our decisions as we get to year end based on the overall performance of the firm and our people," said David Viniar, Goldman's chief financial officer on the call. The third-quarter accrual was below the $6.6 billion, representing 49% of revenues, that Goldman provided for compensation in the second quarter.

Last month, at a Handelsblatt Banking Conference, Goldman Sachs CEO Lloyd Blankfein acknowledged that much of the controversy and anger regarding banker compensation was "understandable and appropriate". Blankfein went on to outline the principles governing compensation at Goldman Sachs, which include paying senior people mostly in deferred equity and evaluating performance over time to avoid excessive risk taking.

p/s photos: Melissa Surihani

Ooops! We Didn't Mean For You To Find Out

Many investors regard analyst reports with a lot of reservation and cynicism, and rightly so. Finally, somebody has dug up enough dirt and evidence. The fact that its Goldman Sachs will mean the regulators and politicians will be sharpening their knives for the kill. Goldman Sachs will get a major major fine here. When an investment bank relies so much on trading for such a huge slice of their profits, and where profits contribution is regarded so highly, where you bonuses and promotion will be materially affected when you "contribute well", its hard not to have shenanigans sprouting everywhere - the smart ones don't get caught. There are always someone somewhere who will get the tip earlier than you, and by the time it is printed, rest assured the thing has been double-dipped already.

WSJ: Goldman Sachs research analyst Marc Irizarry's published rating on mutual-fund manager Janus Capital Group Inc. was a lackluster "neutral" in early April 2008. But at an internal meeting that month, the analyst told dozens of Goldman's traders the stock was likely to head higher, company documents show (the following day apparently).

The next day, research-department employees at Goldman called about 50 favored clients of the big securities firm with the same tip, including hedge-fund companies Citadel Investment Group and SAC Capital Advisors, the documents indicate. Readers of Irizarry's research didn't find out he was bullish until his written report was issued six days later, after Janus shares had jumped 5.8%.

Every week, Goldman analysts offer stock tips at a gathering the firm calls a "trading huddle." But few of the thousands of clients who receive Goldman's written research reports ever hear about the recommendations.

At the meetings, Goldman analysts identify stocks they think are likely to rise or fall due to earnings announcements, the direction of the overall market or other short-term developments. Some of their recommendations differ from ratings printed in Goldman's widely circulated research reports. Some Goldman traders who make bets with the firm's own money attend the meetings. Critics complain that Goldman's distribution of the trading ideas only to its own traders and key clients hurts other customers who aren't given the opportunity to trade on the information.

Securities laws require firms like Goldman to engage in "fair dealing with customers," and prohibit analysts from issuing opinions that are at odds with their true beliefs about a stock. Steven Strongin, Goldman's stock research chief, says no one gains an unfair advantage from its trading huddles, and that the short-term-trading ideas are not contrary to the longer-term stock forecasts in its written research.

Former Goldman client George Klopfer of Park City, Utah, who was unaware of the trading tips until recently, says the practice is unfair. "When I joined Goldman as a client, I got all these fancy brochures saying they put the client first," he says. "I just don't want to have to worry about them or big clients trading on stuff like this. I was at the end of the food chain." He says he pulled out most of the $20 million in his account earlier this year after losing money on several Goldman funds. Goldman says individual clients like Mr. Klopfer typically have a long-term investing approach and are not focused on individual stocks.

Since the trading huddles began about two years ago, Goldman has supplied "trading ideas" on hundreds of stocks to the traders and top clients, according to internal documents reviewed by The Wall Street Journal.

Goldman spokesman Edward Canaday says the tips are "market color" and "always consistent with the fundamental analysis" in published research reports. " (My, talk about the ability to b.s.). Analysts are expected to discuss events that may have a near-term or short-term impact on a stock's price," he says, even if that is a different direction from an analyst's overall forecast. Goldman's published research reports include a disclosure that "salespeople, traders and other professionals" may take positions that are contrary to the opinions expressed in reports. But the firm doesn't disclose the trading huddles. (In effect, some of the better trading ideas would have Goldman traders and inner circle of important clients betting ahead of the pack... how is that not against the law, its called front running).

Mr. Canaday says analysts are told that any comment at a meeting that could result in a change in a rating, earnings estimate or stock-price target "must be published and disseminated broadly to all clients." He adds, however, that it is rare that tips arising from the meetings reach that threshold. He says ratings changes after the meetings also are rare.

The tips usually go to top clients who have expressed interest in having the information and have short-term investment horizons, he says. Goldman doesn't want to overload other clients with information that isn't relevant to them, he says. "We are not in the business of serving thousands of retail customers," he says.

At least one competitor discloses such trading tips much more broadly. Morgan Stanley's research department sends blast emails with short-term views on various stocks to thousands of clients, and posts the information on its Web site. It doesn't call customers to convey the tips, because Morgan Stanley officials decided that could expose the firm to questions about selective disclosure, according to people familiar with the matter. (At least there is still some body operating with some principles).

Critics of Goldman complain that the firm's limited distribution of trading tips hurts small customers who don't share the information. "The spirit of the law is twofold," says Eric Dinallo, who in 2003, when serving as a deputy to former New York Attorney General Eliot Spitzer, helped negotiate a $1.4 billion stock-research settlement with 10 major Wall Street firms, including Goldman. "Analysts should give consistent advice to all their customers, be they small investors or big trading clients." Any views that differ from an analyst's published rating but are "worth sharing with certain customers," he says, should be made "available to everyone."

The 2003 case involved allegations that Wall Street firms were issuing overly optimistic stock research in order to win more lucrative investment-banking business. The settlement, in which Goldman and the other firms didn't admit or deny wrongdoing, erected walls between research and investment banking. Securities laws currently require research analysts to personally certify that their reports accurately reflect their views of a stock.

Some analysts have gotten into big trouble by contradicting themselves. In 2003, former Merrill Lynch & Co. technology analyst Henry Blodget agreed to a lifetime ban from the securities industry after touting stocks that he disparaged in private emails.

These days, analysts must juggle growing demands from trading units at their firms. Such operations have emerged as big moneymakers, fueling the record $3.44 billion in net income at Goldman in the second quarter. A large portion of Goldman's profit came from trades done for mutual funds, pension funds, endowments, hedge funds and other big institutional investors. Proprietary trading, in which Goldman makes bets with its own capital, accounts for about 10% of its profits.

Analysts have a financial incentive to give clients useful information. Goldman sets aside roughly 50% of money allotted each year to analyst compensation to distribute based on feedback from trading customers. The balance of analysts' pay is determined by the performance of their stock picks. That pay system is common among major Wall Street firms.

At many firms, traders, salespeople and analysts hold early-morning calls to review ratings changes, recommendations and market events. Throughout the day, analysts talk to key clients to help them interpret research reports and provide more detail on specific events such as earnings.

The research business is considered a loss leader at most firms, despite persistent attempts by Goldman and other securities giants to squeeze more revenue from it. Goldman was looking for a leg up on rivals when it started the trading huddles in 2007. That year, Goldman ranked ninth in Institutional Investor magazine's annual list of the best equity analysts, as determined by a survey of big institutional investors. Goldman was rated eighth in last year's competition.

The huddles began in earnest around the time Goldman's research department got a new boss, Strongin. He came to the firm in 1994 from the Federal Reserve Bank of Chicago, where he had been director of monetary-policy research. At Goldman, he had run the commodities-research operation, then was co-chief operating officer of the whole research unit, before being asked to run it in April 2007. Strongin, 51 years old, set out to improve Goldman's research operations. The firm asked important clients for suggestions. One idea that took hold was giving certain customers and traders more access to stock tips.

The idea was controversial with some Goldman research staffers. "I am not sure we should be giving recommendations that go against our research," said one Goldman employee at a meeting where the trading huddles were discussed, according to one attendee.

Laura Conigliaro, Goldman's co-head of research in the Americas region, replied at the meeting that the firm needed to respond to inevitable differences in the time horizons of investors. Issuing a short-term buy recommendation wasn't necessarily at odds with a lukewarm "neutral" rating for the long run, she added.

One recipient of the trading tips, Steve Eisman, a managing director of hedge fund Frontpoint Partners LLC, says that he likes the back-and-forth he now has with Goldman's analysts, and that he pays attention to some of the tips. "A few years ago, Goldman wouldn't make a negative call on anything," he says. "Now they say it like it is."

The huddles can last from 20 minutes to one hour, according to participants. Analysts are encouraged to bring a trading idea. They talk with Goldman traders about the financial markets and events that could trigger movement of specific stocks. Goldman specifies how long each recommendation is in effect, often one week.

At a huddle on July 31, for example, the firm's technology analysts and traders discussed more than a dozen stocks, ranging from Garmin Ltd. to Microsoft Corp. None of the analysts said anything that appeared to differ from their stock ratings.

Compliance officers sit in on almost all the meetings, Goldman says. Research analysts say they have been guided on what language to use in the huddles. Words like "buy" and "sell" are to be avoided, while "run up," "give back" and "oversold" are encouraged. Internal documents reviewed by the Journal initially tracked the trading-huddle tips as "buy" or "sell," but now refer to them as "up" or "down."

Research-department employees prepare telephone scripts, then call top clients, typically several hours after the meeting has ended. Goldman says its in-house traders are prohibited from trading on the tips until after they've been relayed to clients. (Yeah, sure...).

Documents reviewed by the Journal indicate that anywhere from six to 60 clients are contacted, depending on the investment. For example, clients specializing in financial stocks are given recommendations about that sector. Each call typically includes comments about the overall market and the kinds of investors Goldman believes are propelling it, and ends with a stock tip.

The meeting where Irizarry suggested that Janus shares were worth buying, held on April 2, 2008, was attended by Goldman's financial-research analysts and traders who handle customer orders. It also included another class of traders called "franchise risk managers," who sit with and advise the traders handling customer orders -- and make bets with Goldman's money.

Typically, traders who wager firm capital are walled off from those handling customer orders so that they don't take advantage of information about client trading, which securities regulations forbid. Goldman says its franchise risk managers don't trade on client information and must first share trading-huddle tips with clients before acting on the tips themselves.

At the April 2 meeting, Goldman says, Irizarry was expressing a sentiment about Janus similar to one contained in a report Goldman published the previous day. A chart in that report, Goldman says, cited a report from mutual-fund-research firm Morningstar Inc. that was positive on Janus. While internal documents show Irizarry's rating on Janus stock at the time was "neutral," they note the "price action expected" was "up." Irizarry declined to comment. The day after the meeting, Goldman told selected clients that "in particular, we highlight Janus," according to an internal document.

At the same April 2 trading huddle, Goldman analyst Thomas Cholnoky said he favored MetLife Inc. over other insurers, according to notes from the meeting. Internal documents indicate he believed the stock would rise over the short run. Hours after the meeting, Cholnoky released a research report that reiterated his "neutral" rating on MetLife, saying he hadn't changed his estimates. Goldman says his view about the company's favorable short-term prospects is clearly conveyed in a research note issued prior to the huddle, which said the insurer "stands to be the biggest beneficiary from the steepening yield curve."

A week later, Cholnoky boosted his rating on MetLife to a buy, and Goldman added the stock to its "America's Buy List" of top stock recommendations. Cholnoky said he expected MetLife's quarterly results, due in a few weeks, to "surprise on the upside." (The quarterly results, when they came out, did slightly.) Cholnoky, who no longer works at Goldman, didn't respond to messages seeking comment.

Goldman says that in both these cases the analysts' views were consistent with the published research, which included a 12-month price target that was above each stock's price at the time.

Morgan Stanley also generates short-term views on various stocks, which it calls "Research Tactical Ideas" and distributes widely via email and the firm's Web site. In May, for example, it told clients that insurer Aflac Inc.'s earnings guidance would be "softer than many investors expect." Its rating on Aflac at the time was "neutral."

In its longer-term reports published by analysts, Morgan Stanley discloses that it issues such trading tips, and that the tips on any given stock "may be contrary to the recommendations or views expressed in this or other research on the same stock."

Last year, the Financial Industry Regulatory Authority, the industry's self-regulatory body, proposed new rules meant to clarify existing disclosure obligations under the rule requiring "fair dealing" with all clients. Firms could issue contradictory ratings as long as clients were told that such inconsistencies were possible.

A Finra spokesman said the agency still is reviewing comment letters filed in response to the proposal. Goldman hasn't commented on the proposed rules.

p/s photos: KC Concepcion

Goldman Sachs & Citi Still Running The White House

How Goldman Sachs and Citi Run the Show

The Wall Street White House

By ANDREW COCKBURN

Robert Hormats, Vice Chairman of Goldman Sachs, is to be installed as Under Secretary of Economics, Business, and Agricultural Affairs. This comes as one more, probably unnecessary reminder of the total control exercised by Wall Street over the Obama administration’s economic and financial policy. True, Hormats is “a talker rather than a decider” according to one former White House official, but he will find plenty of old friends used to making decisions, almost all of them uniformly disastrous for the U.S. and global economy.

Among the familiar Wall Street faces that Hormats will encounter in his new post will that of Deputy Secretary of State Jacob Lew, lately Chief Financial Officer of Citigroup Alternative Investments Group which lost $509 million in the first quarter of 2008 alone. On visits to the White House he is sure to bump into Michael Froman, who also tore a swath through the Citi balance sheet at the alternative investments shop (they specialized in “esoteric” investments such as private highways) but is now Obama’s Deputy National Security Adviser for International Economic Affairs. If Froman is otherwise engaged, Hormats can interface with Froman’s deputy, David Lipton, who was until recently running Citi’s global country risk management effort.

Citigroup is also well represented at Treasury, in the form of Lewis Alexander, formerly the bank’s chief economist and now Counselor to Treasury Secretary Timothy Geithner. Given the role played by all of the above in bankrupting us all, Alexander’s 2007 verdict on the onset of the mortgage crash, “I think that’s not going to spill more broadly into the economy and so I think we’re going to have a normal kind of housing cycle though the middle of this year,” can only have been a recommendation in the eyes of his current employer.

Alexander’s function at Citi may have been merely to endorse the financial depredations of colleagues with economic blather, rather than exercise loss-making functions personally. Not so Deputy Treasury Secretary Neal Wolin, who has moved over to the number two job at the department from the Hartford Insurance Company, where he served as president and chief operating officer of the Property and Casualty Group. Hartford was one of the insurance companies that got suckered by the banks into backing their ruinous investments in real estate and other esoterica, but Wolin’s Treasury has just handed Hartford $3.4 billion of our money in the form of TARP funds.

Hormats’ agricultural responsibilities will of necessity bring him into frequent contact with the Chairman of the Commodity Futures Trading Commission, Gary Gensler – a former Goldman partner. As Assistant Secretary of Treasury in the Clinton Adminsitration Gensler played a key role in greasing the skids for the notorious Commodity Futures Modernization Act of 2000, which set the stage for the great credit default swaps scam that underpinned the recent bubble and subsequent collapse. News of the appointment did generate threats of obstruction in the Senate – any one of the senators could have blocked the appointment had they really wished to do so – but such threats proved predictably hollow. Had they been otherwise, Treasury Chief of Staff Mark Patterson could of course have lent the expertise he gained as Goldman’s lobbyist to overcome the obstacle.

For sheer gall it would be hard to equal the appointment of Gensler, one of the engineers of this catastrophe, but the administration has managed it with the selection of Linda Robertson, formerly a key Enron lobbyist and intimately involved in pushing through the commodity futures act as chief flack for the Federal Reserve. Prior to joining the crooked energy-trading firm, Robertson was an important figure in the Clinton Treasury Department, latterly serving her friend Larry Summers and before him Robert Rubin during their terms as Treasury Secretaries.

Such connection to the key enablers of our bankrupt casino helps explain many of the other hires listed above. Michael Froman was Chief of Staff to Robert Rubin at Treasury before following Rubin to his reward at Citigroup. Most significantly, it was Froman who first introduced Rubin to his Harvard classmate Barack Obama. David Lipton also served in the Rubin Treasury, as deputy under secretary for international affairs. Neal Wolin, on the other hand, appears to have more an acolyte of Summers, who cherished him as Treasury General Counsel from ’99 to ’01. Summers and Robertson were similarly close, and certainly he raised no objection to her fatal submissions on behalf of her paymasters at Enron.

Recent reports suggest that financial industry lobbying in Washington, at $104.7 million for the first three months of 2009, is 8% down on last year. But that is to be expected – why should Wall Street continue paying top dollar for a wholly owned subsidiary?

Recent White House Appointments for ex-GS and ex-Citi bankers:

• Robert Hormats, Vice Chairman of Goldman Sachs, is to be installed as Under Secretary of Economics, Business, and Agricultural Affairs.

• Jacob Lew, Chief Financial Officer of Citigroup Alternative Investments Group, as Deputy Secretary of State
(Lew’s dept. lost $509 million in the Q1 2008)

• Michael Froman, Citigroup, Deputy National Security Adviser for International Economic Affairs. Froman was formerly Chief of Staff to Robert Rubin at Treasury, before following him to Citi.

• Froman’s deputy, David Lipton, ran Citi’s global country risk management effort.

• Lewis Alexander, Citigroup’s chief economist and now Counselor to Treasury Secretary Timothy Geithner

• Neal Wolin, President and COO, Hartford Insurance Company, Property and Casualty Group now Deputy Treasury Secretary (Hartford received $3.4 billion in TARP funds).

• Gary Gensler, Goldman Sachs partner, now Chairman of the Commodity Futures Trading Commission Note: It was Gensler who was a key proponent (as Clinton’s Assistant Secretary of Treasury) in pushing the Commodity Futures Modernization Act of 2000.

• Mark Patterson, Goldman Sach’s lobbyist, now Treasury Chief of Staff

• Linda Robertson, Enron lobbyist, Chief PR Federal Reserve

p/s photo: Aum Patcharapa Chaichua

Goldman Alumni Cannot Simply Do Everything

Goldman Sachs is the only US independent firm left. The rest, Bear Stearns, Merrill lynch and Lehman Brothers - were not so lucky. Or is it luck? For years, you were golden if you hired from Goldman Sachs.

Associated Press: Alumni of the Wall Street firm have advised presidents from both parties, taken high-profile Cabinet posts, run big businesses and been involved in multimillion-dollar philanthropies.

But recent missteps have challenged the notion that Goldman only breeds winners, The Associated Press says.

Henry Paulson, who was criticized for mishandling the first incarnation of the bank bailout, is a Goldman alum. So is John Thain, who rushed billions of dollars in bonuses to Merrill Lynch employees before the investment bank had to be sold. (Henry Paulson did not handle his Treasury role well at all. The TARP program was changed and modified as he was uncertain on how to tackle the crisis. His biggest mistake was allowing Lehman Brothers to fail. Somehow if it was Goldman Sachs in trouble, I'd doubt very much he would have taken that route. As smart as he was at Goldman Sachs, it did not give him the skills and ability to tackle broader macro, monetary and economic policy issues.)

Also a Goldman vet: Robert Rubin, the Clinton treasury secretary who resigned from his senior advisory role at Citigroup last month after being criticized for missing the warning signs of the financial crisis. (As rich as Rubin was, he was mainly a trader, and a very successful trader. He shouldn't have been an economic advisor and probably contributed zilch to Citigroup.)

Those names have lent a rare tarnish to a firm sometimes called the New York Yankees of Wall Street.

”When you become a partner at Goldman, you are supposed to be the master of the universe,” Ed Yardeni, who runs his own investment consulting firm and is a well-known Wall Street economist — and himself was turned down years ago for a Goldman job, told The Associated Press.

”That meant you could run the greatest investment bank on earth, but it turns out that skill set doesn’t always translate to the White House, Treasury or other Wall Street firms.”

Goldman draws its talent from the top students from the best universities and business schools. Those given a chance to embark on Goldman’s recruiting gantlet encounter job interviews in which they are asked not just complex questions about finance but simply why they deserve to be at Goldman.

And just like the Yankees, Goldman employees are well-paid. Its 30,000 employees last year made more than $355,000 on average, including salaries, bonuses and benefits. The average at rival Morgan Stanley was about $250,000.

Those given the coveted title of partner managing director — who are considered partners — can pull in seven figures. But flashing wealth runs against the Goldman culture, and employees, dubbed ”billionaire Boy Scouts,” are expected to give to charity or perform public service.

”Does the firm create exceptional talent, or does exceptional talent create a truly great firm? I think the vast majority of ex-Goldman employees want to believe it’s a little bit of both,” Janet Hanson, a 14-year Goldman veteran who went on to found a money management firm and the global women’s networking group 85 Broads, told the news service.

Teamwork, integrity, accountability and collegiality are other prominent parts of the Goldman ethos, said Charles Ellis, author of ”The Partnership: The Making of Goldman Sachs.” That breeds loyalty not seen at other Wall Street firms.

For instance, the firm uses an evaluation system in which each employee is graded by everyone he or she works with. So low-level workers get to weigh in on their bosses.

Goldman survived the financial meltdown last fall, but not without help. It took $10 billion from the government’s Troubled Asset Relief Program, or TARP. It also received a $5 billion investment from Warren E. Buffett’s Berkshire Hathaway that came with a strong endorsement from Mr. Buffett.

That helped to stabilize Goldman but couldn’t stop the bleeding. From September through November, it lost $2.3 billion — the first quarterly loss since Goldman went public in 1999. Goldman’s chief executive Lloyd C. Blankfein is forgoing a bonus for 2008.

Still, Goldman made it out alive. That’s more than can be said for three of its former fellow investment banks – Lehman Brothers, Bear Stearns and Merrill Lynch — none of which survived the meltdown as an independent firm.

And now that fingers are pointing at top bank executives, Goldman veterans aren’t immune.

When Lehman imploded in September, it was Mr. Thain, a former Goldman president and chief operating officer, who engineered a deal to sell Merrill Lynch to Bank of America. At the time, he looked like one of the smartest guys around.

But Mr. Thain became a poster child for Wall Street greed when news surfaced that he had rushed out billions of dollars in bonuses to Merrill employees just before the Bank of America deal closed.

Then came embarrassing reports that he had spent more than $1 million to redecorate his office at Merrill. Mr. Thain later repaid the money.

”It’s not likely that he sat there and came up with ways to squeeze more for himself or the employees of Merrill Lynch. But he should have known better,” Sydney Finkelstein, a management professor at the Tuck School of Business at Dartmouth and author of the new book ”Think Again: Why Good Leaders Make Bad Decisions,” told The Associated Press. (Why did John Thain end his career by making some of his biggest mistakes towards the end. I could understand why he would ask for his $10m bonus as it was probably pre-agreed. The office refurbishment was silly, but more galling was the audacity to pay out the huge bonuses to Merrill staffers prior to being absorbed by Bank of America.)

Mr. Rubin spent most of his early career at Goldman. He joined the firm in 1966, as an associate in trading and arbitrage, became partner in 1971 and was co-senior partner — C.E.O., in Goldman-speak — from 1990 to 1992.

In 1993, Mr. Rubin left to work in the Clinton White House, and became treasury secretary in 1995. He followed a path into the public sector paved by many past Goldman leaders.

Among them was Sydney Weinberg, the firm’s senior partner from 1930 to 1969, who advised five U.S. presidents. John Whitehead worked in the State Department in the Reagan administration and as chairman of the Federal Reserve Board of New York after he left Goldman, where he was senior partner from 1976 to 1984. And former Goldman head Jon Corzine is governor of New Jersey.

”Goldman Sachs has a long history of people who have chosen to go into public service and we are proud of our alumni who have taken this path,” Goldman spokesman Ed Canaday told The Associated Press.

When Mr. Rubin joined Citigroup in 1999 as a senior adviser, it was considered a coup for the bank.

While he never had an operational role at Citi, the company still took on massive risks that resulted in losses of $18.7 billion in 2008. In early January, Mr. Rubin resigned and said he wouldn’t stand for re-election to the board.

”My great regret is that I and so many of us who have been involved in this industry for so long did not recognize the serious possibility of the extreme circumstances that the financial system faces today,” Mr. Rubin said in a letter to Citi’s chief executive announcing his departure.

Mr. Paulson, too, was drawn to a role in government after leaving Goldman’s helm in 2006, after more than 30 years at the firm. He became treasury secretary in the Bush administration.

His arrival in the public sector came during a booming economy, but what soon emerged was a devastating recession matched with a financial crisis of historic proportion.

Mr. Paulson never seemed to get his hands around it, even with the help of some former Goldman executives he brought to the Treasury Department. Among them was Neel Kashkari, who was appointed to oversee TARP and formerly worked as an executive in Goldman’s San Francisco office.

None of this seriously threatens Goldman’s status on Wall Street, of course. It’s still the place to be — perhaps now more than ever, given the carnage in investment banking.

”The people they recruit have never lost anything,” Mr. Ellis told the news service. ”They have always won. That is the kind of person Goldman wants to hire.”

(Goldman's alumni used to be regarded as very smart people and was welcomed to into important public service positions. Recent history would suggests that that line of thinking could be flawed. A successful investment banker or trader still needs to "prove himself first" before being elevated to critical positions. There are specific skills and the need to have a solid understanding of the broader issues of economic policy, monetary policy and macro-cause-and-effect issues. Its the same situation in politics in many countries, for my life, I cannot appreciate how someone can be Ministry of Tourism one day and step into Ministry of Environment the next day. Yes, they can be surrounded by experienced advisors for each ministry, but positions of importance such as Ministry of Finance, Ministry of Law, Ministry of Housing, Ministry of Foreign Affairs, EPU unit, Foreign Investment unit, etc... must be helmed by people with some relevant experience - and not be divvy up like a barbecued animal after a festival.

People like Louis Gerstner - whom I think is the best manager of businesses over the last 30 years, proving his ability at American Express, RJR Nabisco and then IBM - only come around once in a blue moon.)

p/s photos: Eva Huang Sheng Yi

UBS Joins Goldman, Pressure On The Rest

IHT: UBS on Monday joined Goldman Sachs in saying its top executives would get no bonus this year, as public scrutiny of bankers' compensation intensifies amid the taxpayer rescue of the financial sector.

UBS said its chairman, Peter Kurer, chief executive, Marcel Rohner, and other members of the executive board would receive only their fixed salaries this year and that all other employees would have their 2008 bonuses reduced. The bank, based in Zurich, received a Swiss government bailout of about $60 billion in October after losing nearly $50 billion since the the credit crisis began last year.

UBS said that beginning next year, top executives would be paid according to a long-term compensation model that "rewards realized value creation and takes business risk into account." In profitable periods, the executives will be paid performance-based variable compensation, but in hard times, no bonus will be paid. In addition, it said, "a 'malus' can be deducted from bonus accounts" when performance merits.

UBS made the announcement a day after top executives at Goldman Sachs sent a request to the company's directors asking that they receive no bonus pay for their work in 2008, a company spokesman said. Their request was granted, he said.

The moves by UBS and Goldman Sachs turns up the heat on their competitors, including Morgan Stanley, to take similar action as they decide on year-end bonus figures in the coming weeks. Last month, Josef Ackermann, the chief executive of Deutsche Bank, announced that he would forgo his bonus this year as "a very personal sign of solidarity."

"We may see more of such bonus decisions at the top of the tree," said Andrew Oliver, managing director at Profile Search & Selection, an executive search firm in Hong Kong, on Monday.

The decision by Goldman Sachs could also ease political pressure and reduce adverse reaction to what is expected to be a bleak fourth-quarter earnings report in December, including perhaps the bank's first loss of the credit crisis. Goldman's bailout package includes some strictures on executive pay, but the industry does not view them as especially strong.

It comes after banks worldwide have been awarded or promised hundreds of billions of dollars in taxpayer bailouts. Numerous European officials, including President Nicolas Sarkozy of France and Angela Merkel, the German chancellor, have called for limits on bank executives' pay.

In the United States, public officials including the New York attorney general, Andrew Cuomo, and Representative Henry Waxman, a Democrat of California, have been warning banks not to use any taxpayer money to award bonuses to executives. Industry lobbyists and interest groups have also warned executives at the banks that any big pay numbers this year could generate a significant public backlash.

There is a widespread belief that the way Wall Street awarded bonuses in recent years helped feed the risky behavior that eventually created big losses on exotic debt securities and helped create the current crisis.

UBS acknowledged as much Monday, noting that a report it submitted in April to the Swiss Federal Banking Commission concluded that "disproportionately large risks" had been assumed within its investment bank and that the bonuses there, linked to earnings, "had not been sufficiently tied to the amount of assumed risk. In addition, the bonus payments were calculated based on short-term results, without sufficient appraisal of the quality or sustainability of those earnings."

Morgan Stanley and other banks are still formulating bonus figures. Morgan Stanley's chief executive, John Mack, took no bonus last year. Morgan Stanley, which took a loss in the fourth quarter last year but has been profitable all of this year, declined to comment Sunday. Morgan Stanley posted better results in the third quarter than Goldman Sachs.

In September, Goldman Sachs and Morgan Stanley transformed themselves into bank holding companies that take deposits, take less risk and are subject to more government oversight. That new structure may limit their ability to generate big profits, because they cannot use as much borrowed money to make big investment bets.

In the past several years, Goldman Sachs has posted some of the biggest profits and paid out some of the biggest bonuses in Wall Street history. The company's chief executive, Lloyd Blankfein, received a salary and bonus package last year worth $68.5 million.

Goldman Sachs paid its two co-presidents, Gary Cohn and Jon Winkelried, about $67.5 million each last year, more than most chief executives. All three will receive no bonuses this year.

Others forgoing bonuses at Goldman Sachs will include the chief financial officer, David Viniar, and the vice chairmen, J. Michael Evans, Michael Sherwood and John Weinberg.

p/s photos: Nok Ussanee Wattanathana