This week, the New York Times detailed Goldman Sachs' machinations in Greece's project to obscure billions in debt, as the country skirted the budgetary limits it was obliged to meet as a member of the European Union. Sordid as it was, it was only one more example of the extraordinary and lucrative influence of the firm that's earned the nickname Government Sachs, for its web of power and interlocking relationships spanning from Wall Street to Washington to Athens and every other major financial capital. Here in the U.S., Goldman not only helped create our financial mess, but former Goldman executives, newly ensconced in various and, as is now clear, even mysterious positions of government power, enabled their firm, and likely themselves, to profit greatly from the supposed cleanup. It's easy to understand why Americans now sharply question whether their interests were really being served in the bailout process.
Goldman's elusive role in government decision-making is a stark example of a fundamental problem of our era, one that Janine Wedel has raised in her recently released book, Shadow Elite. She examines a new breed of power brokers who use shifting roles in and out of government to further their own agenda, often at the direct expense of the public. During the bailout of the fall of 2008, we see a tawdry episode involving a handful of Wall Street-government policy "deciders", whose interests "coincide" at the highest echelons of power, while their maneuverings remain largely beyond the reach of traditional monitors.
Consider the critical meetings in the offices of (now-Treasury Secretary) Timothy Geithner, then the head of the New York Federal Reserve Bank, that ended with the decision to pay, in full, the counterparties of the Financial Products division of the insurance giant A.I.G. This decision overwhelmingly favored the interests of Goldman Sachs, and it is interesting that so many recent "alumni" of that firm were a part of this process. Among the decisions taken were to install a Goldman board member to be the new head of A.I.G. who, in turn, immediately agreed to disperse billions to, you guessed it, Goldman Sachs. It is telling that A.I.G.'s regulator, hapless though it was, was neither consulted nor represented throughout these discussions and ensuing decisions.
Perhaps, as all the parties involved have repeated ad nauseam since that day, the bailout had to happen. But how or why should the public believe them? The process was deeply flawed and far from transparent, the parties most directly involved had substantial conflicts of interest, and they will likely never be asked to account for their decisions. After all that has occurred, it does not take a deep understanding of economics to suspect that the shadow elite has, as Wedel argues, a tendency to prioritize the wealth of themselves and their networks at the expense of the public interest and the taxpayer.
To manage the crisis, then-Treasury Secretary and ex-Goldman chief Henry Paulson, brought in several recently "retired" Goldman bankers. One of the most intriguing, although lesser known, is Dan Jester. Hired as a "contractor" just that September, all reports suggest that he was effectively deputized by Paulson to be his representative in several of these highly-sensitive and, for a recent Goldman banker, highly conflicted negotiations - including the decision to bailout A.I.G. As a contractor, Jester was never appointed by Congress or otherwise vetted before taking up his role as the Treasury's de facto central player in the crucial decisions that marked that fall's bailout of Wall Street. In an article in the New York Times, former investment banker turned journalist William Cohan notes that Tim Geithner spoke on the phone with Jester 103 times; only Paulson spoke with Geithner more often.
Jester is the quintessential "flexian" described by Wedel in Shadow Elite . His inscrutable agenda and influence (clearly substantially more than the sum of his multiple roles) far surpass any official title. They also enabled him to transcend the traditional checks and balances designed to protect the public. As a contractor to the Treasury, rather than an employee, Jester could work with far fewer "sunshine" rules than is normal for government employees; virtually no one was, or ever will be, privy to how his actions did, or did not, work in his own interest or to the interests of persons with whom he is friendly. He has, according to reports, kept his sizeable portfolio of Goldman stock, which happily is doing rather well in no small part as a consequence of his efforts on the part of .... whom? Taxpayers? Goldman Sachs? Wouldn't we like to know?
Goldman's influence will surely continue even as the bailouts fade from memory. Rather than "change you can believe in," Obama's first year featured the appointment of several of the most deeply conflicted Clintonistas to senior economic policy-making positions. In two memorable articles, Rolling Stone reporter Matt Taibbi and MIT economics professor Simon Johnson each remarked upon the pantheon of former Goldman Sachs employees holding so many senior regulatory and Treasury positions. Lloyd Blankfein, the current head of Goldman Sachs, noted at the close of Financial Times reporter Gillian Tett's insightful book on J.P. Morgan that that firm has recently made a conscious decision to ensure that in the near future, its "alumni" will become as well-positioned as former Goldmanites in government circles. We can only groan as we eagerly await their "contribution."
Right now, Greece and European markets continue to shudder from Goldman's 'contribution' to their economy. Deals that helped Greece avoid some painful fiscal truths were hidden from public view. More proof, as if we needed any more, that the financial power elite needs to be forced out from the shadows.
Edited by Linda Keenan.
The Morning Email helps you start your workday with everything you need to know: breaking news, entertainment and a dash of fun. Learn more