In one case, Goldman allegedly gave a multimillion-dollar special offering to eBay CEO Meg Whitman, who later joined Goldman’s board, in exchange for future i-banking business. You can’t write these mortgages, in other words, unless you can sell them to someone who doesn’t know what they are. This created a mass market for toxic debt that would never have existed before; in the old days, no bank would have wanted to keep some addict ex-con’s mortgage on its books, knowing how likely it was to fail. The first thing you need to know about Goldman Sachs is that it’s everywhere. Investing in carbon offsets. And in this world, some of us have to play by the rules, while others get a note from the principal excusing them from homework till the end of time, plus 10 billion free dollars in a paper bag to buy lunch. The bank was actually founded in 1869 by a German immigrant named Marcus Goldman, who built it up with his son-in-law Samuel Sachs. (“Goldman’s superhero status was left intact,” says market analyst Eric Salzman, “and an investment banking competitor, Lehman, goes away.”) The very next day, Paulson green-lighted a massive, $85 billion bailout of AIG, which promptly turned around and repaid $13 billion it owed to Goldman. The effects of the housing bubble are well known — it led more or less directly to the collapse of Bear Stearns, Lehman Brothers and AIG, whose toxic portfolio of credit swaps was in significant part composed of the insurance that banks like Goldman bought against their own housing portfolios. The terms junk bond, IPO, sub-prime mortgage and other once-hot financial fare were now firmly associated in the public’s mind with scams; the terms credit swaps and CDOs were about to join them. So a regular guy could invest $10 or $100 in a trust and feel like he was a big player. John Prine Talks Oh Boy Records in New Documentary About Label's 40th Anniversary, ‘Ginny & Georgia’: Meet the New Gilmore Girls, Dialed Up to 11, Watch Axl Rose’s Cameo Appearance on ‘Scooby-Doo and Guess Who?’, Meghan McCain Wants Fauci Replaced With ‘Someone Who Understands Science’, As Toilet Paper Stock Plunges, Bidets Are Making a Splash, Forgiving Student Debt Alone Wonât Fix the Crisis. “At least with other banks, you could say that they were just dumb — they believed what they were selling, and it blew them up. Converting to a bank-holding company has other benefits as well: Goldman’s primary supervisor is now the New York Fed, whose chairman at the time of its announcement was Stephen Friedman, a former co-chairman of Goldman Sachs. While the global supply of oil will eventually dry up, the short-term flow has actually been increasing. In 2006, the firm’s payroll jumped to $16.5 billion — an average of $622,000 per employee. In the years that followed, the commission would quietly issue 14 similar exemptions to other companies. Back in 2005, when Hank Paulson was chief of Goldman, he personally helped author the bank’s environmental policy, a document that contains some surprising elements for a firm that in all other areas has been consistently opposed to any sort of government regulation. Now freed to underwrite as many housing-based securities and buy as much credit-default protection as it wanted, Goldman went berserk with lending lust. Eventually, lots of aggrieved investors agreed. The market was no longer a rationally managed place to grow real, profitable businesses: It was a huge ocean of Someone Else’s Money where bankers hauled in vast sums through whatever means necessary and tried to convert that money into bonuses and payouts as quickly as possible. It was a repeat of both the Internet craze and the housing bubble, when Wall Street jacked up present-day profits by selling suckers shares of a fictional fantasy future of endlessly rising prices. The government might let other players on the market die, but it simply will not allow Goldman to fail under any circumstances. By the beginning of 2008, the financial world was in turmoil. This is the world we live in now. Bloomberg delivers business and markets news, data, analysis, and video to the world, featuring stories from Businessweek and Bloomberg News on everything pertaining to politics But this is it. Here the investment bank would offer the executives of the newly public company shares at extra-low prices, in exchange for future underwriting business. Companies that weren’t much more than pot-fueled ideas scrawled on napkins by uptoolate bongsmokers were taken public via IPOs, hyped in the media and sold to the public for mega-millions. All that changed in 1991 when, unbeknownst to almost everyone in the world, a Goldman-owned commodities-trading subsidiary called J. Aron wrote to the CFTC and made an unusual argument. But even as it was doing so, it was taking short positions in the same market, in essence betting against the same crap it was selling. This great Hindenburg of financial history has a few features that might sound familiar. Soaring food prices driven by the commodities bubble led to catastrophes across the planet, forcing an estimated 100 million people into hunger and sparking food riots throughout the Third World. “The highest supply of oil in the last 20 years is now,” says Rep. Bart Stupak, a Democrat from Michigan who serves on the House energy committee. “The company had to be in business for a minimum of five years, and it had to show profitability for three consecutive years. The bank paid out an astonishing $4.7 billion in bonuses and compensation in the first three months of this year, an 18 percent increase over the first quarter of 2008. If you laddered and spun 50 Internet IPOs that went bust within a year, so what? Here again, the basic trick was a decline in underwriting standards, although in this case the standards weren’t in IPOs but in mortgages. They built these stocks upon an illegal foundation — manipulated up — and ultimately, it really was the small person who ended up buying in.” In 2005, Goldman agreed to pay $40 million for its laddering violations — a puny penalty relative to the enormous profits it made. JPM's Stub Bonus was $10K - What was yours? Then they hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage. I ask the manager how it could be that selling something to customers that you’re actually betting against — particularly when you know more about the weaknesses of those products than the customer — doesn’t amount to securities fraud. Now Goldman and other banks were free to drive more investors into the commodities markets, enabling speculators to place increasingly big bets. Cross Asset FICC Sales desk - LatAm, How to enter tech without CS/Coding background, German Composite PMI - February 19th 2021, Thoughts on NOPE - mean reversio indicator bases on net option delta. © Copyright 2021 Rolling Stone, LLC, a subsidiary of Penske Business Media, LLC. Want more Rolling Stone? You can probably guess the basic plotline of Goldman’s first 100 years in business: plucky, immigrant-led investment bank beats the odds, pulls itself up by its bootstraps, makes shitloads of money. Where to go? 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